It is an exciting time for avid football fans when the English football season has begun, and the player transfer window is open. During this time, players move clubs both permanently and temporarily. A temporary move is a player out on “loan”, or to us Accountant’s “a lease of an asset”.
At the date of writing this, there have been 57 loan transfers completed by Premier League clubs, and when accounting for these player loans, Premier League clubs may apply IFRS 16. When a player is loaned, another club is essentially paying for the right to use the asset of that players’ registration.
The accounting of a football player’s contract to a football club is done by capitalising the costs associated with registering the player (excluding wages) and then amortising that value over the contract term. The value of the players’ contracts can range for Premier League clubs and those like Manchester United, the asset value of their ‘registrations’ is more than $346m (June 2020) and even for newcomers like Watford, the asset value of their ‘players’ registrations’ is $120m (June 2020).
IFRS 16 states that a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Within our context of football loans, there is a right to control the use of the player’s registration rights for a period of time through either contributing to the player’s wages or a loan fee. This suggests that IFRS 16 applies to the loaning of registration rights from one club to another.
So, when Axel Tuanzebe moves from Manchester United to Aston Villa on a season-long loan or Billy Gilmour is loaned from Chelsea to Norwich for the season, IFRS 16 is the accounting standard that is referenced for this transaction. Some loan deals may fall into the short-term recognition exemptions when they are for less than 12 months but purchase options or sale and leaseback transactions do make the accounting for loan deals more complex.
IFRS 16 may also be referenced when football clubs lease stadiums or facilities or other equipment. Many premier league clubs lease the stadium from separate (but associated) companies, accounting for these leases under IFRS 16.
So, when you are next watching the exciting footballing spectacle on the football field, remember the critical lease accounting that goes on in the background.