PROFESSIONAL SOCCER CLUBS: PLAYERS' REGISTRATION RIGHTS

CONTEXTUAL SITUATION

Decree-Law 91 of 24/06/14, among other measures, introduced the possibility for companies that do not prepare their financial statements in an abbreviated form, and consequently also for professional soccer clubs, to adopt IAS/IFRS international accounting standards, even in the absence of listing on regulated markets. 

At present, in the Italian professional soccer sector, clubs listed on the Milan Stock Exchange, i.e. F.C. Juventus S.p.A., A.S. Roma S.p.A. and S.S. Lazio S.p.A., are obliged to draw up their financial statements in accordance with international accounting standards; as far as the other companies are concerned, the choice is left to the discretion of the management: the larger clubs are more inclined to adopt international accounting standards given their economic interests on a global scale, in order to promote their knowledge on the market and increase their international visibility. However, the N.O.I.F. regulations of the F.I.G.C. mainly refer to companies that do not adopt IAS/IFRS, and therefore refer to the national accounting principleselaborated by the OIC: this constitutes a difference with respect to the U.E.F.A. regulations, also in terms of Financial Fair Play, essentially addressed to IAS/IFRS adopting companies. The main implication stemming from this alternative accounting pair is certainly referable to the different accounting entries in the financial statements of the items for the financial year: here, attention is focused on the most characteristic and distinctive item in the financial statements, i.e. "players' registration rights", which is also a useful opportunity to review the OIC and IAS differences regarding intangible assets.

PLAYERS' REGISTRATION RIGHTS: OIC REGULATIONS

As far as Italian regulations are concerned, OIC 24 regulates in a general way the accounting of intangible assets, defined as: non tangible assets, whose usefulness does not end in a single financial year but over several years and for which effective costs are borne, regardless of whether they are recorded in the financial statements as the result of an external purchase or internal production. Players' registration rights" have the characteristics described above and, as regards their accounting, the following is considered 

• as the player's performance is subject to a high degree of unpredictable factors, such as, for example, the performance during the football season or the possibility of suffering an injury, the player must not be entered in the financial statements at the presumed realizable value but always at the purchase cost, including the purchase of the player card, any signing bonus, commissions to agents and other potential existing charges, not assuming a redetermination of the value in the following financial years;
• amortization is carried out on a straight-line basis using the indirect method, by setting up a specific provision in the Income Statement for a number of years corresponding to the duration of the contract signed; 
• considering the perspective of the purchasing company, the item is present within intangible fixed assets in the Balance Sheet; considering the perspective of the transferring company, a capital gain or loss will be recorded in the Income Statement by comparing the transfer price with the historical cost, less amortisation;
• in the case of a zero-parameter purchase, an "extraordinary contingency" will be recorded in the Income Statement;
• lastly, in the case of a player produced by the youth academy, the asset would correspond to a self-produced fixed asset; consequently, the directly attributable costs plus indirect costs for a reasonably used portion should be recorded in the balance sheet.

PLAYERS' REGISTRATION RIGHTS: IAS REGULATIONS

The reference for international regulations is provided by IAS 38, for which intangible assets are defined as: intangible assets, subject to company control, whose costs are identified with certainty and from which measurable future economic benefits are expected. The main differences with Italian legislation are as follows:

• straight-line amortization only occurs when there are no further alternative possibilities for determining the value of the asset that has a definite useful life, whereas in the case of an indefinite useful life, amortization does not occur, but there is an annual verification that the assets in the financial statements are recorded at a value that does not exceed their actual recoverable value, by means of an impairmenttest; 
• accounting is broken down into two steps, i.e. initial valuation at the time of entry in the financial statements and subsequently, at the end of each financial year. The intangible must first be entered at historical cost including all charges, in the case of external purchase, while in the case of internal production, all costs considered reasonably attributable to the development phase must be entered. Considering, on the other hand, subsequent years, the accounting can be carried out at historical cost net of accumulated depreciation and of any loss of value following impairment, or using the revaluation method, which can generate an increase or decrease in the amount, accounting at fair value net of accumulated depreciation and of any loss of value following impairment: the valuation in any case cannot exceed the recoverable value, given by the difference between the selling price and the value in use of the asset.

Consequently, with regard to the accounting of "players' registration rights" the following is considered:

• in the financial years following the first recording, unlike the Italian regulations, the recording at cost is not made compulsory, leaving ample discretion to the company's operations and needs;
• the problem that may arise through the use of international accounting standards is the use of the revaluation method, since objectivemeasurability appears in this case to be only partially satisfactory. In fact, as objective parameters for the valuation of the "players' registration rights", there could only be the contracts of the purchases and sales limited exclusively to the two soccer market windows, variables that are even absent in cases of internal production of players through the nursery or purchase at zero parameter; 
• consequently, the fair value or the value in use of the player remains a variable that is anything but simple to determine, being subordinate to subjective and not predictable parameters, linked to the sporting activity, such as performance, injuries suffered, economic needs of the clubs, popularity, ability to adapt within the team and the team game, and so on. 

CONCLUSIONS

It is clear that the international discipline, which is broader than the Italian one, exposes the true representation of the financial statements of professional soccer clubs to the discretion of the management, which, depending on the cash flow and financing needs of the following season, may over- or undervalue the asset, taking advantage of the not always objective determination of the player's value: for example, the ownership may be forced to write down the asset in the balance sheet due to a football player's season below expectations, then trying to recover the balance sheet delta in other transactions, for example, through an overvaluation of a young player from the nursery or inflating the value of the players within an exchange at par, as happened in recent soccer market sessions.

Edited by: Massimo Giardino, Chartered Accountant and Statutory Auditor

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For more information:

massimogiardino@valoreassociati.it