Chelsea Becomes Cash Positive

[Kostas 1,468]

*Bump*

[Henrique 9,133]

UEFA should put a limit in the transfers. It will hep us not wasting our money in a stupid way, as we did this window...

[Kostas 1,468]

A good slightly old piece on how a club could take advantage of the flexibilities of the FFP. Nothing really new to those who read SwissRamble's analysis but it's much shorter and makes understanding how those rules are going to work easier.

i']UEFA's application of Financial Fair Play regulations won't be rigid

UEFA's Financial Fair Play (FFP) rules are a bit like parenting. You can tell your eight year old that if he doesn't tidy his room by the end of the day you'll take his bike away. But if dinner rolls around and it's not quite neat, but still not the absolute mess it was that morning and you believe he made a genuine effort to clean things up, you may let him keep the bike. Especially if you were really looking forward to that father-son bike ride the next day.

UEFA-bashing is popular these days (especially from Special Ones) but, in fact, European soccer's governing body has approached the Herculean task of implementing FFP with two much needed ingredients: common sense and flexibility.

The basic concept behind FFP is that you can't make more than a certain amount of losses over several seasons or UEFA will punish you by not awarding a license to play in the Champions League or Europa League. This will kick in from the 2013-14 season, when the maximum "losses" (acceptable deviation) will be €45 million ($66.8M) over the first two "monitoring periods," 2011-12 and 2012-13. (If you have time on your hands and enjoy both legalese and accounting, you can download the regulations.)

Now, you may remember that Chelsea announced a loss of €83 million ($123.2M) for the 12 months ending May 2010 and, since then, splurged roughly the same amount on Fernando Torres and David Luiz, virtually assuring a comparable, if not greater, loss for the 2010-11. Or that Manchester City, was around €150 million ($222M) in the red for 2009-10 and that was before splashing out north of €200 million ($296M) over the past two transfer windows. So how on God's green earth can these two clubs hope to comply with FFP?

The answer is that FFP is, at once, stringent and fuzzy. For a start, bear in mind that a club's annual financial statement is not equivalent to what the UEFA Financial Control Panel will be considering in terms of FFP. A whole bunch of expenses and revenue streams get included in a club's accounts which are not included in assessing FFP compliance. For example, much of the investment in youth development or stadium/facility expenditure is not counted toward FFP. For some clubs that can mean as much €20 million ($29.6M) lopped off the annual expenses.

Oh, while we're at it, let's knock one widely held misconception on the head right now. UEFA will be vigilant when it comes to any kind of attempt to circumvent the rules. So, for example, Sheikh Mansour can't buy, say, a used football from Manchester City for €100 million $148M) and then book that as revenue for City. Or, rather, he can, but UEFA will only count what it considers the "benchmark fair value" of the ball as revenue ... probably €19.95 ($29) or so. By the same token, Roman Abramovich can't get one of his companies to sponsor Chelsea for €200M a year: UEFA would look at the "benchmark" sponsorship deals -- probably Barcelona's with the Qataris -- and only count, say, €25M ($37) toward FFP.

Another key factor which is often ignored is that if a club can prove that it's outside the FFP parameters because of contracts signed before FFP came into effect, then UEFA will look the other way. So basically any contract signed before June 2010 which causes an overspend won't be counted. The effect of this rule will, obviously, wane over time, but, initially should provide a decent cushion in reducing the wage expenditure.

Also, transfer spending does not automatically show up in a club's account as an expense. Or, rather, not a full whack, because clubs tend to amortize player acquisition costs. Take Torres, for example. It's not as if his arrival automatically added €60 million ($80M) expense to Chelsea's 2011-12 accounts. What clubs do is spread out the acquisition costs of a player over the life of his contract. In Torres' case, it was five and a half years so Chelsea "only" takes a hit of around €11M ($16.3M) in 2011-12 (plus, of course, his annual salary).

But perhaps the most important factor is hidden away in Annex XI of the FFP regulations. And this is where things get fuzzy. If a club can make a persuasive argument that it's losing money today, but that this is part of a long-term strategy that will lead to break-even or at least FFP compliance, then UEFA may decide to grant a license anyway. Now, obviously it can't be as simple as "We'll make a €500M loss this year but don't worry because we've signed Leo Messi, Cristiano Ronaldo, Xavi, Wayne Rooney and Manuel Neuer and our strategy is to win the Treble every year while selling out our stadium and charging fans a thousand euros a ticket while selling a billion jerseys around the world..." It has to be "credible." But, of course, "credible" can mean different things to different people. (Some of those subprime mortgages looked awfully "credible" to a lot of folks until they blew up in everyone's faces.)

