Kansas City Zephyrs Case

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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 depreciation was spread over six years and comes to a total of $2M deduction in income per year. However the players argue that they become more experienced over time, therefore no depreciation is necessary; instead, they argue, given this fact there should be an appreciation of the roster and not the other way around. The truth is that Revenues are influenced by the performance of players as the better the team does, the more fans come. Therefore, player rosters both appreciate and depreciate depending on the season and the overall success of the team including; new recruits, season statistics (wins/losses) etc, therefore it shouldn’t be a consistent depreciation simply because the IRS allows it, but should reflect the actual situation in any given year. Player Compensation – Deferred Compensation Expenditures

1. Who is right? The Owners
2. Why? Players suggest that the deferred compensation expenditure should be expensed only when the cash is expended. However, Non-Qualified Deferred Compensation is a way for high-income earners to defer the actual ownership of income and avoid income taxes on their earnings while enjoying tax-deferred investment growth. Additionally, the salary expense of the players was incurred as the games were played; therefore it is...
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