FIN ISSUES IN SPORT
FIN ISSUES IN SPORT KIN 3804
Popular in Course
verified elite notetaker
Popular in Kinesiology
verified elite notetaker
This 48 page Class Notes was uploaded by Earnest Greenholt on Tuesday October 13, 2015. The Class Notes belongs to KIN 3804 at Louisiana State University taught by Dylan Williams in Fall. Since its upload, it has received 27 views. For similar materials see /class/222591/kin-3804-louisiana-state-university in Kinesiology at Louisiana State University.
Reviews for FIN ISSUES IN SPORT
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 10/13/15
Chapter 2 Anica yz mg Financial Statements The primary source of information used to assess the financial health and performance of an organization Generally accepted accounting principles GAAP 1 Standard set of guidelines and procedures for financial reporting Ii Double entry bookkeeping every transaction is entered twice One on Debit Side One on Credit Side Publicly traded companies must release financial statements to public on regular basis I A picture or snapshot ofthe financial condition of an organization at a specific point in time I Three primary sections 1 Assets w Whata company owns Cash Inventory Accounts Receivable 2 Liabilities Financial obligations Debts owed to others 3 Owners Equity Estimated measure ofthe ownership value in the company I Assets Liabilities Owners Equity in UnderArmour example I 4876 million 1565 million 3311 million I Assets and liabilities are listed in order of liquidity Under Armour Assets Current Assets Cash and Cash Equivalents Accounts receivable net Inventories Prepaid expenses and other CA Deferred income taxes Total Current Assets Property and equipment net Intangible assets net Deferred income taxes Other noncurrent assets Total Assets 102042 81302 182232 18023 233 24 396423 73548 5470 8687 31422 9221555 Under Armour Liabilities Current liabilities Revolving credit facility Accounts payable Accrued expenses Current maturities of LTD Crnt maturitiescapital lease obligations Other current liabilities Total current liabilities Long term debt net of current maturities Capital lease obligations net of current Other long term liabilities Total Liabilities 25000 72435 25905 7072 361 21337 1 110 13061 Under Armour Equity ClassA common stock Class B convertible common stock Additional paidin capital Retained Earnings Unearned compensation Accumulated or other comprehensive income Total stockholders39 equity 12 4 174725 156011 60 4g 331091 YourViewpoint Kevin Plank the Under Armour founder and CEO was a football player who saw a need for better tshirts Is there an area of sports and recreation that you believe could be improved Do you think you have what it takes to form your own company and sell your new product Shows an organization s income or loss over a specified period oftimel often on an annual or a quarterly basis Also known as Statement of Earnings or Profit and Loss Statement PampL Two types of accounting Cash or accrual basis Parts I Revenues and expenses In Nonoperating income 1 Netincome Income Statement Framework Revenues R d Expenses evenues an o eratin Income EBITDA Expenses Depreciation Amortization Nonoperating Interest Taxes W Net Income Under Armour Income Statement Net revenues Cost of goods sold Gross profit Operating expenses Selling GampA Income from operations Interest income expense net Other income expense net Income before income taxes Provision for income taxes Net income 725244 320296 354948 2L802a 75925 850 M 69900 32m gigs Financial statement that tracks cash flowing into and out of an organization over a given period oftime I Not influenced by noncash expenses or income Three sections 1 Operating Cash flows from normal business operations quot1 Cash flowing in from sale of products m Cash flowing out by paying salaries Investing Buying and selling ofassets w Purchase of Property Financing Debt and equity financing r Sale ofStock m Repaying a loan Under Armour Cash Flows Operating Activities Net income Depreciation amp amortization Loss on disposal of property amp equipment Other adjustments Changes in operating assets and liabilities Accounts receivable Inventories Prepaid expenses and other assets Accounts Payable Accrued expenses and other liabilities Income taxes payable and receivable Net cash provided by used in OA 38299 21347 15 19818 2634 49497 7187 16957 5316 2516 69516 Under Armour Cash Flows lnvesting Activities