Accounting of player's salaries, sign-on bonuses and agent fees under IFRS: Erling Haaland and Mino Raiola

Erling Haaland is a football sensation right now. He recently won the Champions League, FA Cup, and Premier League with Manchester City. In his first season with the club, he scored an amazing 52 goals in just 53 matches, leaving his rivals terrified. The Norwegian, along with Kylian Mbappe, is considered the most valuable football players in the world today. Who knows if the rivalry between Haaland and Mbappe will be the great rivalry of the next decade, just like Messi and Cristiano Ronaldo once was.

Despite holding a Norwegian passport, Erling Haaland was actually born in Leeds, England, while his father was playing in the Premier League. When Haaland was five years old, his family moved back to Norway and he began playing in the youth academy of his hometown, Bryne. Later on, he joined Molde, a team in the Norwegian first league. Haaland's exceptional performances caught the attention of Red Bull Salzburg, who signed him in January 2019. In the 2019/20 season, he made a huge impact by scoring five goals in the Champions League group stage, which impressed football fans all over Europe. As a result, Borussia Dortmund decided to sign the talented Norwegian player in January 2020, paying a reported fee of 20 million euros.

After his incredible performances with Borussia Dortmund, Erling Halland signed a five-year deal with Manchester City at the end of season 2021/2022. The English team paid the release clause of the Norwegian player, 51 million pounds, and the footballer granted a yearly salary of 19.5 million pounds. It has been reported that additional 35 million pounds were paid by the citizens in concept of signing bonus, agents’ fees, among others. Since we do not know the breakdown, for the purpose of this article we are going to assume that 20 million was paid to the player as a one-off signing bonus and the remaining 15 million was transferred to Mino Raiola as an agent fee.

Let’s summarize all the amounts of the operation before accounting for each concept:

1. Transfer fee: 51 million pounds.
2. Player’s wage: 19.5 million pounds, yearly, during 5 years.
3. Player’s sign-on bonus: 20 million pounds.
4. Agent fee: 15 million pounds.

Pretty impressive for a 22-year-old player, isn't it? Now, as accountants, let's analyze whether we can achieve the same level as Haaland by accurately recording each aspect of his transfer operation.

Accounting of the transfer fee

For City’s accounting of the transfer fee, we refer to the article devoted to the signing of Halland’s colleague John Stones. We can also find there the accounting of the selling club (in this case, Borussia Dortmund; in John Stones’ case, Everton).

Accounting of the player’s wage

As mentioned, Haaland will receive 19.5 million pounds every year, during five seasons, amounting a total of 97.5 million. But how should Manchester City account for the player’s wage?

Instead of recording a liability of 97.5 million euros from day 1, Manchester City should simply recognize the player's salary expense and a short-term liability as the player's services are provided. When the salary is paid, City should cancel the short-term liability against cash. As simple as that. Let's see how City should register Haaland's salary during his first year in the club, assuming that he gets paid at the end of the season:

As far as I know, Manchester City would not be obliged to disclosure its future salary commitments with his players. At least, listed-clubs that issue its financial statements under IFRS (Borussia Dortmund, Juventus, Olympique Lyonnaise...) do not do it.

Please, take into account that, for simplicity, we are ignoring taxes, social security charges, etc. in all the examples.

Accounting of the player’s sign-on bonus

The sign-on bonus is a one-off payment made by the signing club to his newly joined player in the moment of signing his contract.

Let’s first discuss the characteristics of a player’s sign-on bonus:

• It is an amount paid from the club to its new player as part of a transfer operation and the player’s contract.
• It is part of the signing agreement and, ideally, should be paid immediately.
• It is a one-off payment.

Once we have the concept clear, let’s explain how to account for Haaland’s 20 million sign-on bonus.

As we discussed in previous articles, the signing club can capitalize and classify as intangible asset all those costs directly related with the transfer. This includes the transfer fee, but not only. Therefore, someone could wonder if the sign-on bonus could be capitalized as an intangible asset, together with the 51 million pound transfer fee. At the end of the day, it is a one-off payment and closely related with the transfer. However, this reasoning fails to understand the real nature of the sign-on bonus payment: it is a payment from the company to its employee and, as such, should be considered an employee benefit.

The accounting of this sign-on bonus as an employee benefit will differ depending if we find ourselves in one of the following cases:

1. The signing bonus is paid with no further service obligation (i.e. the club has no choice but to make the payments). In this is the case, Manchester City should recognize the 20 million as a personnel expense immediately, at the signing day.
2. The signing bonus agreement includes a service obligation, in this case, City should recognize the personnel expense, not immediately, but on a systematic basis over the relevant period. That is, the expense should be recognized proportionally during every season played by Haaland.

We do not have much public information about Haaland's signing bonus, but I will share with you my interpretation based on what we know.

Even though we can assume that City "has no choice but to make the payments", and that the signing bonus is not refundable in case that Haaland is transferred before the end of his contract, Manchester City has, by contract, the right to retain Haaland in the squad during 5 years. Since, as far as we know, there is no an "escape clause" in his contract by which he can leave when he wishes for free, City can keep the player during 5 years, even against his will. 

Therefore, we can say that there is a link between the payment and the player providing his services during 5 years. As a consequence, the sign-on bonus represents a prepayment for the employee services, and the club should recognize the employee benefit as an expense over the five-year contract period, with the excess payment being deferred as a prepaid expense.

Therefore, Manchester City should record the 20 million sign-on bonus at initial recognition in the following way:

And since Haaland's contract is for 5 years, we should transfer to the income statement 4 million pounds every year (20 million divided by 5). See journal entry below:

Note that, even though the Haaland's annual salary is 19.5 million pounds, the annual cost in the income statement is 23.5 million (his annual salary plus the corresponding amount of his signing bonus).

However, based on the explanation above, there are some cases in which the sign-on fee should be immediately expensed: if management believes that the contract does not provide an enforceable right to receive the player’s services. This would happen, for example, in case that Haaland and City agreed in a clause in which, despite having signed a five-year contract, the player could leave the club unilaterally at any moment.

In this case, the journal entry to be registered when the bonus is paid is the following:

In case that City and another club agree to transfer Haaland, I would immediately cancel the remaining balance in "Prepayment to employees" immediately in the income statement, unless the signing bonus was refundable (which we do not know, but I don't think it is the case)

But, in any case, to know the real solution of this case, we would need to have access to Manchester City agreement with Haaland.

Accounting of the agent fees

The agent fee of 15 million pounds that Manchester City paid to Mino Raiola is connected with the transfer of Haaland's registration rights and, according to IAS 38 (paragraph 27), these costs should be included in the cost of the intangible asset. The main reason is that they are costs needed to “prepare the asset for its intended use”. The 15 millions have to be amortized over the five years of contract.

Find below the journal entry to be registered in relation to intangible assets on the signing day:

And that's the end of the story. We learned a bit more about football accounting, Borussia Dortmund successfully made another sale, Manchester City won the Champions League, Erling Haaland received a significant amount of money, and Mino Raiola... well, he passed away a few days before Haaland's transfer was finalized. As a result, he never received the 15 million pounds. It is more likely that his cousin Vicenzo Raiola and lawyer Rafaela Pimienta received the commission instead.

This article is part of the series Accounting Treatment of Football Transfers under IFRS. Click here to access the rest of the articles