Looking at the way we trade players, I don't think this is the way Arsenal do it. I think a player is bought like a piece of machinery and depreciated. So if we buy a player for 10M when he is 26yo, he will lose value over time until at 35 he is worthless, obviously depreciating faster as he gets older. That is why we tend to sell our older players. It effectively costs the club more to keep them each year, as their value drops. At the other end of the scale, young players go up in value, so they look good on the books. It is also why we HAD to sell Nasri. Losing him on a free would have meant writing off his value totally in one year. It is also why we keep signing the young players and non-first teamers (Bendtner/Almunia) unless they are sold. They are on the books at their theoretical value and we need to sell them at a reasonable price or make a book loss on them. They are retained from a business standpoint even if they are no use from a playing point of view.
BTDM is correct - that is how many clubs treat player values. The asset value is set as the transfer fee, which is amortised across the contract term down to a residual value (which continues to be carried as an asset). Any transfer fee above the residual value shows up as profit. The residual value is calculated based on wages received (amongst other things). Only about £17m of our ~£60+m outlay this year will show up as cost in the accounts, but the vast majority of the monies recieved for Nasri, Fabregas and Clichy will have gone to the bottom line.
Some decades ago I did GCE 'O' accounts, and I remember equipment depreciation typically being ' reducing balance' ie. over as many years as was reasonable to expect the asset to have a 'working life'. I had no idea how football players would be treated, except for the concept of initial contract period. Thanks for the explanation.
It was actually Spurs who introduced this method to accounting in 1989 Since then it has been adopted by more clubs. Prior to that incoming fess and outgoing fees were handled within the year of signed contract.
Expensed in year of acquisition? It would be interesting to see the old Chavski books done that way !! and more recently the ManOilwell books would look horrific. The loss would be astronomic. A rich man's plaything.
I think Jayram might be right that the amortisation never goes to zero, but I'm pretty sure that when a player signs a new contract that doesn't affect his book value of zero or close above. Accountants don't like companies valuing assets at above cost, unless there is a clearly independent way of determining market value (eg a gold bar can be valued using the price of gold). So any player sold during his second contract will create a profit equal to the transfer fee. This is of course part of the reason why players get paid so much. They can hold out for huge wages in return for a long contract as the length of the contract affects the price they can be sold for.
- and it encourages a fresh contract before Bosman kicks in. You wouldn't want a written down asset worth close to nothing, compared to an asset with small book value but great sale profit potential.
well done arsenal, that makes 2 clubs in funds and making a profit. welcome to the club. there are not many profit makers in the fl. port vale could go into admin any day soon. i admit we are no where near your league but well done arsenal. floreat salopia
From the 5 live discussion last night: It appears all the profit from player sales has been taken. It appears the £75m extra costs of summer player signings includes agents fees, future possible costs. Given say, £64m in transfer fees on players with 3 to 4 year deals, we have an amortisation burden of between £16m and £21m for this year and 2 or 3 more. It was stated that we have players on too-high wages, and that was the reason we couldn't sell them on. The Stadium debt was now down to £230m, with Property future profit estimated to be about £30m. Our youth signings are achieved with too high wages - no mention of the 71 players being made. It was thought that Kroenke has never met Usmanov !!!!! When current sponsor fees end in 2014, significant increased income is expected. It was thought this was taken into account by Kroenke when buying the major shareholding.
I think one of the main points to come out of the 5live programme was to give detail on how our money is spent and tied up in servicing the club, players etc. I think some people have looked at the figures a little too simplistically and not taken into account the complexity of detail that governs the finances. The idea that we were simply sitting on a £120m war chest and refusing to spend it was simply a naive over simplification.
Well, yes - but the point that was made centred around Wenger's previous refusal to buy - then 'went mad' in the summer. Of course opinions still exist that he would have been better buying maybe 2 x £30m stars than the route he took. The money spent was basically that obtained from Nasri/Fabregas - Gazzo still says there is money available. (£45m?) Cash in bank - for all sorts of potential costs is now £120m.
No, the residual value is based on a number of factors - mainly wages and age, but there are also provisions for injuries and loss of form. UEFA regulate this. I would point out there are a few different accounting policies in force - not every team does it the same way.
This is the Arsenal accounting policy with regards to the value of players held on the balance sheet, taken from their published accounts: "Player costs The costs associated with acquiring players' registrations or extending their contracts, including agents' fees, are capitalised and amortised, in equal instalments, over the period of the respective players' contracts. Where a contract life is renegotiated the unamortised costs, together with the new costs relating to the contract extension, are amortised over the term of the new contract. ... Profits or losses on the sale of players represent the transfer free receivable, net of any transaction costs, less the unamortised cost of the applicable player's registration." Player values are written off on a straight line basis (e.g. £6m over 3 years is £2m a year) rather than a reducing balance basis (e.g. £6m at 25% a year being £1.5m in year one, £1.125m in year two etc.) Whilst player values can be impaired where the club does not expect to recover the unamortised cost on sale, they are not increased. Renegotiated contracts will be capitalised insofar as the agents fees applicable. I hope this is enlightening.
Thank you. Q: A player (RVP for instance) has his transfer fee and initial contract amortised and almost completed, re-signs with a fresh contract over say 3 years. The amortised amount per year is now the initial amortised balance plus new contract costs of wages etc. In the books this asset appears low value - but in reality his transfer value is now approx, say, 6 times the original transfer fee - does this estimated asset value actually show anywhere? or is it a hidden value when trying to value the Club?
Another quote for you which should help: "The net book amount of player registrations will not reflect, nor is it intended to, the current market value of these players... The directors consider the net realisable value of intangible assets (e.g. players) to be significantly greater than their book value." So no, the estimated asset is not shown in the accounts. When valuing the club, I'd imagine there would most likely be a sizeable goodwill amount to reflect these assets. But the fact that players are held on the balance sheet at lower than market value would explain the large profits on player sales. Also, it's worth noting that player transfers received are recognised in full in the first year, regardless of when they are due to be paid. So accounting profits may not always reflect cash (although as Arsenal have a £50m cash balance in the bank, that may not be relevant here!).
