Kansas City Zephyrs Case

646 Words Jun 2nd, 2011 3 Pages
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
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Player Compensation – Amortization of Signing Bonuses
1. Who is Right? The Players
2. Why? Owners suggest that signing bonuses should be expensed as incurred. However, because the duration of the employment contract can be estimated with reasonable accuracy signing bonuses can be capitalized and amortized over that same period. Therefore the players are correct in their argument that bonuses are just a part of the overall compensation package, and for accounting purposes, should be spread over the term of the player's contract.
Player Compensation – Non-Roster Guaranteed Roster Expense
1. Who is Right? The Owners
2. Why? Owners suggest that the total future value of these payments should be expensed when the players are removed from the roster. Players suggest that the payments should be expensed as they are made. However per the rules of conservatism, the combined non-roster salaries should be expensed in 1984 and the salaries to be paid out in ‘85 and ‘86 should be listed as a liabilities on the Balance Sheet.
Related party operations (stadium costs)
1. Who is Right? The Players
2. Why? Players suggest that the stadium rents are set to understate the profits of the baseball club and to move some profits to the stadium corporation that is owned by two of the baseball club’s owners. A Related-party transactions (RTP) is defined
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