Accounting for the ‘recruiting club’ (Real London)
As part of a player’s transfer, Real London incurs various costs to register the player with the local football association.
The player’s registration rights meet the definition of an asset, because they are a resource controlled by Real London, and they meet the definition of an intangible asset in paragraph 8 of IAS 38, because they arise from legal rights (IAS 38 para 12) and lack physical substance.
The asset is recognised when control transfers to Real London and it is probable that economic benefits will flow to Real London (IAS 38 para 21). Judgement is sometimes needed to determine when control has transferred. Indicators to consider might include notification from the local league, or conditions in the transfer agreement.
The costs directly attributable to the purchase of the registration rights are capitalised, including (but not limited to) the transfer fees paid to Madrid United, for an amount of €1,000 (IAS 38 para 27).
In accordance with paragraphs 97–99 of IAS 38, player’s registration rights would typically be amortised on a straight-line basis over the rights period, corresponding to the term of the contract that the club has signed with the player. The original amortisation period might be revisited in case of an early renewal of the player’s contract.
Real London is not impacted by the sell-on clause between Madrid United and Olympique Milan.
Accounting for the ‘selling club’ (Madrid United)
The club selling the player’s registration rights derecognises the rights initially recognised and amortised as an intangible asset from its balance sheet (IAS 38 para 112). Any difference between the proceeds received and the carrying value of the registration rights represents a gain (or loss) on disposal, which is recognised in the income statement (IAS 38 para 113).
The date of disposal is the date that control transfers (IAS 38 para 114), and the consideration received is measured in accordance with IFRS 15 (IAS 38 para 116).
In circumstances where control is retained by the selling club (for example, certain buy-back options, blocking rights for further onward transfer), it would be appropriate to defer any gain or loss on disposal until the transfer of control occurs.
The expense arising from the payment of €150 to be made by Madrid United to Olympique Milan would be netted in the income statement against the gain or loss arising from the transfer of Yazenito. In Madrid United’s balance sheet, the payment to Olympique Milan cannot be offset against the receivable from Real London, because the offsetting criteria in paragraph 42 of IAS 32 are not met.
In the income statement, the gain or loss from the sale of intangible assets is generally presented as a separate line item within operating profit in accordance with paragraph 85 of IAS 1. The overall results from selling registrations rights are often presented net as a “net gain / (loss)”.. Such gains or losses are not revenue.
Accounting for the additional consideration received by Olympique Milan
Olympique Milan sold the player and recorded a gain or loss on sale three years ago. Clubs generally exclude the variable consideration that they might receive from future onward sales when calculating the original gain or loss on sale of the player registration rights. This is because IFRS 15 includes guidance that variable consideration must meet the ‘highly probable’ threshold (IFRS 15 para 56). If Olympique Milan are in a position to determine that it is ‘highly probable’ that they will receive some additional variable consideration in the future from any onwards sale, it could be included in the original gain/loss calculation. However, the threshold is high and, given the inherent uncertainty around player careers, clubs are unlikely to record variable consideration on initial sale from sell-on clauses. The additional gain would not be revenue but rather an ‘other income/gain’, similar to the gains or losses on permanent transfers.