Football Finance 101 - Accrual World S1 E3

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football finances that's what we're

going to be talking about today now as a

segue into that i want to talk about

employees

you're an employee of a company i wonder

if you appear on the balance sheet of

your company

ben

you work for caplan for many years

i did i was there for 12 years i would

argue i was their most valuable employee

great with the students brilliant client

relationships i added so much value as a

manager i'm being arrogant here but you

take the point but i did not appear on

their balance sheet

that is perfectly correct ladies and

gentlemen

staff employees are off balance sheet

assets

now let's think about what an asset is

and why is it that staff are not shown

on the balance sheet

assets are something well is it

something that we own or is it something

that we can control control exactly

so as an individual

employee

you resigned

yeah i decided to leave and i left they

can control me in that regard but you

can control the chair you can control

plant and machinery as a business they

can be scrapped they can be thrown away

and a chair can never go sick

so it's a different relationship so

employees normal employees are not

controlled the other factor is of course

your wages ben your wages would have

been expensed

there's no reliable measure

of ben's brilliance there's no reliable

measure in monetary terms of that asset

yeah so that's our standard employee but

football clubs are quite different ah

right that's what we're talking about

football finance yeah

david beckham

do you remember david beckham i do um

actually dave and i've got a lot in

common right both grew up in essex we

both have beautiful wives we both have a

magic right foot and another thing we

have in common he also

wasn't on the balance sheet of man

united now

i can verify all four those things are

true but maybe not about your magic

right foot

but david beckham was not shown on the

balance sheet of man united although

strictly speaking man united did

control david beckham to the extent that

they held his players registration

and they

that they were the only ones that david

beckham could play football for but

david beckham famously

came through the ranks at man united

okay so we haven't got a valuation for

him a reliable number to go he's worth

this amount of money man united never

bought david beckham

and so without that transaction to prove

his value you can say footballers have a

value in general but not specifically

beckham well there was one moment there

was one moment because

if you remember real madrid

came in and

bought david beckham's players

registration and they paid something

like 24.5 million pounds okay so at that

point beckham can be capitalized as an

intangible asset in the financial

statements of real madrid yes because

they real madrid have credited cash

paid money out and debited the

intangible asset of david beckham's uh

players registration and on the other

side man united well they've just been

making a profit on disposal wouldn't

they they would so

the sale proceeds come in of 24.5

million

zero cost zero net but value

yeah straight on the bottom line so

debit cash credit credit pl in effect

okay man united remember profit making

business yeah is it a football club is

it a business you can see how attractive

from an accounting point of view is to

sell something which has got a zero cost

a zero carrying value yeah and a huge

actual value in the marketplace sure

okay we've talked a bit about accounting

let's let's talk about a little bit of

kind of auditing side now okay let's

talk about player wages so while beckham

was at man united this guy would have

been owning fortunes

so you know his standard wages

he'd have had all sorts of performance

bonuses for you know minutes he plays

goals he scores

all of this kind of stuff as well when i

was at kaplan

i was just paid a basic wage

and i think the auditors of kaplan

probably had a pretty easy job of

auditing the wage bill of cap plan

wouldn't you say so better yeah

definitely so i mean when i used to work

in audit

mostly pretty standard businesses retail

organizations with payroll you would

look at the

average salary from last year

add a pay rise whatever the standard pay

price was two five percent or whatever

and then multiply it by the average

number of employees

to get to an expectation of the payroll

expense

and then you compare that to actual

payroll expense and investigate any

differences what i'm describing here is

a substantive analytical procedure

and that would most of the time get you

very close to the actual number tick

there and then you'd look at any joiners

during the year make sure they were

processed properly on the correct dates

any levers during the year and again

make sure they were processed properly

and that would be it for payroll pretty

straightforward but it's it's not

straightforward for footballers because

they all have their individual contracts

a goalkeeper will be paid a bonus

presumably on clean sheets a striker

gets paid a bonuses on the number of

goals they score so presumably the audit

implications of that

are

what more work yeah well you'd have to

look at each contract individually so we

get each player's contract individually

we look at all of their terps i don't

have a standard salary but they have all

sorts of other things that mean that

based on certain criteria they might

earn more money

we'd have to look at each players and

actually the other factor to take into

account is

the the materiality of these wages will

be huge right so for a standard football

