With all due respect to Michael Jordan and the Chicago Bulls, the Boston Celtics are the most successful team in professional basketball history. Teams led by Bill Russell, Dave Cowens, John Havlicek, and Larry Bird have won a total of 17 NBA championships. The Celtics are also an unusual professional sports team because ownership shares in the Celtics were at one time publicly traded (on the New York Stock Exchange as €œBoston Celtics Limited Partnership€). As such, the Celtics were required to file financial statements with the SEC each quarter. The June 30, 2001, balance sheet of €œCeltics Basketball Holdings€ follows.

1. From June 2000 to June 2001, the Celtics€™ total assets decreased by approximately $5 million. What assets accounted for most of the decrease? Of course, total liabilities and equity also decreased by $5 million; what liability or equity items accounted for most of the decrease?
2. As of June 30, 2001, the Celtics have their NBA franchise recorded, net of amortization, at approximately $3.393 million. What original value was recorded for the NBA franchise? Over how many years is the NBA franchise being amortized? In what year was the NBA franchise originally recorded?
3. Partners€™ capital as of June 30, 2001, is about negative $60.3 million. How can partners€™ capital become negative?
4. The Celtics reported a liability for deferred compensation totaling $6,409,137 ($1,226,316 + $5,182,821). However, the notes to the financial statements revealed the following: €œCeltics Basketball has employment agreements with officers, coaches, and players of the Boston Celtics basketball team. Certain of the contracts provide for guaranteed payments which must be paid even if the employee is injured or terminated.€ The Celtics then disclose that the total amount of these guaranteed payments is $254.585 million. Explain the vast difference between the $6.4 million deferred compensation liability reported in the balance sheet and the $254.585 million compensation obligation disclosed in thenotes.

Transcribed Image Text:

Boston Celtics Limited Partnership and Subsidiaries Consolidated Balance Sheets June 30, 2001 June 30, 2000 ASSETS CURRENT ASSETS Cash and cash equlvalents .$12,572,324 $14,941632 5,799,898 636,551 Accounts recelvable 3.250,212 Prepald expenses and other current assets... TOTAL CURRENT ASSETS PROPERTY AND EQUIPMENT, net NATIONAL BASKETBALL ASSOCIATION FRANCHISE, net of 601,184 16,423,720 200,556 21,378,081 1,144.785 amortization of $2,776,318 In 200 and $2,622,078 In 2000 INVESTMENT IN NBA MEDIA VENTURES, LLC OTHER ASSETS 3,393,263 3547503 4,263,420 776,815 $26,161.019 $31,110.604 5.018.420 25,060 June 30, 2001 June 30, 2000 LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) CURRENT LIABILITIES Accounts payable and accrued expenses ..$ $23,506,664 6,498,726 ,226,316 $24,478,303 9,204,607 1,278.410 Deferred game revenues Deferred compensation-current portion TOTAL CURRENT LIABILITIES NOTES PAYABLE TO BANK DEFERRED COMPENSATION-noncurrent portion OTHER NONCURRENT LIABILITIES. PARTNERS CAPITAL (DEFICIT) 31,231,706 34961,320 50,000,000 6,369,646 708,000 50.000,000 5,182,821 Celtcs Basketball Holdings, LPGeneral Partner Celtcs Pride GP-Limited Partner Caste Creek Partners, LP-Limited Partner (29.111,174) (29.437.209) (31.144,430) 31.493,235) (60,254,589) 60,929.436) 1,074 (60.253,508) 60,928,362) $31.110.604 Celucs Basketball, LP-General Partner 1.081 TOTAL PARTNERS CAPITAL (DEFICIT) $26,161,019