In order to regulate the sports intangible asset valuation by valuation institutions and their professionals, and protect the legitimate rights and interests of parties involved in the valuation and the public interest, under the guidance and support of the Ministry of Finance and the General Administration of Sports, the China Appraisal Society (hereinafter referred to as CAS) has formulated the Guidance Note - Sports Intangible Asset Valuation (hereinafter referred to as the Guidance Note). The relevant matters are interpreted as follows:

I. Background of the Guidance Note

The sports industry of China has relatively rapid development and the scale of the industry has been continuously expanding in recent years. As the main assets and important resources of sports enterprises, the identification and realization of the value of sports intangible assets play a key role in the development of sports enterprises and even the sports industry. The report of the 19th CPC National Congress proposes the acceleration of the construction of a power country in sports. In September 2019, the General Office of the State Council issued the Opinions on Promoting Mass Sports, Sports Consumption and High Quality Development of Sports Industry (GBF No. 43 [2019]), proposing to establish the valuation standards of sports intangible assets and improve the valuation system. In order to implement the CPC Central Committee and the State Council’s requirements of “Promote the high-quality development of the sports industry, enrich and improve the valuation standard system, and better guide valuation practice”, the CAS has studied and formulated the Guidance Note.

II. Orientation of the Guidance Note

The Guidance Note is based on the Valuation Practicing Standard - Intangible Asset, focuses on the interlinks with the framework of existing intangible valuation standards, highlights the characteristics of sports intangible assets, and standardizes the key and difficult issues such as the identification of sports intangible assets, the analysis of factors affecting the value of different types of sports intangible assets, the collection of valuation information, the selection of valuation approaches and valuation parameters, highlighting the valuation operability.

III. Preparation Process

After preliminary preparations, in June 2020, the CAS formed a project team to study and formulate guideline on the valuation of sports intangible assets. With the help and support of the Ministry of Finance and the General Administration of Sports, the project team formed a draft proposal in April 2021 after research visits and expert discussions. In May 2021, CAS organized a seminar on the draft proposal, and the project team revised and improved the draft proposal according to the expert opinions to form a consultation paper. In June 2021, the CAS issued a notice to solicit opinions from the valuation industry and sent letters to relevant units for opinions. In September 2021, the CAS organized the project team to summarize and analyze the collected feedback, and organized experts to further amend and improve the Guidance Note to form a discussed edition. In November 2021, the CAS submitted the discussed edition to the relevant standards committee for review, and further improved the content in accordance with the review comments to form the proposed draft. In January 2022, the Guidance Note was officially released.

IV. Main Contents

The Guideline contains seven chapters, including General Provisions, Basic Requirements, Valuation Subject and Scope, Operational Requirements, Valuation Approaches, Disclosure Requirements and Supplementary Provisions, with a total of 51 articles. The main contents of the Guidance Note are as follows:

First, it defines the formulation purpose, basis, relevant definitions, scope of application and implementation requirements, and stipulates the basic principles and professional ethics code, professional competence and business types for the valuation of sports intangible assets.

Second, it clarifies the considerations for the valuation of sports intangible assets. Based on the characteristics of sports intangible assets, the valuation subject and valuation scope of sports intangible assets as well as considerations are clarified. Combining the classification and business model of sports intangible assets, put forward the main influencing factors of the value of sports intangible assets, as well as operational requirements such as on-site investigation, collection of information and use of expert work. According to the business model and value influencing factors of sports intangible assets, the application of income approach, market approach and cost approach and the selection of key parameters are stipulated.

The third is to clarify the disclosure of the sports intangible assets valuation report, emphasis on reflecting the characteristics of sports intangible assets.

V. The Description of Key Points

1. Definition and characteristics of sports intangible assets.

The definition of sports intangible assets in the Guidance Note integrates the sports elements and intangible assets elements of sports intangible assets on the basis of the definition of intangible assets in the valuation standards and highlighting the unique attributes of sports resources and the diversity of rights subjects.

