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