SecProbe.io

CORRESP
1
filename1.htm

Bull Run Corporation

BULL RUN CORPORATION

4370 Peachtree Road, N.E.

Atlanta, Georgia 30319-3099

(404) 266-8333

February 23, 2005

Mr. Larry Spirgel

Securities and Exchange Commission

Division of Corporate Finance

450 Fifth Street, N.W.

Washington, D.C. 20549-0308

    Re:

    Bull Run Corporation (“Bull Run”)

    Form 10-K for the fiscal year ended August 31, 2004

    Form 10-Q for the period ended November 30, 2004

    File No.: 0-9385

Dear Mr. Spirgel:

     This letter is in response to your letter dated February 1, 2005. Each of the comments in
that letter is set forth below and Bull Run’s response thereto immediately follows such comment.

Schedule 14A Information

    1.
    We note under the caption “Certain Relationships and Related Transactions” on pages 11 to 13
that there are several material related party transactions. In future filings, all material
related party transactions should be identified and the amounts stated on the face of the
balance sheet, income statement [or statement of cash flows] as required by Rule 4-08(k) of
Regulation S-X.

RESPONSE: We will comply with the requirements set forth in Rule 4-08(k) of Regulation S-X in
connection with future filings. Specifically, the Company intends to identify on the face of the
consolidated balance sheet for each balance sheet date presented any material amounts of long-term
debt payable to related parties, in addition to certain material amounts already classified and
identified as “Accrued fees payable to related party” and “Advances from stockholder.” The Company
also intends to identify on the face of the consolidated statement of operations for each period
presented any material amounts of interest expense attributable to debt issued to related parties
and amortization of debt issue costs incurred as a result of transactions with related parties.
The Company also intends to identify on the face of the statement of cash flows for each period
presented any material amounts of borrowings from related parties and any repayments of such
amounts. Note that all of these amounts, if material, have previously been disclosed in the notes
to the consolidated financial statements with the exception of the amount of interest expense
incurred on related party debt and the amount of debt issue cost amortization related to the value
of common stock issued to related parties, although the terms of such arrangements have been
disclosed.

Form 10-K for the year ended August 31, 2004

Item 3. Legal Proceedings, page 6

    2.
    Please tell us whether you have accrued in the financial statements, $4.0 million plus
interest resulting from the February 3, 2003 court’s decision. If not, tell us how you met the
requirements of paragraphs 8 and 9 of SFAS 5.

Mr. Robert Spirgel

Securities & Exchange Commission

February 23, 2005

RESPONSE: We have not accrued in the Company’s consolidated financial statements any amounts
associated with the Sarkes Tarzian, Inc. claim, nor do we believe any accrual is necessary under
the requirements of SFAS 5. To clarify the facts, the $4.0 million in damages awarded in the
Indiana litigation were awarded against U.S. Trust Company of Florida Savings Bank, as the personal
representative of the Estate of Mary Tarzian, not against the Company or Gray Television, Inc. We
are not aware of any claim being asserted against the Company or Gray arising directly out of the
judgment in the Indiana case. As to the claims asserted against the Company by Tarzian in the
Georgia action, we do not believe that the likelihood of an unfavorable outcome to be more than
reasonably possible. We have disclosed that the claim seeks $75 million plus costs and punitive
damages, which we believe adequately describes the range of potential loss.

In accordance with paragraphs 8 and 9 of SFAS 5, no accrual for any loss has been made in the
Company’s financial statements since there is no information available indicating that it is
probable that an asset has been impaired or a liability has been incurred.

    3.
    We assume that there has not been any change in the status of the Tarzian litigation since
March 7, 2003. Please confirm.

RESPONSE: From the time Tarzian’s suit against the Company and Gray was filed on March 7, 2003,
through the filing date of our most recently filed Form 10-Q there have been numerous developments,
none of which was considered significant enough for disclosure, including but not limited to the
Company and Gray filing their answers; the Court’s denial of Tarzian’s motion for partial summary
judgment/collateral estoppel; the Court’s extension of the discovery deadline through April 1,
2005; and the various discovery that has taken place, including the exchange of documents and
interrogatory responses, Tarzian’s production of expert reports, and numerous depositions of fact
witnesses. We do not believe there have been any changes in status that alter our assessment of
the probability of an unfavorable outcome in connection with Tarzian’s claim against the Company.

