Over the last decade or so, the sports industry has seen professional organizations elect to renovate or construct new sporting facilities costing hundreds of millions, even billions of dollars. This is done in an effort to provide a better draw for more talented players and provide fans with an improved game day experience. More often than not, these stadiums/arenas along with the land they are attached to, are not owned by the ownership of the sports organizations but by local governments, private interest groups, or other third parties. This often leaves the organizations to enter into long term leases to cover the related debt facility terms.
Upcoming Stadium and Arenas either under construction or completed:
As the accounting for leases with the FASB issuance of Topic 842 are set to change December 15, 2019 for public entities and December 15, 2020 for privately-held entities, ownership and management should begin to educate themselves on the potential impact the standard will have on the recognition, timing and uncertainty of cash flows, which may arise from their lease obligations. Although not yet formally approved, the Financial Accounting Standards Board (“FASB”) has voted to delay adoption of the standard for privately-held companies to January 2021, given the magnitude of the wide-sweeping changes.
Some key changes include:
This change in the standard will force ownership and its creditors to re-evaluate third party debt covenants and any other compliance requirements to ensure the organizations do not fall into default with their obligations. Management may also have to determine any potential book to tax differences that may arise from these changes.
This article first appeared on Front Office Sports, where Citrin Cooperman is pleased to have a year-long foundational sponsorship.