Winning the Premier League - Accounting Considerations
Leicester City were confirmed as Premier League champions for 2015/16 last week following the ill tempered London derby between Chelsea and Tottenham which provided Leicester with an unassailable 7 point lead with 2 games remaining.
Leicester have become only the 6th club to win the Premier League since its inception (how many people can name the other 5?).
As Leicester flirted with relegation for the previous season, they commenced the 2015/16 season with odds of 5000/1 to be crowned this season's champions.
Premier League Success bring financial success
Each Premier League club receives payments from the Premier League based on a combination of domestic TV money and overseas TV money. Some of this is split evenly between the clubs and some of this is based on merit payments depending on final league position.
This year, Leicester will receive £90.9million for finishing 1st (last season they received £71.6 million for finishing 14th). This season's merit payment for coming 1st is £24.7million (last season £8.7 million for coming 14th). However, there is a new Premier League TV deal in place for the 2016/17 season where it is estimated Leicester could receive an additional £50million.
In addition, participation in the Champions League is estimated to bring in an additional £10m to £20m and new sponsorship and advertising income is expected to increase substantially from the £17m received for the 2014/15 season.
Some reports in the press predict that Leicester could become one of the top 20 richest football clubs in the world over the next year.
Accounting and Taxation considerations
The latest published accounts for Leicester City Football Club are for the year ended 31 May 2015 - and these will incorporate the 2014/15 season.
The next published accounts will be for the year ended 31 May 2016 which will incorporate the current season where Leicester have been confirmed as Premier League Champions.
A couple of accounting considerations will be as follows:
- Corporation Tax
At 31 May 2015, the club had accumulated taxable losses of over £100million. Although income and revenue is expected to increase substantially for the current year and the following year, whether the club pays any corporation tax will depend on whether the profits will exceed the losses brought forward of over £100million.
It is likely that wages will also increase significantly as the club offers increased contracts to existing players - and the recruitment of new players.
- Accounting Framework
The club's next accounts to 31 May 2016 will be prepared under FRS102 and will look significantly different to the accounts to 31 May 2015 which are prepared under the previous accounting framework:
- Goodwill (currently not amortised) will have to be amortised over a maximum period of 5 years
- There is a revaluation reserve on the balance sheet of £26million which will need to be reflected within the profit and loss account
- Going Concern and Risks
The strategic report by the Directors includes notes on the principal risks and uncertainties facing the club including:
- Membership of the Premier League
- Finishing position in the Premier League
- The club's performances in its fixtures
In addition, the accounting policies include a number of paragraphs on the basis of the preparation of the accounts on the going concern basis and the inherent risks facing the club moving forward (as noted above).
It is highly likely that these risks will be significantly reduced in the forthcoming year or two with the expected growth in revenue and profits following the success of winning the Premier League this season.
Whilst Perrys do not act for Leicester City (or any other Premier League football club), many businesses do face significant upturns (and downturns) in fortune and need proactive and valuable advice to manage cash flow, remuneration planning, tax planning and all round accounting, taxation and financial advice.
Contact your local Perrys branch to discuss your business at any time. We await calls from any football clubs who require a review of their accounts and finances undertaken.
Article written by Declan McCusker