Kansas City Zephrys Baseball Club, Inc. Case Study

Issue: The PBPA believes the OPC should share with the baseball players the profits of the major league baseball teams
Who is right? & Why? Roster depreciation
Regarding roster depreciation, I would agree with the PBPA lawyer, Mr. Hanrahan, that depreciation expense should not be included in the income statement of the team since there are no plans on selling the equipment, only plans of sharing profits with the team players. Besides, experience can definitely add value to the team and increase revenue for the team. The better the players become, the better the games, the better the games, the greater the audience.
Who is right? & Why? Overstated player salary expense
Spreading players’ bonuses over the length of the player’s contracts would effectively reduce the Salary Expense per year for the team and better distribute salary expense over the player’s contract, but that would effectively defeat the purpose of the bonus. In my opinion, the transaction has to be recorded when it happens. Those bonuses are paid in the signing year of the player to motivate the player to play good. Changing this would be a very controversial issue since many players may want to get their bonus in advanced.
Although, I don’t agree with distributing the player’s bonuses over the life of the contract like Mr. Hanrahan proposes, I would definitely agree with him that right thing to do is to report only the Salaries paid to the players at the time it is paid. What if the player dies or goes to jail? If that were to happen, God forbid, then they would not have to be responsible to pay those monies. This 20% should be a deferred expense since it is not been paid in the present time. More if the Zephryrs team is not setting that money aside.
I would also agree with Mr. Hanrahan in that any salaries due to players are recognized when they are paid out and not when they leave the roster. If there are players that left the roster and later were picked up by other teams, that large gain should to be taken in consideration and distributed evenly in the years of the players contract, because it is misleading and affects the salaries paid considerably.
Who is right? & Why? Related-party transactions
Mr. Hanrahan’s speculation seems valid to me. Related-party transactions can definitely overthrow and diminish the real earnings to benefit the only the owners secretly. If it was such a bad business then why are they in it? For just the love of baseball! I doubt it.
This should definitely be investigated more profoundly by an auditing authority. It does seems hard to believe that the other team owners who are not stadium owners would dock and let the team revenue be diminished so that the other two owners can charge a premium for the rents. Unless that never happened and they are just making up those amounts to show that they are in fact losing money.
In one hand, I would not be surprised if in fact the owners of the teams were using sophisticated accounting methods to hide profits from the baseball players, such as roster depreciation, overstating salaries expense, recording future transactions in the preset, and manipulating third-party expenses to show a “loss” instead of a gain in the income statement.
I think that the players are on the right to speculate such a misleading and deceiving behavior from the team owner’s side. This kind of behavior is unethical and should be punishable by law.
Now, I also think the baseball players are out of place. What gives them the right to claim profits on the team’s earnings? Did they form the team? Did they contribute money to build the stadium? Did they risk their assets to invest in a business endeavor? What makes them think they should own a piece of the pie? Are they not getting paid big money to play the game they love? That is the problem with professional athletes now days. They make so much money that their ambition consumes them. Next thing you know, their game goes down because they are too concerned about how many more millions they should be making on their contract.
In my opinion, the team owners should be audited to their teeth and put to jail if necessary, in order to show them a lesson. But I would also deny the petition for the baseball players to share on the profits of the team since they don’t have to run the show every day, they just have to play ball, that’s what they get paid for big bucks anyways.