On February 14, 2005, the U.S. Court of Appeals for the Seventh Circuit reversed the February 3,
2003 decision of the U.S. District Court for the Southern District of Indiana in Tarzian’s suit
against U.S. Trust and remanded the case with instructions to enter judgment in favor of U.S.
Trust. Tarzian has 14 days from the date of the decision to move for rehearing. We intend to
disclose this as well as any other related developments in our Form 10-Q for the period ending
February 28, 2005.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Critical Accounting Policies, page 14

    4.
    We believe that your disclosures, with respect to critical accounting policies, do not
provide investors with an understanding of those estimates and assumptions that are both
important to the portrayal of your financial condition and results of operations and require
your most difficult, subjective or complex judgments. Your present disclosure in most part is
repetition of the disclosure presented in Note 3 on page 39.

    None of the critical accounting policies that you include in your current disclosures include
the sensitivity analysis or other quantitative information as required per this release
[Release 33-8350]. Revise your disclosures to include sensitivity analysis or other
quantitative information when it is reasonably available. You should address the questions
that arise once the critical

2

Mr. Robert Spirgel

Securities & Exchange Commission

February 23, 2005

    accounting estimate or assumption has been identified, by analyzing, to the extent material,
such factors as how they arrived at the estimate, how accurate the estimate/assumption has been
in the past, how much the estimate/assumption has changed in the past, and whether the
estimate/assumption is reasonably likely to change in the future.

RESPONSE: We wish to individually address each of those critical accounting policies included in
the Company’s Form 10-K:

    •
    Revenue recognition and rights fees expenses:

The determination of revenues involves no material estimates or assumptions. While the
recognition of profit split expense is the subject of estimates, it is adjusted monthly and
has not historically resulted in a subsequent significant adjustment (or, impact on
profitability). However, we believe that the determination of the allowance for doubtful
accounts and the provision for bad debts may represent another potentially significant
estimate in this area. In future filings, we will add to our discussion of critical
accounting policies that the allowance for doubtful accounts represents the Company’s best
estimate of the accounts receivable that will be ultimately collected, and that we base our
estimate on, among other things, historical collection experience, a review of the current
aging status of customer receivables, and a review of specific information for those
customers that are deemed to be higher risk. We will also state that we evaluate the
adequacy of the allowance for doubtful accounts on at least a quarterly basis. In future
filings, we will also discuss the fact that unfavorable changes in economic conditions
might impact the collectibility of amounts due from advertisers and corporate sponsors and
therefore result in an inadequate allowance.

    •
    Goodwill and other intangible assets:

The current disclosure indicates that the Company is required to periodically assess the
carrying value of goodwill for each of four distinct business units, and that such
assessment involves a comparison of the carrying amount of goodwill for each business unit
to its estimated net realizable value based on the Company’s estimate of expected future
cash flows to be generated by each of the business units. In future filings, we will add
disclosure to (a) indicate that the impairment analysis is based on the Company’s estimates
of the net present value of future cash flows derived from each of four business units, and
that we use judgment in assessing whether we need to test more frequently than annually;
(b) state that the determination of fair value requires significant management judgment
including estimating operating cash flow to be derived in each of the four business units
for the following three years, annual operating cash flow growth rates for each business
unit beyond the next three years, changes in working capital, capital expenditures and the
selection of an appropriate discount rate; (c) state that for each of three of the four
business units, a future reduction in the estimated net present value of future cash flows
derived from an affected business unit would likely result in an impairment charge that
could approximate the amount of the reduction in the estimated net present value calculated
for that business unit; and (d) indicate that factors potentially leading to a reduction in
the estimated present value of future cash flows could include (i) the loss of a
significant customer or contract, (ii) significantly less favorable terms of new contracts
and contract renewals, and (iii) prolonged economic downturns affecting corporate
advertising spending.

3

Mr. Robert Spirgel

Securities & Exchange Commission

February 23, 2005

    •
    Deferred income taxes:

The Company has recognized a full valuation allowance for net deferred tax assets since
August 31, 2003. Therefore, there are no significant estimates or assumptions inherent in
the determination of deferred income taxes or tax provision (benefit) until such time as
the Company determines that it is more likely than not that some or all of its net
operating loss carryforwards will be utilized.

