Articolo 18-bis Legge 91/1981

Articolo 18-bis Legge 91/1981 (literally article 18B of law no.91 of 1981) is a law introduced in 2003 by Legge 27/2003, issued by-then prime minister Silvio Berlusconi, which also the owner of A.C. Milan.

The law allows football clubs to defer the amortization expense of intangible assets - the player contract, into 10 equal annual instalments. Generally speaking, the transfer fee paid to other clubs were capitalized as an intangible assets. In accounting, tangible assets were depreciated, while intangible assets were amortized. At that time Italian clubs had broke the world transfer record several times, but partially were cash-plus-player deal. Most clubs rely on player profit as one of the revenue, with cash-plus-player deal was the most popular means to increase profit, for example, Juventus signed Gianluigi Buffon and Lilian Thuram for a total of 180 billion lire (€92.96 million), however, Parma also got Jonathan Bachini as a piece-weight for undisclosed fee, which Juventus gained €10 million on Bachini.^[1]

In some extreme case, pure player swap with aggressive price was also used to increase short term profit and stress the future budget. For example, Vratislav Greško, which one year only Internazionale signed him for 9.5 million Deutsche Mark (€4.857 million), was sold to Parma in 2002 for 16 million euros, co-currently Matías Almeyda, who joined Parma as a piece-weight of Hernán Crespo, also sold for €16 million. Both players left for club after 1 year and 2 year respectively, for undisclosed fee and free transfer. It also observed in Parma and Roma in 2001, which Mangone–Poggi–Gurenko were tagged for 65 billion lire (€33,569,698) in total to exchange with Fuser–Longo–Lassissi also tagged for 65 billion lire in total, however only Fuser briefly played for Roma and on Parma side, only Gurenko was briefly used. Roma also made player swap with other clubs in June 2002, the last few days of 2001–02 financial year, for example Luigi Sartor (€9.5 million) with Sebastiano Siviglia (€9 million),^[2] who Siviglia a year before a free agent. It is hard to determine the player price were actually market price or not, as it also involved uncertainty and potential as well as affordability of other countries, however one thing is true that the club and their owners were not affordable on huge net loss of the clubs, which saw the bankruptcy of AC Fiorentina in 2002.

Original text

1. Le societa' sportive previste dalla presente legge possono iscrivere in apposito conto nel primo bilancio successivamente alla data di entrata in vigore dalla presente disposizione tra le componenti attive quali oneri pluriennali da ammortizzare, con il consenso del collegio sindacale, l'ammontare delle svalutazioni dei diritti pluriennali delle prestazioni sportive degli sportivi professionisti, determinato sulla base di un'apposita perizia giurata.

2. Le societa' che si avvalgono della facolta' di cui al comma 1 devono procedere, ai fini civilistici e fiscali, all'ammortamento della svalutazione iscritta in dieci rate annuali di pari importo" .^[3]

Example

After the set-up of the special amortize fund, the amortization was lower, however it also undermined another problem. After the players became free agent, their deferred value still in the balance sheet as asset, which certainly not acceptable in International Financial Reporting Standards, nor Italian own standard.^[4] Moreover, the deferred was actually borrowing the future income. On bad side the future resources of the team would be limited, but on good side, which a research paper of the University of Salerno stated that the deferred cost may give some advantage to the club to utilize the tax allowance more effectively as the deferred cost may turned a net income to net loss or a net loss than exceed the tax allowance would be allocated to next few years.^[4]

Team	Amount of Fund	amortization (2001–02)	(2002–03)	Change
Genoa	€8,881,443		€888,144 + ?
Internazionale[5]	€319,393,600	€107,492,978	€31,939,360 + €12,891,696	€62,661,922
Milan[6]	€242,004,054	€72,685,388	€24,200,405 + €13,716,739	€34,768,244
Napoli[7]	€46,601,225	€33,437,075	€4,660,123 + €1,659,088	€27,117,864
Palermo	€31,136,407		€3,113,641 +
Parma[8]	€149,348,071	€73,384,643	€14,934,807 + €75,910,251	€17,460,415
Piacenza[9]	€36,797,486	€8,837,375	€3,679,749 + €2,184,306	€2,973,320
Roma	€133.649 million	€79,390,502
Lazio[10]	€212,910,534	€75,462,871	€21,291,053 + €16,439,144	€37,732,674

• Note: The change in amortization may also due to investment and dis-investment of player asset, as well as extension of player contract. Moreover, the time tag of amortization may also affect the amount.

Aftermath

The club faced another capital shortfall in 2007 after the Decreto-legge 115/2005^[11] had abolished the article 18B, which club had to remove the special fund on 30 June 2007, 5-year before the scheduled date. Moreover, UEFA forced all clubs to use IFRS to allow the association had a universal comparable standard for financial health, and the special fund was not compatible with IFRS. However before 2006, Napoli already bankrupted after the owner refused to increase share capital in 2004, and the club was restarted with debt free new company by current owner Aurelio De Laurentiis. While Parma was administrated, most of the toxic asset was write-off and other asset and liability was transferred to a new company "Parma FC SpA". Instead of liquidation, the administrator write-off part of the debt as well as the fund and reconstruct a running company that could be sold in order to minimize the loss. While Roma had recapitalized several times in 2003–04 season, and swinging from positive and negative net equity in consolidated accounts since 2006. In 2005–06 season, Roma had a net equity of €67,808,577 in separate balance sheet, but in the asset side the club still had the aforementioned special 10-year fund of €80,189,123^[12] thus, if assuming all value in the fund were deferred amortization,^{[nb 1]} the club in fact had a negative equity of €12,380,546 in the separate balance sheet. Roma used IFRS in 2006–07 financial year, the club classified 2005–06 result in IFRS as negative net equity of €22,980,335 in the separate balance sheet on 30 June 2006. However the club overcame the negative equity on separate balance sheet by creating subsidiary Soccer SAS di Brand Management S.r.l., which inject the brand into the company with re-valuation to €125.122 million, despite nothing changed in consolidated balance sheet.^[13] On Lazio side, Lazio had a positive equity of €29,637,929 with the special fund sized €127,746,321, again if the fund contained deferred amortization only,^[14] the club in fact had a negative equity of €98,108,392. In 2006–07 Lazio also changed to use IFRS, with reclassified net equity of previous season was negative €25,406,939. Again, Lazio overcome the shortfall in separate balance sheet by set up subsidiary SS Lazio Marketing & Communication SpA and sold the brand to the subsidiary for 104.5 million, however it boosted the separate balance sheet but not the consolidated balance sheet.^[15] Internazionale and Milan also did similar moves despite the owner of both clubs also inject huge sum of cash to the club as recapitalization (or as a sugar-daddy) and made a new controversy in Italy.^{[16][17][18][19]}

Footnotes

References

Further reading

• Morrow, Stephen (May 2006). Impression management in football club financial reporting (ARCHIVE OF THE UNIVERSITY OF STIRLING). International Journal of Sport Finance.