As a football fan and an accountant, I am often bemused when other fans curse ‘the accountants’ for the decisions of their football clubs. Often, this will be in response to some baffling transfer activity. I believe much of this consternation can be resolved by changing how fees for transferring a player from one club to another are treated in the clubs’ financial statements.

When a football club pays a transfer fee to sign a player from another club, they recognise the fee as an intangible asset applying IAS 38. They then amortise the fee over the contract length. On some level, this makes sense. They are typically paying a huge amount upfront to get the player to play for them for a certain number of years.

To illustrate, Italian champions Juventus signed Dos Santos Aveiro Cristiano Ronaldo (hereafter referred to as Ronaldo) for an amount of €116 million in June 2018. His contract at the club is for 4 years. So the club recognises an asset on their balance sheet and amortise every year by €29 million.

This seems harmless, but it creates some unintuitive results. You can’t look at the balance sheet of 2 football clubs using the same accounting policy and come to any reliable conclusion about which one has the more valuable athletes, from a sporting or commercial point of view. There are two reasons for this. First, ‘home grown’ players who are developed through a club’s academy are never reflected on the balance sheet. The second reason is because players extend their contracts. Once a footballer has been with the club beyond the first contract term, their contract is fully amortised despite their ongoing value to the club.

The paragraph above shows why the ‘value’ reflected on the balance sheet is not particularly useful information, but could it even be detrimental to the best interests of the club. Let me present to you the curious case of Arthur Melo and Miralem Pjanic.

Arthur is a Brazilian midfielder who joined FC Barcelona in July 2018. In June 2020 he was transferred to Juventus. At the time of transfer his book value on the books of FC Barcelona was approximately €26million (the club does not disclose the carrying amount of each player contract, but the transfer fees and contract lengths are publicly available). The transfer fee was reported as €72 million, so FC Barcelona could report a neat €45 million profit from the transaction.

On the same day, the same clubs announced the transfer of Miralem Pjanic from Juventus to Barcelona for €60 million. Pjanic’s value in the books of Juventus was under €17 million (they publish the value of each player’s contract rights) so they also reported a hefty profit of more than €43 million.

You can understand why most fans of both clubs were left confused and suspicious of the accounting profession. As far as they were concerned, 2 players swapped clubs, with €12 million changing hands to compensate for the difference in their relative quality and age, yet both clubs recorded massive profit of over €45 million from the transaction. 

I think a way of resolving such irrational transactions is to introduce an accounting standard that mandates writing off transfer fees in the period they are incurred. This would align to how fans, who are arguably the primary stakeholders in sports clubs, understand transactions. It would also get rid of misleading carrying amounts on the balance sheet of football clubs which bear no relation to reality.

Leonard Mundida

Manager: Audit, Cape Town

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