Ronaldo’s depreciation does not take into account age, Osimhen’s does

We publish below an excerpt from the book “A scuola da De Laurentiis. The efficiency of an innovative model” (published by Ultra Sport – 210 pages – 16 euros – preface by Roberto Beccantini and afterword by Angelo Mincuzzi) written by Vincenzo Emperorjournalist, writer, blogger of ilfattoquotidiano.it

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Ronaldo’s depreciation does not take into account age, Osimhen’s does

Often the evaluation systems of the squads of the football teams elaborated by some specialized sites confuse the public of fans who are not experts in finance, and above all they offer arguments for criticism which are then used, due to incompetence or in an instrumental way, by the various GianniBrerafuCarlo who populate the village of the local «New York Times». It is a narration based on the assumption that the value of the squads of the football teams represents a parameter for imagining, at least before the start of the championship, a grid of potential based on the equation “the higher the value, the higher the chances to be victorious”. An equation which, as we will see in the chapter What does a football company sell to earn, has been achieved in 95% of cases in the five main European leagues. But the evaluation of the squad was the one expressed in the financial statements, not the one made by the specialized sites.

Because the latter is not real, and it is not for an accounting reason: the financial statements must reflect the real value of the company as much as possible, therefore in order to represent it truthfully, it is necessary to follow accounting principles.

The financial statements of football clubs are drawn up on the basis of the fair value accounting principle, which consists in measuring assets and liabilities taking into account their present value. Translated: fair value is not the “market value”, i.e. a price negotiated in an exchange that is actually carried out (90 million for Higuaín) or simply imagined-treated (100 million for Koulibaly), but rather the estimated value (by who draws up the balance sheet) as “reasonable” for a hypothetical market transaction.

Reasonable: remember this adjective. Anything that is realized in excess of this reasonable value results in a capital gain; on the contrary, you take home a capital loss. In the financial statements of a football club, the “football pool” assumes an important weight, because it represents the fundamental, strategic and most valuable asset. On average, the weight of the player base on the total balance sheet assets is 40%.

And how is a footballer valued in a balance sheet? According to a value, precisely within the scope of the principles of fair value, defined as the Net Book Value and obtained from the difference between the historical purchase cost (the price tag cost) and the part amortized over the years, as well as the we have seen in the example of the Borgorosso Football Club. And also with regard to depreciation, accounting principles must be followed. Napoli, as also reported by «Calcio e Finanza», amortizes according to the decreasing quota method. In other words, it uses an accounting criterion that provides for the “consumption” of a player’s performance concentrated mainly in the first years of his engagement. It is an accelerated depreciation method that allocates most of a footballer’s costs to the first few years of its useful life. Therefore, most of the depreciation is concentrated in the so-called “protected period”, which has a duration of two years for players acquired with 28 years of age and three years for players aged less than 28 at the time of signing the contract . Amortization “on decreasing rates” makes it possible to limit the exposure in the financial statements of large capital losses, after the end of the “protected period”. It seems to me to be a correct and consistent criterion with the economic-technical useful life of a footballer: do you think the “consumption” of Mertens’ performances was greater at the beginning of his contract or at the end? When this method is used, a fixed annual percentage of use of the asset (footballer) should be established.

If Napoli sold the player at the end of the third year for 5 million euros, they would have made an accounting capital gain of 520,000 euros, and if they sold him at the end of the contract, even for just one million euros, they would bring home an accounting profit of 104 thousand euros. . At this point it is necessary to dwell on the “distance” that exists between the book value of a team’s squad (Net Book Value, value net of depreciation) and the market value expressed by specialized sites.

In the financial statements as at 30 June 2021, Napoli had a book value (Net Book Value) of players of only 126 million euros: the “distance” compared to the current market value made by Transfermarkt (477 million euros) is about 315 million! Analyzing Juve’s latest balance sheet and Transfermarkt’s valuation for the same period (642 million), we note that the “distance” is only 210 million, so we are much closer to the market value. Reading the notes to the financial statements, it can be seen that the Juventus club uses a straight-line depreciation accounting principle, according to which the calculation of the depreciation rates is carried out by simply dividing the value to be depreciated by the number of years of the useful life of the Well.

Simply put, Ronaldo’s usage rate was the same for all contract years. CR7, which cost 100 million for four years’ services, was amortized for 25 million a year: and in your opinion, was the consumption of the black and white’s services in his last year with Juventus the same as the first? To the narrators of the “ranking based on market valuations” I ask: is it ever possible that the “distance” for Napoli is more than double that of Juve? Isn’t it possible that Napoli, which has always stood out for the “quality” of its balance sheet, also stands out for the choice of accounting principles for the depreciation of its players?

The question is rhetorical.

Excerpt from “At school at De Laurentiis. The efficiency of an innovative model” by Vincenzo Imperatore, Ultra editions.

© 2023 Lit editions sas with kind permission