Introduction and Background
This case shows different aspects relating to accounting and how they can create an atmosphere of controversy. The problem arises since the owners of baseball team and the players associations are negotiating the collective agreements, with the result of these negotiations both parts could measure how profitable it can be the business of baseball itself.
The case describes five areas in which accounting are in dispute:
1. Roster Depreciation
2. Current Roster Salary
3. Amortization of Signing Bonuses
4. Non-roster Guaranteed Contract Expense
5. Stadium Operations
Answers for Who's correct and why?
1. Roster Depreciation
The players are correct, since the player roster in a baseball club is the most valuable intangible asset, and this asset can be appreciated and depreciated in the time for different reasons, e.g. good scouting, marketing contracts, and good performance increase the roster value. In contrast, injuries and retirements decrease the value because the list of names of the players is constantly changing. Also the team revenues are influenced by the performance of their players, as better the team is playing more fans come to the games.
2. Current Roster Salary
The owners are correct because deferred salaries should be expensed in the year in which they are earned; the revenue for the team comes through ticket sales and marketing of the team. The Players suggestion that the deferred compensation expenditure should be expensed only when the cash is expended is wrong, since is impossible to pay the salary immediately in cash, if you don’t have the money.
3. Amortization of Signing Bonuses
The owners are correct, because signing bonuses are paid out and recognize as expenses of the year, when should be expensed as incurred. However signing bonuses have to be capitalized and amortized over the lives of the players