Chelsea Transfers

[Mário César 975]

10 hours ago, Tomo said:

One goal and all of a sudden 3 years of next to nothing is forgiven and forgotten, really? 

loooool?

and did mudryk and madueke? nothing! 

[Thor 2,392]

Some people here really are just glory chasers. 

 

Now, now, now. 

[Mário César 975]

6 minutes ago, Thor said:

Some people here really are just glory chasers. 

 

Now, now, now. 

what?

[Mhsc 876]

1 hour ago, Pizy said:

Now that we bought 2 new, high priced DM’s I don’t think bringing Felix back makes sense. If the plan was to stick with this back 3 for good I could see the case for Felix because he could just play the same role Carney has been. But if we’re going to play a 4-3-3 with Enzo, Caicedo, and Lavia I don’t see a place for João. Putting him out wide where his excellent and intricate link up play in tight spaces is negated would be a waste.

I will say this, though. If we get close to the deadline and are panicking to find some sort of attacker I’d rather Felix than some of these other names we’re linked with like Balogun or Brennan Johnson.

I'm not convinced we're switching system. I think Poch will either try to fit the 3 into his 4-2-3-1 or rotate between them.

I think it is possible that Enzo will play further forward or Caicedo might in a role similar to Maatsen in preseason, as the guy leading the press as Kante used to.

[Vegetable 830]

22 minutes ago, Thor said:

Some people here really are just glory chasers. 

 

Now, now, now. 

Yes and no. Sounds like Potter time chant, but truth is, while some people are childishly entitled, you cannot spend nearly billion or so in short time and not be held accountable for result. If you want to play the "future", developing cooking exciting talent potential success will come in 5 seasons game, you can do this via purely academy players for nearly free and in more satisfying way. 

There never was and isn't a reason for us to go mid-table route yet still we seem to entertain it. 

[Gundalf 804]

8 minutes ago, Vegetable said:

Yes and no. Sounds like Potter time chant, but truth is, while some people are childishly entitled, you cannot spend nearly billion or so in short time and not be held accountable for result. If you want to play the "future", developing cooking exciting talent potential success will come in 5 seasons game, you can do this via purely academy players for nearly free and in more satisfying way. 

There never was and isn't a reason for us to go mid-table route yet still we seem to entertain it. 

Yeah but what else can u do? We had the new upcoming "talent" manager, now we have the experienced proven coach, we had a very experienced team last season, now we are having a very talented young squad. What else is left? If it doesnt work this year, we can officially close this club bc Roman had a deal with the devil.   

[mkh 273]

Chelsea, led by Behdad Eghbali, are in talks over Brennan Johnson. The idea of Callum Hudson-Odoi going the other way has been discussed, as Chelsea believe they can get the fee down.

Johnson is heavily liked by Joe Shields, who is getting increased power at Chelsea. He’s specifically liked for his versatility at the wing, striker & 10.

Mohammed Kudus is still of big interest to Chelsea & especially Laurence Stewart. He also fits all 3 positions.

Bradley Barcola another name of interest, but less than other 2 at this point.

Edited August 22, 2023 by mkh

[Thor 2,392]

50 minutes ago, Vegetable said:

 

There never was and isn't a reason for us to go mid-table route yet still we seem to entertain it. 

I'm not entertaining it, nor are others from what I see. 

Overreacting to 2 games in the season is what I'm talking about. Our team is pretty deeply injured at the moment, and our new signings haven't even all played. 

Let us play a game with 4 at the back and have our new signings on the pitch at least. 

[Gundalf 804]

5 minutes ago, mkh said:

Chelsea, led by Behdad Eghbali, are in talks over Brennan Johnson. The idea of Callum Hudson-Odoi going the other way has been discussed, as Chelsea believe they can get the fee down.

Johnson is heavily liked by Joe Shields, who is getting increased power at Chelsea. He’s specifically liked for his versatility at the wing, striker & 10.

Mohammed Kudus is still of big interest to Chelsea & especially Laurence Stewart. He also fits all 3 positions.

Bradley Barcola another name of interest, but less than other 2 at this point.

To be fair, Johnsons 8 PL goals and 3 assists last season is a way better achievement than Kudus' 11 goals and 4 assists in Eredivisie.  

Edited August 22, 2023 by Gundalf

[lucio 5,418]

2 minutes ago, Gundalf said:

To be fair, Johnsons 8 PL goals and 3 assists last season is a way better achievement than Kudus' 11 goals and 4 assists in Eredivisie.  

think a few of johnsons goals were pens

[YorkshireBlue 3,122]

10 minutes ago, lucio said:

think a few of johnsons goals were pens

We need a pen taker 🤣

[Gundalf 804]

1 minute ago, lucio said:

think a few of johnsons goals were pens

Would make him our n1 penalty taker immediately 🤣

[Gundalf 804]

Just looked it up: 1 of them was a penalty. 

[lucio 5,418]

Just now, Gundalf said:

Just looked it up: 1 of them was a penalty. 

the video may have been showing championship goals also

[DDA 9,690]

What are we actually doing? 

B.Johnson is a winger no??

Don't we have enough fucking wingers.

