Common Issues with Revenue Generated from Broadcasting Right
February 12, 2025
In the previous article, we studied the concept of convertible debt and some of the common terms which are used while discussing convertible debt. In this article, we will have a closer look at some of the advantages and disadvantages of using this form of debt. Advantages of Using Convertible Debt Many companies continue to […]
The use of incubators is fairly common in startup companies. Entrepreneurs across the world use the services offered by incubators. This is because many entrepreneurs feel that being a part of a group that has similar objectives increases their chances of success. The use of incubators is fairly common in high-tech industries. In this article, […]
Financial modeling generally does not differ very much from industry to industry. For instance, if a person creates a financial model for a retail company, it could also be used for a restaurant with some minor changes. This is because most of these companies sell products or services. This means that when they sell these […]
With the passage of time, more and more pension funds are moving from a state-controlled pension fund regime to one in which pension funds are managed privately. Hence, every government needs a mechanism to promote investment in pension funds. Preferential tax treatments are one of the most important ways in which governments can encourage people […]
Sporting franchises are often said to be confused about what their objectives should be. One chain of thought believes that since they are businesses, their objectives should also be financial in nature. This means that their objectives should also be about profit maximization or wealth maximization. On the other hand, there is a different chain […]
It is common for sporting franchises to create an internal system so that young players with high potential can be identified and groomed at an early stage.
Such players form the backbone of any successful football franchise since they are cost-effective. It is common for such players to help create a disproportionately high value in relation to the costs that are incurred on them.
It needs to be understood that the accounting for such players tends to be quite complex. This is because the general practice in the sporting industry is to capitalize on the players at cost.
This means that if a sporting franchise has spent $10 million in order to acquire a player, then they have the right to capitalize these $10 million as an intangible asset. This intangible asset is then amortized over the life of the player’s contract.
However, it is not necessary that the sporting franchise always buy players from the external market. There are several franchises that have lower-level leagues which they often call “nursery”.
The purpose of this nursery is to help identify young players with raw talent. These young players are then groomed so that they are able to perform well at the higher level. Hence, when such players play in the big league, the club is simply promoting its players with or without change in compensation. In such cases, it is very difficult to determine the book value of such players.
This is because when it comes to internally promoted players, there is no external acquisition that has happened. Hence, in such cases, there is no acquisition cost that needs to be capitalized and amortized. This is good for the franchise since they do not have to pay money to external parties. However, there is a notional value that has been spent towards the creation of such resources. This notional value needs to be objectively determined and capitalized. This creates a slight problem since various issues related to the accounting of such players end up being raised.
This article provides details about some of the common issues related to accounting for internally promoted players.
There are various types of accounting treatments that are happening across the world for such transactions. This lack of uniformity makes it difficult to compare financial statements of sporting franchises belonging to different geographies.
The European sporting franchises have started implementing IFRS-based reporting. However, this is not the case for many countries where local accounting standards are still being followed.
Sporting franchises are supposed to capitalize and amortize the contract signed with the player. This is because the contract confers upon them a certain degree of control over the player’s actions. Hence, as per accounting norms, they can be considered to be an asset. However, when it comes to younger players, it is possible that they might not be legally capable of signing a contract because of their age.
In such cases, it is not possible for the franchise to sign a legally binding contract with a minor. In different countries, there are different legal workarounds that are used to resolve this issue. As a result, the accounting treatment of such transactions also varies widely across different geographies.
Hence, all the amount spent towards such academies should be capitalized and then transferred to the players who get promoted from the lower echelons of the franchise in that year. This approach has been directly forbidden by certain sporting bodies such as UEFA and hence is not explicitly followed in many parts of the world.
However, there are many other issues with this approach. For instance, the IFRS standards have a clear distinction between research and development costs. They allow for the capitalization of development expenses but not that of research expenses. However, when it comes to academies being run by sporting franchises, the segregation of research and development expenses is quite difficult. This is because there is a thin line segregating these expenses and it is quite difficult to practically implement this system.
Also, it is almost impossible to allocate costs on a per-player level. Hence, even if the accounting standards permit that the costs related to the development of a player be amortized, it is very difficult to estimate such costs.
The bottom line is that promoting players internally can be a complex accounting situation. It is necessary for the sporting franchise to clearly lay out the accounting treatment for such transactions in their policy and communicate the same to all the stakeholders.
Your email address will not be published. Required fields are marked *