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Cost accounting is designed to help managers understand the costs of running a business and make decisions; however, it is a concept that is not, and need not be, strictly limited to traditional business models. In the NFL, general managers (GMs), team presidents, and owners must make similar financial decisions about extending contracts to members of their current roster, releasing their players, and offering new deals to potential free agents. The cost accounting system is the result of decisions made by an organization’s managers and the environment in which they are made, and there is no question about the multi-billion dollar business that professional football has become.
Instead of materials and machinery, the NFL’s executive leadership has to assess the depreciation of their direct labor and whether their current value, as well as future value, legitimizes the cost of paying that individual what they are looking for or willingly accepting. realistic. However, the reason this is so subjective is because we are dealing with real human beings, not things or products. While this is not necessarily a tax deduction, an NFL team may assess its staff accordingly based on the current cost adjustment (i.e. salary cap) and asset depreciation that is the declining football player. .
There’s also the matter of accelerated depreciation, particularly for the running back position, based on the number of knocks, injuries and physical wear and tear a player incurs throughout his career. Additionally, older players (such as those 30 and over) are considered to be at a significant disadvantage, while younger players are seen to appreciate assets, especially if they sign rookie contracts at reasonable prices. The need to remove any bias inherent in these front office evaluations is much needed, yet it is perceived as slights (offending the released player or making an “insulting” offer) when in fact they are made as a business decision, not an personal decision. a.
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 subsequently wins. Executive management can then use the resulting activity cost data to determine where to focus their operational improvements to maximize value and ultimately meet the ultimate goal: winning championships and satisfying the die-hard fan base. To achieve such success, alternative internal accounting methods, such as balanced scorecards, can help general managers make better short-term decisions, as well as provide better long-term measures of performance for the organization as a whole. , thus lining up the general manager. and interests of the owner.
When making the 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 rushing season (1400+ yards and 14 touchdowns) to protect the team. to pay his next $3 million roster bonus on top of a $2.8 million base salary. Besides his age, he had a career-high 331 carries in the regular season and seemed to wear down a bit down the stretch when rookie Shonn Greene started getting the most carries. As an organization, the Jets couldn’t rationalize paying this amount to a player they considered to be on the decline and decided to move in another 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 each team’s respective analysis; As it turns out, Jones had a productive first year with the Chiefs before having a dismal season last year at the age of 33.
The above example is one of hundreds that occur in any given offseason and epitomizes the different accounting-level systems the team uses to evaluate, judge, and ultimately offer or deny contracts. It is for these reasons that teams employ lead contract negotiators and why those with the precise formula motto are so sought after and the franchises that hire them are often the successful ones.