This guy is a bang average speed merchant.

I want technical ballers in the team who can assist and score. Enough of these bang average mid players.

Club is going to the dogs ffs.

[Vesper 28,786]

How Can Chelsea Comply with FFP rules?

She Moves In Her Own Way

https://swissramble.substack.com/p/how-can-Chelsea-comply-with-ffp-rules

SWISS RAMBLE
21 AUG 2023
PAID

Even after the enormous outlay in the transfer market last season, there is no sign of Chelsea’s player purchases slowing down. The Blues’ spending since Todd Boehly’s Clearlake Capital acquired the club in May 2022 has been quite unprecedented,

This has led to many football pundits sagely explaining how they have managed to do this via the use of an accounting “trick”, known as player amortisation, but is that really the whole story?

This blog will explain how the accounting treatment for player trading does indeed help football clubs meet their FFP targets, but will also take a broader look at Chelsea’s business model, including revenue projections, which are just as important in assessing a club’s profitability.

Other Clubs’ Views

Chelsea’s massive spending has certainly puzzled managers at some of their main rivals.

Liverpool’s Jürgen Klopp said, “I don’t understand this part of the business, but it’s a big number. I don’t understand how it’s possible, but it’s not for me to explain how it works.”

Pep Guardiola’s view was that Manchester City would have been crucified if his club had spent nearly £1 billion on players, “I couldn’t sit here if we spent what Chelsea spent in the last two transfer windows – you would kill me. We’d be under scrutiny like you couldn’t imagine.”

Transfers

The 2023 summer transfer window has not yet closed, but Chelsea have already splashed out £334m, which is significantly more than any other club in the Premier League. Some have also spent big, e.g. Arsenal £204m, Tottenham £168m and Manchester United £167m, but they are all trailing in Chelsea’s slipstream.

In fact, the £872m that Chelsea have spent since Boehly’s arrival is more than twice as much as the next highest English club, namely Manchester United with £378m. Including potential add-ons, Chelsea’s gross transfer spend in the last 14 months is an amazing £950m. Nobody would be remotely surprised if the total breaks through the £1 bln barrier by the time the window has closed.

To further place Chelsea’s expenditure into context, the amounts spent in the last two seasons are the highest ever reported in the Premier League. In fact, the £539m outlay in 2022/23 was over £200m more than Manchester City’s previous record of £328m in 2017/18.

Of course, the Blues are no strangers to splashing the cash, as they had been responsible for three of the top six annual transfer outlays even before Boehly strolled onto the scene, but this is next level stuff.

When the consortium led by Boehly purchased Chelsea, not many people would have expected them to be so active in the transfer market, given that private equity investors are usually all about the return on capital, even though it is also true that they will invest in order to generate a decent return.

Therefore, it is somewhat surprising that Chelsea have actually spent even more than they did under Roman Abramovich, who was hardly a skinflint. The Russian never spent more than £300m on transfers in a single year, a figure that Boehly has now exceeded in both of his seasons.

How can they do it?

Many people, especially supporters of other clubs, are asking how this is possible, but there are actually two questions here:

1. Does the club have enough money?

2. How on earth can Chelsea still be in line with Financial Fair Play regulations?

Does the club have enough money?

Let’s first deal with the most important question in the real world, namely does the club have enough money?

Looking at debt, Roman Abramovich had regularly provided cash injections to Chelsea during his tenure, putting in over £1.5 bln, which resulted in the highest amount owed in the Premier League.

However, the good news for the Blues is that the former owner has reportedly written-off this balance as part of the club sale, though it is not yet clear whether this was via a repayment waiver or conversion into equity.

What we can say with some confidence is that the football club is now debt-free. This means that they could take on a fair bit of debt and still owe less than many of their peers.

The new owners also appear to have plenty of cash, given they paid a princely £2.5 bln to acquire the club, while committing to a further £1.75 bln of infrastructure investment.

In any case, like all other football clubs, they will be paying off transfer fees in instalments, so they don’t have to find the funds all at once.

Chelsea’s transfer debt has increased over the past few years to £137m in 2022, but this was still a fair bit lower than other elite clubs. For example, Tottenham owed £252m, which was nearly twice as much, so there is some room to manoeuvre here.

Nevertheless, Chelsea will still have to find the money to pay for these deals over the next two to three years. Even though they have signed players on long contracts, the selling clubs are extremely unlikely to have accepted similar payment terms.

Therefore, it is not a major surprise to hear whispers about Chelsea’s owners being open to new investment, as funding will be required for their overhaul of the playing squad. Ares Management are apparently interested in making a capital injection in return for a minority stake.

How can Chelsea still be in line with FFP regulations?

This is where we need to look at how player trading is reported in a club’s accounts, as this has greatly helped Chelsea’s ability to stay within FFP regulations.

Player Trading Accounting – Purchases

The key point here is that when a player is purchased the cost is spread over a few years, but any profit made from selling a player is booked to the accounts immediately.

Transfer fees are not fully expensed when a player is purchased, but are written-off evenly over the length of the contract via player amortisation. So, if we take the example of Moisés Caicedo, who was purchased from Brighton for £100m (excluding add-ons) on an 8-year contract, the annual amortisation will be £12.5m, i.e. £100m divided by 8 years.

