ANALYSIS AND RESEARCH CASE: ACCOUNTING INFORMATION AND SALARY NEGOTIATIONS

Hamilton Hawks Players' Association and Mr. Sideline, the CEO and majority owner of Hamilton Hawks Soccer, Inc, ask your help in resolving a salary dispute. Mr. Sideline presents the following income statement to the players' representatives.

HAMILTON HAWKS SOCCER, INC.

IncomeStatement

Ticket revenues

$ 3,500,000

Stadium rent expense

$2,500,000

Ticket expense

30,000

Promotion expense

80,000

Player salaries

700,000

Staff salaries and miscellaneous

265,000

3,575,000

Net income (loss)

$(75,000)

The players contend that their salaries are below market and a raise is warranted. Mr. Sideline argues that the Hamilton Hawks really lose money and, until ticket revenues increase, a salary hike is out of the question.

As a result of your inquiry, you discover that Hamilton Hawks Soccer Company owns 85 percent of the voting stock in Hawks Stadium, Inc. This venue is specifically designed for soccer and is where the Hawks play their entire home game schedule. However, Mr. Sideline does not wish to consider the profits of Hawks Stadium in the negotiations with the players. He claims that "the stadium is really a separate business entity that was purchased separately from the team and therefore does not concern the players. On top of that, we allocate all the ticket revenues to the team's income statement."

The Hawks Stadium income statement appears as follows:

HAWKS STADIUM, INC.

IncomeStatement

Stadium rent revenue

$2,500,000

Concession revenue

875,000

Parking revenue

95,000

$3,470,000

Cost of goods sold

270,000

Depreciation expense

90,000

Grounds maintenance expense

410,000

Staff salaries and miscellaneous

200,000

970,000

Net income (loss)

$2,500,000

Required

1. What advice would you provide the negotiating parties regarding the issue of considering the Hawks Stadium income statement in their discussions? What authoritative literature could you cite in supporting your advice?
2. What other pertinent information would you need to provide a specific recommendation regarding players' salaries?