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Stamford Hornets Players Association and Mr. Mogul, the CEO and majority owner of Stamford Hornets Soccer, Inc., ask your help in resolving a salary dispute.

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

STAMFORD HORNETS SOCCER, INC.

Income Statement

Ticket revenues

$ 3,500,000

Stadium rent expense

$2,500,000

Ticket and promotion expense

110,000

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. Mogul argues that the Stamford Hornets 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 Stamford Hornets Soccer Inc. owns 85 percent of the voting stock in Hornets Nest Stadium, Inc. This venue is specifically designed for soccer and is where the Hornets play their entire home game schedule. However, Mr. Mogul does not wish to consider the profits of Hornets Nest Stadium in the negotiations with the players. He claims, 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 teams income statement."

The Hornets Nest Stadium income statement appears as follows:

HORNETS NEST STADIUM, INC.

Income Statement

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

  1. Prepare a memo addressing the three following questions:
    1. a. What advice would you provide the negotiating parties regarding the issue of considering the Hornets Nest Stadium income statement in their discussions?
    2. b. Cite authoritative literature in supporting your advice.
    3. c. What other relevant information and recommendations would you need to provide to the parties regarding players salaries?

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