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12-28-2012, 08:25 PM
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Originally Posted by hockeyball View Post
Sound reasoning.

If a part of your business is unprofitable and shows no long term potential for profitability (as what the players for asking for would basically guarentee for many teams) you dump it, you don't keep investing money from the profitable parts of your business into a losing endeavor. Especially when the two things are separate unrelated enterprises.
The world doesn't actually work this way. Basic cost accounting proves you are wrong.

Here is that basic principal of accounting put into simple terms:

Lets say you have a factory that produces belts and shoes

Lets say the overhead of your factory is 100k. Overhead equates to costs that can't be directly attributed to a specific department or production. An arena lease would be overhead.

Lets say the costs that are directly attributable to producing shoes is 110k. The revenue you make on for selling shoes is 100k.

At the same time the costs that are directly attributable to producing belts are 20k. You make 40k.

In this scenario you have a profitable business, however you lose money on producing shoes. If you were to eliminate your shoe production you would be far worse off and be flirting with bankruptcy.

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