This is completely normal, standard accounting treatment.

The only “innovative” step that Chelsea have taken is to sign players on very long contracts, which means that the cost of the transfer fee is spread over more years. This means that a lower annual charge is booked to the accounts, though it should be remembered that the bill will still have to be paid someday, so this is not exactly the “silver bullet” that some have claimed.

However, in the short term, it helps the books look better, as we can see with Caicedo. If he had signed on a more normal 5-year contract, the annual amortisation would have been £20m, compared to £12.5m on his 8-year contract.

Player Trading Accounting – Sales

Let’s look at how player sales are booked, using a few recent Chelsea examples that highlight the difference between the more favourable accounting treatment and what happens in the real world.

First, Kai Havertz was sold to Arsenal for £65m, having been bought from Bayer Leverkusen for £62m, leading to a cash profit of only £3m. However, as his original transfer fee had been partly amortised in the accounts, giving a net book value of £25m, the club could book a much higher £40m profit.

Academy Products

That’s great, but, hold on a moment, it actually gets even better, as players developed in a club’s academy have no cost in the accounts. There is only a cost if a club has paid to secure a player’s registration from another club. That means that any sale of an Academy product represents pure profit.

In this way, Mason Mount’s £55m sale to Manchester United delivered, drum roll, a £55m profit in the accounts.

This has been of particular importance to Chelsea and helps explain why they have hoarded young talent, keeping players on the books, even after numerous loans elsewhere.

To highlight how lucrative this strategy has been, the Blues have booked a hefty £176m profit from the sale of just half a dozen Academy players in the last three years, earning big money from Mount, Tammy Abraham to Roma, Lewis Hall to Newcastle, Fikayo Tomori to Milan, Marc Guéhi to Crystal Palace and Billy Gilmour to Brighton.

The accounting treatment even helps when a player is sold at a loss, as it limits the damage, e.g. Christian Pulisic was sold to Milan at a £41m loss (purchase £58m, sale £17m). However, as the club had already booked four years of amortisation amounting to £39m, his remaining value in the accounts was only £19m, so the reported loss was much lower at just £2m.

Health Warning

To understand the impact of the transfer market activity, we will have to estimate the figures for both 2022/23 and 2023/24 seasons, as the most recent accounts published by Chelsea are for 2021/21. This is not an exact science, so the usual caveats apply.

Furthermore, amounts spent on transfer fees and wages are not publicly disclosed in England. This means that the numbers used in this analysis will not be 100% correct, but they should be sufficiently accurate to illustrate the financial effect of the transactions.

Player Purchases 2022/23

Boehly spent £539m on transfers in his first season, which would rise to £590m if all add-ons were achieved. The initial outlay was split between £253m in the summer window, bringing in Fofana, Cucurella, Sterling and Koulibaly among others, and a further £286m in the January window, largely on Fernandez, Mudryk, Badiashile, Madueke and Gusto (plus Joao Felix on loan).

It is worth noting that these figures exclude agents’ fees, which could increase the amount to be amortised by up to 10%.

The impact on Chelsea’s profit and loss account will be driven by two factors:

• Player amortisation, the annual cost of writing-off transfer fees, which is £86m.

• Wages of the new purchases, which I have estimated at £111m.

This adds up to an annual £197m increase in the cost base.

Player Purchases 2023/24

Performing the same exercise for this summer’s player purchases, Chelsea have spent £334m to date (£359m including add-ons). Arrivals include Moisés Caicedo, Christophe Nkunku, Roméo Lavia, Axel Disasi, Nicolas Jackson, Lesley Ugochukwu and Robert Sanchez.

This will drive a £100m increase in annual costs, comprising £49m player amortisation and £51m wages.

Note: I have assumed that Chelsea will manage to offload Romelu Lukaku, so his wages have not been added back after his loan to Inter.

Player Sales 2022/23

On the other hand, Chelsea have also been far from idle when it comes to selling players. I reckon that their 2022/23 accounts will benefit from £215m of player sales (including £9m loan fees), which will produce £115m profit after deducting £100m remaining book value.

Eagle-eyed observers will note that I have included all the sales made in June this summer in the 2022/23 accounts, as these were completed before the 30th June accounting year-end. That covers £75m of profit from deals involving Kai Havertz, Mateo Kovacic, Ruben Loftus-Cheek, Edouard Mendy and Kalidou Koulibaly.

In addition, Chelsea benefit from reducing their wage bill and player amortisation for those departures. It’s not always appreciated that even when a player is sold for very little or even leaves on a free transfer, there is still a benefit in terms of savings in the wage bill. This was the case with the likes of Antonio Rüdiger to Real Madrid, Andreas Christensen and Marcos Alonso to Barcelona and Danny Drinkwater (released).

Similarly, if you can persuade the other club to cover all or part of a player’s wages, then a loan can also help the finances, e.g. Lukaku to Inter, Malang Sarr to Monaco and Callum Hudson-Odoi to Bayer Leverkusen.

