Player Impairment

[coolhandfox]

I don't know where to put this, so I'm starting a new thread. (Only read if you are interested in football finance) 

 

I've been reading  an article on player impairment by The Swiss Ramble (If you are interested in this stuff, it is worth signing up for a small sub)

 

As impairment is the process of writing down player values in the accounts, the main benefit is reducing player amortisation going forward. 

 

For example, we brought Daka (23m) two seasons ago on a 5-year contract his fee is amortised in the accounts as 23m divided by 5 years = 4.6m per annum in your accounts.  His value in the accounts this summer would have been £13.8m, which is the remaining 3 years x 4.6m.

 

However, the club could choose to impair Daka value to £9m and reduce the annual amortisation over the remaining three years, which would fall to £3m.

So you basically take a hit in 1 year account period to make it easier for future account periods.

 

So in the Daka example, his liability in the accounts at the end of 22/23 would be his normal amortisation of 4.6m + the impairment of 4.8m = 9.4m, but moving forward your amortisation for each season lowers 

 

According to Swiss Ramble, relegated clubs often book large once-off player impairment charges in their accounts once relegation is confirmed; due to FFP regulations, as there is a higher allowable loss in the Premier League, the amount impaired goes down as a non-cashflow expense. Fulham impaired £21m in 2020/21 and Stoke City £29m in 2017/18. 

 

So let's say we did an impairment of 10m in our 22/23 accounts, it reduces our liability on player amortisation by 10m in our 23/24 accounts.

 

When our accounts are released for 22/23 in a couple of months, it will be interesting to see our impairment figure; in 21/22, it was only 0.7m. 

 

I was thinking maybe selling Maddison in the 22/23 window wasn't to meet FFP; It could have been to give us some extra wriggle room to impair player values and take a bigger loss in 22/23 and make this season a little easier against the stricter Championship P & L.

 

Just found it interesting, so I decided to share, and food for thought.   

 

 

 

[Winchesterfox]

Isn't another explanation that they wrote down Daka's value because they realised they had overpaid for him? 

 

[David Hankey]

"Impairment" gives the impression the player has only one eye, arm, leg or so on.

[Wymsey]

1 minute ago, David Hankey said:

"Impairment" gives the impression the player has only one eye, arm, leg or so on.

Same..

 

Seriously, does the club have a visually-impaired side?

[HitchinFox]

3 minutes ago, Wymsey said:

Same..

 

Seriously, does the club have a visually-impaired side?

Yes. Ward plays in goal and Jon Rudkin is up front for them. 

 

 

[Realist Guy In The Room]

Yeah I think i'll give that sub a miss.

[coolhandfox]

16 minutes ago, Winchesterfox said:

Isn't another explanation that they wrote down Daka's value because they realised they had overpaid for him? 

 

I was just choosing Daka as an example. 

[Ric Flair]

58 minutes ago, coolhandfox said:

I don't know where to put this, so I'm starting a new thread. (Only read if you are interested in football finance) 

 

I've been reading  an article on player impairment by The Swiss Ramble (If you are interested in this stuff, it is worth signing up for a small sub)

 

As impairment is the process of writing down player values in the accounts, the main benefit is reducing player amortisation going forward. 

 

For example, we brought Daka (23m) two seasons ago on a 5-year contract his fee is amortised in the accounts as 23m divided by 5 years = 4.6m per annum in your accounts.  His value in the accounts this summer would have been £13.8m, which is the remaining 3 years x 4.6m.

 

However, the club could choose to impair Daka value to £9m and reduce the annual amortisation over the remaining three years, which would fall to £3m.

So you basically take a hit in 1 year account period to make it easier for future account periods.

 

So in the Daka example, his liability in the accounts at the end of 22/23 would be his normal amortisation of 4.6m + the impairment of 4.8m = 9.4m, but moving forward your amortisation for each season lowers 

 

According to Swiss Ramble, relegated clubs often book large once-off player impairment charges in their accounts once relegation is confirmed; due to FFP regulations, as there is a higher allowable loss in the Premier League, the amount impaired goes down as a non-cashflow expense. Fulham impaired £21m in 2020/21 and Stoke City £29m in 2017/18. 

 

So let's say we did an impairment of 10m in our 22/23 accounts, it reduces our liability on player amortisation by 10m in our 23/24 accounts.

 

When our accounts are released for 22/23 in a couple of months, it will be interesting to see our impairment figure; in 21/22, it was only 0.7m. 

 

I was thinking maybe selling Maddison in the 22/23 window wasn't to meet FFP; It could have been to give us some extra wriggle room to impair player values and take a bigger loss in 22/23 and make this season a little easier against the stricter Championship P & L.

 

Just found it interesting, so I decided to share, and food for thought.   

 

 

 

Good stuff pal!

