What the new accounting rules meant for the Premier League
The Premier League recently announced an annual pre-tax loss of a record £312 million. The reasons for such a significant amount are the value of the pound decreasing following the vote for Brexit and the introduction of new accounting rules.
Much of the revenue generated by the Premier League comes from big money broadcast deals, with international territories worth a total of £3 billion. The twenty clubs in the league take a cut of this, receiving their share in sterling until recently, and the Premier League used hedging contracts in order to offset the exchange risk of many of these actually being paid in other currencies such as euros and dollars. This essentially allowed the league to insure itself against negative market changes.
A recent change in accounting rules within the UK means that companies, including the Premier League, can no longer wait until the completion of a deal to formally declare its worth, but must now value their contracts annually using current market prices. On the last day of the financial year for the Premier League, the pound was valued at $1.32, a decrease of 12% after the EU referendum result. This meant that what would have previously been a gain of £638,000 under the previous system became a paper loss valued at £250 million.
The Premier League has confirmed that the loss has not caused any actual damage to its income or its capacity to distribute finances to its member clubs. However, the situation the league has found itself in should serve as a timely reminder of the potential long-term impact of both Brexit and the new accounting rules.
In the lead up to the referendum last year, the Financial Reporting Council issued warnings over the major impact the exchange rates would have if the UK voted for Brexit, and the situation the Premier League has found itself in is a prominent example of exactly that impact. Whilst not every company will be trading in the billions, it’s important to be aware of how the changes we are currently experiencing can affect your business.