As a result, Chelsea have made significant annual savings. I have estimated these as £129m wages and £57m player amortisation, which means that costs will fall by £186m in total.

Player Sales 2023/24

Per my calculations, Chelsea have made £101m profit from player sales so far for the 2023/24 accounts, mainly from Mason Mount to Manchester United, Lewis Hall to Newcastle United, Ethan Ampadu to Leeds United and a sell-on fee from Tino Livramento’s transfer from Southampton to Newcastle.

Profits have been boosted by selling players with a low remaining book value or none at all (including Academy products).

The net gain was partially offset by the accounting losses made on a couple of deals: Christian Pulisic to Milan and Pierre-Emerick Aubameyang to Marseille.

Incidentally, there was much talk about Saudi Arabian clubs helping to resolve Chelsea’s FFP issues, as three players have ended up in the Middle East kingdom, but their transfer fees do not look that exorbitant. Koulibaly and Mendy were sold for £20m and £16m respectively, while Kanté went for free. That said, these deals did help get them off the payroll.

These exits contribute more hefty savings, adding up to £82m a year (wages £67m and player amortisation £15m). Even if no money was generated from the sales of old stagers like N’Golo Kanté and César Azpilicueta, this still sliced a big chunk from the wage bill.

Accounting Impact of Chelsea’s Transfers

In fact, according to my model, the net result of Chelsea’s transfer activity over the last two seasons is actually positive, improving net profit by £215m.

Yes, their huge purchases obviously increase costs – by £259m (wages £143m and player amortisation £116m). However, this is entirely offset by the £259m decrease arising from player departures (wages £192m and player amortisation £67m). Incredibly, after all of Chelsea’s frenetic transfer activity, that means that there is zero net effect on annual costs.

Furthermore, this will be boosted by £215m profit from player sales (including £14m loan fees), though that is obviously a once-off gain. As the late, great Sid Waddell once said, “That’s magic darts!”

More prosaically, this does owe a great deal to the vagaries of financial accounting.

Player Amortisation – Long Contracts

The increase in Chelsea’s player amortisation would have been even higher if they had not signed so many players on incredibly long contracts. For example, Enzo Fernandez and Mykhailo Mudryk are on 8½-year deals, while Moisés Caicedo and Nicolas Jackson both signed for 8 years.

This has the benefit of spreading the cost of the transfer over more years, thereby reducing the annual expense booked to the profit and loss account, and thus considered for the FFP calculation.

Looking at Chelsea’s £872m player purchases in the last two seasons, we can see the difference between the long-term contracts and more normal length agreements. The annual amortisation on a more standard 5-year contract would be £174m, but is only £109m on the longer 8-year deals.

Five-year Rule

In a classic case of shutting the stable door after the horse has bolted, UEFA has now clamped down on this amortisation “trick” by setting a maximum 5-year contract length for the FFP calculation, regardless of how long a player signs for. The new rule was only implemented this summer, and not applied retrospectively, so the treatment of Chelsea’s 2022/23 signings will not be impacted.

Currently, the Premier League has not implemented a similar restriction, but it is expected that they will align their regulations with UEFA from next year.

Player Impairment

There is another accounting tactic which will improve Chelsea’s bottom line going forward, namely player impairment. Here, a club can book a once-off charge to write-down the value of a player. Normally, this is for something like a career-ending injury, but increasingly clubs use this to reflect a reduction in a player’s market value.

This has the effect of reducing the annual amortisation going forward, while it also has the benefit of increasing the profit of any player sale.

Chelsea booked £77m player impairment in their 2021/22 accounts (on top of £18m the previous season), which is by far the highest ever in England, way ahead of Stoke City’s £43m in 2019/20.

We don’t know which players’ values were impaired, but the smart money would be on Lukaku and Kepa.

Commitment

OK, that’s enough about how the fancy financial footwork of the bean counters can help avoid any issues with FFP, but what does Chelsea’s spending actually mean back in the real world?

The fact is that however a club records the transactions in the accounts, the bills will still have to be paid. All that happens with longer contracts is you push that further down the road, while your total cost/commitment is obviously higher with a longer contract.

In other words, short-term gain, but long-term pain.

Let’s take another look at the Moisés Caicedo signing. According to media reports, he will earn £250k a week, which is equivalent to £13m a year. That would mean £104m wages over his 8-year deal. Adding total wages to the £100m transfer fee and £10m agent’s fee (assuming 10%), that would give a total commitment of £214m. This would increase to £229m if all the add-ons are achieved.

In total, I estimate that Chelsea’s signings this season have committed the club to around £1.9 bln, due to a combination of the high spend and lengthy contracts. That is an expensive gamble – unless the players deliver.

Business Model

Chelsea’s business model over the past few years owes a great deal to the accounting treatment for player trading, as the approach has essentially been to offset large operating losses with profits made from player sales.

In the 10 years up to 2021/22, Chelsea have consistently posted large operating losses, adding up to nearly a billion pounds - £944m to be precise (and that excludes another £152m of exceptional items).

However, these losses have been largely offset by a very impressive £706m profit from player sales in the same period, including three seasons above £100m.

