CASE 7-4 LOCKOUT The Celtics Basketball Holdings, L.P. and Subsidiary included the following note in its 1998 annual report: Note G -Commitments and Contingencies (in Part) National Basketball Association ("NBA") players, including those that play for the Boston Celtics, are covered by a collective bargaining agreement between the NBA and the NBA Play ers Association (the "NBPA") that was to be in effect through June 30, 2001 (the "Collecti Bargaining Agreement"). Under the terms of the Collective Bargaining Agreement, the NBA d the right to terminate the Collective Bargaining Agreement after the 1997-1998 season if it Source: The Celtics Basketba ll Holdings, LP and Subsi 2010 10-K 9781 2852761 06, Finanaal Reporting snd Analysis, Charles l Ghen . e Crngage traning All rights reserved. No distribution allowed without express authorization. Distribuited by Grand Canyon University CHAPTER 7 Long-Term Debt-Paying Ability 315 was determined that the aggregate salaries and benefits paid by all NBA teams for the 1997 1998 season exceeded 51.8% of projected Basketball Related Income, as defined in the Collec tive Bargaining Agreement ("BRI"). Effective June 30, 1998, the Board of Governors of the NBA voted to exercise that right and reopen the Collective Bargaining Agreement, as it had been determined that the aggregate salaries and benefits paid by the NBA teams for the 1997 1998 season would exceed 51.8% of projected BRI. Effective July 1, 1998, the NBA com- menced a lockout of NBA players in support of its attempt to reach a new collective bargaining agreement. The NBA and the NBPA have been engaged in negotiations regarding a new collec tive bargaining agreement, but as of September 18, 1998, no agreement has been rea the event that the lockout extends into the 1998-1999 season, NBA teams, including the Bos ton Celtics, will refund amounts paid by season ticket holders (plus interest) for any games that are canceled as a result of the lockout. In addition, as a result of the lockout, NBA teams have not made any payments due to players with respect to the 1998-1999 season. The NBPA has disputed the NBA's position on this matter, and both the NBA and the NBPA have presented their cases to an independent arbitrator, who will make his ruling no later than the middle of October 1998. As of September 18, 1998, the arbitrator has not ruled on this matter Although the ultimate outcome of this matter cannot be determined at this time, any loss of games as a result of the absence of a collective bargaining agreement or the continuation of the lockout will have a material adverse effect on the Partnership's financial condition and its results of operations. Further, if NBA teams, including the Boston Celtics, are required to honor the player contracts for the 1998-99 season and beyond without agreeing to a new collective bargain- ing agreement or without ending the lockout, which would result in the loss of games, the Partner- ship's financial condition and results of operations will be materially and adversely affected. The Partnership has employment agreements with officers, coaches and players of the basketball team (Celtics Basketball). Certain of the contracts provide for guaranteed pay ments which must be paid even if the employee is injured or terminated. Amounts required to be paid under such contracts in effect as of September 18, 1998, including option years and $8,100,000 included in accrued expenses at June 30, 1998, but excluding deferred com pensation commitments disclosed in Note E-Deferred Compensation, are as follows