SBJ/November 14-20, 2011/Finance

Is accounting shift by News Corp. tied to NFL rights bid?

News Corp. is changing the way it accounts for potential losses that stem from future payments on the rights to broadcast U.S. sports. The owner of Fox Sports will no longer estimate potential future losses, a move that could minimize the type of large write-off that might spook investors.

The change comes as the NFL is starting talks to renew broadcast deals with CBS, Fox and NBC. The league is expected to fetch significant increases.

“Are they doing this in anticipation of the NFL rights, so they don’t have to worry about overbidding?” asked John Lieberman, a certified public accountant who is a member of the New York State Society of CPA’s entertainment and sports committee. “Will it play into their negotiations?”

Lieberman contended that the answer to those questions is yes, and that the move allows News Corp. to bid as high as it wants for the NFL without worrying about a massive write-off.

A News Corp. spokesman declined to comment. The company disclosed the change in its quarterly report with the Securities and Exchange Commission earlier this month. In that document, the company said it was making the change to bring its accounting practices in line with peer companies.

David Bank, an analyst with RBC Capital Markets who covers News Corp., said that is true, adding that what News Corp. is doing is saying that if there is a loss, it will reduce earnings incrementally instead of all at once.

In the past, when broadcasters wrote down the value of sports contracts, the write-offs were largely based on estimated future losses. Now, News Corp. is saying, at least in the United States, it will report actual losses or profits, and internal projections will not be reflected in earnings reports.

“Estimated future losses will no longer be recognized,” the News Corp. regulatory filing said.

Bank disagreed with Lieberman and said he does not think News Corp. is adopting the change in anticipation of a big NFL bid. In fact, he contended News Corp. had been better off with the old accounting, so a loss could be taken all at once and quickly forgotten by what he described as Wall Street’s short attention span.


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