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 (‘Jupiler Pro League’) 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, Télésat/TV-Vlaanderen etc. For our today’s 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.
With the Q3/2020 numbers two of these OPT-companies – Telenet and Orange Belgium – have shown the licence agreement with Eleven as ongoing expenses directly flowing through the P&L, while one company – Proximus – 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?
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. However, if IAS 38 is not relevant we might also check IFRS 16 Leases. In the definition of the scope of IFRS 16 it is explained that “rights held by a lessee under licensing agreements within the scope of IAS 38 Intangible Assets” 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.
We start with IAS 2. Although it makes little difference in practice to an IAS 38 asset – neither in terms of valuation at first recognition nor at subsequent amortisation – 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: “…held for sale in the ordinary course of business”. Therefore, we think it is not necessary here to go deeper into IAS 2.
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.