I wrote a while ago about accounting issues relating to football (or, if you prefer, soccer), prompted by a PWC publication Accounting for typical transactions in the football industry: Issues and solutions under IFRS.

I noted at the time that “I was certainly surprised that a sufficient readership exists for such a seemingly narrowly-targeted publication” and speculated as follows:

• It’s hard not to think though that the purpose must in large part be one of broader branding: that is, an accounting firm with an entire publication on IFRS in the football industry (and, it appears, a Football Industry Accounting Group) must be pretty cool, at least relative to the others (in accounting, any notion of coolness is always relative).

For whatever reason, my blog post on that topic gets more traffic than most posts of that vintage, although again, I tend to think this is a result of people looking for entertainment, rather than for answers to pressing questions (of course this may be true for virtually all the traffic on this blog – the view from the control tower is severely restricted). Anyway, I also noted that even for those of us who don’t follow football and aren’t likely to ever have to account for it, there’s some interest value in scanning the variety of contractual arrangements that might arise, and that the broad point underlying many of the items is the applicability of IAS 38.

IFRIC recently issued for comment a tentative agenda decision on player transfer payments, based on the following fact pattern:

1. a football club (entity) transfers a player to another club (receiving club). When the entity recruited the player, the entity registered the player in an electronic transfer system. Registration means the player is prohibited from playing for another club, and requires the registering club to have an employment contract with the player that prevents the player from leaving the club without mutual agreement. Together the employment contract and registration in the electronic transfer system are referred to as a ‘registration right’.
2. the entity had recognized costs incurred to obtain the registration right as an intangible asset applying IAS 38. The entity uses and develops the player through participation in matches, and then potentially transfers the player to another club. The entity views the development and transfer of players as part of its ordinary activities.
3. the entity and the receiving club enter into a transfer agreement under which the entity receives a transfer payment from the receiving club. The transfer payment compensates the entity for releasing the player from the employment contract. The registration in the electronic transfer system is not transferred to the receiving club but, legally, is extinguished when the receiving club registers the player and obtains a new right.
4. the entity derecognizes its intangible asset upon the receiving club registering the player in the electronic transfer system.

IFRIC concluded that in this fact pattern, the entity recognizes the transfer payment received as part of the gain or loss arising from the derecognition of the registration right.” At the same time, it noted the following:

• ..for an entity whose ordinary activities include the development and transfer of players, it is conceivable that circumstances exist in which registration rights associated with some players meet the definition of inventories. In applying that definition, on initial recognition such an entity would consider whether the registration right is acquired for development and sale in the ordinary course of business.

If this were the case, then the transfer payment received would be recognized as revenue. The meeting material provided more colour on when this might be the case:

• Many football clubs are likely to consider their ordinary activities to relate mainly to playing football matches—competing in football competitions, generating income from ticket sales, sponsorship, advertising, prize money and television rights. Although the transfer of players to other clubs is something that happens from time to time, it is not another major part of their ordinary activities but contributes to that one main activity…
• However, for others, transfer payments received represent a significant proportion of the income that the club generates—for example, for some clubs transfer payments received can represent between 20% and 50% of total income from all income streams and can, for example, be two or three times more than income from ticket sales. Some of those clubs have a policy of transferring a significant proportion of their players to other clubs before the end of players’ employment contracts because the receipt of transfer payments is one of the main ways that the club generates income—for example, we are aware of one club that, over recent years, has transferred around 70% of players brought to the club before the end of players’ employment contracts.

Of course, this necessarily stops short of providing any kind of bright line. The material also suggested, based on the staff’s informal outreach, that the core conceptual issue might have somewhat broader applicability, citing the biotech industry – “one entity that recognized revenue, rather than a gain or loss, for the sale of a development project accounted for applying IAS 38” – and the media and entertainment industry “if an entity owns film broadcasting rights, uses those rights to generate income and, subsequently, sells the rights.” At least one of the comment letters suggested, similarly, “the agenda item request highlights again that IAS 38 deserves being revisited and possibly revised.”

So for now then, we may remain content that time spent musing about accounting for football may be well spent in some broader skill-sharpening sense. Still, proceed with care, as too much of it may imperil your grasp on reality…

The opinions expressed are solely those of the author