What Time Is The Kansas City Football Game Tomorrow Conceptual Parallels Between Football Free Agency and Cost Accounting

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Conceptual Parallels Between Football Free Agency and Cost Accounting

Cost accounting is designed to help managers understand the costs of running a business and making decisions, however it is a concept that is not, and need not, be strictly limited to traditional business models. In the National Football League (NFL), general managers (GMs), team presidents, and owners must make similar financial decisions about extending the contracts of their current roster members, releasing their players, and offering new contracts to future free agents. The costing system is the result of the decisions made by the managers of the organization and the environment in which they are made, and there is no doubt in the multi-billion dollar business professional football.

Instead of materials and machinery, NFL executive management must evaluate the depreciation of its direct labor force and whether their current as well as future value justifies the cost that would be required to pay that individual what they are asking for or would realistically accept. The reason this is so subjective, however, is that we are dealing with real human beings, not things or products. While this is not necessarily a tax write-off, an NFL team can assess its personnel accordingly based on the current cost adjustment (i.e. salary cap) and amortization of declining assets.

There’s also the issue of accelerated depreciation, especially for the linebacker position, based on the number of hits, injuries and physical wear and tear a player has during his career. Additionally, older players (such as 30 and older) are considered at a significant disadvantage, while young players are considered to be value assets, especially if they are signed to reasonably priced entry-level contracts. The need to remove any inherent bias in these front office evaluations is very necessary, but still comes across as an insult (insulting a released player or making an “offensive” offer) when in fact they are made as a business decision, not a personal one.

Activity-based costing (ABC) is a system for assigning costs to products based on the activities they require. In the case of NFL free agency, activities are those football plays made on the field that result in yards, touchdowns, and then wins. Executive management can then use that resulting activity cost data to determine where to focus their operational improvements to maximize value to ultimately meet the ultimate goal: winning championships and satisfying die-hard fans. To achieve such success, alternative internal accounting methods, such as balanced scorecards, can help GMs make better short-term decisions as well as help provide better long-term performance measures for the organization as a whole, thus aligning GM and ownership interests.

When making a final business decision about a player’s future, it is critical to consider all of the above variables. For example, in the recent case of Thomas Jones, the New York Jets decided to part ways with the 31-year-old running back after a 2009 season that included his most productive season rushing the football (over 1,400 yards and 14 touchdowns) in order to protect the team from paying his upcoming $3 million bonus on top of his $2.8 million base salary. In addition to his age, he had 331 carries in the regular season and appeared to wear down a bit as rookie Sean Green began to get the majority of the carries. As an organization, the Jets couldn’t rationalize paying a player they felt had undercut this amount and decided to go in a different direction. Jones would later sign a two-year, $5 million contract with the Kansas City Chiefs in March 2010, a clear example of two different accounting principles and analysis of each team; as it turns out, jones had a productive first year with the Chiefs before having a down season last year at age 33.

The above example is one of hundreds that occur in a given offseason and epitomizes the various accounting systems a team uses to evaluate, evaluate, and possibly offer or decline a contract. It is for these reasons that teams employ master contract negotiators and why those who have devised a precise formula are in such high demand, and the franchises that hire them are usually successful.

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