Financial Accounting Blog

Wednesday, January 14, 2004

Cost Principle. Soccernet from the UK's Daily Mail newspaper has an interesting article about the finances of German soccer club Borussia Dortmund. In particular it points out the problem with historical cost accounting. Dortmund paid a huge amounts of money for players that are still listed as assets at the price they were bought. However, since the collapse of the price European TV companies are willing (and able) to pay for soccer the price of these player's contracts has fallen through the floor.

...Moreover, while Dortmund claimed they are in no financial trouble, they did not challenge any of the figures brought forth. And on the next day, an analyst for the Deutsche Bank, whose job is to evaluate Borussia's shares, declared that while the situation was 'serious' it was 'not dramatic' because 'the squad is worth 150m euros and if Dortmund need money, they can sell a few players'.

Excuse me, but which planet is this analyst on? First, who told him that the squad is worth 150m euros? (The club, that's who.) Second, who's going to pay any real money for a bunch of underperforming players, half of whom are currently down with serious knee injuries?