The World Baseball League

Here is an outline of the Education Innovation Award winning entry developed by Ian Feltmate and Ian Hutchinson. Ian Feltmate’s email address is at the end, so you can contact him to get more information.

Introduction

The World Baseball League (WBL) is a learning activity for introductory financial accounting students. The WBL pits groups of two–four students against each other in a competition for financial supremacy. Each group manages a company that owns a professional baseball team. The competition has five phases:

Phase 1: Concept Building

Through assignments and sample transactions throughout the term, students gain a basic understanding of a baseball team’s operating, investing, and financing decisions and the effect thereof on financial statements before formally commencing the WBL competition.

Phase 2: Year 1 Decision-Making

Before the first class of the competition, groups (the software can accommodate up to 14 groups) submit two decisions to the instructor: (1) how large a stadium to build and (2) how to pay for the stadium. The instructor enters the decisions into the software and emails the updated file to the students. Each student gets a copy of the game software before the competition to help with learning the game, devising strategies, and making decisions during the live competition.

Phase 3: Year 1 Operations and Outcomes

The first class is devoted to a Free Agent Auction. Each group begins the competition with nine players of identical, average calibre. Groups decide what free agents (star players) to acquire to improve their revenues while, at the same time, trying to limit their salary costs. As teams obtain players, the game software instantaneously executes several steps, including (1) simulating a 160 game regular season and playoffs and (2) generating each company’s statement of income and retained earnings, statement of cash flows, and balance sheet. The results for Year 1 of the competition are final only after the last Free Agent has been auctioned off.

Phase 4: Year 2 Decision-Making

Before the second class, each group submits three new decisions: (1) how much to expand their stadium, (2) how to finance the stadium addition, and (3) which Free Agents acquired during year 1 to retain — none, one, or two. An updated file is e-mailed to the students.

Phase 5: Year 2 Operations and Outcomes

The second class consists of another Free Agent auction. The final winner of the competition is the group with the highest ratio of retained earnings/common shares at the end of the second class.

We typically run the management competition at the end of the first financial accounting course. The game is run in a networked laptop setting and takes two sessions of 1½ hours. The decisions students make before or during each session are entered into the game software (an Excel workbook) by the instructor. The results of group decisions are displayed immediately on a projection screen. The effect is an exciting, competitive atmosphere, where the overall winner may not be determined until the final free agent is acquired in the final session. Grades can be assigned on a combination of financial performance and a group report explaining and evaluating group decisions.

Beyond reinforcing students’ understanding of financial statements, the competition facilitates discussion of issues such as:

• Balancing service quality and costs. To hire a free agent and increase revenues, groups must offer to pay the highest salary. Therefore, groups must balance revenues generated from providing high quality entertainment with the cost of providing the service.
• Capacity management. The better a team’s free agents are, the more fans want to attend a team’s games. If the team’s stadium is too small to accommodate the demand, revenue will be lost. But as stadium size increases, so do amortization expense and ballpark operations costs. Therefore the groups must try to balance capacity costs with anticipated demand.
• Cash flow management. This arises in a number of areas. For example, students commonly ask what the free agent budget is. There is no budget per se, but groups may not hire a Free Agent if the salary they bid will result in their company being assigned a short-term loan of more than $20 million.
• The impact of financial leverage. The impact of financing strategies on a company’s retained earnings/common stock ratio can be quite significant. Instructors can discuss the impact of return on assets and after-tax cost of debt on the merit of different financing strategies.

Should you wish more information about the WBL, please send an e-mail to ian.feltmate@acadiau.ca.