Saturday, April 22, 2006

The NY Times - The Boston Globe and the Red Sox (Oh What a Tangled Web)

Interesting information over at Boston Sports Media Watch. I'm not an accountant and I don't play one on TV but even I can understand the difference explained between the "cost method" and "equity method" of accounting for an asset. From BSMW:
With permission from the reader, I'm going to use what he said on the topic:

"When a company owns less than 50% of another company, accounting rules require it to choose from one of two possible methods of accounting for that investment: the "Cost Method," or the "Equity Method." The general rule is that if you own between 20%-50%, you should use the Equity Method. If you own less than 20%, you should use the cost method.

I bring this up because the The New York Times Co. owns 17% of the Red Sox. Yet it accounts for its investment in the Red Sox under the Equity Method, which is a bit unusual. Under accounting rules, the Times would only account for this investment under the Equity Method if it has "the ability to exercise significant influence over operating and financial policies" of the Red Sox.
You may also wonder if the investment goes both ways - with Red Sox owners like John Henry investing in the New York Times. Seeing that John Henry became a billionaire by being a savvy investor - I doubt he would invest in a stock whose 5-year performance looks like this:

If John Henry did invest in the NYT - I hope it was to sell short. Not sure what that graph looks like to you but to me it looks like the chart at the foot of the bed of an old dying man or in this case an old grey lady.

Make sure you read the entire BSMW post. Interesting stuff.

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