Kansas City Zephryhills Baseball Team

Kansas City(KC) Zephyrs Baseball, Inc.

Bill Ahern had a difficult judgment he had to make being an arbitrator in a dispute between the Owner-Player Committee and the Professional Baseball Players Association. The main issue Bill had to arbitrate was to resolve the profitability of the major league baseball teams. The players did scrutinize the owners' statements and felt that the owners were hiding profits through "accounting tricks" and these statements did not precisely reflect the economic reality. Bill was to focus on the finances of the KC Zephyrs Baseball, Inc within the finance of the organization per the OPC and the PBPA representatives. The corporation was publicly owned and no private financial data would have been revealed. Bill was asked to listen to the owners and players arguments, review and ask questions pertaining to the financial statements and to reach a decision for the profitability.

The annual revenues were $20-$30 million with the team operated as an independent economic unit. Approximately 40 players make up a team at any time. An amount of a certain portion of the teams operating expenses and players salaries were to be paid by the major league teams.

Meeting with the Owners and Bill- 1983- 1984 the financial statements for the team was presented. There are 5 major shareholders which bought the team on November 1, 1982 for $24 million. The team did not own the stadium; however 2 of the shareholders were part owners of the baseball stadium. Bill met with Keith Strong, the owners' lawyers. Keith stated that the highest paid players have agreed to defer a portion of their salary for 10 years. The non rooster guarantee contract is a player salary expense because the salaries are paid to players who are no longer on the active roster. The players had a long term guaranteed contracts in which 2 players are stilled owed. These are paid due to they are not active and do not serve in bringing in our current revenues. Keith stated the roster depreciation expense as being capitalized and amortized over six years, Ð'Ð... of the purchase price of 24 million, in which the IRA allows. Most of the revenues and cash result directly from a cash inflow or outflow.

Meeting with the Players and Bill- Paul Hanrahan the player's lawyer gave Bill only the income statement for 1983-1984. Paul has a few disputes with the owners' statements in a few areas in which the owners were hiding the profits for the team.

1. Roster depreciation

2. Overstated player salary expense

3. Related-party transactions

Paul explained that roster depreciation is not real due to the player's increase their skills with experience and the deprecation should show up when a team is sold.

The number two area of overstated player salary expense has a couple of issues. One is that the owners expense the signing bonuses in the year they are paid and Paul feels that the sign on bonuses should be part of the compensation package and to be spread out over the term of the player's contract. Paul sated they adjusted the owners income statements by removing the bonuses from the current roster salary expense and added an "amortization of bonuses" line. Even though the owners pay cash for sign on bonuses there is no guarantee that a player will complete their contracts. Paul made an assumption that most players will continue to play over their term of the contract. Another adjustment made to the salary line was to back out the deferred portion of the total compensation. The highest paid players were paid 80% of their salary in any given year and would receive the remaining 20% later. This adjustment increased the 1984 income by $1,521,000. He also stated that no salary expense deferred from prior years had been added back. The team doesn't set any monies aside to cover any future obligations.

The third adjustment the players feel hat should