Chelsea’s January transfer window closed in the early hours of Wednesday morning as they confirmed a British record deal for Argentina World Cup winner Enzo Fernandez.
And, after an unprecedented winter window in which seven big players were brought in for more than £280m, there is one question dominating the game.
How can Chelsea afford to spend like this while complying with UEFA Financial Fair Play (FFP) rules?
The answer, as you might expect, is complicated.
The player explained below.
How does Chelsea plan to work?
Chelsea fans have been given a crash course in the past month, as Todd Boehly and Clearlake have pushed the limits of what is possible with player contract lengths.
By signing Mykhailo Mudryk to a deal that runs until June 2031, for example, they are enabling the €70million (£62m) initial transfer fee to be spread over eight book years instead of the usual four or five, which significantly reducing his money. Annual cost of accounting.
Fernandez, Badiashile, Madueke and summer signing Wesley Fofana are also on long contracts. This amortization trick — which could end up backfiring if players with huge contracts fall short of on-field expectations — is one of the conditions Boehly and Clearlake have taken advantage of to increase their chances of getting ahead of the spending floor. Most famous clubs will have three or four summer windows, but not just one.
Another comes from the other side of how football clubs report their transfers in their accounts. Transfer fees for purchased players may be reduced for the duration of their contracts, but transfer fees for sold players are immediately booked as a one-time payment (except for the remaining fined fees on the books).
These different accounting practices can make it surprisingly easy for clubs to significantly reduce or even completely balance a number of high-profile signings with less than one viable sale in their annual results – especially if the player or the players who are sold are completely broke or the academy. graduates, which represent a net profit in the books.
Does this work?
A key example from Chelsea’s recent history: in the financial year ending June 2022, despite signing Romelu Lukaku in a disastrous £97.5m deal from Inter Milan, the club actually made a huge profit from player sales – estimated football finance analyst Swiss Ramble. to £160m – thanks to the departure of Tammy Abraham to Roma, Kurt Zouma to West Ham, Fikayo Tomori to AC Milan and Marc Guehi to Crystal Palace, among others.
Chelsea’s financial results for 2021-22 are not yet public. Clubs have until March 31 to file their accounts with Companies House. But in recent years the huge profits from player sales have been enough to keep the club in the black overall, despite matchday and commercial revenue consistently lagging behind their Premier League rivals – most recently in 2019-20, and £143m in player profits. The sale contributed to a total pre-tax profit of £36m.
How is Chelsea playing now?
Swiss Ramble estimates that Chelsea’s pre-tax profit for 2021-22 will be £19m. Between those two dark years is a huge loss of £156m in 2020-21 partly as a result of the big spending spree in the summer of 2020 that brought Kai Havertz, Timo Werner, Ben Chilwell, Hakim Ziyech and Edouard Mendy to Stamford Bridge.
FFP has traditionally only allowed clubs to lose up to €30m (£26.3m) over a three-year monitoring period, although several have been put in place in recognition of the impact of COVID on club revenue.
In late September UEFA included Chelsea as one of 18 clubs that “were able to technically meet the criteria for breaking even due to the use of emergency measures against COVID-19 and/or because they benefited from benefited from good historical results,” that additional financial information was requested and that the clubs concerned “will be closely monitored in the coming period”.
UEFA has also reminded Chelsea that the special accommodation for COVID is no longer applicable, but FFP has changed structures that make the current costs of Boehly and Clearlake more effective. From 2023-24 the allowable loss limit will be doubled from €30m to €60m, which will include the 2022-23 season which is the third year of the monitoring period. Clubs deemed to be in good health will also be given an extra €30m in losses allowed over a three-year monitoring period, meaning Chelsea could be allowed to lose more than €90m over three in years – twice as much as before.
Before deadline day, when Chelsea finally agreed a British record deal for Fernandez, Swiss Ramble estimated a €96m loss for Chelsea over the three years to 2022-23, just over €90m. Allowable loss limit. He also estimated the team’s value at 92 percent of revenue and profit from player sales; UEFA has decided that all clubs will reduce this ratio to 90 per cent in 2023-24, then 80 per cent in 2024-25 and 70 per cent in 2025-26.
Are Chelsea worried?
Recent history suggests that Chelsea are a little afraid of even being found in breach of FFP. The latest round of UEFA penalties, announced in September, became a list of fines – of which only a small percentage had to be paid immediately while the rest depended on future compliance.
You could argue that it is the equivalent of a speeding ticket for an ambitious club that has decided to spend a lot of money.
Boehly has made it clear on numerous occasions that Chelsea have FFP in mind, but it is clear that he and Clearlake are pushing as closely as possible to try and build a squad capable of consistently competing for major trophies. domestically and in Europe. Perhaps you should keep in mind that the financial and legal conditions in the coming years may not be favorable for this scale of investment.
Can this rate of spending continue?
UEFA has already moved to close the loopholes in the future transfer window; even if a player is signed on a seven or eight year deal from the summer onwards, their transfer fee will be spread over five years in any FFP account.
The club’s ever-tightening price controls are also putting pressure on Chelsea and their rivals to be more disciplined when handing out expensive wages to players and coaches.
Then there’s also the £60m of annual commercial income that Chelsea will lose next season, as a result of the end of a £40m-a-year deal with the Three Shirt sponsor and the early termination of the £20m-a-year deal. Whalefin wristband sponsorship. None of this has changed yet, the football sponsorship market is less than inviting at the moment and the clock is ticking before the next season’s kit production process begins.
Most of all, Chelsea now face the very real prospect of playing the 2023-24 season without Champions League football, and possibly without European participation of any kind. That wasn’t part of Boehly-Clearlake’s business plan at all, and it will have a major impact on the club’s transfer ambitions over the next two windows.
This is where it is important to note the very defined profile that Chelsea have targeted in the January market: players aged 23 or younger, who have, to varying degrees, a high level of ability, and who can emerge in key areas. of the next great group. Stamford Bridge or grow their resale value in the coming years.
If enough of them prove to be positive assets on or off the pitch, zero transfer numbers will not be needed in future windows.
However, no one expects this level of transfer fees to continue indefinitely. Boehly is not an oligarch and Clearlake Capital is not a sovereign wealth fund. The money to be invested is raised from private equity, and comes with the prospect of a good return – either in the form of an annual profit or, more likely, a significant increase in the value of Chelsea that can be realized if the club is sold. .
(Photo: Getty Images)