After a veeery long article about Brahim Diaz, I promise you that this time I'll keep it shorter. However, I'll still provide interesting information as we will discuss one of the most exceptional players in the world, if not the best: Kylian Mbappe.
Kylian Mbappe, born in Paris, started taking his first steps in football at a local club called Association Sportive Bondy. However, at the age of 14, he made a significant move joining the youth academy of AS Monaco. Within a couple of years, he managed to progress from the academy to the club's first team, becoming the youngest footballer to play with AS Monaco.
But when Mbappe truly caught the attention of football fans worldwide was during the 2016/17 season when he led AS Monaco to the semi-finals of the Champions League, astonishing Europe with his amazing talent, and winning the French League, surpassing a PSG full of stars. After that extraordinary season, Real Madrid, FC Barcelona, Manchester City, Manchester United and PSG, among others, became really interested in signing the young French player.
In an attempt to strengthen their squad and assert their dominance in French football, PSG, who had just spent a record-breaking 222 million euros to acquire Neymar Junior from Barcelona, secured the signing of Kylian Mbappe from their rivals, AS Monaco. To manage their treasury effectively, PSG opted for a one-year loan deal with an unconditional obligation to buy at the end of the loan period. The agreed amount for the obligation to buy was 180 million euros, making Mbappe the second most expensive signing in history, behind Neymar. During the loan period, PSG covered Mbappe's salary, and after the season, Mbappe and PSG would sign a contract until June 2022.
In practice, this loan represents a permanent transfer due to the presence of an unconditional obligation to transfer upon signature. Risks and control over Mbappe's rights are transferred to PSG at the moment of the loan agreement, since neither club has the option to "go back" and cancel the arrangement under any circumstances.
Based on the information provided, the accounting for the operation would be indistinguishable from that of a permanent transfer with a deferred payment agreement.
Accounting for Paris Saint-Germain (lessee / recruiting club)
PSG needs to calculate the present value for the total amount to be paid and spread it out over the contract's duration of five years. Considering a discount rate of 3% and the effective payment of 180 million euros one year later, the present value would be 174.75 million euros. PSG should record this amount as an intangible asset (rather than a right-of-use) and a liability with Monaco. PSG should also record an annual amortization of 35 million euros (174.75 divided by 5).
Accounting for Monaco (lessor / selling cub)
Similarly to what was described earlier, although the operation is formally a loan, it is in practice a permanent transfer. Therefore, when Monaco transfers control of the player registration rights to PSG (that is, when the loan agreement with obligation to buy is signed, and the transfer registered in the UEFA electronic system), it needs to remove it from their accounting records. This removal will lead to the recognition of a gain or loss on the sale. The gain will be determined by calculating the present value of 180 million euros. Since Kylian Mbappe was a "home-made product", the full amount will represent a gain in the income statement.
Given that there is no difference between a permanent transfer with a deferred payment and loan with an unconditional obligation to buy, I do not understand why clubs keep arranging this kind of operations. If someone knows why, please let me know! Meanwhile, I am going to read the sports newspaper to find out if Mbappe is finally joining Real Madrid. As a FC Barcelona fan, I hope this never happens!
This article is part of the series Accounting Treatment of Football Transfers under IFRS. Click here to access the rest of the articles.
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