Sterling for £49m? The Gamble and the Curse

[Sir X]

Lets Stick to # 1 because 2 and 3 a frack talk , Mo can deal wid dat .

#1 Yes I called for his head, not ashamed of it , all he had to do was win the league and have egg over my face , he didnt ,HE IS A RUCKS ! Rodgers will be given as long as the fans dont revolt, you know it and I know it.FSG a frig demselves.

[PeeJay]

Depreciation cannot really be used to describe a person

In accounting terms depreciation is a reduction of a fixed asset over the useful or life of that asset. Therefore, I see where X uses it he means over time if the coach nuh improve the player ala Lucas den him lose value....now if both u and X wah use depreciation as a means fi describe players..(mi tink unuh a use plantation owner jargon without realizing it...lol...lmao

So both a u, sud take up di class..Amortization of the multiyear contracts players signed, would be the place fi start...So tell unuh teacher unuh wah learn more accounting terms and it's relevance on sport teams...

[Peter R]

The problem with "common sense" is that it isn't all that common, even in those who profess to have it

I am quoting this from Paul's post, which if you had read it carefully would have answered your question re "depreciation" :

if they "depreciate" (i.e. expense the purchase price of player)

In other words, depreciation is NOT (in accounting terms) the loss in value of an asset nor is it the opposite of appreciation. The prime example of this is real estate which you should know about. Real property typically appreciates in value, but the business owner will "depreciate" it, i.e. recognize a portion of the purchase price as an expense annually over a certain period of time. For a building that might be forty years.

When a building/property is acquired for say £40m, the owner records an asset on the Balance Sheet, under Assets~ Building £40m. Every year, to keep it simple, the owner will recognize £1m as an expense that is deducted from revenue that year. After 40 years the asset is fully depreciated and he can no longer make that deduction. The value of the asset could very well have increased in value (or decreased depending on circumstances). The "problem" is that most physical assets tend to lose value over time, machinery , autos etc. and accountants like to match the amount "depreciated" to the actual loss in value of the equipment... and so lay persons equate depreciation to a loss in value, rather than simply some amount recognized as expense annually.

With players, ManCity will record RS at £49 (for ease of calculations let's say £50). If his contract is for 5 years, they (possibly) will deduct approx. £10M per year from revenue, on a line called depreciation (or amortization which is a term many accountants prefer) expense~RS. His market value might have increased or decreased BTW. When he is sold they either make a profit on the asset or not, or break even. If he sees out 5 years, and leaves no profit or loss is recorded. If he leaves before, profit or loss will be calculated on the net book value (NBV), i.e. Cost MINUS amount depreciated (recognized as an expense at selling date) e.g after year one he is sold for £50, then profit of almost £10m will be recognized. Cost (rounded to £50) MINUS £10 depreciation gives NBV of £40. Therefore selling at £50 would see a gain of £10m would be recognized.

And BTW, I don't have a degree in accounts, my specialty is French and Spanish, but I paid attention in accounting class!

Hope that explains the depreciation thing.

[Peter R]

CPAs and CAs etc. you all can correct any errors in my little presentation. Thanks. I don't always remember everything quite right, but the gist of the "argument" is to rid our minds of the notion of depreciation as a decline in value, but I do recognize that this is how the term is used in every day parlance.

[Bricktop]

well done...depreciate it very much Peter R

[Karl]

An aside: Angel Di Maria and Radamel Falcao

Those guys are top world players.
...and I would not label last seasons play by each as less than good. They were not at their best but they were good and at times very, very good.

[PeeJay]

Peter R nice explanation

in your follow up. Respect fi a none accountant.

[Rockman]

FYI,maybe it is esoteric but you never speak of profit and loss accounts in the recording of business transactions of clubs,it is always income and expenditure.
Depreciation lowers the value of fixed assests,that is evident in the P&L accounts and besides that asset will be recorded at a lower value in the balance sheet as at the subsequent period.

[Rockman]

Why are you treating a player as a fixed asset?
Players by dynamic are subjected to being sold,depreciation applies to assests held for the loooong terms with no intent of it being sold in the near future.

[Paul Marin]

Yuh ave sense? yuh think education gi yuh common sense ?...yuh spen yuh money , fi add value inna yuh life .Yuh think club different ? Because a man spend a 100 dollars on material after im sell $200,if im can build $400 outta dat , nuh value im a look.