[KingsX]

This is really useful info and easy to grasp -- thanks --

 

But maybe you should change the thread title?  Because I was expecting something more like

 

[worth_the_wait]

4 hours ago, David Hankey said:

"Impairment" gives the impression the player has only one eye, arm, leg or so on.

We have signed some one-footed players over the years!

[Les-TA-Jon]

What exactly is the impairment though @coolhandfox?  Is it a fee/payment you make? And if so, to who? 

 

In the Daka example: Summer 2023 value £13.8m. 

 

18 hours ago, coolhandfox said:

his liability in the accounts at the end of 22/23 would be his normal amortisation of 4.6m + the impairment of 4.8m = 9.4m, but moving forward your amortisation for each season lowers 

What is that £4.8m? 

Edited 30 January 2024 by Les-TA-Jon

[LFEFox23]

Suppose its the same as Stock/Machinery in a business and the depreciation loss each year of that item.

 

[coolhandfox]

3 hours ago, Les-TA-Jon said:

What exactly is the impairment though @coolhandfox?  Is it a fee/payment you make? And if so, to who? 

 

In the Daka example: Summer 2023 value £13.8m. 

 

What is that £4.8m? 

 Impairment is a permanent reduction in the value of a company asset.

 

Impairment writes down player values; it also has the benefit of reducing player amortisation going forward. 

 

You don't pay anyone; it is recorded as a non-cash flow expense for accounting purposes.

 

So, in the example I gave, the club could decide to impair Daka's current value in the 22/23 accounts from 13.8m to 9m; the difference of 4.8m is recorded as a one of impairment in the accounts and his future amortisation for the remaining of his contract drops. 

 

 

 

 

 

 

 

 

 

   

 

Edited 30 January 2024 by coolhandfox

[coolhandfox]

2 hours ago, LFEFox23 said:

Suppose its the same as Stock/Machinery in a business and the depreciation loss each year of that item.

 

Similar 

 

Impairment is unexpected damage that results in a sudden loss in value,

Depreciation is expected wear and tear that results in a gradual loss in value.

 

So, our unexpected damage is relegation, which affects a player's value.

Edited 30 January 2024 by coolhandfox

[Les-TA-Jon]

9 minutes ago, coolhandfox said:

 Impairment is a permanent reduction in the value of a company asset.

 

Impairment writes down player values; it also has the benefit of reducing player amortisation going forward. 

 

You don't pay anyone; it is recorded as a non-cash flow expense for accounting purposes.

 

So, in the example I gave, the club could decide to impair Daka's current value in the 22/23 accounts from 13.8m to 9m; the difference of 4.8m is recorded as a one of impairment in the accounts and his future amortisation for the remaining of his contract drops. 

Right so it's a one-off accounting loss, to make the amortisation more favourable going forward. 

 

And therefore making it easier to sell them not-at-a-loss in the future? 

 

So for example:

• you sign someone for £30m for 5 years, amortised at £6m per year. 
• 3 years into that contract, their book value is £12m 
• But the club 'decides' to value that play at, say £4m
• Meaning an impairment charge of £8m (which presumably has to go into the loss column?)
• So now the book value of the player is £4m instead, going down by £2m per year over the final 2 years of the contract

Is that about right? 

 

I guess I'm not understanding what the benefit is? 

 

If the £8m impairment goes down as a loss, then you'd still have to sell the player at £12m+ to count it as a profit anyhow? 

 

Unless the only benefit of impairments is to take an accounting loss now, but at the benefit of reducing amortisation going forward? 

[coolhandfox]

2 minutes ago, Les-TA-Jon said:

Right so it's a one-off accounting loss, to make the amortisation more favourable going forward. 

 

And therefore making it easier to sell them not-at-a-loss in the future? 

 

So for example:

• you sign someone for £30m for 5 years, amortised at £6m per year. 
• 3 years into that contract, their book value is £12m 
• But the club 'decides' to value that play at, say £4m
• Meaning an impairment charge of £8m (which presumably has to go into the loss column?)
• So now the book value of the player is £4m instead, going down by £2m per year over the final 2 years of the contract

Is that about right? 

 

I guess I'm not understanding what the benefit is? 

 

If the £8m impairment goes down as a loss, then you'd still have to sell the player at £12m+ to count it as a profit anyhow? 

 

Unless the only benefit of impairments is to take an accounting loss now, but at the benefit of reducing amortisation going forward? 

Correct,  relegated clubs often book large once-off player impairment charges in their accounts once relegation is confirmed, so you book the loss into the PL season accounts and get the benefit of reduced liability in championship accounts. 

[volpeazzurro]

23 hours ago, David Hankey said:

"Impairment" gives the impression the player has only one eye, arm, leg or so on.

So we can therefore make Praet a total write off under the impairment scheme then?

[Wasyls Pec Deck]

On 29/01/2024 at 16:52, David Hankey said:

"Impairment" gives the impression the player has only one eye, arm, leg or so on.

Yea I was hoping this thread was about Trevor Benjamin’s wonky eye impairment