Sports media rights

When does a broadcaster expense sports media rights?

A sports rights contract gives the broadcaster the right to show matches as they happen, plus some highlights and archive use. The value of live sport is consumed almost entirely when the match is broadcast, so the cost is recognised as the events take place. IFRS has no specific rule, and companies treat the rights either as an intangible asset or as programme inventory for the current season, but the effect is the same: the cost of each season is charged as its matches are shown. Fees for seasons that have not started are commitments, disclosed rather than recognised, and payments made ahead of the matches are prepayments. See media accounting.

Why weight the cost by the value of each event?

A broadcaster's benefits from a season are not spread evenly: the final weeks of a title race, derbies and cup finals draw bigger audiences and more advertising than early rounds. A method that charges the cost in proportion to each event's estimated relative value, using expected audiences or advertising revenue as evidence, reflects the pattern of consumption better than an equal charge per match. The weighting is an estimate, reviewed each season. See content library amortisation.

Sports media rights: a season across the year end

A broadcaster pays a football league US$ 300 million for the rights to a season of 38 rounds running from August to May. It pays 150 million in July and 150 million in January. Its financial year ends on 31 December, by which time 18 rounds have been played. Based on expected audiences, it treats the last 8 rounds, when the title and relegation are decided, as worth 1.5 times an ordinary round.

The season has 30 ordinary rounds and 8 weighted rounds, 42 units of value in total, of which 18 were used by 31 December. The broadcaster therefore expenses 300 × 18/42 = 128.6 million in its first year and carries a prepayment of 21.4 million for matches still to come. Had it charged every round equally, the first-year expense would have been 142.1 million.

How does the league recognise media rights revenue?

For the league, the media rights contract is a contract with a customer under IFRS 15. Its promise is to stage the season's matches and let the broadcaster show them, which is satisfied as the matches are played, so revenue is recognised over the season using a measure of progress such as matches played. In the example, a league using matches played recognises 142.1 million by 31 December and holds a contract liability of 7.9 million for cash received ahead of the matches. The league and the broadcaster need not use the same pattern: each reflects its own measure of progress or consumption. See over time or at a point in time.

What happens when matches are cancelled or postponed?

Contracts usually require the league to refund or credit the broadcaster for matches that are not played. For the league, expected rebates are variable consideration that reduce revenue; for the broadcaster, they reduce the cost of the season, recognised when it is entitled to them. Postponed matches simply move the timing of both sides' recognition to when they are played.

When is a sports rights deal onerous?

Broadcasters sometimes pay more for rights than the subscriptions and advertising they will bring in. Before a season starts, the commitment is an executory contract, so if the unavoidable costs of the remaining seasons exceed the expected economic benefits, the broadcaster recognises an onerous contract provision under IAS 37 for the expected loss. Prepayments and any recognised rights asset are tested for impairment first. See onerous contracts.

How do clubs account for league distributions?

Clubs receive shares of the league's media income: equal shares, payments for each live match broadcast and merit payments based on final league position. Fixed shares are recognised over the season as matches are played. Merit payments are variable consideration, recognised only to the extent it is highly probable there will be no significant reversal, which usually means waiting until the final positions are clear or nearly so.

How does US GAAP differ?

ASC 606 governs the league's revenue in the same way. US media companies typically expense multi-year sports rights as the events air, based on the estimated relative value of each event or season, and disclose large future commitments for sports rights. See advertising revenue and streaming content licences.

This guide is general information. It is not tax or legal advice for your situation.