Brussels, 7 July 2004
The European Commission has decided to ask Italy formally to change its “Salva-Calcio” law on financial reporting by professional sports clubs, including Serie A football clubs. The Commission believes that the legislation breaches EU accounting laws in that the balance sheets of a number of sport clubs fail to provide a true and fair view. The Commission’s request takes the form of a “reasoned opinion”, the second stage of EC Treaty infringement procedures (Article 226). Unless a satisfactory response is received within two months, the Commission may refer the case to the Court of Justice.
The effect of the February 2003 “Salva-Calcio” Act is that some professional sports clubs, especially major football clubs for which players' contracts are the biggest item of expenditure, may be able to submit accounts which underestimate their true costs in a given year, hide real losses and give a misleading picture to investors.
In technical terms, the “Salva-Calcio” Act allows sports clubs to place in a special balance sheet item under assets the capital losses arising from the decreased value of the rights to exploit the performances of professional players, as determined on the basis of a sworn expert valuation. This item is accounted for among the assets in the balance sheet and amortised. The “Salva-Calcio” Act specifies that companies opting for the special rules introduced by the Act, must proceed, for accounting and fiscal purposes, to amortise the balance sheet item in ten yearly charges of equal amount, even if rights established by contracts with the players concerned last for, say, only two or three years.
The 4th (78/660/EEC) and 7th (83/349/EEC) Council Directives (Accounting Directives) on companies’ annual and consolidated accounts require athletes' contracts, where treated as intangible assets, to be written off over their useful economic life, which generally would be the term of those contracts. The contract may not be written off over a longer period than the duration of the contract itself. In addition, the Accounting Directives provide that value attributed to fixed assets must be adjusted downwards to their real value on the balance sheet date if it is expected that the reduction in their value will be permanent. The Directives also set out the fundamental principle that financial statements should show a true and fair view of the companies' assets, liabilities, financial position and profit or loss.
Therefore the Commission believes that the “Salva-Calcio” Act breaches the Accounting Directives by allowing a number of athletes' contracts, to be written off over a longer period than their useful economic life and by allowing sports clubs not to make value adjustments in respect of their contractual rights over professional athletes, even if those athletes have ceased to perform at the level expected from them, for example through injury. Financial statements presented in such a manner cannot show a true and fair view and so depart from the “prudence principle” of the 4th Directive.
Though the Italian authorities have underlined that the “Salva-Calcio” Act was conceived as a “one off” measure, the Commission notes that it continues to affect the accounts of the sports clubs in question and that no measure has been up to now taken by the Italian authorities to put an end to these effects. In these circumstances, the Act is still in breach of the EU Accounting Directives.