Recording the purchase of a sports franchise

- When you buy a business you buy a complex array of assets. For accounting purposes you have to identify, value and record each of these assets separately. - For example, when a rich person buys a sports franchise what assets are she or he buying? - Well, let's illustrate using the example of the NFL's Dallas Cowboys. - Jerry Jones didn't win many friends in Texas when one of his first acts after buying the Dallas Cowboys professional football team in 1989 was to fire Tom Landry, who had been the head coach of the Cowboys ever since the team entered the NFL. - Jones became even less popular when the Cowboys lost 15 of 16 games in their first year under new head coach, Jimmy Johnson. - In those days, the Cowboys stunk as a football team but looked like a pretty shrewd business investment. - When Jones, an Arkansas oil man purchased the Cowboys for $150 million, he acquired a diverse array of assets. - Those assets included miscellaneous football equipment, stadium leases, radio and TV broadcast rights, cable TV rights, luxury stadium suites, a lease on, or a right to use the Cowboys luxurious Valley Ranch training facility, and the Cowboys' NFL franchise rights. - It was the job of Jerry Jones' accountants to identify, value, and record each one of these assets separately. The tangible asset, such as the football equipment as well as the intangible assets, such as the NFL franchise rights. - Allocating the purchase price among these assets and defining their useful lives were difficult and strategic tasks. - When H.R. "Bum" Bright, Jones Predecessor, bought the Cowboys for $85 million in 1984, he was able to allocate half the purchase price to the value of players' contracts. - Now for tax purposes these were depreciable assets that were written off over four years. - Jones received a similar tax break when he acquired the Cowboys. - But entrepreneurs like Jerry Jones don't get rich by relying solely on depreciation tax breaks. Jones quickly set about putting the Cowboys finances back in the black. In 1988, the Cowboys had lost $9.5 million. - Jones encouraged the team's treasurer to look for ways to cut expenses. Renegotiate insurance policy premiums. Seek competitive bids for printing tickets, and providing training room supplies. And remove the flood lights from the parking lot of the training center. - Jones also moved to increase revenues by signing leases for 99 unleased luxury boxes, generating an extra $8.5 million a year in revenue. And then building an additional 68 luxury boxes. - By 1992, the Cowboys were again profitable with net income of over $20 million. - And the on-field performance of the Cowboys matched their financial success. - In 1990, the Cowboys improved their record to seven and nine. And in 1991, they made the playoffs, advancing to the second round. - The Cowboys' return to glory was capped in January 1993 when they returned to the Super Bowl for the first time since 1978, and routed the Buffalo Bills 52 to 17. - I remember when you were a kid, the Cowboys were your favorite. - They were. - Well in January 1996, the Cowboys became the first NFL franchise to win three Super Bowls in a four year time period. - The subsequent on-field performance of the team has been so-so. It's not been back to the Super Bowl since 1996. And it made the playoffs just 10 times from 1996 through 2018, winning a total of just four playoff games in that 23 year span. - But this mediocre on-field performance has not seemed to hurt the team's financial performance. - In a 2019 estimate by Forbes magazine, the Cowboys were rated the most valuable sports franchise in the world, with an estimated value of $5 billion. - If you and I were to buy the Cowboys from Jerry Jones, our biggest accounting task would be determining how to allocate that $5 billion purchase price among the diverse array of asset that we would be buying through buying the team. - Yeah but, I'm just wondering where are you and I going to get $5 billion?