Ever wonder why Rogers Communications Inc. is a bit thrifty when it comes to the Toronto Blue Jays but doesn’t scrimp on the Toronto Maple Leafs, Toronto Raptors and Toronto FC, the teams it owns with rival telecom BCE Inc.?
The reason, according to business experts familiar with the finances of both companies, is a quirky accounting rule.
Rogers has taken much heat from fans for refusing to jack up the Blue Jays’ player payroll in order to sign top free agents such as David Price. But the experts say the accounting rule means the profit or loss of any majority-owned asset such as the Blue Jays has to be included in Rogers’ earnings before interest, taxes, depreciation and amortization (EBITDA), which can directly affect the company’s share price.
The same rule also works to the advantage of Rogers and BCE, joint owners of Maple Leaf Sports and Entertainment, to spend freely on that company’s hockey, basketball and soccer teams.
http://www.theglobeandmail.com/sports/no-love-for-blue-jays-in-rogerss-sports-spending-blame-an-accounting-rule/article28709405/Ever wonder why Rogers Communications Inc. is a bit thrifty when it comes to the Toronto Blue Jays but doesn’t scrimp on the Toronto Maple Leafs, Toronto Raptors and Toronto FC, the teams it owns with rival telecom BCE Inc.?
The reason, according to business experts familiar with the finances of both companies, is a quirky accounting rule.
Rogers has taken much heat from fans for refusing to jack up the Blue Jays’ player payroll in order to sign top free agents such as David Price. But the experts say the accounting rule means the profit or loss of any majority-owned asset such as the Blue Jays has to be included in Rogers’ earnings before interest, taxes, depreciation and amortization (EBITDA), which can directly affect the company’s share price.
The same rule also works to the advantage of Rogers and BCE, joint owners of Maple Leaf Sports and Entertainment, to spend freely on that company’s hockey, basketball and soccer teams.
Under this rule, known as the equity accounting method, publicly traded companies can combine the profits or losses of any subsidiary companies in which they own less than a 51-per-cent interest and keep those results separate from their annual EBITDA. Results from subsidiaries are grouped together and are recorded as “other income,” which does not count toward a company’s EBITDA.
But wholly owned subsidiary companies such as the Blue Jays are subject to strict internal budgets within Rogers Media, the division that operates the team along with the company’s broadcast properties. According to a source familiar with the finances of both Rogers and BCE, if Rogers were to sign Price for $30-million a season, then that $30-million would have to come from the budgets of other Rogers Media companies.
It also does not help that market analysts point out how any increase in the Blue Jays’ payroll drives up Rogers Media’s quarterly expenses. There are no such remarks about the Leafs, Raptors and TFC, because their expenses do not affect their companies’ EBITDA.
The flip side of the equity accounting rule, however, means ownership by public companies can be a good thing for teams such as the Leafs, Raptors and Toronto FC fans. The financial results from those teams do not appear on the EBITDA of BCE and Rogers, which each own 37.5 per cent of MLSE.
