In 1975, a trial was held to settle a tax dispute between the owners of the Atlanta Falcons, a National Football League franchise, and the Internal Revenue Service. In 1966, the owners had paid $8.5 million to purchase the franchise. They considered $50,000 to be the cost of the franchise (which is not depreciable for income tax reporting), $727,000 was deferred interest, and the remaining $7.7 million was claimed to be the cost of the players’ contracts and options. The dispute centered on several variables: • How much of the purchase price was assign-able to television rights? • Can the value assignable to television rights be amortized? If so, what is the expected life? • How much of the purchase price was assign-able to player contracts and options? • Over what life should the value assigned to the players be amortized? • What is the value of the franchise? As an independent accountant, explain the approach you would take and the information you would need to provide advice to the court for the resolution of the points in dispute. Do these valuation issues also create ethical issues?
In 1975, a trial was held to settle a tax dispute between the owners of the Atlanta Falcons, a National Football League franchise, and the Internal Revenue Service. In 1966, the owners had paid $8.5 million to purchase the franchise. They considered $50,000 to be the cost of the franchise (which is not
• How much of the purchase price was assign-able to television rights?
• Can the value assignable to television rights be amortized? If so, what is the expected life?
• How much of the purchase price was assign-able to player contracts and options?
• Over what life should the value assigned to the players be amortized?
• What is the value of the franchise?
As an independent accountant, explain the approach you would take and the information you would need to provide advice to the court for the resolution of the points in dispute.
Do these valuation issues also create ethical issues?
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