Kansas City Zephyrs Baseball Club, Inc. $2006$

On April $17,2006,$ Bill Ahern sat in his office and contemplated a difficult judgment he had to make in the next two days. Two weeks before, Bill had been asked to be an arbitrator in a dispute that had surfaced in collective bargaining negotiations between the Owner$-$Player Committee $($OPC$,$ the representatives of the owners of the $30$ major league baseball teams$)$ and the Professional Baseball Players Association $($PBPA$,$ the players' union$).$

A Baseball Accounting Dispute

The issue Ahern had to resolve was the profitability of the major league baseball teams. The layers felt they should share in the teams' profits; the owners maintained, however, that most of the eams were actually losing money each year, and they produced financial statements to support that osition. The players, who had examined the owners' statements, countered that the owners were iding profits through a number of accounting tricks and that the statements did not accurately eflect the economic reality. Ahern's decision on the profitability issue was important because it rould affect the ongoing contract negotiations, particularly in the areas of minimum salaries and am contributions to the players' pension fund.

On April $9,$ Ahern met with the OPC and the representatives of the PBPA. The two sides xplained they wanted him to focus on the finances of the Kansas City Zephyrs Baseball Club, Inc. $($a isguised name$).$ This club had been selected for review because both sides agreed its operations ere representative, yet it was a relatively clean and simple example to study: the baseball club entity as not owned by another corporation, and it did not own the stadium the team played in$.$ urthermore, no private financial data would have to be revealed because the corporation was ublicly owned. Ahern's task was to review the Zephyrs' financial statements, hear the owners' and layers' arguments, and then reach a decision as to the profitability of the team by Friday, April $19.$

Tajor League Baseball

Major league baseball in the United States comprised a number of components bound together by ts of agreements and contractual relationships. At the heart of major league baseball were the $30$

fecsors Kenneth A$.$ Merchant and Krishna Palepu and Research Associate Joseph P$.$ Mulloy prepared the original version of this case, "Kansas y Zephyrs Basehall Club, Inc." HBS No$.187-$OBS. This version was prepared by Professor Krishna Palepu with the assistance of Senior searcher James Weber. This case and the company and characters depicted are fictitious. HBS cases are developed solely as the basis for class cusvion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

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