SUDBURY WARRIORS LACROSSE CLUB Suggested Time (75 minutes)

The Ontario Lacrosse League (OLL) is one of three major junior leagues, which constitute the Canadian
Lacrosse League. The league is for players aged 15 to 20. The Sudbury Warriors Lacrosse Club (Warriors)
is a member of the OLL and is owned by Francisco Tecumseh, who purchased the rights to the franchise
when the team was first created in 2018. Francisco loves being involved in the business and he considers it
his baby. He has made his fortune many times over and he considers this venture to be about seeing Lacrosse
grow in Canada.

Francisco is actively involved in the day-to-day business affairs as the President and Chief Executive
Officer. The team has been plagued by cash flow difficulties since inception and Francisco expects the
financial conditions to get worse with the downturn in the local economy.

It is May 10, 2022 and you, CPA, have been hired by Francisco as the new Chief Financial Officer of the
Warriors. It was always your dream to be involved with a professional sports team, so you are thrilled to
have this opportunity.

Francisco explains that the economic conditions in Sudbury, Ontario have made it difficult for his team to
be profitable. Even after the government assisted Francisco with building a new arena, the Warriors’
revenues have still been decreasing steadily. The team only sold out 5 of its 40 home games played in the
last season. The season games begin in early November and finish up in late May. Warriors have an August
31 year end.

You are reviewing the results from the last season when Francisco appears in your doorway. He says that
he wants to meet with you immediately to discuss some urgent matters. Your notes from the meeting are
provided in Exhibit I.

While you are thinking about these matters, the phone rings and it is Debbie Tecumseh, Francisco’s wife
and the Vice President of Marketing. She wants you to sit in on a marketing meeting with her and go over
the new initiatives for the upcoming 2022/2023 season. Your notes from the meeting with Debbie are
provided in Exhibit II.

You finally get back to your office and begin to prepare a report to Francisco.

1
 EXHIBIT I

NOTES FROM MEETING WITH FRANCISCO TECUMSEH

I am concerned about what the future earnings will look like for the team given how unprofitable we have
been to date. I can live with the cash loss we have had, but I am glad to see things beginning to turn. Here
is a copy of the financial statements I prepared projecting what I think our year end is going to look like
(Exhibit III). For the first time, we are showing a profit. I cannot wait until you show me what to expect for
2023.

Our bank has requested that our financial statements be prepared in accordance with Accounting for Private
Enterprises (ASPE) if I ever hope to attract an investor to join in this project with me. I have done all the
accounting since the first season but I really do not understand accounting, which is why I hired you. It has
been 20 years since I took my university accounting courses, so I suspect I have a few problems in what I
have done. I would like you to make any needed ASPE adjustments to my fiscal 2022 earnings projection.

Debbie has a plan for the season ticket sales that I have integrated into my projection but I am not sure we
can sell those season tickets at full price. I would think someone would want a 15 to 20% discount if they
were buying all of their tickets upfront. I feel that this plan could really bump up our earnings for this season
and beyond but I want to be careful. Let me know what you think of Debbie’s policy for the season tickets.

I thought things were going to turn around when we received word about the Sudbury municipal
government providing a grant to us for developing a new arena to stimulate the local economy. The arena
was completed for the beginning of the 2021/2022 season. One of the stipulations from the government for
providing the grant was that we hire concession stand employees. Previously, I always hired third- party
food vendors to come in and sell food and beverages. I felt it was much easier to simply let them set up
shop and charge them a fixed percentage of all sales without the hassle of withholding taxes and other
nuisances; however, the grant was too attractive to turn down.

I am sure you understand that my players are my biggest asset. Without young stars, we would be unable
to run this business. It is difficult to attribute a value to my players. I have always considered the amount
of one year’s salary to approximate a player’s value so this is what I set up on the balance sheet. This seemed
reasonable to me. Originally when I first signed on my ten biggest stars in 2018, I paid them each $40,000
as a bonus. I expensed this as I figured any bonus paid had to be deducted in the current year. It turns out
to have been a great decision as all of them are still with the team and their contracts do not expire until the
end of the 2023/2024 season.