club they'll be spending 40 50 of their

revenue on wages yeah whereas for you

know a standard organization like kaplan

where we both worked

nothing like 40 to 50 percent of revenue

being spent on play on players wages on

employee wages so we'd look at each

individual contract get all the

individual terms and then we'd have to

look as the auditor you'd have to be

looking for independent data

to verify whether these performance

criteria have been met so number of

player of minutes played goals scored

we'd be looking at independent data

sources to confirm the numbers and then

create our own expectation of what that

player's salary should be for the year

or wages should be for the year and then

compare that to the actual wages that's

enough on auditing yeah let's go let's

and that's probably enough a man united

yeah let's continue to talk about

football finances but talk about

liverpool

talk about mo

salah what do we know about mo salah ben

um oh he's a fantastic striker yeah he

is um he looks amazing with his shelf

well i've got a sweet right foot but my

was bought for the total price for mo

salah when liverpool won from roma was

34.3

million pounds and i've seen some

different figures around that

transaction so what liverpool were doing

in buying mo salah in buying the players

registration they were crediting cash

and therefore they were able to debit an

intangible asset

because when a football club buys a

player's registration

it does meet the criteria for the

recognition of an intangible asset

under international accounting standard

38

there's a reliable measure

yeah they've paid some money there's a

probable economic benefit and they do

control

the contract they do control the player

to that extent so they can capitalize

that asset and then presumably there's

amortization yeah that's right mo salah

is not going to play football forever

and my understanding of it is that he

had a five-year contract

now under the bosman ruling for those of

you who know about these things the

residual value of a player at the end of

his contract is

nil

so you sign the player you capitalize

the transfer fee that you've paid

liverpool capitalized that then they

amortize it straight line one fifth one

fifth one fifth yeah over the players

over most salads contract so and it's

zero at the end but this boston ruling

is that at the end of the player's

contract they are able to leave the club

as a free agent yes no no they can't

demand liberal can't demolish transfer

they if they don't sell it before the

end of this contract okay so that's

reasonably i'm from an audience that's

really straightforward to value toward

it yeah we we look at the amount of

money they paid for mozart

easy back to the bank statements and we

go to the contract and go yeah it's a

five-year contract therefore we're

taking the 34.3 million divide by five

there's our amortization charge for the

year

what about that additional funny because

i did see there were two different

figures yes quoted for the purchase

consideration that liverpool paid one of

them was 30.8 one of them was 35.

there's a difference there of 4.2 what's

what's that about okay so

they had they paid an amount of cash up

front which was 30.8 million and then

there was a contingent consideration so

depending on how many times mozart plays

for liverpool and how many goals he

scores liverpool would have to pay more

money over to roma i think i think they

paid they paid didn't they well he was

successful yeah okay another point for

us to talk about what's his value now

but that extra amount of so it's three

and a half million with these contingent

considerations um

how do they account for that

well when the conditions are met

then liverpool have to make a further

payment

they credit cash

and they debit the asset they can't go

back and restate the previous accounts

it's a revision of an estimate okay so

they capitalize that transaction and

then amortize it over the remaining

period of the player's company so let's

say all these criteria are met after two

years of the contract then at that point

they add three and a half million onto

the value of the intangible asset and

that three and a half million gets

amortized just over the remainder of the

contract correct we don't go back and

restate correct correct absolutely

so

it's inconsistent really when you think

about it

for a football club because the players

that they have bought are appearing on

their balance sheet as an intangible

asset but the homegrown players

are not

they should be proper disclosure in the

notes to the accounts about their about

their squad and their squad development

but you talked about value

and and mo salah clearly has been a

successive report it's gone up in value

but as an intangible asset under i say

38 you're not able to re-value that

player because there isn't an active

market in that player there may be an

active market in footballers but there's

not an active market in that player so

mo salah remains a depreciating asset so

far as the accounts are concerned okay

so we can't re-value him upwards what

about if mozart breaks his leg and never

plays again

well let's hope he doesn't break his leg

let's hope he does continue to play

i think that would be an indicator of

impairment and i think we would look to

write that off okay but as soon as so i

mean i feel terrible if this does happen

but if most allen does break his leg

we'll feel very pretty guilty but and

that would be quite a cruel world i

think if they did it would be a very

cruel world if he if he broke his leg

and couldn't play again

thank you for listening

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