What does amortisation mean in economics? Why do sports clubs say, for example, that they cannot sell a player because they paid 100M for him and he is not yet amortised?

Question

What does amortisation mean in economics? Why do sports clubs say, for example, that they cannot sell a player because they paid 100M for him and he is not yet amortised?

In: 4

Answer 1

The sports club example is unknown to me, but amortisation is pretty simple. Basically it comes down to the fact that an intangible asset may lose value over time. The lost value van either stem from a decrease in the perceived value of the asset, or from a market-related decrease in the actual value. Say, for example, you developed software that addressed a specific problem. At first, the software is deemed exceptionally valuable, but over time, someone else might improve on some aspect of the software, rendering their version more useful, and rendering yours less so. You therefore can’t recognise the software at it’s original value since its lost some usefulness, and thus, it is amortised to better reflect it’s real value to the company.