Purchase of property amp equipment Purchase of intangible assets Purchase of trust owned life insurance Proceeds from sales of property amp equipment Net cash used in investing activities 38594 600 2893 g 2066 Under Armour Cash Flows Financing Activities Proceeds from revolving credit facility Payments on revolving credit facility Proceeds from long term debt Payments on long term debt Payments on capital lease obligations Excess tax benefits from stockbased compensation arrangements Proceeds from exercise of stock options and other stock issuances Net cash provided by financing activities 40000 15000 13214 6490 464 2131 Under Armour Cash Flows Cash and Cash Equivalents Net cash provided by used in operating activities Net cash provided by used in investing activities Net cash provided by used in financing activities Effect of exchange rate on cash Net increase decrease in cash and cash equivalents Beginning ofyear End of year 69516 42o66 35381 61454 40588 102 02 Balance sheets Owners equity is often an inaccurate estimate of value AssetsLiabilities listed at time Not present value m Intangible assets not listed I Contingent liabilities not included debt that may or may not occur s Considerable differences exist in terms used from one company to another m GAAP allows flexibility to report financial data in a way that is logical for the business enterprise Income statements I Depreciation method used a Impacts noncash expenses and therefore net income loss Taxation issues I Useful indicators ofa firm39s performance and financial situation I Used to analyze trends and to compare the firm39s financials to those of other firms I Calculated from information provided by the financial statements I Liquidity The ability to convert assets into cash quickly 3 Current Ratio u Ability to pay short term debt with short term assets CurrentAssetsCurrent Liabilities I Cash Ratio 6 Ability to pay short term debt with cash only r Cash Marketable SecuritiesCurrent Liabilities Asset Management 3 Totalassetturnover a How effectively a company utilizes its assets and resources to generate sales W Net SalesAverage Total Assets 3 Inventory turnover Measures how often a company sells and replaces its inventory over a period oftime Cost ofGoods SoldAverage Inventory Leverage I Debt r How an organization finance its operation with debt and equity Total LiabilitiesTotal Assets 3 Interest coverage The ability ofthe organization to pay interest on debt owed m Earnings before Interest and Taxes EBITnterest Expense I Profitability a Net profit margin Percentage of organization s total sales that was net income Net incomeSales I Return on Assets Return rate that a company39s assets are providing on investment Net IncomeTotal Assets 3 Return on Equity W Return rate that shareholders are receiving on investment Net IncomeOwner s Equity Chapter 5 Umtr dmt m Fmgmdaal mj aam nggmgmt I Economics I The study of how people chose to allocate their scarce resources I Choices made are influenced by I Demand I Scarcity I Price Economic Principles Demand impacts prices that can be charged High demand may lead to additional events added Scarcity oftickets changes which might lower ticket price Scarcity in sport 3 Lack of expansion into every potential market a Result Demand financial concessions from a metro area to keep team from leaving B Florida Marlins threatened to move to Charlotte or Portland before getting new stadium eal E NFL and LA market Territorial rules 3 million in San Bernadino County East of LA 5 MLB can prevent team from moving there as it is the territory of Dodgers and Angels 6 Washington Nationals B Orioles had to approve the move from Montreal 5 Given control of National39s regional cable TV rights 5 Guaranteed sale price of 365 million if owner were to sell team Price 5000 7500 Supply and Demand for Tickets D1 Su 10000 12500 15000 Number of General Admission Seats 17500 20000 I Variable Ticket Pricing I Explains why a ticket manager can charge 10 for tickets on the weekends and only 7 for those same seats on the weekdays Variable Ticket Pricing Graphically I Supply demand and pricing issues at the firm level I Sport mangers may apply economic theory without realizing it How so Macroeconomics Forces that affect some or even all sectors of the overall economy Global economy I Incidents that disrupt one country can have a tremendous impact on other countries I National Hockey League a Can