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Professional sports athletes play for certain sports franchises throughout the year. However, these same players also represent their nation when it comes to international events.
One good example would be the FIFA World Cup. It needs to be understood that all good players such as Lionel Messi and Cristiano Ronaldo play for their respective countries. However, these same players are contractually obligated to clubs such as Manchester United and Paris Saint Germaine.
Hence, in order to participate in these international tournaments and represent their country, the players need to be released by their respective sporting franchises. Since these sporting franchises are releasing players, they also need to be compensated in some form.
It is common for sporting franchises to earn revenue from releasing players. In this article, we will have a closer look at the details of this revenue.
In order to understand the revenue contracts and how they benefit the sporting franchises, we need to understand the various parties involved in such contracts. Now, there are two obvious parties involved. On the one hand, there is a sporting body that organizes international events such as FIFA.
FIFA needs the players to be released for a certain period of time and hence is willing to pay compensation for the same. On the other hand, there are sporting franchises i.e., football clubs which release players to play in these tournaments. Since they are foregoing commercial benefits, they need to be compensated for the same.
However, there is another party involved in these contracts. This third party is the national association for that sport i.e., the governing body which administers the various sporting franchises which operate within a given country.
Instead of dealing with individual franchises, FIFA or any other organizing body, generally deals with the national association and then deals with the clubs. Hence, when it comes to international events, tri-party contracts are drawn up.
Sporting franchises cannot conduct their activities at a time when international tournaments are being played. Hence, they end up losing revenue as a result of these tournaments and must be compensated for the same.
However, the question arises about when this revenue should be recognized by the sporting franchise. It needs to be understood that in terms of accounting, revenues are only recognized when they are almost certain i.e. the performance obligation has been completed. As a result, revenues from releasing players need to be recorded by the sporting franchises only after the performance in the tournament has been completed.
Also, the number of games that the player plays may be variable depending on whether or not the team moves on to the later stages of the tournament. In such cases, the revenue must initially be recognized only for the minimum number of games and then adjustments must later be made in order to reflect the actual performance.
It is common for the sporting franchises to be compensated by the tournament host on a per diem basis. Hence, if a player is present in the tournament for a larger number of days, then the payment due to them also increases. It is important to realize that the payment made to all players is done at a flat rate. There is no adjustment which is made for senior players to which the sporting franchise may be paying more money as wages.
The accounting for compensation received as a result of releasing players for international competitions can be quite subjective.
In the past, there have been some clubs that have tried to net off the remuneration received against a particular player against the wages paid by the franchise to that player. However, certain accounting boards have criticized this practice and also disallowed it. This is because they believe that the payments are not simply reimbursement of player wages.
Instead, these payments are the result of a separate contract that the franchise has signed. Hence, they should be reported separately as revenues on the income statement. However, since these revenues are not from the usual source, they must be reported separately on the income statement so that investors can bifurcate between regular revenue as well as income from other sources.
Example:
In order to better understand the concept, we will have a look at a real-life example.
After the 2022 World Cup, FIFA has allocated over $209 million to be distributed amongst various football clubs.
There are a total of 413 clubs that will be the recipients of this money from 63 member nations. FIFA has compensated the clubs using a rate of approximately $10,000 per day.
Hence, on average, each player has generated about $370000 for the clubs that they play for. In case a player had played for more than one club in the past two years, then the compensation was split between the clubs on a prorated basis.
Hence, it can be said that revenue received as a result of releasing players for international tournaments is an additional source of revenue. The timing as well as the scale of this revenue is quite unpredictable. However, it does help to compensate for some of the losses that clubs face due to the non-availability of their players due to international tournaments.
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