29 | Financial risk management

a) Accounting classifications and fair value measurements

Fair value measurements and disclosure of assets and liabilities

When measuring the fair value of an asset or a liability, the group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

1. Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

2. Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

3. Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability are categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety at the lowest level input that is significant to the entire measurement.

b) Financial risk management

FIFA is exposed to currency and interest risks as well as credit, liquidity and equity price risks in the course of its normal operations.

Credit risk

The revenue from television and marketing rights is received from large multinational companies and public broadcasters. Part of the outstanding revenue is also covered by bank guarantees. Additionally, the contracts include a default clause, whereby the contract terminates as soon as one party is in default. In the event of a default, FIFA is not required to reimburse any of the services or contributions received. FIFA is also entitled to replace terminated contracts with new marketing or broadcasting agreements.

Material credit risks could arise if several parties were unable to meet their contractual obligations. FIFA’s management monitors the credit standing of the Commercial Affiliates very closely on an ongoing basis. Given their good credit ratings and the high diversification of the portfolio of Commercial Affiliates, the management believes that this scenario is unlikely to occur.

The vast majority of cash and cash equivalents are held with bank and financial institution counterparties with a rating equivalent to “A-1” or higher in S&P ratings. Fixed-income investments with residual terms to maturity of 12 months or less are only executed with borrowers with a short-term rating of “A-3” or higher. Investments in bonds are only executed in listed, tradable bonds issued by borrowers with a “BBB-” rating or higher. Derivative financial instruments are executed only with counterparties with high credit ratings. The carrying amount of the financial assets represents the maximum exposure to credit risk.

Equity price risk

FIFA’s exposure to equity price risk arises from equity investment funds held by the group classified as at fair value through profit or loss. FIFA manages its price risk arising from equity securities through diversification.

As at 31 December 2022, the exposure to equity investments was USD 87 million (2021: 107 million). If the fair values of the equity investments had increased/(decreased) by 10%, the impact on the net result would have been USD +8.7 million or USD -8.7 million, respectively (2021: USD +10.7 million or USD -10.7 million).

Interest rate risk

Interest rate risks arise from changes in market interest rates, which could affect the Group’s profit or loss or equity. Since the interest rates of all term deposits and debt securities are fixed, there is only limited exposure to cash flow interest rate risk. FIFA’s interest rate risk exposure therefore mainly arises from changes in the fair value of such fixed-rate debt instruments measured at FVOCI and FVTPL.

As at 31 December 2021 and 31 December 2022, there was no interest rate risk arising from financing transactions because FIFA is self- financed.

Foreign currency risk

FIFA’s functional currency is USD because the majority of its cash flows are denominated in USD. Exposure to foreign currency exchange rates arises from transactions denominated in currencies other than USD, especially in EUR, CHF and QAR.

FIFA receives foreign currency cash inflows in the form of revenue from the sale of certain rights denominated in currencies other than USD, such as EUR, GBP and CHF. On the other hand, FIFA has substantial costs, especially employee costs and operating costs in connection with FIFA’s offices in Zurich, denominated in CHF and other currencies. The Controlling & Strategic Planning Subdivision regularly forecasts the liquidity and foreign exchange requirements. If any foreign currency risks are identified, FIFA uses derivative products to hedge this exposure (see also Note 30).

As at 31 December 2022, FIFA was exposed to the following foreign exchange fluctuation risks:

• If the CHF had gained 10% against the USD as at 31 December 2022, the impact on the net result would have been USD +1.6 million (2021: USD +1.2 million).

• If the EUR had gained 10% against the USD as at 31 December 2022, the impact on the net result would have been USD +2.4 million (2021: USD +0.8 million).

• If the GBP had gained 10% against the USD as at 31 December 2022, the impact on the net result would have been USD -0.4 million (2021: USD 0 million).

• If the AUD had gained 10% against the USD as at 31 December 2022, the impact on the net result would have been USD -0.2 million (2021: USD 0 million).

• If the QAR had gained 10% against the USD as at 31 December 2022, the impact on the net result would have been USD +4.6 million (2021: USD +0.1 million).

This fluctuation analysis can be applied using the same method in reverse (a decrease of 10%). It only shows the effect from a risk management perspective and not realised gains or losses.

Positions exposed to foreign currency risk as at 31 December 2022

Positions exposed to foreign currency risk as at 31 December 2021

Liquidity risk

As at 31 December 2021 and 31 December 2022, FIFA was self-financed. Moreover, FIFA holds mortgage notes in the amount of CHF 145.7 million (2021: CHF 145.7 million), guaranteed by its own properties, which could be used to cover any additional liquidity needs.

Maturity of financial liabilities

Please refer to Note 27 for the maturity analysis of undiscounted lease liabilities.