Chelsea’s approach can be perfectly illustrated by comparing their financials over the last decade with the other clubs in the Premier League. Their £944m operating loss is by some distance the worst, over 50% more than the next highest (Aston Villa £598m).

However, the opposite is true for player sales, where Chelsea generated by far the highest profit, with their £706m being nearly twice as much as the closest challenger, Liverpool £385m.

Profit/(Loss) before Tax

That said, Chelsea still reported net losses in three of the last four years, so player trading is not a panacea, though it sure does help to limit the damage. The bottom line is that if Chelsea can continue to sell well, then they should be fine in terms of financial fair play.

Revenue

Chelsea’s £481m revenue is the club’s highest ever, £35m (8%) more than the £447m pre-pandemic peak in 2019. However, in the last decade they have been significantly outpaced by both Manchester City and Liverpool.

As a result, Chelsea’s revenue is now fourth highest in the Premier League with the gap to the top three clubs being at least £100m. Manchester City lead the way with £613m, followed by Liverpool ££594m and Manchester United £583m. Boehly and co will see a growth opportunity here.

Profit/(Loss) Forecast - 2022/23 and 2023/24

As FFP has a 3-year monitoring period, we need to forecast Chelsea’s profit/(loss) for the two years after the latest available 2021/22 accounts to give us those 3 years in order to understand the club’s FFP position.

A reminder that these are only estimates, so the usual caveats apply. That said, the analysis will help explain the issues faced by Chelsea.

Match Day Revenue

Chelsea averaged £2.4m a game in 2021/22 (£69m divided by 29 games), but that season was impacted by the ticketing sanctions placed on Abramovich by the government, which reduced the attendances for the last 5 matches from 40,000 to 32,000.

Therefore, I have used a slightly higher average of £2.5m for 2022/23. Multiplied by the 24 home games played gives us £59m match day revenue.

Obviously, 2023/24 will be hit by no European matches (5 in each of the last two seasons). Although ticket prices have largely been frozen (for the 12th year in a row), there have been increases up to 25% in the West Upper stand, so I have increased the average per game to £2.6m.

I have further assumed 2 home games in each of the FA Cup and EFL Cup, which may be a touch optimistic, but that would produce £60m revenue.

Broadcasting Revenue

Chelsea earned £235m broadcasting income in 2021/22, but they will be hit by a couple of factors in 2022/23:

• Premier League finishing position dropping from 3rd to 12th, which results in a lower merit payment (£1.9m for each place).

• In 2021/22 the Blues won the UEFA Super Cup and FIFA Club World Cup, which were worth £4m apiece.

Against that, they will have benefited from the new Premier League deal, which I estimate is 11% higher than the previous agreement. Although domestic rights are flat, overseas rights have surged 25%, including the spectacular NBC deal in the US.

Putting that together gives £229m broadcasting revenue in 2022/23.

The big factor in 2023/24 is the failure to qualify for Europe, which has been worth around £80m in each of the last two seasons, when Chelsea reached the Champions League quarter-finals.

I have mitigated the damage by assuming that the new-look Chelsea finish 6th under Mauricio Pochettino, meaning a higher merit payment. Nevertheless, I am forecasting a steep reduction to £159m broadcasting income.

Europe TV Revenue

Chelsea’s failure to qualify for any European competition will hit them hard, as they have earned £433m in the six years since 2018. In this period, they have won both the Champions League, beating Manchester City in 2021, and the Europa League, when they romped to a victory against Arsenal in 2019.

Commercial Revenue

Chelsea’s 2021/22 commercial income was impacted by government sanctions, so I have used the £180m pre-pandemic peak in 2018/19 as a baseline. This was boosted by a new £20m sleeve sponsorship with WhaleFin, which was £14m higher than the previous agreement with Hyundai. I have also assumed a £10m uplift from additional partnerships, giving £204m for 2022/23.

There’s a lot going on commercially in 2023/24, though the bad news is the WhaleFin sponsorship has been terminated after just one season.

Even more damagingly, the £40m Three UK shirt sponsorship has expired and not yet been replaced. The Premier League did not sign-off a proposed deal with Paramount for fear of upsetting its broadcast partners, while Chelsea scrapped a deal with online betting company Stake after criticism from their own supporters.

A £40m deal has been reportedly agreed with sports technology start-up Infinity Athlete, though this is subject to a fair value review by the Premier League, due to the company’s links with Clearlake Capital. I have assumed that Chelsea will eventually secure a shirt sponsorship, but lose 10% (£4m) because of the delay.

Perhaps a touch optimistically, I have assumed a further £20m from additional partners in 2023/24, as you would hope that the Americans’ commercial expertise will come into play at some stage. However, little can be done with the kit supplier deal, as Chelsea are committed to Nike until 2023 (£900m over 15 years, i.e. £60m per annum).

On the other hand, there are likely to be contractual reductions linked to the lack of European competition, which I have estimated as £20m (a 10% haircut).

All of that gives £180m commercial revenue in 2023/24.

Wages

Chelsea’s £340m wage bill in 2021/22 was the fourth highest in the Premier League, having been in the top spot in 2014/15. This was only surpassed by Manchester United £384m, Liverpool £368m and Manchester City £354m.

