Table Of ContentINTANGIBLE ASSET ACCOUNTING AND ACCOUNTING POLICY
SELECTION IN THE FOOTBALL INDUSTRY
by
NICHOLAS ROWBOTTOM
A thesis submitted to the Faculty of Commerce and Social Science of The University of
Birmingham for the degree of DOCTOR OF PHILOSOPHY
Department of Accounting and Finance
School of Business
Faculty of Commerce and Social Science
The University of Birmingham
July 1998
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ABSTRACT
The main aim of this thesis is to evaluate the feasibility of intangible asset
accounting in financial reporting with particular reference to the football industry. It also
examines related accounting policies. Lack of reliable measurement is the major obstacle to
the recognition of intangible assets. The measurement of intangible assets is problematic due
to a lack of verification through reference to an active market. However, drawing on Human
Resource Accounting, the thesis argues that identifying and measuring human resource assets
may be possible in the football industry. The human resource asset, the player registration, is
subject to sufficient control through unique industry structures to justify recognition as an
intangible asset. The existence of an active market for player registrations facilitates reliable
measurement.
In the football industry, a wide variety of accounting policies are employed in
accounting for player registrations and other material transactions. Hypotheses regarding the
reasons for selecting particular accounting policies are developed and tested. Findings suggest
that institutional pressure which influences perceptions of legitimacy and credibility can
affect the selection of accounting policies.
The thesis also develops and tests a model to value player registrations as intangible
assets where they are not subject to market transactions. The ability to reliably measure
intangible assets is regarded as crucial to their recognition in financial reporting. In addition,
it will lead to the acceptance of intangible asset policies as legitimate and credible, despite the
market orientated bias of traditional financial reporting.
ACKNOWLEDGEMENTS
May I thank and acknowledge the following in producing this thesis; Andrew Thomas for
supervision; the Professional Footballers Association, The Football Trust, the Deloitte &
Touche Football Industry Team and the football clubs themselves for the provision of
information; Timothy Isherwood for data collection, James Cessford, Douglas Leonard,
Stephen Thorpe, Alexander Burfitt, Matthew Brough, Ms Blurton, and my family for support,
help and inspiration.
CONTENTS
Chapter Page
Introduction 1
1 The Nature and Treatment of Intangible Assets 5
1.1 The Nature of Intangible Assets
1.2 The Importance of Intangible Assets
1.3 Development of Accounting Standards for Intangible Assets in the UK
1.4 International Accounting Standards for Intangible Assets
2 The Measurement of Intangible Assets 26
2.1 Financial Reporting Requirements
2.2 Valuation Models
2.3 The Amortisation of Intangible Assets
3 Human Resource Accounting 44
3.1 The Human Resource as an Asset
3.2 The Relevance of Human Resource Accounting
3.3 The Measurement of Human Resources
3.4 The Development of Human Resource Accounting
3.5 Consequences of Human Resource Accounting
4 The Football Industry 71
4.1 The Nature and Structure of the Football Industry
4.2 Finance in the Football Industry
4.3 Transfer Fees
4.4 Signing-on Fees
4.5 Stadium Redevelopment
5 Accounting Policies in the Football Industry 106
5.1 Accounting for Player Registrations and Transfer Fees
5.2 Accounting for Signing-on Fees
5.3 Capital Grants
5.4 Depreciation of Stadia
6 Theoretical Framework for Studying the Selection of Accounting
Policy Choice 138
6.1 Theories of Accounting Policy Choice
6.2 Explanatory Variables
6.3 Statement of Hypothesis
7 Methods of Data Collection and Analysis 168
7.1 Sampling
7.2 Bank Questionnaire
7.3 Football Club Questionnaire
7.4 Variable Construction
7.5 Model Specification
7.6 Parameter Estimation
7.7 Sensitivity Analysis
8 Test Results and Interpretation 222
8.1 Underwriter Pressure Hypothesis
8.2 Debt Contracting Cost Hypothesis
8.3 Youth Development Hypothesis
8.4 Ownership Structure Hypothesis
8.5 Normative Influence Hypothesis
8.6 Political Cost Hypothesis
9 The Feasibility of Intangible Asset Accounting in the Football Industry 253
9.1 Transfer Fee Accounting
9.2 The Measurement of Player Registrations
9.3 Valuation Model for Player Registrations
9.4 Conclusions
Conclusions 292
Appendix 1 300
A1.1 Bank Questionnaire Cover Letter
A1.2 Bank Questionnaire
Appendix 2 305
A2.1 Club Questionnaire Cover Letter
A2.2 Football Club Questionnaire
Appendix 3 312
Appendix 4 321
Appendix 5 322
Appendix 6 323
Appendix 7 328
A7.1 Multicollinearity
A7.2 Model Assumptions
Bibliography 332
INTRODUCTION
One of the main aims of this thesis is to evaluate the feasibility of intangible asset
accounting in financial reporting with particular reference to the football industry. It therefore
focuses on Human Resource Accounting which is concerned with the process of identifying
and measuring human resource assets. The football industry provides a unique case where
reliable recognition and measurement of human resource assets may be possible. The other
main aim of this thesis is to examine related accounting policy-making issues in the football
industry. This includes an empirical study designed to identify the factors that influence
accounting policy choice. In addition, the thesis contains further empirical work aimed at
providing a model for valuing internally generated human resource assets in a manner
acceptable for financial reporting purposes.
