...KANSAS CITY ZEPHYRS BASEBALL CLUB Amortization of signing bonuses: Owners: They have considered “signing bonus” as an expense in the year they are paid (=$12540) Players: Think that signing bonuses are part of the compensation package and for accounting purpose the bonuses should be spread over the term of the player’s contract (=$7818) Our opinion: Agree with the player’s view that signing bonuses have to be capitalized and amortized over the lives of the contracts. This is because players are signed to play for the team to provide benefits over the lives of their contracts. Since we don’t have exact contract periods of all the players. We have used the value proposed by the player’s income statement (=$7818). Non-roster guaranteed contract expenses (payment made to injured players) Owners: They have considered cash paid in 2005 + amount owed to the players over their contract period (=$11875). This is because they are not serving to bring in revenue. They think that it is conservative to recognize those losses now. Players: Think that payment to non-roster players should be recognized when the cash is paid out, not when the players leave the roster (=$4750). Further they think that it is possible that these players’ contracts may be picked up by another team, they Zephyrs have to recognize gains because the liability it has set-up would no longer be payable. Our opinion: Agree with the player’s view that payments to the non-roster guaranteed contracts should be...
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...Focus of the Class: Accounting reports are often used in contracting. In this situation, baseball team owners and the players differ on the financial results of operations. An arbitrator has to decide which income number best represents a team's financial performance for the purpose of arbitration. Questions: 1. Who do you think is correct about the true profitability of Kansas City Zephyrs – the owners or the players? a. both are correct on different issues and there is one issue that is undecided because the facts are not there 2. What is your recommendation regarding the particular accounting disagreements between the owners and the players? b. see below 3. Looking ahead to the sale of the luxury boxes, how should the Kansas City Zephyrs Baseball Club account for the up front $250,000 cash payment? c. side with OPC Situation * problem is how to define 'good accounting methods' * protagonist is Bill Ahern - arbitrator in dispute between OPC and PBPA * difficult issues involving the accounting unit, depreciation, amortization of intangibles and related-party transactions Content Inventory * why is the roster (players as assets?) being depreciated by owners? * why is there a significant difference between the current roster salary? * why are the signing bonuses being amortized by the players? Hypothesis * non-roster guaranteed contract expense * OPC - expense the whole amount in 2005 because they are...
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...Refer to the Kansas City Zephyrs reading from earlier in the week. For each of the 5 areas in dispute, answer the following: Who is right? Why? 1. Roster Depreciation The players are right. All players believe that depreciation is not required because the players improve their skills through their years of experience. Also, they believe the roster appreciates through the years. The appreciation and depreciation of the player rosters are based on the player’s talent, scouting, and coaching which will increase the value of the roster. 2. Deferred Salary In this case, the owners are right because the players highly believe that deferred compensation expenditure should be expensed when the cash is exhausted. This is incorrect on the player’s part. However, deferred compensation should be expensed when it is earned, not when cash is exhausted. 3. Signing Bonuses In this area of the case, the players are right. Players recommend that signing bonuses should be paid during the years of the contract instead over the life of the contract. The owners pay these sign on bonuses and consider them as an expense for that year, which is beneficial to the owner. In my opinion, these bonuses should be amortized because they are expected to deliver benefits over the lives of their contracts. 4. Non-roster Guaranteed Contract Expenses All of the players agree and suggest that any such payments should be expensed as they are made and the owners believe...
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...In the case study of the Kansas City Zephyrs Baseball Club, Inc. Bill Ahern the arbitrator was assigned to resolve the issue on the parties’ agreeing on the true profitability of the major league baseball teams. Both Zephyr’s owners and players disagree on three different areas: a) Roster depreciation, b) Overstated Player Salary Expense which entails current signing bonuses, roster salary, amortization of and non-roster guaranteed contract expense; and c) Related-Party Transactions (Stadium Operations). Roster Depreciation The owners recognize depreciation of a value placed on the player roster at the time the baseball club was purchased apparently because tax rules allowed them to do so. Tax rules allow this value to be set arbitrarily at a maximum of 50% of the purchase price. According to the owners the depreciation is capitalized and is being depreciated over six years. The players do not feel that any roster depreciation should be shown. They believe that the roster depreciation is providing numbers without any significance. The players further argue that depreciation expenses only arise when a team is sold therefore there can be two identical teams that reflect different results if one was sold and the other was not. Moreover, the players argue that rosters should appreciate not depreciate as players become more experienced with time. Economically speaking a baseball clubs’ most valuable asset is its player’s rosters and they obviously appreciate and depreciate...
