The impairment test for football players: the missing link between sports and financial performance?

Abstract

The academic literature on financial reporting and accounting is limited in the football industry compared with other sectors of the economy. The purpose of this paper is to critically analyze the financial communications of football clubs with reference to the impairment test for football players. According to the International Financial Reporting Standards (IFRS), an impairment test measures whether a balance sheet item is actually worth the amount stated on the balance sheet. The balance sheet amount should be reduced if the impairment test indicates a lower value. At the end of each reporting period, a football club is required to assess whether there is any indication that a footballer may be impaired. The paper aims to show that the financial communications and reporting disclosed by football clubs about the impairment test procedure is poor and inadequate. It is argued that the UEFA regulations have gaps that ought to be filled and that IFRS are not perfectly suitable for companies operating in specific business sectors such as the football industry. The study is based on an extensive literature review and an analysis of previous academic studies. In addition, this study investigates the best practices reported in the footnotes of the financial statements of several football clubs in Italy, England and Scotland. These clubs operate and play in different jurisdictions and so also adopt different accounting standards. The research study reveals that only a few of the clubs studied give information about the impairment test in the footnotes to financial statements. This confirms that the financial communications of football clubs are limited. Secondly, only one club studied (Rangers F.C.) acknowledges that a possible external indication for performing an impairment test might be the failure to achieve the sporting goals fixed at the beginning of the sporting season. Our findings suggest that UEFA, FIFA and local football associations should promote new regulations aimed to improve the accuracy of the financial disclosure of football clubs. They should also introduce as an important external indicator to perform the impairment. This kind of failure has a negative impact on football clubs' revenues. These findings may also have interesting implications for other sporting organisations. This article is published as part of a collection on corporate governance, the sports industry and intellectual capital.

The Beautiful Game: Fair Value, Accountability and Accounting for Player Registrations

“…Firstly, scholars have argued that IAS 38's stringent recognition criteria result in important assets being excluded from the financial statements (Morrow 1996; Amir and Livne 2005; Kulikova and Goshunova 2014; Maglio and Rey 2017). The proposed model leads to all player registrations being capitalised to provide a more complete account of the resources under the entity's control.…”

“…Player registrations that do not meet the stringent requirements for recognition and measurement per IAS 38 Intangible Assets (IAS 38) are excluded from the financial statements and their total contribution to current and future cash flows is not reported, limiting the value relevance of what is communicated to financial capital providers (Tunaru et al. 2005; Tunaru and Viney 2010; Lozano and Gallego 2011; Maglio and Rey 2017).…”

“…The result is a divergence between the book and market values of the underlying intangible assets which calls the usefulness of the respective financial statements into question (Morrow 1996;Rowbottom 2002;Lozano and Gallego 2011;Kulikova and Goshunova 2014;Barker et al 2021). Player registrations that do not meet the stringent requirements for recognition and measurement per IAS 38 Intangible Assets (IAS 38) are excluded from the financial statements and their total contribution to current and future cash flows is not reported, limiting the value relevance of what is communicated to financial capital providers (Tunaru et al 2005;Tunaru and Viney 2010;Lozano and Gallego 2011;Maglio and Rey 2017).…”

O Teste De Impairment Mente? O Caso Dos Atletas Dos Clubes De Futebol Brasileiros

“…A contabilização dos direitos decorrentes do vínculo desportivo mantido com os atletas é um dos principais problemas relacionados às demonstrações contábeis dos clubes de futebol (Pavlovic et al, 2014;Maglio & Rey, 2017), sendo regulamentada no Brasil pela ITG 2003 (R1) (CFC, 2017). Esta norma dispõe que os custos com a contratação e formação de atletas devem ser contabilizados no ativo intangível das entidades futebolísticas e amortizados pelo prazo de duração de seus contratos (Galvão & Miranda, 2016).…”

Measuring football clubs' human capital: analytical and dynamic models based on footballers' life cycles

“…Furthermore, there are other important clubs' value components, which are nonregistered in the financial statements, such as home-grown and youth players, which should be considered as human capital too (Gumb and Desmoulins-Lebeault, 2010; Kulikova and Goshunova, 2014; Putra and Wasistha, 2018), causing an undervaluation of the assets of the clubs (Lozano and Gallego, 2011). In fact, some authors consider that the investment costs in home-grown players and building teams should be accounted as assets in a similar way to research and development in other sectors (Oprean and Oprisor, 2014; Kulikova and Goshunova, 2014; Garcia-del-Barrio and Pujol, 2007; Maglio and Rey, 2017). Finally, other limitation to reflex IC in the clubs' financial statements is that after the acquisition, the carrying value of an individual player must not be revalued upward, even either when the club's expectation of value is higher than carrying value.…”