The other factor is that UEFA will consider a club's "trend." (And this may be the saving grace for clubs like Chelsea, City, the two Milan teams,etc.). In other words, if you cut your losses year on year and show UEFA you're moving in the "right direction" then they may license you anyway, even if you don't meet the requirements. A bit like the dad and son bike examples above: show good will, stick to it and we'll be understanding.

Some of the more virtuous clubs will, no doubt, complain, if and when UEFA's Financial Control Panel applies the rules in Annex XI to give somebody a "pass" into the Champions' League. But, in fact, UEFA is using common sense. Make regulations too hard and inflexible and clubs who don't have a prayer in terms of compliance will simply give up (which, incidentally, would weaken the Champions' League appeal). The trick in applying this "common sense" of course will be to do it in a way that seems "fair." Because if you're a little too understanding then your daughter, who always keeps her room nice and neat, might get a little peeved when her brother suffers no consequences and gets to keep his bike when, in her opinion, his room is still a relative pigsty.

Source: Sports Illustrated

[Spike 12,049]

This is getting me all anxious.

[Blue Armour 4,436]

It means we don't have to be too worried...

[coolhead23 1,147]

In simple term, it means that we have a law in place and now here are different ways to break it.

[Blue In Green 86]

Oh UEFA, too gutless to institute a salary cap.

[LDN Blue 7,903]

Good article Kostas, as always.

Seems the Annex XI will save us from such humiliation..

[Kostas 1,468]

Rampant Chelsea a long way off satisfying financial fair play agenda

A new manager and talk of players being bought for huge fees does not suggest a tightening of purse strings in west London

When Michel Platini unveiled his financial fair play agenda he held up the Chelsea owner, Roman Abramovich, as its unlikely standard bearer. The Uefa

president claimed club benefactors had pleaded with him to find ways to control rampant wage inflation and stem spiralling losses.

And yet the publicity-shy Russian has followed up the headline-grabbing, if not yet wholly successful, January splurge on the £74m pair of Fernando Torres and David Luiz by limbering up for another spending spree. First there was the £5m compensation for Carlo Ancelotti, the Italian manager who won the Double in his first season but was sacked after his second.

Then there was the £13.3m due to Porto to trigger the release clause for the new 33-year-old manager, Andrés Villas-Boas. That took the amount spent on hiring and compensating managers and coaching staff alone to an estimated £69m since Abramovich bought Chelsea in 2003. During that time he has pumped £739m into the west London club.

Now back-page headlines scream of huge fees being considered for Tottenham Hotspur's Luka Modric, Anderlecht's Romelu Lukaku, Porto's Radamel Falcao, the Ajax right-back Gregory van der Wiel and the Santos striker Neymar.

Chelsea insiders say nothing has changed and that any signings must fit into an overall strategy drawn up by the chief executive, Ron Gourlay, that still has breaking even as its target. But outsiders could be forgiven for wondering how on earth they plan to get there.

The high-wire act that the club with the highest wage bill in the Premier League at £174m, running at 82% of revenues, has to pull off is far from easy. It must at once try to get that wage bill down while overhauling an ageing squad, bringing down pretax losses that stood at £78m and considering the imminent arrival of FFP.

There is more time than most realise. Through a series of reforms negotiated by the powerful European Clubs Association, the body that replaced the G14 and represents the views of the continent's 191 most powerful clubs, the path to compliance with Uefa's rules has been smoothed considerably.

While Platini continues to talk tough, and argues privately the looming threat has already caused clubs to put the brakes on their out of control spending, they know they have some grace.

The first accounts that will qualify concern the next financial year, 2011-12. But Uefa's accountants will not start examining them until the 2013-14 season.

Even then, there is an "acceptable deviation" of €45m over the first two years. And, as long as they can prove they are moving in the right direction, they are also allowed to discount the wages of players on contracts signed before June 2010. That rule will hold for the first two "monitoring periods" – the two years ending 2013-14 and the three years ending 2014-15.

