The United Football League UFL a North American

professional #68
The United Football League (UFL), a North American professional football league, has been in
work stoppage since July 1, 2013, immediately after the six-week training camp ended. Faced
with stalled negotiations, the players' union representing the league's 28 teams, the UFL
Players' Association (UFLPA), called a general strike. It led to the cancellation of games
scheduled for the beginning of the regular season, which was to start on July 5 and end with
play offs in mid-December.
The main disputed issue is player compensation. According to the team owners, the current
compensation system has created an excessive increase in players' salaries (more than 300%
in 10 years), which has most teams incurring net losses and several facing extinction. Currently,
players are contracted by the teams for fixed periods. Owners are free to negotiate personalized
compensation terms with each player. The UFLPA likes the current system and wants it
maintained for the duration of the next collective bargaining agreement.
The team owners are proposing a new compensation system. Under this new system, owners
and players would still be free to negotiate, but the annual amount each team could spend on
payroll could not be outside a predetermined range. The lower limit of this range would be
based on a percentage of the annual "gross football revenues" generated by the team. The
owners' last proposal suggested this percentage should be 55%. The upper limit of this range,
also known as the salary cap, was proposed at U.S. $30 million. Therefore, the annual amount
each team could spend on payroll would be no less than 55% of the team's gross football
revenues, but no more than U.S. $30 million.
The UFLPA objects to this system for two reasons. First, the players are against the salary cap
because they see it as a way for owners to pay players less than market value. They contend
that owners wouldn't enter into these contracts if they didn't receive sufficient value for the high
salaries they pay. Second, since the players' compensation would be based on the teams' gross
revenues, the players are not convinced that the owners will properly account for revenues.
The dispute is dragging on: more than half of the current season games have already been
cancelled, and some players and owners are growing impatient with the slow progress at the
negotiating table. Faced with these pressures, the UFLPA's executive committee has decided to
take a closer look at the owners' proposal, but wants to consult with public accountants to get a
clearer picture. The team owners have, for the first time, agreed to show the UFLPA their
financial statements. The Calgary Cowboys, one of the teams that has incurred major losses in
the last few seasons and claims that it is going under, has already handed over its unaudited
GAAP financial statements to the UFLPA.
You, CA, are employed by McMaster & Caisse, Chartered Accountants (M&C). Your boss,
Marie Caisse, calls you into a meeting with Billy Baker, star quarterback for the Regina Rebels
and chair of the UFLPA executive committee.
Billy is asking M&C to analyze the financial statements submitted by the Cowboys so that he
can formulate sound arguments to bring to the negotiating table. Given the financial statements
provided were unaudited, Billy wants M&C to evaluate the financial viability of the team and
determine whether the Cowboys have a net loss in accordance with IFRS. Marie asks you to
draft a report that will address Billy's requests.
Following the meeting, you receive the unaudited financial statements of the Cowboys for the
year ended December 31, 2012 (Exhibit C7-5[a]), and meet with the team's financial controller
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to obtain additional information (Exhibit C7-5[b]).
Required
Draft the memo requested by Marie Caisse.
CALGARY COWBOYS LIMITED
Balance Sheet
As at December 31
(in thousands of Canadian dollars)
EXHIBIT C7-5(b)
NOTES FROM DISCUSSION WITH THE FINANCIAL
CONTROLLER OF CALGARY COWBOYS LIMITED
1. Calgary Cowboys Limited (CCL) was created in 1988 by Crystal Roberts, a wealthy
businesswoman from Calgary, when the company acquired the UFL franchise. On January 1,
2011, Crystal sold all her shares in CCL to Crystal Roberts Management Inc. (CRM). She is the
sole shareholder of CRM. Following the sale, a comprehensive fair value revaluation of CCL's
assets and liabilities was undertaken. On January 1, 2011, the fair values of CCL's assets and
liabilities approximated their book value, except for the non-competition clause, which had a fair
value of $100 million and a book value of $3 million. This clause, included in the Cowboys'
contract, states that no other UFL team can be established within a 200-kilometre radius of the
Cowboys stadium until 2027. As a result of the revaluation, the intangible asset related to the
non-compete clause was increased by $97 million, with a corresponding amount disclosed as a
separate equity item. The balance of retained earnings was reduced to zero and a
corresponding amount was transferred to share capital. Before the revaluation, the non-
compete clause was being amortized at a rate of $150,000 a year.
2. CRM is a financial holding company that owns several other subsidiaries, including the
Calgary Sports Channel, which broad casts all of the Cowboys games in the Calgary area. The
amount billed by CCL was recorded under "Local TV broadcast rights" in the statement of
income. Calgary Sports Channel's main competitor made an offer of $8 million per year to
broadcast Cowboys games locally, but Crystal felt it would be more profitable to have the
Calgary Sports Channel benefit from the team's popularity.
3. CRM leases the huge parking lot adjacent to the stadium from the city for $1 per year and
charges $10 per car. The parking lot can hold over 15,000 cars and is always full for Cowboys
games. CRM owns the company that operates all the food concessions in the stadium where
the Cowboys play.
4. Players who sign long-term contracts often ask for a signing bonus in addition to their annual
salary. A typical contract is for two to four years with an additional one-year renewal option.
When a player signs a contract, CCL expenses the bonus. Bonuses are disclosed separately in
the statement of income to facilitate financial analysis. These bonuses are refundable if the
player leaves within the first year of the contract.
5. UFL players are all paid in U.S. dollars, since most of the teams are American. The
spectacular volatility of the Canadian dollar against the U.S. dollar in 2012 triggered a number
of exchange gains and losses in the salaries payable. The net gains were shown separately as
deferred exchange gains on the balance sheet.
6. Travel expenses include all costs related to the private jet owned by Crystal, which she
graciously allows CCL to use during the football season. The team uses it for all out-of-province
trips. The plane's operating costs are approximately $2 million per year.
Without the plane, players would fly business class at an average return fare of $2,000 per trip.
7. The advance from the parent company bears interest at the annual rate of 20% due to the
significant risk of operating a football team.
8. Accrued liabilities include C$3 million in salary for defensive tackle Jimmy Swagger for the
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 2013 and 2014 seasons ($1.5 million per season). Swagger, one of the best tackles in the UFL,
was paid a signing bonus of $1 million at the start of the 2012 season. However, he has formally
asked to be traded to another team because of a run-in with the Cowboys' head coach during
the last game of 2012. The UFL has declared a trade moratorium until the strike is settled. Since
Swagger will probably not provide any future benefit to the Cowboys, CCL has expensed the
salary remaining in his contract. Once Swagger is traded to another team, CCL will no longer
have an obligation to him.
9. The Cowboys' stadium seats 40,000 spectators and is almost always full. The team plays 10
home games per season and as many on the road. Spectators pay approximately $53 per ticket
and around $25 for food and beverages per game. The team has 40 players, as well as 10
coaches and trainers who travel with the team.
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The United Football League UFL a North American professional

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