Question

One of the interesting aspects of intangible assets that often comes up is the talent hired by companies that help make the organization unique... imagine, for example, Steve Jobs or Bill Gates - does their reputation augment Apple or Microsoft? What about other employees? Well, not to be cold, but most of us (myself included) are not going to be deemed 'intangible' assets to the point of posting a value on the balance sheet. However, there are individuals that would qualify - a perfect example would be professional athletes. I'll post a link to the article below, but the simplest form is that some accounting standards (FRS which is UK based and may also be very much part of the IFRS requirements being reviewed for the Week 4 paper) does require long-term player contracts to be capitalized and amortized. In a sense, it is logical as you are signing a contract that will incur a known long-term cost and have acquired an asset not easily replaced (so one would assume) and which will generate (it is hoped) appropriate revenues. Does the idea of capitalizing and amortizing contracts for sports figures seem logical? I think one could easily argue it... a player may be signed to a 12 year deal @ $12,000,000... we have our capitalization figure and term of contract for the amortization of expense - and the individual should provide an expected return during performances and simply being a fan favorite.

What do you think? How would you argue for or against this position?

Answer 1

Talking about the football players, they are human capital for a club. They represents intangible fixed assets who have been acquired for a certain sum and would be useful to the club for a certain period of time.

Now, since the players are acquired for a period of time; ideally the acquisition cost should be divided over the duration of the contract. Suppose a player has been signed for 12 million for 12 years, then the player is expected to bring the benefit to the organization for the 12 years and hence the cost should be amortized over the 12 years as per the IFRS guidelines i.e. matching of the revenue and costs.

Now, one may argue that the players doesn’t being revenue to the club, they just play, score goal and make team win. But the revenue earned are win income, tickets income, advertising income etc. These just are dependent on the club’s fan base and how club performs; which again is linked to the player’s performance. Hence the players are the ones that determines the club’s income; hence their expenses should be divided over the years.