This week, a touch of commentary on a topic that will not die: Is Memphis getting shafted/shafting itself with the Grizzlies. Heres a letter from one reader, Chris Decker. No relation to yours truly. Decker is trying to give some insight into how and why companies might not be able or willing to fulfill their ends of a deal involving about 5,000 season tickets to Grizzlies games for the next 15 years.
Chris, Never written in before, but saw an opening here with the Grizzlies. It isn't exactly news anymore that the city will not be receiving help from area businesses with the 5000 ticket a season commitment to ensure that the Grizzlies can't leave for 15 years; however, I think the explanation the public is getting, from the city, the team, and, yes, the media is very suspicious, and is an example of the underlying general corruption of the local govt's role in the deal. By the way, I'm glad we have the team, and don't mind the general public paying their share-especially with money we'd waste on hopeless schools, but it's just becoming increasingly obvious that we'll all be getting ripped off for quite some time by our elected officials who are dedicated to not serving the public's financial interest. Anyway, I digress. I don't even mind corrupt officials.
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.
Maybe the city would have had problems with getting all 5000 tickets, unlikely, but they certainly could get 3500 or 4000. But we actually have none. This just doesn't add up. Much like all the minority vendor compliance, facility management, stadium location, etc. issues that just defy common financial logic when truly examined don't add up. I know there's nothing we can do about it now, not that I even want to-because I do want the team-even with all the corresponding costs, but I just get mad when the parties involved provide stupid answers to serious questions because they realize how stupid MOST of the public around here is. I thought that by chiming in on this issue you'd have something to take back to the people that told you the companies were scared off by the liability issue on the ticket commitment, because that can't be the reason. I think they were lying in the first place. For some reason, these companies were never even asked.
-- Chris Decker