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).
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…show more content… The owners argue that these payments should be reflected once the players are actually removed from the roster. Rationally, what should be done in this case is that a reserve should be setup equal to the expected loss from non-roster guaranteed contract expense. The amount of the reserve will depend on the probability that each player with a guaranteed contract will be released and not have his contracted absorbed by another team.
Related-Party Transactions (Stadium Operations) The players argue that the stadium rent is set to underestimate the profits of the baseball club and therefore reflect a loss for the baseball operations. Furthermore, the players believe that some of the profits are being accredited to the stadium corporation which is owned by two of the baseball club’s owners. The owners are allegedly “losing money” since they have selected accounting methods to hide their profits. In Ahern’s interview with the owner’s attorney it was verified that two of the Zephyr’s owners were the only owners of the corporation that owned the stadium. Therefore, in this case the player’s are absolutely right because in reality the owners are not losing any money as they so claim, but instead covering their profits with a