The Reston Rockets Players’ Association and Mr. Scorekeep, the CEO and majority owner of Reston Rockets Soccer, Inc., ask your help in resolving a salary dispute. Mr. Scorekeep presents the following income statement to the players’ representatives.

The players contend that their salaries are below market and a raise is warranted. Mr. Scorekeep argues that the Reston Rockets really lose money and, until ticket revenues increase, a salary hike is out of the question.

As part of your due diligence, you discover that Reston Rockets Soccer owns 85 percent of the voting stock in Rockets Stadium, Inc. This venue is specifically designed for soccer and is where the Rockets play their entire home game schedule.

However, Mr. Scorekeep does not wish to consider the profits of Rockets Stadium in the negotiations with the players. He claims that “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 team’s income statement.” The Rockets Stadium income statement appears as follows:

Required

1. What advice would you provide the negotiating parties regarding the issue of considering the Rockets Stadium income statement in their discussions? What authoritative literature could you cite in supporting your advice?

2. What other pertinent information would you need to provide a specific recommendation regarding players’ salaries?

Transcribed Image Text:

RESTON ROCKETS SOCCER, INC. Income Statement Ticket revenues Stadium rent expense. Ticket expense Promotion expense Player salaries .... Staff salaries and miscellaneous Net income (loss) $2,500,000 30,000 80,000 700,000 265,000 $3,500,000 3,575,000 $ (75,000)