Chelsea’s historic January transfer window came to a close in the early hours of Wednesday morning, when the club confirmed a British record deal for Argentina’s World Cup winner Enzo Fernandes.
And after an unprecedented winter spell in which they signed seven top players for more than £280m, one question is dominating the sport.
How do Chelsea Able to embark on this spending spree while sticking to it UEFAFinancial Fair Play (FFP) regulations?
The answer, as you might expect, is complicated.
the athlete Explains below.
How does Chelsea plan to make it a success?
Chelsea supporters have had a crash course in firefighting over the past month, with Todd Bohle and Clearlake pushing the boundaries of what’s possible with player contract spells.
before signing Mykhailo Modric To a deal that runs until June 2031, for example, they have been able to spread the initial transfer fee of €70m (£62m) over eight years on the books instead of the traditional four or five years, significantly reducing its annual cost on accounts. .
Fernandez, Badiachel and Madueki summer signing Wesley Fofana are in similar long deals. This depreciation trick — which could backfire if players on such big contracts don’t live up to expectations on the field — is one of the conditions that Boehly and Clearlake exploited in order to maximize their chances of charging a spending level. That most elite clubs will span three or four summer windows, but not the only one.
Another half stems from how football clubs report transfers in their accounts. Transfer fees for players bought may be amortized over the term of their contracts, but transfer fees for players sold are booked immediately in one payment (less the amortized cost remaining in the books).
These different accounting practices can make it surprisingly easy for clubs to significantly offset or even completely balance several high-profile signings with less than one reasonably sized sale in their annual results – particularly if the player or players sold have been fully depreciated. Or the alumni academy who are pure profit on the books.
Is this effective?
An important example from the recent history of Chelsea: For the financial year ending June 2022, despite the signing Romelu Lukaku In a disastrous £97.5m deal from Inter Milan, the club has already made huge profits from player sales – estimated at £160m by respected football finance analyst Swiss Rampell – due to the departure of Tammy Abraham to Roma, Kurt Zuma to West HamFikayo Tomori to AC Milan And Mark Joye to Crystal Palaceamong others.
Chelsea’s overall financial results for the 2021-22 period are yet to be announced. The club has until March 31 to file its accounts with Companies House. In years past, however, large profits from player sales were enough to bring the club up to the Lions overall, despite match day and commercial revenues consistently lagging behind. Premier League Rivals – Most recently in 2019-20, when £143m of profit from player sales contributed to a total profit before tax of £36m.
What is the current state of play for Chelsea?
Swiss Ramble estimates Chelsea’s pre-tax profit for 2021-22 to be £19m. Between those two years, there is a massive £156m loss in 2020-21 resulting in part from the massive spending spree in summer 2020 that brought Kai HavertzTimo Werner Ben ChilwellAnd Hakim Ziyech And Edward Mindy to Stamford Bridge.
The FFP has traditionally only allowed clubs to lose up to €30m (£26.3m) over a three-year monitoring period, although a number of accommodations have been made in recognition of the impact of COVID on club revenues.
Back in September, UEFA listed Chelsea as one of 18 clubs that “were technically able to meet the requirements for a draw thanks to the implementation of COVID-19 emergency measures and/or because they had benefited from historically positive draw results,” adding that further requests had been made. financial information and that the relevant clubs “will be closely monitored in the coming period”.
UEFA also reminded Chelsea that these COVID accommodations are no longer in place, but the FFP is changing in ways that make Boehly and Clearlake’s current spending more viable. From 2023-24, the loss limit was doubled from €30m to €60m, which will include the 2022-23 season as the third year of the observation period. Clubs deemed to be in good financial health will also be given an additional €30m in losses allowed over the three-year monitoring period, meaning Chelsea could be allowed to lose up to €90m over three years – three times the old limit.
Ahead of deadline day, when Chelsea finally agreed a British record deal for Fernandes, the Swiss Ramble estimated Chelsea would lose €96m over the three years to 2022-23, just over the €90m allowed loss limit. He also estimated that the club’s team cost 92 percent of revenue and profit from player sales; UEFA has decided that all clubs must reduce this percentage to 90 percent in 2023-24, then 80 percent in 2024-25 and 70 percent in 2025-26.
Should Chelsea have any concerns?
Recent history suggests that Chelsea have relatively nothing to fear even from being found in breach of the FFP. UEFA’s latest round of sanctions, announced in September, was a list of fines – only a small percentage of which were to be paid outright, the rest conditioned on future compliance.
You could argue that’s the equivalent of a speeding ticket to an ambitious club bent on spending big.
Boehly has publicly insisted on numerous occasions that Chelsea have FFP in mind, but it is clear that he and Clearlake are pushing as hard as possible to try and build a team that can consistently compete for the biggest domestic and European trophies, perhaps given that financial circumstances And regulatory in the coming years may not be conducive to this volume of investment.
Is this level of spending likely to continue?
UEFA has already moved to close the consumption loophole in future transfer windows; Even if a player is signed to a seven or eight year contract from the summer onwards, his transfer fee will not be spread over five years in any FFP account.
An ever-tightening team cost control rule will put pressure on Chelsea and their rivals to be more disciplined when distributing lucrative salaries to players and coaches.
Then there’s also the £60m of annual commercial income Chelsea stand to lose next season, as a result of the expiration of a £40m-a-year deal with major shirt sponsor Three and the early termination of a £20m deal. Year deal with sleeve sponsor Whalefin. Neither has been replaced yet, the football sponsorship market is less than inviting now, and the clock is ticking before next season’s kit manufacturing process begins.
Most of all, Chelsea currently face the very real prospect of playing the 2023-24 season without a Champions League, and possibly without European participation of any kind. It was not at all in Boehly-Clearlake’s initial business plan, and would have a major impact on the club’s ambitions to move over the next two windows.
This is where it is important to note the very specific profile of the player Chelsea have targeted in this January window: players aged 23 and under who have, in varying degrees, demonstrated elite ability and can either develop into key components of the next great squad. at Stamford Bridge or increasing its resale value in the coming years.
If enough of them prove to be positive assets on or off the field, there will be no need for nine-figure transfer deals in future windows.
In any case, no one should expect this level of transfer spending to continue indefinitely. Bohli is not an arbitrator and Clearlake Capital is not a sovereign wealth fund. The money invested is withdrawn from private equity, and with it comes the expectation of an eventual positive return – either in the form of annual dividends or, more likely, the significant increase in Chelsea’s value that could be achieved if the club were to be sold.
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