Recommendation DEM/RM 10081191 of 01/10/2010

Sent to the listed football clubs

RE: Recommendations on information to include in the financial statements and press releases of listed football clubs

With note no. DEM/2080535 of 9 December 2002 on "Recommendations on Interim Accounting Information and Material Facts of Listed Football Clubs", which remains in force, the Commission intended to focus on the need to standardise the selection criteria and the reporting methods of the principal information regarding the performance of listed football clubs.

This also in consideration of the specific features of football clubs such as, for example, the normally different timeframe between cash inflows and outflows and the low correlation between cash flows and the income trend.

In this context, the Commission recognised the need to promote standardisation of the contents and forms of presentation of financial information, identifying the basic reporting requirements for interim financial statements and  press releases with regard to the main financial and equity variables and the comments on the main operational events of the financial year such as the season ticket campaign, the sponsorship agreements and broadcasting rights licence agreements, as well as football player transfer campaigns.

This Recommendation, which complements the contents of the 2002 Recommendation, intends to identify some areas for improvement concerning the information reported by listed football clubs, with a special reference to remuneration and fees paid/to be paid to intermediaries and football players, considering the often-times significant amounts involved.

This Recommendation does not introduce further regulatory obligations compared to the current regulations. Its purpose is to draw the attention of listed football clubs to a precise application of the IAS/IFRS standards in preparing financial reports.

In fact, this Commission believes that regulations concerning financial statements and the rules set forth in the international accounting standards are suitable to effectively meet the disclosure requirements expressed by the market, also in the specific context of listed football clubs.

Therefore, we reiterate the need for precise, complete compliance with the IAS/IFRS standards when preparing financial reports as prescribed by EU and national standards.

As for the differences between such rules and what may be provided for by the organisational regulations issued by the Federazione Italiana Gioco Calcio (Italian Football Federation) ("NOIF"), football clubs may provide adequate information in the notes to the financial statements on the effects on the income statement, equity and balance sheet that would be determined by a possible application of the NOIF rules instead of the accounting regulations of reference.

 *   *   *

The examination of the financial information provided to the market by listed football clubs led to the identification of a lack of homogeneity in disclosing fees paid to third parties (intermediaries, representatives, agents) when acquiring the rights to football players’ services and renewing expiring contracts relating to these rights.

In particular, it is possible to improve standardization of disclosure on the accounting methods applied with regards to contracts signed by the football club with the intermediaries require that the payment of the fee to the latter is subject to conditions, such as the length of time the player remains with the club ("contracts with conditional fees"), or if the contracts in question do not provide for this condition ("contracts with unconditional fees").

Moreover, it was considered advisable to supplement the disclosure provided by listed football clubs on the accounting treatment of any variable fees provided for in the contracts signed with the football players, considering both the materiality of such fees and the increased use of such contractual provisions in the current usual procedure.

In this regard, in compliance with IAS 1 "Presentation of Financial Statements", paragraph 29 et. seq., the importance of a piece of information has to be assessed considering the information requirements related to the decision-making process of the users. The information is significant in terms of quality when it is able to affect the economic decisions of the users by helping them assess past, present or future events, or by confirming or correcting assessments they previously made.

The information that the Commission, following an informal consultation with the clubs and organisations concerned, considers useful to report in the (annual and half-year) financial statements is illustrated below.

*   *   *

Firstly, in compliance with paragraphs 117 et. seq. ("Disclosure of Accounting Policies") of IAS 1, the notes to the (annual and half-year) financial statements must contain a description of the accounting policies applied to the different types of contracts signed with intermediaries, by specifying in particular the applicable international accounting standards.

Contracts with unconditional fees

According to paragraph 119 of IAS 38 "Intangible Assets", classes of intangible assets can be broken down in smaller classes if this implies a more useful level of information for the users of the financial statements.
 
In pursuance of the said regulation, it is considered appropriate for a company that has signed "contracts with unconditional fees" with intermediaries to show separate evidence of the following in the notes to the financial statements:

(i)  intermediation costs capitalised as ancillary charges in the item "Deferred rights to football players’ services", should they be significant compared to the overall amount of the said balance sheet item. The breakdown of the total amount of capitalised ancillary charges must be provided in the accounting reports prepared after the financial statements for the year ended 30 June 2010. Temporarily, the amount of intermediation costs capitalised during the aforesaid financial year must be indicated inclusively in the financial statements for the year ended 30 June 2010, soon to be published - only if such amount is significant;

(ii) payables to intermediaries posted among liabilities of the financial statements;

(iii) lack of conditions.

Contracts with conditional fees

If a club has signed with the intermediaries contracts with fees subject to conditions such as the length of time the player stays with the club, it is considered useful to separately show:

(i) information concerning the type of contract and, in particular, the conditions contained in it;

(ii) amount of costs and payables indicated in the financial statements;

(iii) in compliance with the provisions of IAS 37 "Provisions, Contingent Liabilities and Contingent Assets", the estimate of the possible financial effects, if significant, related to the fees that the club will be required to pay to the intermediaries in the following financial years. If it is not possible to provide an estimate of such financial effects or it is unlikely that any resources whatsoever may be used to extinguish the obligation, these circumstances must be mentioned explicitly. Moreover, the clubs are asked to provide the considerations set forth by the directors, as part of the assessment of the going concern concept, with reference to the sustainability of the same commitments.

If a club has signed contracts with conditional fees of significant amount, in compliance with what is established by IAS 1, it is deemed advisable for the further important information concerning each contract (for example, the type of counterparty, the amounts paid or to be paid to the intermediary and the related settlement time as well as further contractual conditions important for the purposes of disclosure to the market) to be indicated in the notes to the financial statements.

Variable remuneration paid to football players

The contracts signed by football clubs with players can envisage variable remuneration (relating, for example, to the achievement of certain results).
 
In this regard, considering the importance that these variables can have in some cases, it is considered advisable for the football clubs to indicate in the notes to the financial statements information concerning:

(i) the nature and criteria whereby such remuneration is determined;

(ii) the methods used for accounting for it;

(iii) the amount of costs and payables indicated in the financial statements;

(iv) the estimate of the possible commitments related to the remuneration that the company will be required to pay to the football players in the following financial years. If it is not possible to provide such an estimate, this circumstance must be mentioned explicitly. Moreover, the clubs are asked to provide the considerations set forth by the directors, as part of the assessment of the going concern concept, with reference to the sustainability of the same commitments.

Also in this case, the directors are required to assess carefully the need to indicate in the notes to the financial statements the information that is important for the users of the financial statements.

*   *   *

Indications for press releases concerning material facts

As shown in said recommendation no. DEM/2080535 of 9 December 2002, and in communication no. DME/6027054 of 28 March 2006, the Commission verified that, due to the specific characteristics of the football clubs, to which news media pay special attention, gossip circulates frequently. This circumstance exposes the market to the risk of possible information asymmetries in disseminating news.

Therefore, the clubs must use the utmost care when issuing declarations with regard to player transfer negotiations considering that, as already observed by this Commission, the advance disclosure to the market of information concerning various agreements, still to be defined, is useful only if it is necessary to guarantee equality of information. Outside this context, this kind of communication can affect the proper operation of the market. In fact, only after having finalised the purchase and sale of football players, will the issuer be able to publicly disclose, pursuant to the regulations in force, the data required to carry out a complete assessment of the basic variables, such as the purchase or sale prices, remuneration, variable or otherwise, where relevant to the cost structure and the other information required by recommendation no. DEM/2080535 mentioned above.

DEPUTY CHAIRMAN
Vittorio Conti