Archive for tag: Football club finances.

Amortisation and how it affects a football club’s profit figures

March 2nd, 2011 | 179 Comments |

Loads of financial nonsense to give you a headache
Ouch - me head hurts!
Much recent discussion about Newcastle United’s profits and/or losses in the transfer market has convinced one writer that a tedious post about amortisation is necessary.

I’ve noticed discussions in the comments on this ‘blog lately about players sold v players bought and the profit or loss that club makes as a result.

If, however, you try to tally this up with club accounts you have to bear in mind something called amortisation, which distorts things a bit.

I’ll demonstrate how it does so in possibly to most boring ‘blog article ever written.

Let’s say we buy a player for £12m in 2011 and he goes up in value playing for Newcastle (of course) and we sell him one year down the line for £24m. Without amortisation, it’s simple: we’d just record -£12m in 2011 and +£24m in 2012 against that player, giving us an over all profit on that player of £12m:

2011 2012 Profit On Player
(£12m) £24m £12m

However, in the real world – at least the one inhabited by accountants – it doesn’t work like that because of amortisation. If a player has signed a two year contract and is sold after one year, he is valued by his amortised book value, not by how much he cost in the first place. (more…)