{"id":54956,"date":"2024-06-07T16:09:50","date_gmt":"2024-06-07T15:09:50","guid":{"rendered":"https:\/\/valuesque.com\/en\/?p=54956"},"modified":"2025-06-01T21:10:33","modified_gmt":"2025-06-01T20:10:33","slug":"is-proximus-tackling-ifrs-too-hard-the-belgian-football-broadcasting-rights-accounting-dispute","status":"publish","type":"post","link":"https:\/\/valuesque.com\/en\/blog\/2024\/06\/07\/is-proximus-tackling-ifrs-too-hard-the-belgian-football-broadcasting-rights-accounting-dispute\/","title":{"rendered":"Is Proximus Tackling IFRS too Hard? \u2013 The Belgian Football Broadcasting Rights Accounting Dispute"},"content":{"rendered":"

Belgian football is one of the most attractive in the world, even though the national first league is not so much loaded with international top stars as e.g. the Spanish or the English league. The country has brought out all-time top stars such as Jan Ceulemans, Enzo Scifo or Eden Hazard (to name but a few). And so it goes without saying that it is quite attractive for broadcasting entities to have the ability to show the games of the Belgian Division 1A (\u2018Jupiler Pro League\u2019) to their customers. For the current season, the broadcasting rights owner Eleven Sports Belgium has entered into several distribution agreements for its three new football channels with companies such as Telenet, Orange Belgium, Proximus, VOO, T\u00e9l\u00e9sat\/TV-Vlaanderen etc. For our today\u2019s blog post, it is particular the two OTT (over-the-top, i.e. transmission of content via internet) players Orange Belgium and Proximus as well as the cable-TV provider Telenet (corresponding to their initial letters, the companies are called OPT-companies in the text below) that we are interested in.<\/p>\n

With the Q3\/2020 numbers two of these OPT-companies \u2013 Telenet and Orange Belgium \u2013 have shown the licence agreement with Eleven as ongoing expenses directly flowing through the P&L, while one company \u2013 Proximus \u2013 has capitalized the licence agreement as an intangible assets and recognises expenses only indirectly via amortisations through the P&L (as far as we understand, all three companies have the same contracts). This raised a lot of discussions among investors on whether such licences give rise to an intangible asset according to IFRS or not! Or putting it differently: Who is correct with the accounting treatment: Telenet and Orange Belgium on the one hand side? Or Proximus on the other hand side?<\/p>\n

The question about how to deal with such licence agreements from an accounting point of view usually brings us directly to IAS 38 Intangible Assets<\/em>. However, if IAS 38 is not relevant we might also check IFRS 16 Leases<\/em>. In the definition of the scope of IFRS 16 it is explained that \u201crights held by a lessee under licensing agreements within the scope of IAS 38 Intangible Assets<\/em>\u201d are excluded from IFRS 16 (IFRS 16.3 e). This means by implication that if these licence agreements are not assets according IAS 38 (and only then) they might still be assets according to IFRS 16. And finally we should not forget to check IAS 2 Inventories<\/em>.<\/p>\n

We start with IAS 2. Although it makes little difference in practice to an IAS 38 asset \u2013 neither in terms of valuation at first recognition nor at subsequent amortisation \u2013 we have seen in the past some broadcasters that have classified broadcasting rights as part of their inventories. However, we think that broadcasting rights or licences do not really qualify as inventories. The right or the licence is a means of distributing content but the right or the licence is not the asset per se that is sold, and hence such rights and licences are not covered by the basic asset definition of IAS 2.6 a: \u201c…held for sale in the ordinary course of business\u201d. Therefore, we think it is not necessary here to go deeper into IAS 2.<\/p>\n

For didactical reasons we then first check IFRS 16. The following graph highlights the criteria of whether a contract can qualify for a lease asset.<\/p>\n

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At this point it is necessary to first look at the agreement of the OPT-companies with Eleven Sports in a bit more depth. In fact, the agreements do not grant a broadcasting right but they are rather some sort of selling or distribution licence of the broadcasting right. So it is rather some sort of a right to sell the original right. This is important when checking the criteria of IFRS 16 (and also later IAS 38).<\/p>\n

With regard to the first criterion above (right to take economic benefits) things are more or less clear. The OPT entities are paid for customers using the licence, usually via different sorts of data- or other contracts. However, with regard of the \u2018right to direct the use\u2019 things are not that clear at first glance.<\/p>\n

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Here it is important to differentiate between the original broadcasting right or the distribution licence. With regard to the original broadcasting rights the three OPT-companies certainly have no right to use. These rights are lying at Eleven Sports. With regard to the (non-exclusive) distribution licence we have to look deeper into the standard.<\/p>\n

In IFRS 16 B24-B30 we find very detailed criteria what the \u2018right to direct the use\u2019 of a lease asset means. Some of these criteria might be fulfilled by the licence agreement but some of them are rather not fulfilled. E.g., IFRS 16 B24 b)i) says that entities should have the \u201cright to operate or to direct others to operate the asset, without the supplier having the right to change those operating instructions\u201d. We doubt that the OTT-companies have these rights. In particular they are not able to sub-licence. Furthermore, IFRS 16 B 26 a) states that entities should have the \u201crights to change the type of output that is produced by the asset\u201d. It is also rather unlikely that OPT-companies have this discretion about how to use the licence. Hence, we do not think that the IFRS 16 criteria for asset recognition are fulfilled here.<\/p>\n

Finally, we have to check IAS 38 Intangible Assets<\/em>. The criteria for asset recognition are listed in the below graph.<\/p>\n

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Here we can also check very quickly the first three criteria for the distribution licence. However, the IAS 38 \u2018control\u2019 criterion is not so clear. It also seems as if this criterion is very similar to the \u2018right to direct the use\u2019 criterion of IFRS 16. So let\u2019s have a look at how IAS 38 defines control.<\/p>\n

In IAS 28.13-16 we can read about the control definition. It is evident that the criteria written here are much softer than in IFRS 16. In particular, the standard states in IAS 38.13 that control requires a) the power to obtain the future economic benefits and b) the ability to restrict the access of others to those benefits.<\/p>\n

As customers have to pay (directly or indirectly) for watching the football content, the OPT companies have the power to obtain the future economic benefits \u2013 each OPT company separately within its licence. And as each OPT-company also has the ability to exclude from the use of their licence those viewers that do not want to pay or that have no contract with the specific OPT-company, OPT-companies also have the ability to restrict the access of others to those benefits. The OPT companies even have legal claims for this. So we can conclude here that at our opinion the criteria for recognition of an intangible asset according to IAS 38 are met!<\/p>\n

The relevant analytical step for this conclusion is here to differentiate between the criteria for control of IFRS 16 and IAS 38, see in the summary graph below.<\/p>\n

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Four points are still worth mentioning here:<\/p>\n