For 2022/23 I have incorporated the modelled increases for transfer ins/outs, as explained earlier with a net £3m increase (£92m from purchases less £89m from sales). I have also added a notional £20m for contract extensions, but knocked-off £40m bonuses for failing to qualify for Europe which gives £323m wages.

Adopting a similar approach for 2023/24, I have added the net £14m reduction from this summer’s transfers (£51m from purchases less £66m from sales). Note: this season also reflects the full-year impact of the 2022/23 transfers made in the January window.

I have assumed a further £10m for contract extensions, but increased the bonus, assuming qualification for the Europa League (not a huge amount, as this competition is far less lucrative than the Champions League). All that would mean £308m in wages.

The fact that Chelsea’s wage bill hasn’t blown up is likely to come to a surprise to many, but the club has argued that this is the result of offloading older players on huge contracts awarded during the Abramovich era and replacing them with younger players on lower, more incentivised contracts (albeit much longer).

There has to be a degree of scepticism about these claims, as players continue to sign for the Blues despite offers elsewhere, but for the time being we will take the club at its word for our calculations. Moreover, it is clear that the wages at Chelsea will still represent a significant increase compared to those paid by their former clubs.

Player Amortisation

Chelsea’s £160m player amortisation was already the highest in the Premier League in 2021/22, a fair way above Manchester United £149m and Manchester City £141m.

I estimate that the annual increase resulting from Boehly’s spending spree last season was £48m, but this would have been partly offset by the £77m player impairment in the previous season, which I reckon would have taken £25m off the annual charge. Deducting a further £5m for contracts coming to the end gives £179m in 2022/23.

Similar calculations produce £193m player amortisation in 2023/24. Of course, the player amortisation would have been off the charts if Chelsea had signed players with a more standard contract length.

Exceptional Items

Chelsea’s bottom line has often been adversely impacted by exceptional charges and 2022/23 was no exception with around £45m:

• Thomas Tuchel pay-off £10m

• Graham Potter – compensation paid to Brighton £21.5m

• Potter – pay-off £13m

I have assumed no exceptionals in 2023/24, which may be unrealistic, given that Chelsea have booked nearly £200m of such expenses in the last eight years.

To be clear, such expenses cannot be deducted for FFP purposes.

P&L Summary

Putting all these estimates together would still suggest that Chelsea will post large losses: £70m in 2022/23 and £132m in 2023/24.

It’s the usual story of the blues (to quote Pete Wylie), as huge operating losses (£182m in 2022/23 and £230m in 2023/24) are partly offset, but not completely, by substantial profits from player sales (£114m in 2022/23 and £101m in 2023/24).

Once more, for the cheap seats, the estimates should be treated with caution, as these are based on several assumptions, but the outcomes should be directionally reasonable.

Financial Fair Play

There are two aspects to be considered for FFP:

• The Premier League’s Profitability and Sustainability regulations

• UEFA’s Financial Sustainability rules, including the new Squad Cost Control ratio.

Chelsea’s 2021/22 accounts stated that “the club has complied with these regulations since their inception in 2012 and expects to do so in the foreseeable future”. So, let’s first look at how they managed to do this up to that point.

Premier League – Profitability and Sustainability

The Premier League’s Profitability and Sustainability rules allow a £5m loss a year, which can then be boosted by £30m equity injection, giving allowable losses of £35m a year, which works out to £105m over the 3-year monitoring period.

Furthermore, the Premier League relaxed the regulations to neutralise the adverse impact of COVID, so the 2021/22 monitoring period assessed the two seasons 2019/20 and 2020/21 as a single (average) period.

On the face of it, things don’t look too good for Chelsea, as their pre-tax loss over the modified 3-year period was a hefty £283m (2018/19 £102m, average of 2019/20 & 2020/21 £60m and 2021/22 £121m). This was well over the £105m maximum loss.

However, clubs are allowed to make a number of deductions, so the P&S loss is always smaller than the loss reported in the accounts.

Clubs can deduct “healthy” expenditure, which I estimate was worth £116m to Chelsea: academy £51m, infrastructure £31m, women’s team £18m, community £9m and software amortisation £6m. That would reduce the loss to £168m, though still £63m above the £105m limit.

Note: Aston Villa have reported £14m expenses for their Academy. It’s not unreasonable to think that Chelsea’s costs will be higher, so I have assumed £17m a year.

In addition, Chelsea can make an adjustment for £128m losses arising from the COVID pandemic, as many games were played behind closed doors, while retail outlets were closed for business.

As the 2019/20 and 2020/21 seasons are averaged in the P&S calculation, that means that the COVID benefit was £64m.

After taking all these adjustments into consideration, my model suggests that Chelsea were just about compliant with the Premier League’s Profitability and Sustainability rules in 2021/22.

Things look even better for Chelsea in 2022/23, based on our profit/(loss) estimates, mainly because the 3-year monitoring period drops the £102m pre-tax loss in 2018/19, replacing it with the smaller projected £70m loss in 2022/23.

