I don’t know about you, but I always thought that company accounts were supposed to reflect financial reality.
Not, it seems, when the value of professional footballers is concerned.
Over the five years between 2008 and 2012, clubs competing in England’s Premier League booked a cool £1 billion-plus in net profits from the sale of players.
This means, in effect, that those players were undervalued by the same amount in the clubs’ balance sheets.
That strikes me as about as accurate a reflection of financial reality as the shots I once drilled in as a marauding midfielder that used regularly to screw out for throw-ins.
In fairness, this is not an exact science: a player worth £50 million one day could be rendered valueless (from his employer’s perspective) the next by a career-ending injury.
If a club’s balance sheet undervalued transferred players some years and overvalued them in others, you might argue that, over time, an accurate picture was presented.
Under present rules, though, it has become quite unusual in any given year for a Premier League club to record a loss on the sale of player registrations.
According to data compiled by Deloitte, the professional services firm that has carved out a name for itself as a reliable monitor of football finances, this occurred on only seven* occasions during that five-year 2008-2012 period.
I should acknowledge too that the present system has a simple logic – if you are an accountant.
In accountant-speak, a player is an intangible fixed asset.
And while you may be struggling to grasp what is intangible about, say, Vincent Kompany or Nemanja Vidić, this is because what we are really talking about here are the players’ registrations.
When a transfer is completed, the registration is normally put on to the buying club’s books at the full acquisition cost.
This is then amortised over the length of the new player’s contract.
If he cost £20 million and is given a five-year contract, then £4 million is taken off his book value each year until his contract expires and his value to the club is therefore zero.
By this way of thinking, it is also perfectly logical to ascribe ‘home-grown’ players, no matter how talented, a book value of zero, since no transfer fee was paid to obtain their services.
But while the system may be logical, it seems to have got completely out of kilter with reality.
And with more and more money flowing into football, and football club finances subject to greater and greater scrutiny through initiatives such as UEFA’s new Financial Fair Play (FFP) regulations, I would argue we ought to try to come up with something better.
I note in passing that the financial review in Everton’s 2012 report and accounts states that the balance-sheet “shows a net liability position of £44.3 million”, but adds:
“It is important to remember that the balance sheet attributes little value to home grown players…and to players we have amortised over a period of time.”
I can envisage two possible routes to making balance sheets more accurately reflect the real value of players.
Either a specialist assessor could be appointed who would carefully assign estimated values to all players at regular intervals.
Or the present rules could be tweaked.
I think you would get much closer to true valuations by adopting the following three principles:
a) for players under 30, only amortise their acquisition cost during the final year of their contract – the reason being that the value of a Premier League player is as likely to go up as down while he is in his prime;
b) retain the present methodology for players 30 and over;
c) agree a sensible nominal book value, say £3-5 million, to be ascribed to home-grown youngsters when they reach the first-team squad – in effect a transfer fee to the academy.
A big problem for any reform is, of course, that accountancy rules don’t just apply to football.
Indeed, you might argue that what all this truly highlights is the absurdity of football’s transfer system.
After all, what other industry puts a price on key employees’ heads in this way?
And, even within football, the transfer system doesn’t cover those who, arguably, are the most important staff members of all – the managers.
*Figures for Portsmouth for 2010 were not available.
David Owen worked for 20 years for the Financial Times in the United States, Canada, France and the UK. He ended his FT career as sports editor after the 2006 World Cup and is now freelancing, including covering the 2008 Beijing Olympics, the 2010 World Cup and London 2012. Owen’s Twitter feed can be accessed at www.twitter.com/dodo938