there be potential problems ifthe Canadian dollar purchasing power is impacted i We will discuss this later in the semester Opportunity Costs Hamilton County Ohio I Citizens approved a tax measure that led to 1 billion of public money being spent on two new stadiums GreatAmerican Ball Park Cincinnati Reds Paul Brown Stadium Cincinnati Bengals Was this a good use of taxpayer dollars Could this money have been better spent elsewhere Missed chances are opportunity costs Opportunity Costs Defined What you must give up in order to have what you want I What Hamilton County Ohio gave up 1 billion in public funds for the two new stadiums may have been used to better the community infrastructure or improve public schools Opportunity costs also affect owners of sport properties Franchise movement in the NFL Business Types Legal structure of business impacts financial operations Governmentoperated sports businesses High SchoolCollege Athletic Departments 5 Government entity has ultimate authority and responsibility forfinancial performance Private businesses prefer minimal governmental involvement r Joan Kroc offered to donate all or portion of Padres to San Diego II Carl Pohlad offered to sell portion ofTwins to state of Minnesota Drawback Greater access to information about financial operations through Freedom of Information Requests 5 Filed by citizens to determine where and how a government agency is spending its money 5 MLB forbid each sale above Nonprofit organizations Generate more revenue that expense will spend money to further business interests Shareholders never receive dividends Examples PGA and PGATour events Sole proprietorships i No special paperwork need 39 Profits from business belong to owner 39 Owner personally liable for business activities General partnership 39 Two or more people own and operate business m Governed by partnership agreement m Express Created through contract between parties I Implied Recognized by courts when individuals act as partners similar to company checking account I Same drawbacks of sole proprietorship liabilities retained by partners I Limited partners only liable for direct financial contribution no formal management input Oakland Raiders Al Davis 6 Head coach and GM from 19631966 Commissioner ofAFL in 1966 at time of league merger with NFL I Signed loyear contract with Raiders to be GM and part owner Offered 10 ofteam for 18500even though it was worth 1 million Named managing general partner limited stake but had decision making abilities Ed McGah and Wayne Valley were other partners 6 Davis began to get contacted about becoming GM of other teams 3 Davis used partnership language to advantage Davis convinced McGah to sign over complete ownership control ofteam to him McGah never read the contract The contract named Davis the controlling owner Partnership agreement said that if two general partners agreed to a contract the other had no recourse Valley owned largest percentage of the team Davis controlled franchise and represented Raiders on all matters Subchapter S corporations C Profits flow through business to shareholders 5 Taxed as ordinary income on owners taxes i Investors shielded from personal liability beyond investment Limited liability corporation amp Limited liability partnership i Profits flow through business Taxed as ordinary income on owners taxes Provides corporate veil U Easy to form C corporations U What most people think of when they think of corporation 5 Structured so companies can seek investors and operate globally Massive amounts of paperwork needed to from C corporation i Taxed as company first then profits provided to shareholders are taxed E Patriots Cavaliers Milwaukee Bucks Orioles have all been C corps at one time TYPE Sole prnorietorshil Partnership 3 corp iLLCr39LLP C corp ADVANTAGES Easiiy created and managed Flow through taxation Easily created Flowthrough taxation Flowthrough taxation Limited liabilityr Flowthrough taxation Limited liability Limited liability Unlimited number ot investors Different classifications of stock can be issued I ISADVANTAGES Personal liability Raising capital Potential management disputes Personal liability except limited partners Limited number of potential investors Costs of formation and operation Singie classification of stock can be issued Unde ned and inconsistent state operating standards Costs of formation and operation Double taxation Typical Ownership