The Tampa Bay Renegades: Tokyo, Japan - July 1997
The Tampa Bay Renegades: Tokyo, Japan - July 1997
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AICPA Case Development Program Case No. 98-04: The Tampa Bay Renegades ◆ 2
recognized? It would seem that the answer should be “yes,” but Masao recalled reading about the recent
sale of the Tampa Bay Buccaneers, a National Football League (NFL) franchise. Hadn’t they had a dismal
won/loss record over a long period of time? And yet he thought he recalled reading that an entrepreneur
named something like Glanzer (or Glazer) had bought the club for an extremely high price. Masao knew
that a single event couldn’t support a theory, but the Buccaneer sale event was certainly something to think
about when considering the impairment question.
Player Contracts. Masao next turned his attention to player contract issues. The cost of player contracts
was the major cost component of a sports franchise and these costs were escalating significantly. Masao
knew that the Renegades had just acquired a new goalie, Francois Allouette, from the New York Rangers.
The contract with Allouette had more wrinkles than a 90-year-old retired Sumo wrestler. Masao mentally
ticked off the terms of the contract:
• An up front signing bonus of $1.2 million.
• A guaranteed base salary of $800,000 for the next three years.
• A no cut, no trade stipulation for the next eight years.
• An incentive payment of $25,000 per game in which Allouette plays at least the equivalent of two
full periods.
• An incentive payment of $50,000 for each complete game in which Allouette plays and in which
the opposition scores no goals.
• An incentive payment of $100,000 if the Renegades qualify for the divisional playoffs.
• An incentive payment of $200,000, additionally, if the Renegades win the divisional championship.
• An incentive payment of $300,000, additionally, if the Renegades win the Stanley Cup.
The Allouette contract raised a number of questions in Masao’s inquisitive mind. Should the signing bonus
be expensed currently, or should it be capitalized and amortized over three years (or eight years) or the
expected career life of Allouette? Since the first three years’ salary was guaranteed, whether Allouette
played or not, should an asset be recorded, as well as a corresponding liability, at the current balance sheet
date? If so, should the recorded amounts be the full contract value or the present value of the obligation? If the
present value should be used, what discount rate would be appropriate? Should the incentives be recorded
on an “as earned” basis or when the probability that they will be earned is sufficiently high? What facts
about this player contract, and other player contracts, ought to be disclosed in the Renegades’ financial
statements?
Advanced Revenues. Approximately 35% of the Renegades’ annual revenue comes from ticket sales,
a sizable portion of which is from season tickets. The hockey season in the U.S. runs from October through
April. Obviously, all of the ticket revenue for the completed season has been earned. However, most of the
season ticket sales for next year have already been made. Since these ticket proceeds are not refundable,
couldn’t they be recognized as revenue in the year of receipt?
What about the deposits local companies have put down on club seats? Each deposit is for 10% of the
total price of $10,000. Ninety-five percent of these deposits are acted upon by the depositor, with the full
price being paid. The other 5% of the deposits is lost; i.e., the club does not refund the deposits if the
depositor foregoes the right to acquire the club seats. Seats on which the deposit expires are sold to the
next party on the waiting list for such seats. Currently, Masao knew that the Renegades were only recording
the $1,000 deposit as an asset with an offsetting credit to deferred revenue. But should they gross the asset
up to the full $10,000 by recording a receivable for the remaining $9,000? Masao had looked at available
information from other sports franchises and noted that they did not gross up the asset. But it seemed to
him that this treatment understated the asset base of the club.
The Arena. Masao next moved to the myriad issues connected to the Renegades’ involvement in the
construction of a new playing arena in Tampa. Originally, the team had played its games in the Sun Dome
arena on the University of South Florida campus. However, for a variety of reasons (including seating
capacity, configuration and concession contracts), the Renegades had sought a new home. Thus, the owners
had entered into an agreement with Hillsborough County to build a new arena at the juncture of Interstate
AICPA Case Development Program Case No. 98-04: The Tampa Bay Renegades ◆ 3
Highways 4 and 75. This new facility, called PowerPlay Arena, had been completed at a cost of $170 mil-
lion just in time for the start of the 1996–7 hockey season. Funds to pay for the arena had been raised
through the sale of Hillsborough County bonds. The funds needed to service the debt (i.e., pay the annual
interest of 8%, and then retire the debt at its maturity) were to come from a variety of sources. These
sources included local county sales taxes, corporate fees paid for the right to lease a luxury box in the new
arena, and contributed funds from the Renegades (partially derived from a loan from Mitsumi Trading
Corp.). To assure that funds were available to liquidate the bonds at their maturity, the bond indenture
required that the Renegades (or the guarantors of the debt — Renegades stockholders) make annual
payments into a bond sinking fund.
In exchange for its role in lining up some of the arena financing, negotiating with prospective building
contractors and coordinating the arena construction, the Renegades have been given a 25-year lease with a
bargain renewal option for an additional six years. During the life of the lease, the Renegades have rights to
all arena revenue from concessions, advertising, parking, etc. Technically, this new arena has an estimated
life of 40 years. However, Masao is very much aware of the fact that relatively new arenas in American
cities such as Miami and Charlotte (both built in 1988) are considered technologically obsolete. In fact,
both the Florida Panthers and the NBA’s Miami Heat intend to leave the Miami Arena. The Panthers
already have a deal to move to a new arena in Broward County. Dade County plans to build a new complex
for the Heat before the year 2000.
Masao knew that the life expectancy of an arena could be a significant issue for the financial statements
of the Renegades, depending on the accounting treatment of the Renegades’ lease. Should the construction
costs paid for by the team be considered a leasehold improvement, booked at the direct cost of the
Renegades’ construction contributions? Or should the lease be considered a capital lease, with both a lease
asset and a lease liability being booked in accordance with FAS 13? Under either scenario, what should be
the amortization period for any booked asset?
SUGGESTED REFERENCES
1. Carvell, Tim. “So You Want to Own a Team?” Fortune (November 11, 1996), pp. 46, 48.
2. Financial Accounting Standards Board. “Recognition and Measurement in Financial Statements
of Business Enterprises,” Statement of Financial Accounting Concepts No. 5 (Stamford, Conn.:
FASB, 1984).
3. _________. “Elements of Financial Statements,” Statement of Financial Accounting Concepts No. 6
(Stamford, Conn.: FASB, 1985).
4. _________. “Related Party Disclosures,” Statement of Financial Accounting Standards No. 57
(Stamford, Conn.:FASB, 1982).
5. _________. “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of,” Statement of Financial Accounting Standards No. 121 (Stamford, Conn.:FASB, 1995).
6. Gorman, Jerry and Richard Stein. “Keeping the Financial Scorecard — Accounting for a Sports
Franchise,” The CPA Journal (June 1992), pp. 18–22, 26–27.
7. Laing, Jonathan R. “Foul Play?” Barrons (August 19, 1996), pp. 23–27.
8. Sterner, Julie A. And Penelope J. Yunker. “Human Resource Accounting By Professional Sports
Teams,” Advances in Accounting (Volume 3), pp. 127–148.
9. Wucinich, William. “Profit Is the Name of the Game: Major League Baseball Teams Have 26 Different
Charts of Accounts,” Management Accounting (February 1991), pp. 58–59.