A stop to revenue inflation: Audit watchdog sets precedent for accounting income from player transfers

Clubs reporting under global accounting customs known as the IFRS Standards should not record income from player transfers as revenue in their financial reports, the accounting watchdog behind the regulations has determined.

The conclusion, which has no effect on profitability or returns, clarifies that gains and losses from the disposal of players, who in accounting terms are described as intangible assets, should be included in profit or loss when they are transferred, the not-for-profit IFRS Foundation said in a statement, referencing its literature on the matter (paragraph 113 of IAS 38).

"Applying that paragraph, the entity recognises in profit or loss, but not as revenue, the difference between the net disposal proceeds and the carrying amount of the registration right," it said.

In addition, the conclusion is understood to make it possible for clubs to register gains from player sales in their revenue if they immediately upon the purchase or registration of a player make it clear their intention is to sell him or her. They would instead be able to classify a player as inventory rather than an intangible asset. 

Streamlined comparisons

According to accounting expert Chris Winn, MSc Football Business programme leader at University Campus of Football Business (UCFB), the decision could contribute to a more streamlined European standard.

"In terms of making cross club comparisons, such a decision probably makes life easier for analysts and investors," he told offthepitch.com. 
For English clubs, almost all of whom report under FRS 102 (UK GAAP) standards, Winn said he didn't expect anything to change.

"As such [they] always categorise profit on player sales separately to top line revenue, incorporating matchday, broadcast, commercial only," he said.

"Even Manchester United, who report under IFRS due to being listed, separately distinguish revenue and profits on disposal of intangible assets such as players." 

Are transfers integral or not?

Winn explained that the overarching viewpoint in England is that the buying and selling of players is not a consistent, comparable source of income. Elsewhere some oppose this, however, for example French club Lyon.

In their financial report for last season released in July, Lyon said player training and trading have always been an integral part of their business and as such had recognised the sale of player registrations as revenue. 

"You can understand why those clubs that did report transfer revenue in their top line will be disappointed to not be able to do so going forward," Winn said.

Without the sale of players, Lyon's revenue last season stood at €185.4 million. With it, it stood at €276.3 million, so you can see why the club would want to include it. 

"Any inflation in revenue is always going to attract admiration from potential investors at a glance. But as they say, this decision does not affect profitability and return," Winn said.

To abide by the new standards, Lyon said they would create an alternative performance indicator called total revenue, corresponding to their previous definition of revenue which included income from player transfers.