Most North American teams are owned by individuals or groups ofindividuals 8 Sole Proprietorships Partnerships LLPs amp LLCs S Corporations a NFL bars publicly traded companies or nonprofits One individual must own at least 30 of franchise Must not control majority interest in a team from a another league in a different market Fortune 500 companies have held and do hold sport teams as part of portfolio of assets w CBS NewYorkYankees i AOLTime Warner Atlanta Braves in Disney Los Angeles Angels and Anaheim Ducks YourViewpoint What type of owner do you want for your local sports team Do you want someone who might spend a bit more on expensive players in order to compete for championships Do you prefer someone who is keeping an eye on the bottom line making sure the team sticks to a strict budget Or would you like to buy stock in a team and be a part owner yourself The allocation ofan item s loss of value over a series of years the useful life ofthe item Four main methods 1 l J Straightline Total Cost Estimated Salvage ValueUsefu Life Sumofyears digits Doubledeclining balance Units of production Takes nonlinear loss of value into account Total number ofyears in depreciation scheduled are estimated Add number of years of useful life together to get denominator 12345 15 If item depreciates quickly take largest amount first fslow depreciation take smallest amount first Normally take largest depreciation value first Year 11 Year 2 Year 3 Year 4 Year 5 PHD PDRTIUN DEPRECIATED 51 15 M15 315 2f15 H15 AMUU NT DEPREBIATED 33U 0 2666 20000 133433 701M REMAINING AMIDUNT TO BE DEPRECIATED 67000 40333 20333 000 0 Most aggressive when allocating loss of useful life to early years of assets39 use Determine total years of useful life Then straight line percentage is calculated Example a 5 year asset is depreciated at 20 15 20 For each year estimated depreciation percentage is doubled Percentage depreciated is taken off remaining balance rather than Original Cost Salvage Value The remainder after all depreciation is salvage value YEAR 1 0391wa STRAIGHT 39LINE PERCENTAGE 20 20 20 20 20 DDUBLEDECLVINING BALANCE PERCENTAGE 40 40 40 40 40 AMOUNT DEPREGIATED 540000 524000 514400 8640 5184 REMAINING AMOUNT T0 BE DEP HEGIATED 00000 36000 21500 12960 7776 UnitsofProduction Depreciation Possibly most accurate measure 0fdepreciati0n Estimate the total number of items produced events or ticket sales Schedule calculated by taking the total number produced in a given year 5 Divided by total number expected over useful life Useful for items related to tangible production Example Copier that costs 2000 that can produce 10000 copies 5 year useful life YEAR L C3301th If 0F BUPIIES PRODUCED 3000 2000 1500 1500 1200 800 DEPHEDIATI UN PERCENTAGE 30 20 1 5 1 5 1 2 8 COPIES REMAINING 7000 5000 3500 2000 000 0 AMOUNT DEPRECIATED 600 400 300 300 240 3T 60 BillVeeck and Depreciation Veeck was owner of several MLB franchises from 194180 in Cleveland Indians amp Chicago White Sox Understood US tax code and application ofdepreciation Elements of his plan I Veeck establishes a new organization a Team sells players to new organization for 90 of agreedon purchase price of franchise prior to selling rest of team 1 Then sell all the rest for remaining 10 name logos merchandise etc I Since players had been purchased they could be depreciated over course of 3 to 10 years I Sport teams became a great tax shelter I New owners attracted Franchise values increased supplydemand I Omnibus Tax Act of 2004 Owners deduct 100 of purchase price over 15 yearpenod JockTax A growing number of states and local governments in the US and Canada tax income earned by visiting players In many cases this has been extended to home team athletes whose yearround residences are in other states Currently all but 6 states AL FL NV SD TX and WY have laws that allow them to collect taxes on visiting players salaries Nonlocal players taxed on income received for services performed in their location D Some states receive close to 10 million annually YourViewpoint What do you think ofthe socalled jock tax and the fact that professional athletes pay taxes on all thejurisdictions in which they ve earned a salary Do you have any sympathy for them and their very complicated tax returns Can you understand why they may choose to live in a state like Florida or a country such as Monaco with no income tax
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'