Football player value and accounting considerations for their registration

In the case of European football, the adoption of UEFA’s Financial Fair Play (FFP), in 2010, allowed the adoption of IAS 38 “Intangible Assets”, which shows the value of a player’s registration rights from the value/ player transfer fees, also requiring that a player’s transfer value be capitalized as an intangible asset on the balance sheet [1].

Likewise, IAS 38 specifies that an intangible asset is a non-monetary asset that is without physical and identifiable substance. According to IAS 38 (Article 21), an intangible asset will be recognized if and only if: (a) it is possible that the expected future economic benefits attributable to the asset will flow to the entity; and (b) whether the cost of the asset can be measured reliably.

In this way, under the name “player registration rights” can be recorded in the section of an intangible asset in the balance sheet, the amount received from the purchase of the economic and federation rights of the football player/s, when they met the defined requirements, under IAS 38, as football clubs have control over player contracts whose value is recoverable from player performance and/or through transfer fees.

In this sense, the initial accounting valuation is done with the historical acquisition costs, using the straight-line method throughout the duration of the contract signed by the player to calculate the annual depreciation (Gazzola and Amelio, 2016; Kulikova and Goshunova, 2014; UEFA, 2002).

Furthermore, in the case of an extension to the initial contract signed with the player, this circumstance must be treated as a change in the accounting estimate, applied prospectively and attributing to it the effect as income or expense in the income account and expenses of the fiscal year.

In this way, a new depreciation rate is calculated, considering the value of the remaining depreciation rights at the time of renewal and the useful life until the contract expires.

Football clubs must assess an intangible fixed asset in football when its physical condition is deteriorating (annual impairment test, IAS 36, Impairment of Assets). In that case, the recoverable amount is estimated, performing, and recording the corrections to the values ​​due to consumption, when necessary, as well as the return to income or expenses, respectively, in the profit and loss account.

If this situation continues, then the recoverable amount is recorded as the difference between the net book value (historical acquisition costs minus accumulated depreciation) and the market value of the registration rights, when the latter is lower (Müller et al., 2012; UEFA, 2015). More specifically, the loss of said value is created when the accounting value on the balance sheet is higher than the recoverable amount. Conversely, the recoverable amount is not recognized, in accordance with the principle of prudence in accounting.

However, in any evaluation of the player, according to the analysis carried out by many economists in European countries where there is a rather intensive market for their sale and purchase, the elements to make the evaluation are based on the personal characteristics of the player, such as: age, position in the field of the game, the team where a player plays, the category where the team plays, the number of goals in the season, the number of cups won, cards received, the number of times the player leaves/enters the football field during a season and other influencing elements in player value.

Based on these findings as above, on the acceptance of the fact that the active market is the main determinant of the recognition of human capital (Lenciu and Lenciu, 2017), economists have proposed many changes in the International Accounting Standards, IAS 38, after dictated by the football market itself.

One possibility would be to work out an intangible capital report, parallel to the balance sheet. In any case, it is necessary to collect the fair value of players in football clubs, according to an analytical and statistical model with enough variables to capture the market sentiment and trend, for all football players in a club.

To resolve the requirements of IAS 38 regarding the prices paid for intangible assets represents their best measurement, in the specific case of a player moving from one football club to another, the difference between the previous value and the current value of sales can be registered as goodwill, an immaterial value, which fluctuates over time because it is only gathering synergies or is related to the different visions of football clubs, which for a specific football player respect the market, but they also consider factors other negotiators.

Every year the goodwill must undergo a review of the player’s performance, according to the characteristics above and therefore, if the player’s market value increases, the player’s balance sheet value will increase, and the goodwill will decrease. Otherwise, if during the life of the contract, the market value decreases less than the value paid, correspondingly the impairment test would collect the loss, first the value of the goodwill and then the value of the player itself would fall.

Elements for different and more advanced comments can be drawn from this discussion. In this sense, IAS 38, which only allows the recording of transfer/sale values ​​for each football player that also includes the overestimated sales rights in relation to the relevant market value or its underestimation in relation to the market value.

This transaction model introduces an inappropriate equity situation in the financial statements of football clubs, dictating an incorrect liability and equity structure.

Based on the discussion and analysis, we think that the National Accounting Council, in accordance with IAS, should take initiatives to implement important changes in relation to the adoption of IAS 38, to include a special treatment for talent in the football business to allow clubs of football to declare on the balance sheet their human capital, including evaluations of all football players, based on the adoption of analytical data to support them.

[1] Valuation of football players in financial statements: the power of the crowd versus transfer fees