However, even using my somewhat optimistic assumptions, Chelsea are a long way above the P&S limit in 2023/24. The projected loss over the 3-year monitoring period is £323m, which can be reduced by £122m of allowable deductions, but still giving a £201m P&S loss, i.e. almost twice as much as the maximum allowed.

My guess is that the club would argue that further adjustments should also be considered due to special circumstances:

• Revenue lost when sanctions were applied by the government

• Exceptional player impairment (which Everton have claimed as a COVID adjustment)

• Lost player sales – due to the transfer market being deflated by COVID and the economic sanctions preventing some deals being made.

The other possibility is that Chelsea have effectively decided to ignore the P&S regulations and take their chances with any punishment imposed by the authorities. As long as this is not a points deduction or a transfer embargo, they would probably not be that bothered.

UEFA – Financial Sustainability

Chelsea will have had more problems meeting UEFA’s FFP rules, which are stricter than the Premier League, as the allowable losses (“acceptable deviation”) over 3 years were only €30m (including €25m equity contribution) for the 2022/23 monitoring period, i.e. up to the 2021/22 accounts.

Based on my estimates, they were €91m above the €30m limit in 2021/22, even after adjusting for all the allowable deductions and the COVID impact.

Chelsea had been included in UEFA’s watch list, along with another 18 clubs, as they only met the break-even requirement “thanks to the application of the COVID-19 emergency measures and/or because they benefited from historical positive break-even results”.

However, the clear implication is that they were compliant, albeit only after making these adjustments.

Therefore, the €91m over-run looks a bit strange, given that the club has also said that it had met regulations, while UEFA have not given the club any penalty, so how could this be?

This is where things get even more technical, as it looks like Chelsea have benefited from one of UEFA’s little-known regulations. Specifically, Article 104 of the 2022 edition notes that Articles 58 to 64 of the 2018 edition will apply as a transitional provision in respect of club monitoring.

One of those 2018 Articles allows a club with an aggregate break-even deficit over the 3-year monitoring period to offset this with any surplus from the preceding two years.

This is relevant and important for Chelsea, as they posted profits in both 2016/17 (£16m) and 2017/18 (£67m). Along with the allowable deductions for those season, that would allow the Blues to comfortably meet UEFA’s FFP target in 2021/22.

As a wise man once said, “Always read the small print”.

UEFA’s New Regulations

Since then, UEFA have introduced new regulations, which have doubled the maximum loss from €30m to €60m, so long as the excess over €5m is covered by an equity contribution from the owner.

In addition, if a club is deemed to be in good financial health, then it will be permitted up to an additional €10m allowance per reporting period, i.e. €30m over the 3-year monitoring period. This would mean that a club’s FFP allowable losses could potentially triple from €30m to €90m.

As Chelsea have not qualified for Europe this season, they will not be assessed by UEFA. In any case, there is no UEFA acceptable deviation test to pass for the 2023/24 sporting season, as the counter has been set to zero as part of the transition to the new regulations.

The rationale here is that UEFA wanted to make a clean break from the COVID years, so future assessments will not be complicated by having to adjust for the impact of the pandemic.

If Chelsea do qualify for Europe this season, UEFA’s regulations will once again apply.

The 2024/25 monitoring period will only cover two years (2022/23 and 2023/24), so importantly last season’s finances are still valid for this assessment. The allowable limit will be €60m plus €20m for “good health” (i.e. €10m x 2 years).

Note: I have adjusted player amortisation for this summer’s signings to reflect the maximum 5 years allowed by UEFA.

Even with the higher limit, it looks like Chelsea will still fall foul of the €80m limit. My estimated €159m loss for those two years would imply a substantial €79m over-run.

That could be problematic, though my guess is that Chelsea will not be too concerned.

One possibility is that they would simply make a deal with UEFA, as many other clubs have done, with a 3-year or 4-year settlement agreement, which would buy them some time, so long as they fully complied at the end of the agreement.

Of course, they would also have to pay a fine, but looking at the most recent UEFA penalties announced in September 2022, the payments were not overly onerous, even for clubs that were far above the maximum allowed loss.

Furthermore, only a small amount of the settlement was paid immediately with the remainder conditional on future compliance with targets. Boehly’s consortium might see this as effectively just another cost of doing business and worth paying if it allows them to build a squad capable of challenging at the highest level.

Chelsea did actually recently agree to pay a €10m fine to UEFA for breaching FFP rules, though this was for submitting “incomplete financial information” relating to payments to agents during Abramovich’s ownership.

UEFA – Squad Cost Control Ratio

UEFA have also introduced squad cost control via a new ratio of player wages, transfers and agent fees, that will be limited to 70% of revenue & profit on player sales.

However, there will be a gradual implementation over 3 seasons (90% in 2023/24, 80% in 2024/25 and 70% from 2025/26), giving clubs time to get their house in order.

It is worth noting that the cost ratio does not include all wages, only those for players (male professionals) and the head coach, but it does also include bonuses, image rights and termination payments. Based on a review of a few clubs, around 90% of total wages go on players.

Transfer fees are assessed in the cost control ratio via player amortisation (and impairment). Note: agent fees are capitalised, so they are included in the amortisation figures.