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...Kansas City Zephyrs Case This case is a good example of the “earnings game”. A dispute arose between the baseball team owners and the players association on the true profitability of the baseball business. The case describes 3 main areas for which the accounting is being disputed: * Roster depreciation * Player compensation * Current Roster Salary - Deferred Compensation * Amortization of Signing Bonuses * Non-Roster Guaranteed Roster Expense * Transfer pricing of related party operations (stadium costs) Roster Depreciation 1. Who is Right? The Players 2. Why? The owners capitalized and amortized 50 percent of the purchase price ($12 million) simply because the tax rules allowed it; therefore the depreciation was spread over six years and comes to a total of $2M deduction in income per year. However the players argue that they become more experienced over time, therefore no depreciation is necessary; instead, they argue, given this fact there should be an appreciation of the roster and not the other way around. The truth is that Revenues are influenced by the performance of players as the better the team does, the more fans come. Therefore, player rosters both appreciate and depreciate depending on the season and the overall success of the team including; new recruits, season statistics (wins/losses) etc, therefore it shouldn’t be a consistent depreciation simply because the IRS allows it, but should reflect the actual situation in any...
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...For the Kansas City Zephyrs, answer and submit these two questions for each item in dispute: Who's correct and why? Roster Depreciation The owners. From 1977 to 2004, sports team owners were allowed to treat 50 percent of the team purchase price as an asset depreciable over no more than 5 years. Deferred portion (20%) of compensation The owners. It is an accrued expense, The Company may owe its own players’ salaries and wages for work performed, but not yet paid. Even though they are to be paid at some future date, they are indicated on the firm's balance sheet from when the firm can reasonably expect their payment, until the time they are paid. Singing bonus The players. Signing bonuses have to be capitalized and amortized over the lives of the contracts. This is because players are signed to play for the team to provide benefits over the lives of their contracts. Non-roster guaranteed payment The players. Payments to the non-roster guaranteed contracts should be expensed when they are paid. A provision has to be set up. A reliable estimate has to be made of the amount of the obligation based on the past history on probability of players getting injured and not being picked by another team. Stadium rent The owners. The stadium pricing agreement would have to go through a market valuation to see if it provided transparency and accuracy. As related party transactions cannot be presumed to be carried out on an arm's-length basis unless such representations can be...
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...Kansas City Zephyrs Baseball Club Bill Ahern had to resolve the profitability issues between the owners of the major baseball leagues and the players. The main differences were the following: - Roster depreciation: Per IRS code, 50% of the purchase price ($6M) was designated as the value of the player roaster at that time, and the owners decided to spread it over six years (they did it because they could). Players argue that no depreciation should take place because, they believe that with the experience they acquire with years of playing and practice they gain more skills which makes them more valuable. Who is right? The players, no roaster depreciation Why? Because good players, coaches and trades actually increase the value of a team and injuries and retirement decrease the value - Overstated player salary expense: Owners expense the signing bonuses in the year they are paid and players argue that it should be spread throughout the years they play. Players spread this payment based on the assumption that they won’t get hurt and continue to play in their teams. However, the bonus is paid in full at the beginning. Who is right? The owners Why? Because the bonus is disbursed up front that’s why it should be expensed - Salary expense deferred: Some teams do set aside money for the salary deferment, in that case is appropriate to recognize the entire salary amount as a current expense. However, Zephyrs don’t set money aside, - Who is right? The players Why...