Regarding the characteristics of sports intangible assets, the Guidance Note not only introduces the common categories of sports intangible assets such as copyright, trademark, special logo, domain name, patent, business secret, contract equity, customer relationship, franchise and Olympic logo respectively, but also illustrate the factors influencing the value of sports intangible assets from the perspectives of intangible assets related to relevant sports events, sports professionals, sports organizations and stadiums.

2. Focus on the social benefit of sports.

Social benefit is one of the important observing indicators of sustainable development. The Guidance Note points out that the implementation of sports intangible assets valuation should understand that sports have the function of serving economic construction, national defense construction and social development, and that sports intangible assets may generate both economic and social benefits. In the valuation of intangible assets such as competitive sports and mass sports, attention shall be paid to the impact of their social benefits on the value where practical and feasible.

3. Classification of sports intangible assets.

Defining the valuation subject is a fundamental item in the sports intangible asset valuation. The Guidance Note defines a sports intangible asset valuation subject as a property interest in a sports intangible asset, or property interest in a specific sports intangible asset group. Sports intangible assets are not limited to assets accounted for by the intangible assets account. Any assets that are in accord with the definition of sports intangible assets in the asset valuation standard can constitute a sports intangible asset valuation subject.

The key difficulty in identifying the valuation subject of sports intangible assets lies in the identification and classification of sports intangible assets. In addition to the general characteristics of intangible assets, it also has characteristics such as being closely related to the business model of the sports industry, having complex rights attributes, being time-sensitive and having high uncertainty in the value. The identification and classification of sports intangible assets must be based on a thorough understanding of the business model of the sports industry and the use of sports resources.

In order to fully reveal the nature of sports intangible assets and facilitate the valuation of sports intangible assets, the Guidance Note classifies sports intangible assets from the perspective of the content of the rights owned by the right holder. Drawing on the practice of classifying intangible assets and taking into account the characteristics of sports intangible assets, the Guidance Note adopts a three-level classification index to express sports intangible assets, i.e., an intangible asset can be expressed in three indicators: large category, medium category and small category. Among them, the large category is divided into identifiable and unidentifiable sports intangible assets according to whether they are identifiable. The medium category adopts the classification principle of intangible assets in Chinese valuation standards, and the small category adopts the classification standard of conventional intangible assets in the sports industry. For example, the right to host sports events is expressed as "identifiable sports intangible assets large category) - contractual equity assets (medium category) - right to host a sports event small category)".

To facilitate the understanding of sports intangible asset classification, the Guidance Note explains the key terms in sports intangible asset valuation in the form of attached tables and lists various types of common sports intangible assets.

4. Application of sports intangible assets valuation approaches.

The three basic approaches of valuation are income approach, market approach and cost approach. The intangible assets standards mainly regulate the expected income, income years and discount rate of intangible assets in the income approach, the value ratios selected and the correction adjustment coefficient of comparable transaction price in the market approach, and the estimation of important parameters such as replacement cost and depreciation in the cost approach. On this basis, the Guidance Note further emphasizes the characteristics of the valuation of sports intangible assets, pays attention to the business model and relevant operation of sports intangible assets, and understands the influencing factors of the sports intangible assets value and their impact on the value. Combined with the common asset types in sports intangible assets, the Guidance Note focuses on standardizing the application of the most commonly used income approach. Referring to the relief-from-royalty method, the discounted incremental income method and the discounted multi-period excess income method under the income approach of intangible assets in the International Valuation Standards, the Guidance Note puts forward the selection principles and approaches of the valuation parameters of sports intangible assets. At the same time, the Guidance Note also states two different valuation ideas of the transaction price correction method and the value ratio correction method with reference to the experience of the valuation of sports intangible assets applied market approach in valuation practice, and put forward the adjustment factors for the individual characteristics of common sports intangible assets according to the characteristics of sports intangible assets.