MEMPHIS SPORTS SCENE

I’m an accountant, and the explanation that business won’t commit to ticket purchases because of the financial reporting liability is either just wrong or not the whole story. I’m sure you guys have had this explained to you before, but I’ll do it again. US businesses report their earnings results and financial position based on a collection of rules known as GAAP, Generally Accepted Accounting Principles. As you might be hearing about with Enron, the balance sheet and its corresponding statement of a firm’s liabilities is a very important piece of a firm’s financial reporting package for any investor, analyst, regulator, etc.

Someone is telling you guys that the business commitment fell through because the companies involved don’t want to have to record the ticket purchase commitment as a liability, today, on the balance sheet and a corresponding non-cash charge to income. It is true that under GAAP, the companies in question would, today, potentially have to record the entire 14 year’s remaining ticket purchases as a liability on the balance sheet because it is both a financially estimable and reasonably probable occurrence that the purchase commitment might be called on by the city( actually, it’s pretty much certain based on this year’s attendance).

So, the liability has to go on the books. That much is true. HOWEVER, I don’t think you guys understand just how big some of the local companies are. The biggest company with a significant presence in Memphis is easily International Paper, with around 27-30 Billion a year in sales. Then you have FEDEX in the low 20’s. AutoZone, Thomas and Betts, and Storage USA which are also large, publicly traded companies in Memphis. And there are obviously dozens of other companies you could expect to be involved in a potential ticket drive, if there really ever was a serious one. So, just say that IP, because it’s so big, was on the hook for 750 of these 5000 tickets. For the remaining 14 seasons, and at a bulk purchase cost of 400.00( 40 games x 10 bucks a ticket) a year per season ticket. That’s 15% of the 5000 for one company alone by the way. If IP was going to record that liability today, it would appear on the balance sheet, this year, as a 4.2 million dollar item. A lot, right? No, if you looked at IP’s balance sheet, you would see 10’s of BILLIONS of dollars in liabilities for various things from pensions to payables to plant closing costs. 4.2MM is not even big enough to be a drop in the bucket, and that 4.2MM would be getting smaller every year as the commitment aged or was exercised. A company of IP’s size would not be concerned about something as small as 4.2MM. A company of IP’s size would not even skip a beat if you put the entire 250MM cost of the stadium on the balance sheet. And what about the expense of buying the tickets? Just say IP ended up actually buying all the tickets-not entirely probable because I don’t think the city will actually have to buy the full 5000 every year, but, just use worst case scenario- that would only be an expense of about $300,000 per year. ON 30 BILLION IN SALES. Not even big enough to get lost in rounding. And the company will sell many of these tickets back to their employees, so they’d get a lot of that money back, anyway. You can repeat this example, scaled down, for any company you care to.

Sorry if I bored you, but my point is that I don’t think anyone connected with the financing deal for the stadium ever seriously asked these companies for the help with tickets. They just said they did to calm certain elected officials and other people down. These companies would have easily gone along. For the possibility of a few hundred thousand bucks a year, or much, much less in most occasions, spread way out into the future, they could have extracted all sorts of other favors out of these officials. That’s the logic the businesses would use.