KANSAS CITY ZEPHYRS BASEBALL CLUB

The case depicts an ongoing feud between the two parties which are Owner-Player Committee (OPC) owners representative of the 26 major baseball league teams in collective bargaining negotiations Professional Baseball Association (PBPA) the players union

THE ISSUE The players felt that the accounting process being followed by the owners was misrepresented and gave an ambiguous P & L statement. The players thought that they deserved a share of the profits that the owners were making, and that they were being misrepresented in the accounting sheets of the firm. The players seeking returns for the profits they earned had made certain adjustments to the accounting statements which had yielded profits to the firm instead of the losses they claimed. CLAIMS MADE BY PLAYERS The players disputed the financial documents on the following areas 1. 2. 3. Roster depreciation Players salary expenses Related party transactions (stadium costs)

ANALYSIS AND SOLUTIONS PRESCRIBED FOR THE CASE

1. Roster Depreciation Owners Point: Team Price = 1/2 * $24million = $12million (50% is chosen because of IRC regulations.) Depreciation method= Straight Line Method This depreciation amount is capitalized over a period over 6 years.

Players Point Depreciation Expense should not arise until the team is sold. As players improve their performance they should be appreciated not depreciated.

Course of action As players are an asset which can show good or bad performance they should not be always depreciated, they should be appreciated whenever necessary. 2. Players salary expenses

Owners point Salary expense of roster players includes deferred salaries for top players which will be paid after 10 years Signing bonus is treated as expenses as soon as they are realized i.e. when they are paid. Salaries of 2 non-roster players who retired were shown as expenses in the 1984 P&L statement for their full term as soon as they were out of the team as these salaries are amounts owed to the players due to their long-term guarantee contracts Players point Total salary expense are recognized without setting aside the 20% deferred part

Signing bonuses need to be amortized due to equal probability because most of the players will complete their contract term Salaries of non-roster players should be recognized only when they are paid irrespective of whether there are in the team or not but expense might vary depending on the players contract term

Course of action According to conservatism policy, salaries of players must be shown as earned Signing bonus can be capitalized Salaries must be realized as expenses only when they are incurred and must not be shown fully as and when a player leaves the team 3. Stadium operation expenses

Owners point

Expense are shown fully in the P&L statement

Players point

Only 80% of the stadium operations expenses should be shown as only 2 of the owners actually profit from the stadium-pricing agreement

Course of action

Both the parties should negotiate and come on a consensus.