Boston Celtics Inc Case Study Essay Research

Boston Celtics Inc. Case Study Essay, Research Paper

Boston Celtics, Inc. Case Study

Business Strategy Analysis

The National Basketball Association (NBA) is the only professional basketball league in the U.S. However there are 23 franchises (member teams) that are all in competition with each other. Boston Celtics, Inc. is one of the 23 franchises in the NBA. There are, both, high levels of competition and a high level of risk involved with these franchises.

It is hard to enter into this industry due to some difficult barriers that a new franchise would need to look at if they wanted to enter this industry. The 23 existing teams are located in 23 major U.S. cities. A new franchise would have to be strategically placed. They would need to look at population in the area, geographic region, market stability, and maybe television ratings to see the popularity of the sport in the specified region. Another barrier, to overcome rejection into the industry, is the high fixed costs of running a team. Fixed costs include salaries of the players and coaches because they receive contracts of one or more years in length. There are also high variable costs. Because of the high fixed and variable costs, the barriers that a new franchise would have to overcome are high.

Since the team and players are the product, there is not much chance of product differentiation. Each team has to have the same regulations and characteristics to become a part of the NBA. However, there can be high levels of differentiation in the players, their performance, and the quality of their play. Also under differentiation, such characteristics as image, appearance, and reputation would stand out.

For Boston Celtics, Inc. the pricing strategies were very structured. For the regular season home games, ticket sales ranged from $8.00 to $23.00 per game in the 1985-86 season. In the 1986-87 season, tickets ranged from $9.00 to $26.00. Home games were held at the Boston Gardens. The average ticket in the 1985-86 season was $16.72, and the average ticket for the 1986-87 season was projected to be $18.49. Other profit drivers include the sales of sweatshirts, shirts, hats, basketballs, and other merchandise with the team insignia on them.

Accounting Analysis

There are several financial statements offered in this case study. They are Balance Sheets, Statements of Operations, and Statements of Cash Flows. The three financial reports gave sufficient information for the financial analysis that follows in the next part of the case study. There is also sufficient information for the organization as a whole and it’s accounting policies. Boston Celtics, Inc. was faced with the decision of whether to take part in a partial sale of the franchise. The franchise’s policies listed in the case study are Revenue and Cost Recognition, Player Acquisition Costs, National Basketball Association Franchise, Media and Other Contracts, Equipment and Improvements, Pension Costs, Income Taxes, and then Financial Statements.

Revenues and costs are recognized in the financial statements provided. Revenues consist of ticket sales and television and radio broadcasting fees, and the costs consist of player and coaches’ salaries, game costs, fringe benefits and insurance, arena rentals and travel, NBA attendance assessments, promotional costs, general and administrative costs, and amortization. The NBA Franchise is amortized on a straight-line method over a 40-year period. Player acquisition costs are first estimated at fair market value for the player contracts. They are amortized on the straight-line method, whether acquired from the draft or another team. Equipment and improvement are recorded at cost, and depreciation and amortization are estimated over the useful lives of the assets. Media and other contracts are recorded at fair market value. They are also amortized on a straight-line method depending on the specific terms of the contract. They are calculated on an accelerated method rather than a straight-line method. Pension costs are amortized on a 30-year period and funded as accrued. Income taxes by the company were provided for federal and state based on income recorded for financial statements’ purposes until 1985. The statement of operations only showed figures from September 27, 1983 to June 30, 1984 because it was equivalent to a full year’s operations that included all revenues for such a year. There were certain financial statements not given that may have been helpful to study the company more thoroughly. They were not needed to show the contemplated liquidation of Boston Celtics, Inc. The Financial records given showed details pertaining to assets and liabilities as to where the money was spent or to be spent. Details about deferred revenues and costs were also given. Furthermore, details were also given on an earning basis and cash basis.

Financial Analysis

Assets 1985 1986

Current Asset Turnover 10.33 7.2

Working Capital Turnover -10.76 -10.56

Current asset turnover and working capital turnover both show how many dollars of sales the Boston Celtics, Inc. is able to generate for each dollar invested in current assets and working capital. The current asset turnover ratio shows that Boston Celtics, Inc. did not improve as it went from 10.33 down to 7.2 within one year. The working capital turnover ratio is up by abo