Accounting for Football

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Journal of Business Finance & Accounting, 32(3) & (4), April/May 2005, 0306-686X

Discussion of Accounting, Valuation and Duration of Football Player Contracts
JOHN FORKER*

Investment by football clubs in player contracts provides a natural experiment to evaluate the mandated accounting requirement that purchased intangible assets must be capitalised (ASB, FRS 10, 1997b). The study is well grounded for three reasons. First, the availability of industry level transaction price data for transfer fees, second, a choice between capitalisation and amortisation of purchased intangible assets and immediate expensing was exercised in the UK prior to FRS 10, and third, in the period 1991–1998 only five out of the 58 clubs included in the study did not select immediate expensing, and only three clubs switched accounting methods. The aim of the paper is to investigate whether the accounting regulation (FRS 10, ASB, 1997a: IAS 38 (Revised), IASB, 2004b: SFAS 142, FASB, 2001) that purchased intangibles must be capitalised is appropriate. In these standards the application of the asset recognition criteria, that the expected future benefits from the asset are probable and will flow to the entity, is taken to be satisfied by the existence of the purchase transaction (IAS 38 (Revised), 2004b, para. 21). The authors’ question the adequacy of this line of reasoning on two grounds. First, some
*The author is Professor of Accounting at Queen’s University Belfast. Address for correspondence: John Forker, School of Management and Economics, Queens University Belfast, Belfast BT7 1NN, Northern Ireland, UK. e-mail: j.forker@qub.ac.uk
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Blackwell Publishing Ltd. 2005, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.

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FORKER

assets may be so speculative as to cast doubt on the prospect of recovery, and second, even if the duration of the asset is longer than one year the costly procedures associated with asset valuation



References: Accounting Standards Board (1997a), Financial Reporting Standard No. 10, Goodwill and Intangible Assets (London: ASB). ——— (1997b), Financial Reporting Standard No. 11, Impairment of Fixed Assets and Goodwill (London: ASB). Accounting Standards Committee (1994), Statement of Standard Accounting Practice No. 22 (Revised), Accounting for Goodwill (London: ASC). Amey, L. and D. Egginton (1973), Management Accounting: A Conceptual Approach (Longman, London). Amir, E. and G. Livne (2005), ‘Accounting, Valuation and Duration of Football Player Contracts,’ Journal of Business Finance & Accounting, Vol. 32, pp. 549–86. Baxter, W. (1971), Depreciation (Sweet and Maxwell, London). Bonbright, J.C. (1937), Valuation of Property (McGraw Hill). Chambers, R.J. (1966), Accounting, Evaluation and Economic Behaviour (Prentice-Hall). Financial Accounting Standards Board (FASB) (2001), Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (Norwalk, CT. FASB). Gynther, R.S. (1966), Accounting for Price-level Changes: Theory and Procedures (Pergamon). Hicks, J. R. (1946), Value and Capital (Clarendon Press, Oxford). Hotelling, H. (1925), ‘A General Mathematical Theory of Depreciation’, Journal of the American Statistical Association, Vol. 20, pp. 340–53. International Accounting Standards Board (IASB) (2004a), International Accounting Standard No. 36 (Revised): Impairment of Assets, (London, IASB). ——— (IASB) (2004b), International Accounting Standard No. 38 (Revised): Intangible Assets (London, IASB). ——— (IASB) (2004c), International Financial Reporting Standard No. 3, Business Combinations (London, IASB). Merrett, A and A. Sykes (1963), The Finance and Analysis of Capital Projects (Longmans). Solomons, D. (1962), ‘The Determination of Asset Values’, Journal of Business, Vol. 35 (January), pp. 28–47. Szymanski, S. and T. Kuypers (1997), Winners and Losers: The Business Strategy of Football (City University of London, London). # Blackwell Publishing Ltd 2005

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