Amortisation explained

Mr Philip McCosker

Posted: August 12, 2014

Tagged: costs / finance / income / players

Following the posts that have appeared here about the finances of Premier League football clubs, The Scorecard has received a number of requests for a definition of amortisation. This is the definition used by McCosker in his work in this area:

When a football club purchases a player the transfer fee is capitalised as an intangible asset.  This is then written off over the duration of that player’s contract as amortisation which is charged as an expense in the club’s income statement.  In this way a transfer fee is spread over the duration of a player’s contract.  The more that a club pays in transfer fees the higher the annual amortisation charge will be.

For example Manchester United recently paid £27 million to acquire Luke Shaw on a 4 year contract.  This means that the amortisation charge will be £6.75 million per year (£27m / 4 years).  This is treated as an expense thereby reducing profit.

In addition if there is any indication that the value of a player (or players) has fallen by more than the annual amortisation charge or there is a general fall in the transfer fees paid by clubs, an additional expense will be charged.   This is known as impairment and should ensure that the net book value of purchased players (shown in the intangible assets section of the statement of financial position) is not overstated.

About Philip McCosker

Philip is a Senior Lecturer in accounting at Coventry University.   Between 2005 and 2010 he was a Senior Trainer for the Chartered Institute of Public Finance and Accountancy (CIPFA) where he won the CIPFA National Students Forum Excellence in Education award in 2008 and 2009.  He is interested in the financial performance of football clubs in the English Premier League.