The Times has a pdf of the draft agreement on their site
Here's the section on fair value
Here's the section on fair value
Note 7: Fair value
Fair value is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable willing parties in an arm’s length transaction.
An arrangement or a transaction is deemed to be ‘not transacted on an arm’s length basis’ if it has
been entered into by a club on terms more favourable to either party to the arrangement, than would
have been obtained if there had been no related party relationship.
A club’s management will need to determine the fair value of any such transactions. If the estimated
fair value is different to the recorded value then, for the purpose of the Break-even requirements, the
relevant income/expenses must be adjusted accordingly (other than no upwards adjustments can be
made to relevant income and no downwards adjustments to relevant expenses). The club’s
management will need to demonstrate the estimated fair value of the transaction.
Examples of a related party transaction that would normally require a club’s management to
demonstrate the estimated fair value of the transaction include:
• Sale of sponsorship rights by a club to a related party;
• Sale of corporate hospitality tickets, and/or use of an executive box, by a club to a related party;
and
• Any transaction with a related party whereby goods or services are provided to a club.
UEFA will develop and provide guidance to clubs and licensors about methodologies for a club’s
management to estimate the fair value of the more common types of related party transactions.
Some initial draft guidance has been developed and is included in this Discussion Paper.
A club may at any time submit a written request to the CFC Panel for a clarification of these
requirements. Clubs are invited to put all instances of doubt or uncertainty to the CFC Panel for
decision. Any practice or procedure which, in the opinion of the CFC Panel, is calculated to defeat in
any way the overriding objective of these requirements will be deemed to have been deliberately
concealed unless previously submitted to the CFC Panel. The CFC Panel will make available a
summary of any such request for clarification, together with the CFC Panel’s response (omitting any
confidential or commercially sensitive information) to all licensors and clubs.
The best evidence of the fair value of a transaction is typically a price in a binding agreement in an
arm’s length transaction or a market price in an active market. If there is no binding agreement or
active market, fair value should be based on the best information available to reflect the amount that a
club could obtain or would have to incur (as appropriate), at the transaction date, in an arm’s length
transaction between knowledgeable willing parties. In determining this amount, the club should
consider the outcome of recent similar transactions of the club and/or by comparable clubs.
In respect of related party transactions involving a club obtaining goods and/or services, where more
than one fair value could reasonably be allocated to an expenditure, the highest such figure should be
used to calculate the adjustment to relevant expenses. In respect of related party transactions
involving a club recognising income, where more than one fair value could reasonably be allocated to
the income, the lowest such figure should be used to calculate the adjustment to relevant income.
Examples of other types of related party transaction that would normally require a club’s management
to make an adjustment to relevant income/expenses:
• Monies received by a club from a related party as a donation; and
• Settlement of liabilities on behalf of the club by a related party.
For the avoidance of doubt, monies received by a club in respect of financial instruments – that is, an
arrangement that gives rise to a financial asset for one entity and a financial liability or equity
instrument of another entity, such as monies received by a club for the issue of shares – must be
excluded from relevant income/expenses and there is no requirement for a club’s management to
determine the fair value of any such transactions.
Fair value guidance example 1:
Sale of sponsorship rights by a club to a related party
Illustrative scenario:
The sponsorship rights to be a club’s main sponsor (including the rights to advertise on the club’s first
team shirts) are sold to a related party and the club received €5m for the season.
The club’s previous main sponsor contract for the preceding football season, that was for similar
sponsorship rights (including the rights to advertise on the club’s first team shirts), was with a third
party in an arm’s length transaction for €2m per season.
Ahead of entering into the new sponsorship arrangements with the related party, the club’s
management obtained written expressions of interest/offers from two third parties, who were each
interested in becoming the club’s new main sponsor. If one of these written expressions of
interest/offers had progressed to a contract, the club would have received an amount of €3m for the
season.
Based on benchmarking information, the value of main sponsor arrangements for comparable clubs is
an average €2m per season, in the range of €1m to €3m. The ‘comparable clubs’ compete in the
same national competitions, have a similar sized fanbase (in part evidenced by average home match
attendance), and also regularly qualify for one of UEFA’s club competitions.
Separately, and around the same time as the club entered into the arrangement with the related party
for the main sponsorship rights, the club also entered an arrangement with a third party in respect of
secondary sponsorship rights. The secondary sponsorship rights were sold to the third party in an
arm’s length transaction for €0.5m per season (which is around 50% greater than the value to the
club’s secondary sponsorship rights arrangements for the previous football season).
Determination of fair value: methodology
The club’s management should (at least) consider the following three approaches for the
determination of fair value of the main sponsorship rights for the season:
i) Fair value is deemed to be €2m, being the most recent arm’s length value received by the club for
the same/similar main sponsorship rights in the previous football season;
ii) Fair value is deemed to be €3m, being the amount the club could have obtained, in an arm’s
length transaction, from another sponsor, as evidenced by the written expressions of
interest/offers from two independent third parties;
iii) Fair value is deemed to be €2m, being the average amount received by comparable clubs in the
season from their (third party) main sponsors.
Guidance:
The fair value of the transaction should be based on the value that the club could have realistically
expected to obtain in an arm’s length transaction with a willing third party at the time the transaction
was agreed. The fair value should, where possible, make maximum use of market inputs, as this
approach promotes comparability between clubs.
Based on written evidence from two independent parties to become the club’s main sponsor, then
€3m may reasonably be determined as the fair value of the club’s main sponsorship rights for the
season.
The club’s previous main sponsor contract for the preceding football season (of €2m) was an
arrangement entered into at an earlier time, and is therefore less relevant.
The evidence complied by management in respect of the main sponsor values for the season for
comparable clubs (average of €2m and a range of €1 to €3m) provides further support to the fair
value of €3m determined by management.
The evidence complied by management in respect of the 50% increase in secondary sponsorship
values for the club (on an arm’s length basis) provides further support to the fair value of €3m for the
main sponsorship rights (also a 50% increase in value) as determined by management.
Result:
Therefore, solely for the purpose of calculating relevant income/expenses for the Break-even
requirements, club’s management will make an adjustment to reduce relevant income by €2m. The
evidence compiled by club’s management will need to be made available to the licensor and, if
requested in due course, the CFC Panel. For the avoidance of doubt, the club will not have to make
any adjustment to its annual financial statements in respect of the fair value of the related party
transaction.