Question: Beaver Ridge Oilers Players Association and Mr Slim the CEO

Beaver Ridge Oilers’ Players Association and Mr. Slim, the CEO of the Beaver Ridge Oilers Hockey Club (Club), ask for your help in resolving a salary dispute. Mr. Slim presents the following income statement to the player representatives:
Mr. Slim argues that the Club loses money and cannot afford a salary increase. After further investigation, you determine that the Club owns 90% of the voting shares of Oilers Stadium Inc. (Stadium), which is used primarily by the Oilers. The Club accounts for its investment in the Stadium under the cost method. The Stadium has not declared any dividends since its inception three years ago. As such, the Club has never reported any income on its investment in the Stadium.
Mr. Slim insists that the income for the Stadium should not be a factor in the negotiation of the players' salaries since the Stadium is a separate legal entity and is taxed as a separate legal entity. The income statement for the Stadium is as follows:
(a) What advice would you give the negotiating parties regarding the issue of whether to consider the Stadium's income in the salary negotiations? Give supporting arguments. Indicate what other pertinent information you would need to provide specific recommendations.
(b) How would your advice change if the Stadium were 90% owned by Mr. Slim directly rather than by the Club? Explain.

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  • CreatedJune 08, 2015
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