Re: Wolves issue transfer update on Birmingham City target Dion Sanderson

Example taken from pwc guidance on typical football accounting treatments


Loans with obligation or option to buy – unconditional
obligation
Background Real London enters into a loan agreement with Madrid United, whereby Yazenito, under
contractual agreement with that club, would temporarily be transferred to Real London for a two-
year period. There are no ‘call back’ options.
As part of the loan agreement, Real London agrees to:
 pay €100 to Madrid United, and
 take over responsibility to pay Yazenito’s wages, amounting to €200 per year for two years.
The loan agreement contains an unconditional obligation to transfer Yazenito at the end of the loan
period permanently. The fee to be paid to the former club for the permanent transfer amounts to
€500, payable at the end of the two-year loan period.
Management has determined that each of the components of the agreement are priced at
market value.
How should management account for this transaction?

Solution Accounting for Real London
In substance, the loan constitutes a permanent transfer, because there is an unconditional
obligation to transfer at signature but there is a deferred payment arrangement (Framework para
4.6). There are no circumstances in which either club could elect to cancel on the arrangement.
It would then be appropriate to account for the transaction as a permanent transfer (see solution #1)
from contract inception, when control of the registration rights has transferred to Real London.
Real London would capitalise the present value of the total payable (€100 + €500) and amortise it
over the full player contract term.