The most important element of the denominator in the cost control ratio is obviously the revenue reported in the accounts, but the calculation also includes profit on player sales, which will be assessed over 36 months, pro-rated to 12 months.

Note: in the introductory period, this will be “the better of 12, 24 or 36 months”, so Chelsea would once again be boosted by their profitable player trading.

Using these criteria, Chelsea’s ratio for 2021/22 was exactly 90%, even including the £77m player impairment, as they once again benefited from their high player sales. That said, this is the worst ratio of England’s Big Six.

Based on my forecasts, Chelsea’s ratio would improve to 84% for 2022/23, but rise to 92% for 2023/24. This would be “there or thereabouts” in terms of the initial 90% target for the introduction in 2023/24 though they would then have to rapidly improve as the target falls to 70% in 2025/26.

Strategy

There was a clear need for Chelsea to rejuvenate an ageing squad. Indeed, almost all of the new signings are fairly young, so there could be a lot of potential growth. The club will hope that these players continue to develop, thus further appreciate in value, despite some of the high prices paid.

If they do want to sell a player, the theory is that they would be able to secure a good price, as it will be a very long time before the contract runs down, giving the club more security.

In addition, if the club anticipates wage inflation, then it makes sense to lock down the players at current wages, rather than give raises as (shorter) contracts approach their end date.

Risks

However, the other side of the coin is that there are many risks associated with this strategy.

There will be issues in terms of the number of players that Chelsea can register with the Premier League squad restricted to 25. The problem of who to leave out was already seen last season, when some players fell victim to UEFA’s regulation that a club can only register three new players for the Champions League knockout stages.

That dilemma is a sign of things to come in terms of squad management. Graham Potter for one struggled to keep all of his players motivated during his ill-starred time in charge. Some players will be unhappy at not being picked for the first team (or even the match day squad).

This challenge was underlined by Liverpool manager Jürgen Klopp in a reference to their big spending, “You cannot have two dressing rooms, you cannot train on two pitches, you have to create relationships, you have to create team spirit, and that’s the only reason why I’m a little bit happy about it.”

The odds are that not all of Chelsea’s new signings will be successes, so what happens to the flops? It will be far from straightforward to find another club to take such players off Chelsea’s hands at a similar level of wages, so transfer values could fall just as easily as increase.

Even worse, the underperforming players might just sit there, happy to be trousering the cash, taking up valuable places in the squad. Chelsea fans will be all too familiar with the Winston Bogarde story.

Conclusion

While it has long been evident that talent acquisition is a core part of the strategies of leading clubs, Chelsea have really taken this to the extreme. Time will tell if Boehly’s strategy will be a success or whether it will end in tears.

Chelsea have repeatedly stated that they will comply with financial fair play despite all of the big money buys. I’m not so sure that they will, but their massive spending does not automatically mean that they will fall foul of the regulations, especially if they maintain their profitable player trading model (assisted by the accounting treatment of transfers).

The challenge in 2023/24 has obviously been made harder by their failure to qualify for Europe, while there remains a big question mark over a couple of their main sponsorships (shirt and sleeve).

As it stands, it looks like they will be higher than the maximum allowed losses in 2023/24 for both sets of regulations (Premier League and UEFA), though much will depend on whether they are allowed to make a number of additional adjustments (as some other clubs have done).

However, if push comes to shove, they can always improve matters by some more player sales. Even after shifting numerous players, there are still quite a few left that would generate decent money, especially the Academy products like Conor Gallagher, Trevor Chalobah, Callum Hudson-Odoi, Armando Broja and Ian Maatsen.

Throw in a couple of out-of-favour players like Romelu Lukaku and Marc Cucurella and there are clearly gains that could still be made.

Whether Chelsea’s approach is a good one for football is debatable. La Liga’s voluble president Javier Tebas pointed out the knock-on effect it has on other clubs, “It is quite dangerous that the markets are doped, inflated, as has been happening in recent years in Europe, because that can jeopardise the sustainability of European football.” It has also raised the bar in terms of transfer fees, as seen by this summer’s market.

Despite the disquiet about the impact on the broader football world, Chelsea’s fans will be more concerned about whether the spending spree delivers success on the pitch.

 

Edited August 22, 2023 by Vesper

[Gundalf 804]

17 minutes ago, DDA said:

What are we actually doing? 

B.Johnson is a winger no??

Don't we have enough fucking wingers.

This guy is a bang average speed merchant.

I want technical ballers in the team who can assist and score. Enough of these bang average mid players.

Club is going to the dogs ffs.

He is basically everything up front:

[Stats 7,054]

24 minutes ago, DDA said:

What are we actually doing? 

B.Johnson is a winger no??

Don't we have enough fucking wingers.

This guy is a bang average speed merchant.

I want technical ballers in the team who can assist and score. Enough of these bang average mid players.

Club is going to the dogs ffs.

He can play out wide but for Forest he is primarily a CW who drifts out wide. But either way, it is another transfer link that is just bizarre. He isn't prolific, teams set up against Forest in a much different way than we do. Just doesn't add up. He is explosively fast but like I mentioned against teams that set up deep against us, he will not really be effective.