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...Chad Dellworth Case: Kansas City Zephyrs Baseball Club: A Baseball Accounting Dispute ACCT 6350 1. How Should Bill Ahern resolve each of the accounting conflicts between the owners and the players? After meeting with both the owners and the players, Bill concludes that the three main accounting areas of concern between both parties are: * 1) Roster depreciation * 2) Player compensation * 3) Owners’ stadium fees In all of three of these conflicts, I noticed that the players tend to make more assumptions about the owners’ intentions than they do factual statements regarding sound accounting principles. I only mention this because Paul, the players’ lawyer, felt that the owners were being greedy and “hiding” profit in their accounting books rather than split their extra income with the players. According to our class reading Accounting for Property, Plant, and Equipment and Other Assets, all assets—in this case being the players—have a depreciation value. Unfortunately, PBPA goes against this statement by claiming that the players shouldn’t be depreciated at all; in fact, they went as far as to say that the players add value if anything. Now I don’t exactly claim to be an expert on baseball myself, but I know enough to safely say that baseball players tend to wear down over time. For example, pitchers are known for having shorter careers by throwing out their arm. Therefore playing baseball has to be taxing, not to mention risky. If anything, baseball...
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...KANSAS CITY ZEPHYRS BASEBALL CLUB This case has three fundamental issues 1. Roster depreciation; 2. Player compensation; 3. Transfer pricing of related party operations (stadium costs); 1. Roster Depreciation (I side with the Owners) The owners recognize depreciation as of a value placed on the player roster at the time the baseball club was purchased. They do this for two reasons. 1. It lowers the value of the team and second for tax purposes. This is very legal and is normally used unless the company wants to show a higher profit. However, the team’s roster is usually its biggest assets and the only reason the owners are doing this is to show lower profits and pay less taxes 2. Player Compensation (I side with the Owners) Players compensation is a significant part of the teams expenses. The team uses accrual accounting which recognizes revenues to expenses at the time in which the transaction occurs rather than when payment is made. Although players’ compensations are not paid immediately in cash it is very likely the team will pay them. If the team does what the players suggest and deffers compensation expenses it would not show accurate expenses and therefore over value itself. 3. Transferg pricing of related party operations: (I side with the players) This is a common accounting practice. Our company actually does this with payroll. We have a staffing agency that operates our nursing homes. We charge for LPN and RN double what we pay them. This way...
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...Kansas City Zephyrs Baseball Club, Inc. 2006 Evaluation of the five (5) items of dispute between Professional Baseball Players Association (PBPA) and the Owner-Player Committee (OPC) 1- Roster Depreciation – The OPC is currently depreciating 50% of the purchase price over the period of six years, where the PBPA feels that the depreciation expense should be recognized at the time of the team being sold. So who’s right? I feel that the OPC is right not because they are following industry standard but because over time the player’s performance will decrease and they become more prone to getting injured depreciating the overall team value. Therefore, the PBPA should continue to depreciate the roster as they currently are. 2- Current Roster Salary - The OPC is currently expensing 100% of the players yearly salary including the portion of their salary of which is being spread out over the following 10 years, where the OPC feels that they should only expense the yearly amount of which is being paid out excluding the one that’s being spread out over the next ten years. So who’s right? I feel that the OPC is right since the salary portion that is being spread out in ten years it has actually being earned now and not in the next ten years. It has been deferred for ten years in order to aid in taxes purposes and to secure income in the following years but it has already been earned. 3- Amortization of Signing bonuses – The OPC is currently expensing the player’s...
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...Roster Depreciation The owners. From 1977 to 2004, sports team owners were allowed to treat 50 percent of the team purchase price as an asset depreciable over no more than 5 years. Deferred portion (20%) of compensation The owners. It is an accrued expense, The Company may owe its own players’ salaries and wages for work performed, but not yet paid. Even though they are to be paid at some future date, they are indicated on the firm's balance sheet from when the firm can reasonably expect their payment, until the time they are paid. Singing bonus The players. Signing bonuses have to be capitalized and amortized over the lives of the contracts. This is because players are signed to play for the team to provide benefits over the lives of their contracts. Non-roster guaranteed payment The players. Payments to the non-roster guaranteed contracts should be expensed when they are paid. A provision has to be set up. A reliable estimate has to be made of the amount of the obligation based on the past history on probability of players getting injured and not being picked by another team. Stadium rent The owners. The stadium pricing agreement would have to go through a market valuation to see if it provided transparency and accuracy. As related party transactions cannot be presumed to be carried out on an arm's-length basis unless such representations can be substantiated. If the stadium pricing agreement however is based on arm lengths principle and valued at market...
