Why balance sheets of football clubs can’t be trusted

Balance sheet

Have you ever wondered why big clubs like Real Madrid, and Barcelona can spend millions of euros, but can post a big profits in their balance sheets. Well its a very simple trick, and its all about accounting.

When football clubs buy a player they pay for him certain amount of money. That money is transferred to another club immediately, but not in the balance sheet. In the balance sheet there is just a part of that money being sent, or spent that year. This is basically due to amortization of the players.

Cristiano Ronaldo amortization
AMORTIZATION ON CRISTIANO RONALDO

Example would be, when Real Madrid bought Cristiano Ronaldo for €100 million, and the player himself signed a 5-year contract at the club. This meant that Real Madrid paid for Cristiano Ronaldo only €20 million (100/5 = 20) in the first year of his signing in the balance sheet. Real Madrid than reported this €20 million in balance sheet every year during that 5 year contract, except if there was extension (and there was an extension). With extension of the contract, that 100 million gets to even smaller parts.

The thing is that when the club sells the player, all the money is included in the balance sheet. When Manchester United sold Crsitiano Ronaldo to Real Madrid, their balance sheet had a whole €100 million that year.

Its similar to amortization of a machine, which is funny given that players usually say that they aren’t machines. Well they are made to look like machines in the balance sheets. The weird part here is that players aren’t getting worse all the time, like machines do, but they actually get better most of the time. This would mean, that amortization of the players is simply wrong in football clubs, and can be taken advantage of (and is taken advantage of).

Spendin and Selling
WRONG SPENDING AND SELLING

With this kind of amortization, clubs can show much better financial results. In other words, when Real Madrid bought Cristiano Ronaldo for €100 million, and let say, they sold one random player for €20 million, their balance sheet would indicate that their spending was equal to their selling, which doesn’t really make sense, now does it.

Wrong profit
WRONG PROFIT

This is why the clubs, that are selling and buying players the most, are showing totally unrealistic picture in their balance sheets. Manchester United spent around £150 million on players last summer, but sold players for around £30 million. That means, if every player Manchester United bought signed a 5-year contract (a big possibility), than Manchester United spent exactly £30 million, or in other words, the same amount they sold that summer. That would also mean that Manchester United profit was actually £120 million worse (120 – 30 = 120), than they showed.

I believe that football organizations should do something about this amortizations of the players, because big football clubs, that buy and sell a lot of players, can show much better financial performance. This in turn can help big clubs bypass the new financial rules, and increase the value of their stock (if the club has them). I mean people aren’t machines, and they shouldn’t be treated like that. Neither in real life, and neither in a balance sheet.