Introduction
Although all accountants adopt the generally accepted accounting rules, each industry has its own characteristics. This is why analysts need specific knowledge about the industry so as to decide which set of accounting rules to apply to reflect the financial situation of the corporation best.
And in the football industry, perhaps the main characteristics is the fluctuations in revenue and net income due to uncertainties in the industry. A team can earn a huge amount of money in this year but it can find itself losing money in the next year.
The uncertainties root from the uncertain results in the league games. The revenues of football clubs heavily depend on the performance of the team in the league. A simple example is that the football club which does well may have a higher revenue than its counterparts due to the elevated demand of the club-related merchandize.
So, if the underlying principles that affect the team’s revenue-generating factor can be identified, predicting the company performance will be much easier. This shall be discussed in the following by analyzing the annual reports from 2004-2007 of three football clubs, which are Arsenal Football Club, Liverpool Football Club and Tottenham Hotspur. (Notes: The annual report for the year 2007 of Liverpool is not yet released and therefore we use the statistics in 2004 instead. As said previously, since the financial performance fluctuates greatly, we are not going to estimate the figures in 2007.)
Factors
There are a number of factors that can affect the ability of a football team of generating revenues.
First, it is known that a part of the operating income of a football club comes from the reward of winning a championship. For UK football club ...