Accounting Across the Organization

Accounting Across the Organization - Another factor in the...

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Accounting Across the Organization Brandon Laufenberg/ iStockphoto. What is a well-known franchise worth? Recently ESPN outbid its rivals for the right to broadcast Monday Night Football. At a price of $1.1 billion per year—nearly twice what rival ABC paid in previous years—it isn't clear who won and who lost. When bidding for a unique franchise like Monday Night Football, management must consider many factors to determine a price. As part of the deal, ESPN also got wireless rights and Spanish-language telecasts. By its estimation, ESPN will generate a profit of $200 million per year from Monday Night Football. ABC was losing $150 million per year.
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Unformatted text preview: Another factor in the decision was ESPN management's concern that if ESPN didn't win the bid, a buyer would emerge that would use Monday Night Football as a launching pad for a new sports network. ESPN doesn't want any more competitors than it already has. It is hard to put a price tag on the value of keeping the competition to a minimum. How should ESPN account for the $1.1 billion per year franchise fee? Answer: Since this is an annual franchise fee, ESPN should expense it each year, rather than capitalizing and amortizing it....
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