    •
    Derivative instruments and hedging activities:

Estimated market values for the Company’s interest rate swap agreements were based on
valuations provided by the counterparties to the agreements, all of which are now
terminated. Therefore, there will no longer be any need to discuss derivative instruments
and hedging activities in Management’s Discussion and Analysis in future filings unless new
derivative instruments are acquired or such activities are consummated.

    •
    Valuation of certain non-trade receivables:

In the year ended August 31, 2003, the Company recorded an impairment charge associated
with its note receivable from the purchaser of the operating assets of Datasouth Computer
Corporation, a former operating segment of the Company. The carrying value of this
receivable has been disclosed in the Form 10-K, which represents the total amount at risk
in the case of nonpayment. Any adjustments to this carrying value, other than as a result
of payments received from the note issuer, would be disclosed in future filings. We will
add to our disclosures that (a) the estimated reserve on the note issued by the purchaser
of Datasouth is based on management’s estimate of amounts ultimately collectible on the
note upon consideration of modifications made to the agreement, payment history and an
understanding of the financial condition of the note issuer, among other factors; and (b)
if there is evidence of unfavorable conditions affecting the ultimate collection of the
carrying value, such as an unfavorable trend in payment history or unfavorable changes in
the note issuer’s financial condition, additional impairment charges may become necessary
in future periods.

    In the year ended August 31, 2003, the Company fully-reserved for its non-trade receivable
from iHigh, Inc. Therefore, no future disclosure pertaining to estimates or assumptions
related to such receivable is considered necessary.

    5.
    Please refer to the related party transactions described in the Schedule A filed on
December 14, 2004. We believe that the effects of the related party transactions on the
financial statements should be described under the caption “Critical Accounting Policies”.
For additional guidance, please refer to FR-60 issued by the SEC in January 2002.

RESPONSE: In future filings we will add under the caption “Critical Accounting Policies” a
statement that “the terms of all material transactions involving related persons or entities have
been at terms similar to those of Company transactions with independent parties, or in cases where
the Company has not entered into similar transactions with unrelated parties, at terms that were
then believed to be representative of those that would likely be negotiated with clearly
independent parties. All transactions with related parties are reviewed and approved by the
independent directors of the Company. Although the Company might not have been otherwise able to
enter into an agreement with an independent party to personally guarantee the Company’s bank debt,
the terms by which the Company’s Chairman has been compensated for such personal guarantee were

4

Mr. Robert Spirgel

Securities & Exchange Commission

February 23, 2005

approved by the Company’s stockholders at the Company’s annual meeting of stockholders on January
7, 2004.

Contractual Obligations and Other Commitments, page 21

    6.
    It appears that the Long-term contractual obligations include only principal payments on debt
and credit facilities. Revise the table to also include your obligations for interest
payments on debt. Refer to Item 303(a)(5) of Regulation S-K.

RESPONSE: In future filings, we will revise the table reporting long-term contractual commitments
to include estimated interest payments to be made on long-term debt for each of the periods
presented.

Financial Statements:

Consolidated Balance Sheets, page 34

Goodwill

    7.
    Please refer to the information provided in Note 2 to the notes to consolidated financial
statements. Also, we note in the fourth paragraph on page 14 that based on the valuation
model used by you, the Company provided the goodwill impairment charge of only $3.3 million
for the year ended August 31, 2004. Describe for us the methodology and significant
assumptions you use to determine the fair value of your reporting unit for the annual goodwill
impairment test. Also, discuss how you evaluated your operations and cash flows from
operations in determining the appropriate level of testing for goodwill impairment under the
guidance in paragraph 30 of SFAS 142 and EITF Topic No. D-101. Your attention is directed to
the requirements of paragraphs 20 to 25, 28 and 30 of SFAS 142.

RESPONSE: The Company’s four remaining business units were acquired as part of our acquisition of
Host Communications, Inc. and comprise that wholly-owned subsidiary (and the Company’s sole
operating business) today. These four units consist of (a) remaining services provided on behalf
of and in connection with the National Collegiate Athletic Association (“NCAA”); (b) services
performed in connection with the multi-media rights agreements with universities and athletic
conferences; (c) printin