by John McCarthy Consulting Ltd. | Dec 6, 2021 | Blog, News
Continuing our soccer theme from last week, we look at a similar story about the topic of how intangible assets (football players) are treated.
Derby County Football Club (DCFC) entered Administration in September 2021 and suffered a points deduction at the hands of the English Football League (EFL), as a result. The club is managed by Wayne Rooney and currently features three Irish players Jason Knight, Festy Ebosele and Louie Watson.
In this blog we are concentrating on the financial statements of Derby County Football Club (DCFC) (also called the Rams) and at just one aspect of their somewhat questionable use of accounting rules. The Directors’ unusual treatment of the amortisation of their intangible assets (i.e., football players) which has led directly to the club being fined €100,000 by the EFL in June 2021.
Examining the accounting rules on the topic (Financial Reporting Council Standard FRS 102) we see that specifically FRS 102.18.23 states that the residual value of an intangible asset must be ‘Nil’, unless, either:
- A third party has committed to purchase the asset at the end of its useful life, or
- There is an active market for the asset from which the residual value can be determined, and which is probable that such a market will be in existence at the end of the asset’s useful life.
The last available filed accounts for the year to 30 June 2018 show the accounting policy wording for intangible assets costs/amortisation as: “The costs associated with acquiring players’ registrations, inclusive of EFL levies, or expanding their contracts, including agent fees, are capitalised and amortised over the period of the respective players’ contracts after consideration of their residual values.”
It is these last six words that drew the ire of the football regulator. With so much uncertainty surrounding the residual value of a player at the end of their contract/football career, many factors point to a ‘Nil’ residual value. Not least of these, is the possibility that a player may use the Bosman ruling (based on a 1995 legal case entitling a player to ask for a free transfer) which can cause the players transfer value to be lower than expected.
The net effect of the above accounting policy of course, is that the negative impact of amortisation on the club’s profits is reduced and according to one football analyst DCFC have by far the lowest amortisation percentage in their division for 2016/17.
In the Administrators’ latest statement filed at UK Companies House on 17 November, the value of the company’s intangible assets according to the latest 30 June 2018 accounts (the latest available at Companies house), are shown at almost £43 million, but appear on the Administrator’s Statement of Affairs as ‘uncertain’. Let’s hope the future for the club is brighter.
For our latest Audit Quality Control Manual (October 2021) (implementing the latest Irish Audit & Accounting Supervisory Authority standards including ISQC1 on audit quality control) click here. View the Table of Contents here.
We also have an up to date Anti-Money Laundering Procedures Manual (September 2021) – View the Table of Contents click here.
by John McCarthy Consulting Ltd. | Nov 29, 2021 | Blog, News
Who says accountancy is boring? I am no PSG or Barcelona fan, but you must admit, that even at age 34, Messi is probably one of the best players in the world today. My pub quiz question for you – is a football player like Messi an accounting asset or not?
The accounting profession has long debated the question – what is an ‘asset’?
FRS 102.2.27 states that an item is an ‘asset’ if:
- it is probable that any future economic benefit associated with the item will flow to or from the entity; and
- the item has a cost or value that can be measured reliably.
This was a much easier question to answer, in the manufacturing/industrial revolution when an asset was more often a tangible asset that was certain to generate future cash flows that could reliably be measured.
However, we now live in the era of ‘knowledge resources’, be that professional knowledge (in the knowledge economy) or personal skill and talent which is the focus of this blog i.e. ‘soccer intelligence’ – the skill to know how to make the best use of a football. This is the era of ‘intangible’ assets’. More on this debate and soccer related finance is contained in the latest Deloitte Football Money League Report 2021.
Based on the above principles, FRS 102.18.4 states that an intangible asset shall be recognised by an entity if, and only if:
- it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and
- the cost or value of the asset can be measured reliably.
After 21 years with Barcelona, in August 2021, Messi signed a two-year contract with PSG. Messi cost PSG nothing, as it was a free transfer.
Unfortunately for Barcelona, using the same intangible asset standards in IFRS, used by most European clubs, (FRS 102 has similar rules), the club was never allowed to show Messi as an intangible asset on their balance sheet, as he joined them as a 13-year-old with no established cost. The fact that he generated much subsequent revenue for them could never justify him being on their balance sheet under IFRS/FRS 102 principles.
Meanwhile PSG are permitted to exploit the intangible asset measurement rules to place Messi on balance sheet by measuring the expected future economic benefits that will flow to PSG. The next financial statements for PSG for the year ended 30 June 2022 will make interesting reading. Meantime according to the Football Benchmark Report 2021 the KPMG estimate of Messi’s current value is €180 million.
The same happened in 1992 when David Beckham, then aged 17, was recruited by Manchester United and no one could estimate his future ‘value’. Developing superstar status quickly, Manchester United could not recognize his value in the club’s balance sheet and thus could not report this value to the Stock Exchange. Once he moved to LA Galaxy in 2007 (then aged 32) he was recognised in the Los Angeles’ club’s financials at the amount paid to acquire him – a staggering $250 million.
For more on football player valuations see the KPMG Football Benchmark Report 2021 and the Deloitte Annual Review of Football Finance 2021.
For our latest Audit Quality Control Manual (October 2021) (implementing the latest Irish Audit & Accounting Supervisory Authority standards including ISQC1 on audit quality control) click here. View the Table of Contents here.
We also have an up to date Anti-Money Laundering Procedures Manual (September 2021) – View the Table of Contents click here.