2
 EXHIBIT II

NOTES FROM MEETING WITH DEBBIE TECUMSEH

The Warriors’ ticket sales have always been extremely volatile. Starting with the upcoming season, I have
proposed to Francisco and management that we sell season tickets for the first time. I did some research
and found that a good number of local and commuter fans as well as companies would be interested in
purchasing season tickets. As well, most professional teams sell them at full price and have wait lists of
people wanting to buy them. Based on my investigations, I suspect that our regular ticket sales will drop by
50%, but I think we will still come out ahead if we introduce the season tickets. I have developed the
following season ticket policy:

Proposed Season Ticket Policy – Sudbury Warriors 2022-2023 Season

• Season tickets are sold to buyers on a first come, first serve basis beginning July 1, 2022.
• Season ticket holders must pay for their entire season ticket book by August 31, 2022.
• There is no refund on season ticket purchases.
• Season tickets will be sold at the 2022/2023 regular prices per seat.
• Season ticket seating will occupy 30% of the arena.
• Season ticket holders will have the first option to buy play-off tickets.

Here is my calculation of the expected impact in the current year based on 30% of the total seating area
being sold as season tickets.

Total seats in Home games per Number of season Cost per seat Revenue
arena by seating season tickets in each area per game from season
area for the 2022/2023 ticket sales
season

5,000 in A Level 40 60,000 $15 $ 900,000

4,000 in B Level 40 48,000 $20 960,000
4,000 in C Level 40 48,000 $30 1,440,000
3,000 in D Level 40 36,000 $40 1,440,000
2,000 in E Level 40 24,000 $60 1,440,000

Total revenue $ 6,180,000

3
 EXHIBIT III

SUDBURY WARRIORS LACROSSE CLUB LTD.

PROJECTED BALANCE SHEET
As at August 31, 2022
(unaudited)

Assets

Cash $ 1,349
Building (note 1) 4,411,916
Players (note 2) 1,975,500
Zamboni 50,000

Total assets $ 6,438,765

Liabilities

Term loan (note 3) $ 5,000,000

Line of credit (note 3) 3,500,000
Accounts payable 36,224

Total liabilities 8,536,224

Retained earnings

Opening deficit (9,079,424)

Income from operations 6,981,965

Closing deficit (2,097,459)

Total liabilities and retained earnings $ 6,438,765

4
 EXHIBIT III (continued)
PROJECTED INCOME STATEMENT
For the year ended August 31, 2022
(unaudited)

Revenues

Ticket sales $ 4,917,365

Season ticket sales (note 4) 6,180,000
Government grant 2,000,000
Net concession earnings (note 5) 765,496
Advertising revenues 175,500

Total revenues 14,038,361

Expenses

Wages (excludes concession) 4,354,531

Overhead 2,481,100
Administrative 220,765

Total expenses 7,056,396

Income from operations $ 6,981,965

5
 EXHIBIT III (continued)

NOTES TO THE FINANCIAL STATEMENTS

Note 1:

The building cost $4,411,916 to complete in fiscal 2021/2022.

Note 2:

Players produce future earnings and are, therefore, a crucial asset to the financial health of the organization.
An amount equivalent to the annual salary of each player has been set up as an asset in the first year the
player joins the team.

Note 3:

Both the loan and credit line are with TD Bank and bear interest at a rate of 8%. The term loan is callable
by the bank if there are not enough assets to cover the balance of the loan.

Note 4:

Season ticket sales revenue for the 2022/2023 season projected at August 31, 2022 using the regular price
per seat assuming all of the arena seats dedicated to season ticket holders are sold.

Note 5:

Net concession earnings for season:

Revenues Expenses Earnings

Food $ 2,195,116 $ 1,890,131 $ 304,985

Beverages 1,998,331 1,745,599 252,732
Alcohol 1,543,333 1,496,779 46,554
Merchandise 2,236,349 2,075,124 161,225

Total $ 7,973,129 $ 7,207,633 $ 765,496