Accounting Treatment of Football Transfers under IFRS: an Introduction

A few weeks ago, I had the opportunity to read a PwC guide titled "Accounting for different types of transfers in the football industry: Issues and solutions under IFRS". In one section of this guide, they discussed various kinds of transfers in football and how to handle their accounting. To explain their points, they used examples involving imaginary player Yazenito and fictional teams Real London and Madrid United.

I think the guide is excellent, but I felt that it could benefit from including more numerical examples. While they may not be necessary for experienced accountants, these examples could be helpful for professionals who are less experienced (like myself!) or for finance/accounting students. Additionally, using real cases instead of fictional players and teams would have made the reading more interesting for non-experts. That's why I decided to take the most significant cases described in the guide and explain them using real cases, numerical examples, and simplified explanations. And, of course, I'll also discuss football, including the players' skills, club success, and more, instead of solely focusing on accounting. In some points, I also took the opportunity to challenge some of the author's views in order to stimulate discussion. And lastly, I addressed certain (minor) issues that were not covered in the guide.

The posts that are going to be part of this series of articles are the following.

• Permanent transfers and sold-on clauses: John Stones
• Contingent and/or deferred transfer fees: Ousmane Dembélé
• Salaries, sign-on bonuses and agent fees: Erling Haaland and Mino Raiola
• Temporary transfer (loan) without any call-back option: Brahim Diaz
• Temporary transfer (loan) with unconditional obligation to buy: Kylian Mbappe
• Accounting of other types of loans: Juan Roman Riquelme, Kingsley Coman and Francisco Trincao
• Contract renewal/extension: Leo Messi
• Impairment testing for player's registration rights: Eden Hazard, Christian Eriksen, and Phillippe Coutinho

However, before starting with the articles, I will provide a brief explanation of the accounting treatment of football players' rights in this post.

Obviously, when football clubs purchase a player from another club, they are not actually buying the physical person (we moved away from slavery a while ago!). Instead, clubs trade the player's registration rights. Clubs have ownership over the registration rights of their players, which means that players cannot play for other clubs without their permission. These rights are recorded in electronic transfer systems administered by FIFA and national associations. The registration rights can be transferred permanently or temporarily from one club to another if all parties involved (the clubs and the player) reach an agreement, or if the buying club pays the player's release clause.

Let's consider the case of Neymar when he transferred from Barcelona to PSG for a record-breaking fee of 222 million euros at the beginning of 2017/18 season, making it the most expensive transfer in history. How should PSG register these registration rights in their financial statements? Should they register the 222 million euros as an expense in the income statement? Should they classify the amount of Neymar's registration rights as an intangible asset? As inventory, given that you can potentially sell him? 

Under IFRS (and under most of the local GAAPs), it is widely accepted to recognize a player's registration rights as an intangible asset. This practice is consistently observed in the financial statements of all the listed clubs which prepare financial statements under IFRS such as Juventus, Manchester United, Borussia Dortmund, Olympique Lyonnaise, and many others. In fact, this approach is prevalent among the majority of clubs in the industry, listed or not listed.

That's not a surprise, given that the player's registration rights meet all the criteria in IAS 38 to be consider intangible assets. Player's registration rights are:

• not physical. Players are physical, but remember, we are talking about their registration rights, and these rights do not have a physical presence or substance.
• identifiable. Player's registration rights can be separated/divided from the club, and can be sold or loaned to other clubs, or exchanged for the registration rights of other players.
• non-monetary. Player's registration rights, unlike cash or accounts receivable, that have a clear monetary value, do not have a specific or fixed amount of money attached to them.
• controlled by the registering club as a result of past events. Clubs acquire the player's rights through previous actions, such that a previous transfer.
• expected to generate future economic benefits. Ultimately, clubs acquire the rights to players in order to increase their chances of winning matches and titles, which in turn allows them to generate revenue from different sources such as ticket sales, television deals, merchandise, and sponsorships.

As a consequence, registration rights should be classified as intangible assets, and amortized over the useful life of the player's contract. In the event that the player's contract is extended before the expiration of their initial contract, the amortization should be reassessed. The impact of the asset disposal should be registered in the profit and loss account, under "other gains/losses". And, as any other asset, it is subject to impairment. Don´t worry, we are going to see plenty of different examples during this series of articles.

Possible exemption

The explanation provided aligns with the view of the IFRS Interpretations Committee (IFRIC). However, they do mention an exception to the general rule. In cases where registration rights are held for sale as a regular part of business operations, specifically when a club's primary activity involves developing players with the ultimate intention of selling them to another club for a fee, it is permissible to classify these registration rights as inventory and recognize the transaction as revenue. It is important to note that this exception generally applies to non-professional clubs, as player transfers are not a primary revenue source for most top clubs. 

I am going to use IAS 38 approach in all the examples of my upcoming articles, since we will discuss the case of professional players and clubs that do not have the transfer of players as a primary revenue stream.

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And that's everything you need to know before start reading my series of articles! While it may initially seem simple, things can get more complicated when we consider various factors such as contingent fees, sign-on bonuses, agent fees, player loans, sold-on clauses, call-back options, loans with options or obligations to buy, and more.

Enjoy summer, enjoy the football transfer market, and enjoy these articles!

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