With a maximum Premier League squad size of 25 and Chelsea's need to bring average age and salaries down, expect at least as many departures as arrivals. Many of the players the club will seek to move on will not attract big fees. Yuri Zhirkov, José Boswinga, Florent Malouda, Nicolas Anelka, Salomon Kalou, Mikel John Obi, Paulo Ferreira and Alex, for instance, could fall into that camp.

Up to five senior players are expected to leave, plus the usual turnover of youngsters going out on loan and the sale of other fringe players. Then there is the cadre of established players that have been at the heart of Chelsea's success in the Abramovich era but will represent Villas-Boas' first big call. How he decides to handle John Terry, Frank Lampard, Didier Drogba and Michael Essien could well set the tone for his tenure. If two new strikers arrive, it could signal Drogba's departure while Essien was a shadow of his former self for much of last season.

Of those in first group the key from a FFP point of view is getting them off the wage bill. Chelsea then hope to attract younger players – whose fees, even if high, can be amortised over long contracts – on lower salaries than those they replaced.

The holy grail is to mix them with some promising youngsters from the academy - where Abramovich is still hoping that his big investment at Cobham will pay off despite mixed results and the departure of Frank Arnesen - and a sprinkling of superstars in the Torres mould. It is not an original model and it is one that, to a greater or lesser extent, Chelsea's rivals are also following. But for the London club the need is more pressing, because its losses and wages are higher and the potential for increasing matchday income is lower.

Those star signings are also important in executing another plank of the Abramovich strategy that has been long talked about but yet to be effectively implemented.

Given the relatively small capacity at Stamford Bridge, and the decision to put plans to move on ice, Chelsea are even more reliant than their Champions League rivals on commercial revenues. They currently have the third highest income in the Premier League, but it is hard to see where substantial growth will come from.

While its deals with Adidas and Samsung are lucrative, in order to keep up in a world of Financial Fair Play that threatens to lock in the established order - aiding those with big grounds and big revenue bases like Manchester United and Barcelona most - Chelsea need to step up efforts to drive overseas income.

Like Liverpool and Arsenal, Chelsea are looking longingly at the Manchester United model of boosting overseas revenues in a range of categories. Whether or not they will ever have the global reach to do so has remained one of the great unanswered questions of the Abramovich era, for all their success on the pitch. A naming rights partner for Stamford Bridge willing to pay up to £10m a year is yet to be found and, despite repeated pre-season forays west and east, significant funds are yet to flow from global deals.

If – and it is a big if, given the owner's craving for instant success and swashbuckling football – Villas-Boas can deliver on the pitch, while also balancing all of those competing financial demands, the £13.3m it has taken to bring him back to Stamford Bridge will represent Abramovich's best investment yet.

[LDN Blue 7,903]

Good read..

Really hope the club are doing something about our large wage-bill at the moment. Despite shedding a couple of million off it last summer, it's still quite high and needs to be dealt with in the immediate future.

[Henrique 9,133]

Financial Fair Play is ridiculous.

First there was the 6+5 rule, that FIFA wanted to impose, and now this. Football is business, and business means liberalism. The clubs must be allowed to spend as much as they want.

This rule will not work.

[Guest justin_3d]

Financial Fair Play is ridiculous.

First there was the 6+5 rule, that FIFA wanted to impose, and now this. Football is business, and business means liberalism. The clubs must be allowed to spend as much as they want.

This rule will not work.

:goodpost:

If FIFA kills business in Europe i am sure it will go somewhere else.

A booming Brazilian economy sounds interesting to you?

[Guest justin_3d]

Some stuff i saw about making money from the CL how much Chelsea made from last season.

http://uk.eurosport....d-46-6m-cl.html

UEFA said other top earners were Chelsea (44.52 million), Schalke 04 (39.75 million), Real Madrid (39.28 million), Inter Milan (37.98 million), Bayern Munich (32.56 million) and Tottenham Hotspur (31.13 million).

Also something interesting about United:

Manchester United looking to raise £600m in Singapore share sale

http://www.guardian....pore-share-sale

I wonder if Chelsea can do the same?

[LDN Blue 7,903]

Manchester United looking to raise £600m in Singapore share sale

http://www.guardian....pore-share-sale

I wonder if Chelsea can do the same?

Chelsea wouldn't do this. Because I doubt Roman would even want to sell a quarter of Chelsea..

[warnie_666 1,081]

At the moment.....Roman's the boss. and we have no debt. Thats all that matters.