How CAN Chelsea spend £400m without breaking the rules?
New owner Boehly has smashed transfer records since buying the club last summer, leading many fans to ask…
As the signing of Mykhailo Mudryk took Chelsea’s transfer spending this season to a Premier League record of £ 416million, surpassing Manchester City’s £328m outlay in 2017-18, many have wondered how this can happen in the era of Financial Fair Play (FFP).
Premier League FFP rules allow clubs to lose up to £105m over a rolling three- year period, but there are adjustments for ‘ virtue spending’ on areas such as infrastructure, a club’s women’s team, academies and community projects.
Further allowances were granted after Covid and the impact it had on clubs playing matches behind closed doors and the increased costs of Covid compliance.
UeFA’s rules are different, with new Financial and sustainability Rules introduced last summer. these allow clubs to lose up to €60m (£53m) over three years, but the ‘ virtue spending’ allowances are ignored.
there is also a soft wage cap that limits spending on player and coach salaries, plus agent fees and net transfer expense, to 90 per cent of revenue in 2023-24, then 80 per cent and 70 per cent in the two subsequent seasons.
Chelsea posted operating losses of £387m in the three years of their most recent published accounts up to June 30, 2021. however, they were able to claim a substantial amount in respect of Covid.
the club are in a strong opening FFP position because player sale profits are deducted from these losses. however, Chelsea have not published their accounts for 2021-22, when they were unable to sell tickets, or generate money from merchandise and other products and services for a period of time, after the Government sanctioned and froze the assets of then owner Roman Abramovich. It is uncertain how the Premier League and UeFA will treat this issue for FFP.
Abramovich lent the club more than £1.5billion after his acquisition of Chelsea in 2003, which funded operating losses that averaged £900,000 a week during his 19-year tenure. his loans had the benefit of being interest-free. this contrasts with the approach of Manchester United’s owners, who borrowed from the markets and have run up finance costs, dividends and management fees of more than £ 1bn, causing resentment from fans who want the money spent on Old trafford and players.
Chelsea benefit significantly from how the accountants deal with player transactions. If you buy a player the cost is spread, via a process called amortisation, over the contract life. Mudryk’s £88m fee will be split across his eight-and-a-half-year deal and gives an annual cost for FFP purposes of just over £10m a year.
the club signed Wesley Fofana on a seven-year deal, Benoit Badiashile for six-and-a-half years,
Marc Cucurella six and Raheem sterling five. this helps Chelsea reduce annual amortisation costs; their £416m spend this season with an average of a six-year deal works out as a £70m annual cost in the accounts, plus wages.
With player sales, under FFP the whole profit is taken immediately into consideration. In the last decade the club have made a £688m profit from sales, roughly twice the sum of most of their Big six rivals and more than £500m more than Manchester United.
selling the likes of eden hazard, Oscar and David Luiz near the top of their market prices, plus academy products such as tammy Abraham and Fikayo tomori, has been very lucrative for Chelsea. the club also made €120m (£105m) in 2021 from winning the Champions League before winning the UeFA super Cup and FIFA World Club Cup, which added to revenues.
the downside of Chelsea’s approach to recruitment is that if the players do not prove to be successful, the club is stuck with them on expensive contracts for a very long time. this can create bottlenecks for young players coming through and also prevent future signings. If new owners todd Boehly and Clearlake Capital have recruited players who under-perform, there will be less wriggle room in future.
For every £1 generated from qualifying for the Champions League, clubs earn 23p in the europa League and 11p in the europa Conference League. Failure to qualify for europe would leave Chelsea, now 10th in the Premier League, hamstrung in this summer’s transfer window.