Much of the recent debate over intangible asset accounting has focused on
accounting for brands. The main points of contention concern the identification of a single
brand asset and the measurement of internally generated brand assets. Similar issues are
prevalent in the football industry. Some football clubs have recently begun to apply Human
Resource Accounting techniques in accounting for transfer fees. This results in player
registrations being recognised as intangible fixed assets. Thus, debate over intangible asset
accounting is also particularly relevant in this industry.
The football industry has experienced a period of rapid growth in the last decade.
Several clubs have recently been listed on the London Stock Exchange, and thus their
finances are coming under greater scrutiny. There has been little financial research in the
football industry, particularly in the light of industry changes.
The thesis also aims to contribute to current knowledge on the relationship between
economic and organisational variables, and accounting policy choice. Previous empirical
research has tended to focus on particular types of organisation; the largest firms listed on a
stock exchange. The universal applicability of existing theories can be explored given the
unique setting of the football industry. Existing theories of accounting policy choice can be
argued to be entrenched in paradigms. For example, positive accounting theory is dependent
upon the values of 'Chicago School Economics'. This thesis explores common elements of
existing theories. Furthermore, it seeks to develop new social and organisational variables
which may influence accounting policy choice. This includes investigating indirect influences
of accounting policies (and standards) upon cash flows. Thus, this work aims to provide a
possible contribution to the practical considerations relating to the regulatory framework of
accounting as well as other broader socio-economic and political issues.
Chapter 1 examines the nature and treatment of intangible assets. It first considers
the definition of intangible assets. This is followed by a review of the growth and
development of intangible asset accounting, including its relationship with changing
economic structures and the current system of financial reporting. It then describes the
development of financial reporting standards on intangible assets. The final section explores
the current generally accepted accounting principles for intangible asset accounting in the UK
and internationally.
Chapter 2 examines various methods of measuring intangible assets. It starts by
describing the current measurement criteria for financial reporting purposes. Various methods
of measuring intangible assets are then evaluated. These include acquisition costs, current
costs, estimates of economic value, exit prices, market values, opportunity costs and
qualitative measures. The aim is to assess which types of measure may be suitable for
financial reporting purposes. Finally, it describes the amortisation of intangible assets.
The relevance of Human Resource Accounting is explained in Chapter 3. HRA is
intended to measure the contribution of labour to an accounting entity. This chapter evaluates
the existence of a human resource asset and explores the applicability of Human Resource
Accounting in financial reporting. The intangible benefits of labour and their relevance in
organisational decision-making and regulation are outlined. Various measurement approaches
designed specifically for human resource assets such as wage based valuation models, are
explored. Finally, the potential uses of human resource accounting information are evaluated.
Chapter 4 describes recent developments and special issues in the football industry.
This industry has unique structures and transactions to which Human Resource Accounting is
particularly applicable. It is also an object of study in its own right. The structure, funding and
financing of the industry are examined in the light of its recent growth and commercialisation.
The first section describes labour market restrictions and income sharing agreements. The
second considers sources of funding, income streams and the main items of expenditure in the
football industry. The final parts of the chapter focus on the special characteristics of transfer
fees, signing-on fees and stadium redevelopment.
Chapter 5 reports the results of a survey into the accounting policies used by football
clubs. This is generated from the 1995 financial statements of 102 English and Scottish
football clubs. It examines the accounting policies used for four material types of transactions.
Namely, transfer fees, signing-on fees, capital grants and stadium depreciation.
Chapter 6 explains the theoretical framework used to generate the hypotheses
relating to the selection of accounting policies in the football industry. It examines the
different explanations put forward in the existing literature relating to the associations
between economic variables and accounting policy choice. The thesis then seeks to combine
some of these theories, which it is argued, are not mutually exclusive. Finally, six hypotheses
are generated relating to underwriter pressure, debt contracting costs, youth development,
ownership structure, normative accounting influences and political contracting costs.
Chapter 7 describes the methods of data collection and analysis. It starts by
explaining the methodology for studying the selection of accounting choices. The sampling
and data collection techniques, including the responses to two postal questionnaires, are then
outlined. Finally, it also describes the construction of variable measures and the statistical
tests used.
The results of the accounting choice study are analysed in Chapter 8. Statistical test
results and qualitative analysis are used to assess the validity of the proposed hypotheses.
Chapter 9 considers, in detail, the legitimacy of identifying and recognising football
player registrations as intangible assets in financial reporting. It evaluates the possibility of
reliably measuring intangible assets in the absence of a market transaction. In doing so, it
presents a valuation model for internally generated football player registrations.
Finally, conclusions are drawn relating to the future of financial reporting in the
football industry, factors influencing the selection of accounting policies and the feasibility of
intangible asset accounting. This chapter also highlights areas for future research and suggests
implications for accounting policy making.
Description:1.3 Development of Accounting Standards for Intangible Assets in the UK Chapter 1 examines the nature and treatment of intangible assets.