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...Kansas City Zephyrs Baseball Club, Inc. This case helps demonstrate how different accounting techniques can come to different results. In this case I believe the owners of the team were not being completely honest in the way they were allocating expenses and therefore indicating losses instead of profits. There are three areas that the players association did not agree with the expenses allocated by the owners of the team. These areas are the Roster depreciation, the player’s compensation and related-party operations (specially the stadium costs). In the case of the Roaster depreciation, the owners consider a depreciation of the amount the roaster was worth at the time of purchase, they spread the depreciation linearly over six years with a value of two million per year. However, this value is not a fix value. The players feel that if anything the roster can appreciate with experience. This value should not be included because the roaster can appreciate or depreciate over time with continues trades and scouting, or injures and retirements; the value is shown in the yearly roaster value (salaries). In terms of the deferred compensation, this should not be included also. Since the players are not being paid during the year and it can be proved that the owners are not setting this money aside either. These payments should be expense at the moment of payment to the player. Also for the signing bonuses, the owners are registering the expense as incurred. However the...
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...KANSAS CITY ZEPHYRS BASEBALL CLUB INC. In this case we have a typical issue related with different accounting approaches analyzing expenses generated and paid in different periods. We have the position of the Owner-Player Committee (OPC) representing the owners who obviously want to present low profitability in their financial statements to get a better treatment for taxes and in the other side we have the position of the Professional Baseball Players Association (PBPA), the organization representing players, who argues that owners are not transparent with their financial statements showing low or in most cases negative profits, then players petition is that owners show real financial statements and that profit will be share with them. To have a balanced judgment we should think about some accounting concepts as the Revenue and Expense Recognition Principle, where companies recognize revenues and expenses in the period of time when these are earned, which are the basis of Accrual Accounting. By the other hand we also have another approach, the Cash-basis Accounting where companies recognize revenue when cash is received and expense when cash is paid which is not generally accepted. Analyzing the two versions of Income Statement we realized that they agree in several points but they differ basically in three aspects: Roster depreciation: As tax rules allow applying a maximum of 50% depreciation, owners proceeded that way (linearly for 6 years) probably with the intention of...
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...KANSAS CITY ZEPHYRS BASEBALL CLUB This case illustrates some basic accounting issues in a controversial setting. There are two parties in the case, which are Owner-Player Committee (OPC) – owners’ representative of the 26 major baseball league teams in collective bargaining negotiations and Professional Baseball Association (PBPA) – the player’s union. As we know, the baseball team owners and the players association were engaged in collective bargaining negotiations, so Bill met with Keith (Zephyrs' Owner) and Paul (player). In my view, I think Paul (the player) is right, and I want to explain in 5 areas as following: Roster Depreciation The owners point out depreciation on the player roster at the time the baseball club was purchased. 50 percent of the purchase price is designated as the value of the player roster at that time. This amount was capitalized and is being amortized over six years. He disagrees that the depreciation is real, because he thinks that most of the players actually improve their skills with experience. The value of player rosters appreciates and depreciates over time. I agree that the roster appreciates as the players become more experienced. Good trades and coaching will increase the roster value, but injuries and retirements will decrease it. Overstated Player Salary Expense 1、Amortization of Signing Bonuses The players think the owners overstate player expense in several ways, so Paul comes up with 3 adjustments. One is...
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...Kansas City Zephyrs Baseball Club, Inc. Case Study Antecedents: the Professional Baseball Players Association (PBPA) and the Owner-Player Committee (OPC) were engaged in a collective bargaining dispute where the PBPA believes they should share in the teams' profits. The OPC maintains, however, that the teams were losing money each year. Both sides had independent meetings with an arbitrator to evaluate and recommend a viable decision ”Who is right?” The case illustrate major areas in which both sides disputed the way the financial information is been presented, and the way key accounting concepts had been used taking in consideration the recognition of revenues and the matching concept: 1. - Players salary expenses, current roster salary, amortization of signing bonuses and non-roster guaranteed contract expenses 2. - Roster depreciation expense 3. - Related-party transactions (Stadium operations) 1. - Players salary expenses, current roster salary, amortization of signing bonuses and non-roster guaranteed contract expenses. A significant portion of players’ compensation packages is not paid in cash immediately. PBPA think the salaries due to players who are no longer on the roster should be recognized when the cash is paid out and not when the players leave the roster, GAAP however only allow the deferred compensation to be expensed when earned. Therefore, OPC is right. Some part of players’ signing bonuses as per the PBPA suggestion should be spread over...
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