Claffy ....I thought appreciation was an increase in assest value and depreciation was the opposite.If a man uses his assest (materials) and nurtures it to a product that the market will pay more than the initial assest isnt that appreciation, isnt that why clubs have youth clubs, isnt that why Rafa bought Sterling for 600 K .

Teach mi something , mi a listen.

See Peter give you the lesson dehso...the problem with your assertions is that you are not seeing from the OWNERS eyes...you are going on like a regular bug fan.

[Peter R]

Why are you treating a player as a fixed asset?
Players by dynamic are subjected to being sold,depreciation applies to assests held for the loooong terms with no intent of it being sold in the near future?

Rocky, I am not a qualified accountant but another term for fixed assets is as you say "long-term" assets. Such an asset is one that will have a useful life (to the enterprise) typically of longer than ONE YEAR. As such, if the club "buys" the player, i.e. pays another entity to acquire the player's services, and the player is subsequently contracted for a period of longer than one year, I see no reason why the player would not be treated as a "fixed asset". The groundsman is hired to keep the pitch in good condition and is paid his salary. But no cash was outlaid to acquire his services. Cash is outlaid for players, and this asset is being utilized to generate revenue, in the same way a piece of equipment is. Yes, it sounds like they're being reduced to less than flesh and blood but that's probably what happens.

In fact, by law, I'm pretty certain that the club would have to recognize some expense related to the player, in the form of depreciation/amortization. IMO, it would also be in the club's interest to "depreciate" the player and thus reporting lower net income and thus paying less tax. Also, if they did not do this, they would be overstating net income (or understating net losses) and therefore violating some accounting law or (matching?) principle, i.e. the player helped generate revenue, but no expense is recognized if some sort of depreciation is not done. In accounting, expenses are incurred to generate revenue.

And, whether there is no initial intent to sell the player, well, what just happened with Sterling? One never knows. Intent to sell is not in the equation I would say.

If it is more palatable, you could say the purchase price of the player is expensed over the duration of the contract, so if club pays £50M for player and he is contracted for five years, then they will recognize £10m per year as amortization/depreciation expense (of course the amount they expense depends on what method of amortization they use ).

[Rockman]

Look closing stocks represent current assets that were not sold during the year ending..,should we reclassify those as fix(ed)assets?
It is safer to see assets in terms of how easily liquidated they are,fact is City replaced a current asset(cash)with another current asset Sterling on its books.
Secondly,Sterling will always be listed a 49..(amortization my neckback),adjustments will be made if he is sold.
Thirdly,the amount paid for Sterling to a third party is NOT an indicator of the salary expected to be paid to him.

[Rockman]

Peter R,the term amortization is probably a concoction of lazy accountant,it most certainly is determined after the fact,case in point,Barca managed to get maximum cash for its bench warmer keeper because Man U was willing..

[Peter R]

Look closing stocks represent current assets that were not sold during the year ending..,should we reclassify those as fix(ed)assets?
It is safer to see assets in terms of how easily liquidated they are,fact is City replaced a current asset(cash)with another current asset Sterling on its books.
Secondly,Sterling will always be listed a 49..(amortization my neckback),adjustments will be made if he is sold.
Thirdly,the amount paid for Sterling to a third party is NOT an indicator of the salary expected to be paid to him.

1. If a company owns stocks, those are not "depreciable" assets as they are bought for investment purposes typically and are expected to be resold at some time and therefore, NO, and they are not in the same category of asset as a "fixed asset" and would not be re-classified as such. Stocks bought and classified as current assets typically would be done if a company is cash rich and not have immediate use for the money. IT IS NOT at depreciating asset because of their liquid nature.

2. I disagree with your liquidation point. Many fixed assets can be easily liquidated, it just depends on price (maybe?). Inventory for resale that is obsolete or stale etc. is a current asset, but you'd probably have to throw it out especially if you're talking perishables. Sterling, I doubt would ever be considered a current asset. Yes, he will be listed at £49M LESS depreciation. If and when he is sold, if that is done before his contract has expired, yes, they will then recognize a gain or loss on sale.

3. I NEVER brought salary into my discussion other than when I spoke of the groundsman I think, I was merely trying to differentiate between the types of employees, so I'm not sure what triggered that comment, BUT, if it makes you feel better, I agree.

[Rockman]

Fixed assets and only that type of assets are subjected to depreciation,perishable goods factor in goods available for sale,that is the trading part of the T,P&L accounts.
Cash isn't an entry there,it has everything to do with the balance sheet..under the heading of current asset,well Sterling is recognised as a current asset too given the dynamics of being a player.