How were Chelsea allowed to spend so much in the January transfer window?

Chelsea’s historic January transfer window came to an end on Wednesday morning when they confirmed a British record deal for Argentina World Cup winner Enzo Fernandez.

After an unprecedented winter window in which they signed seven senior players for £280m, there is one question that dominates the sport.

How can Chelsea go on such a spending spree under UEFA’s Financial Fair Play (FFP) rules?

The answer, as you might expect, is complicated.

The Athletic explains below.

How do Chelsea plan to make it happen?

Chelsea supporters have been given a crash course in depreciation over the past month as Todd Bohli and Clearlake have pushed the boundaries of what is possible with player contract lengths.

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For example, by signing Mykhailo Mudric to a contract until June 2031, they will allow him to spread his initial transfer fee of €70m (£62m) over eight years rather than the usual four or five, thereby significantly reducing his transfer fee. . Annual expenses on accounts.

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Fernandes, Badiashile, Madueke and summer signing Wesley Fofana are also on similarly long contracts. This amortization trick — which can be reversed if players on these super-sized contracts are far from expected on the field — is one of the conditions Boehly and Clearlake use to maximize their ability to front-load cost levels. Most elite clubs have three or four summer windows, but not all.

Another comes from the second half of football clubs’ transfer reports. Transfer fees for acquired players may be amortized over the duration of their contracts, but transfer fees for sold players are recorded in an immediate lump sum (net of their remaining amortized book value).

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These different accounting practices make it easier for clubs to significantly offset or completely balance the annual results of several high-profile signings with just one reasonable amount of sales – especially if the player or players sold are fully depreciated or academy. graduates reporting a net profit on the books.

Mudric joined Chelsea in the January transfer window (Photo: Getty Images)

Mudric joined Chelsea in the January transfer window (Photo: Getty Images)

Does this work?

An important example from Chelsea’s recent history: for the financial year ending June 2022, despite signing Romelu Lukaku from Inter Milan for £97.5 million, the club actually made a huge profit from selling players – as assessed by respected football financial analyst Swiss Rumble. To be £160m – due to the departure of Tammy Abraham to Roma, Kurt Zouma to West Ham, Fikayo Tomori to AC Milan and Marc Guehi to Crystal Palace.

Chelsea’s overall financial results for 2021-22 have not yet been revealed. The club must submit its accounts to Companies House by March 31. But huge profits from player sales in recent years have been enough to propel the club into the black, despite matchday and commercial revenue consistently lagging behind their Premier League rivals – as recently as 2019-20, £143m in player revenue. The sale contributed to a total pre-tax profit of £36m.

What is Chelsea’s current situation?

Swiss Ramble estimates Chelsea’s pre-tax profits for 2021-22 will be £19m. Between those two years in black, the 2020-21 saw a massive loss of £156m, partly as a result of mammoth spending in the summer of 2020, which saw Kai Havertz, Timo Werner, Ben Chilwell, Hakim Ziyech and Edouard Mendy move to Stamford Bridge. brought.

FFP has traditionally only allowed clubs to lose up to €30m (£26.3m) over a three-year monitoring period, but a number of accommodations have been made given the impact of COVID on club profits.

In September, UEFA listed Chelsea as one of 18 clubs “technically able to meet decontamination requirements due to the application of special COVID-19 measures and/or benefiting from historically positive decontamination results”. further financial information has been requested and the clubs concerned will be “closely monitored in the near future”.

UEFA has also warned Chelsea that the special COVID-19 facilities will no longer be used, but FFP is changing Bohly and Clearlake’s current costs to make them more livable. In 2023-24, the allowable loss limit will be doubled from €30 million to €60 million, which will cover the 2022-23 season as the third year of the monitoring period. Clubs deemed to be in good financial health will be given a further €30m in allowable losses during the three-year monitoring period, meaning Chelsea could be allowed to lose €90m over three years – three times the old limit.

When Chelsea agreed a British record deal for Fernandes before the deadline, the Swiss Rumble calculated a €96m loss for Chelsea over the three years to 2022-2023, just above the €90m allowable loss limit. He also estimated the club’s composition at 92 percent of revenue and profit from player sales; Uefa decided that all clubs must reduce this to 90 per cent in 2023-24, then 80 per cent in 2024-25 and 70 per cent in 2025-26.

Chelsea finally completed a deal for Fernandes on Wednesday morning (Photo: Getty Images)

Chelsea finally completed a deal for Fernandes on Wednesday morning (Photo: Getty Images)

Should Chelsea be worried?

Recent history suggests that Chelsea are no longer afraid of breaching FFP. UEFA’s latest round of penalties, announced in September, set out a list of fines – only a small percentage of which were to be paid immediately, while the rest had to be met in the future.

You could argue that this amounts to a speeding ticket for an ambitious club that decides to spend big.

Bohli has repeatedly insisted that Chelsea take FFP into account, but it is clear that he and Clearlake are pushing as close to the limit as possible in trying to build a squad that can consistently compete for the biggest domestic and European trophies. it should be borne in mind that financial and regulatory conditions may not be so favorable for this scale of investment in the coming years.

Will this level of spending continue?

UEFA has moved to close the depreciation gap for future transfer windows; Even if a player is signed on a seven- or eight-year contract from the summer, their transfer fee is spread over no more than five years in any FFP account.

Ever-tightening spending controls will also put pressure on Chelsea and their rivals to be more disciplined in handing out lucrative salaries to players and coaches.

There is also £60m of annual commercial income Chelsea will lose next season as a result of the end of their £40m-a-year deal with main shirt sponsor Three and £20m of early termination. Annual deal with sleeve sponsor Whalefin. The two have yet to be replaced, the football sponsor market is less than inviting and the clock is ticking before next season’s kit production begins.

More importantly, Chelsea currently face the very real prospect of playing the 2023-24 season without Champions League football, and possibly without any European involvement. It was completely absent from Boehly-Clearlake’s business plan and will have a significant impact on the club’s transfer ambitions over the next two windows.

Todd Bohly took over from Chelsea in May 2022 (Photo: Getty Images)

Todd Bohly took over from Chelsea in May 2022 (Photo: Getty Images)

It’s important to note here the most prominent profile of the player Chelsea are targeting in this January window: players aged 23 or younger who have flashed elite skills at various levels and become key components of the next great team. At Stamford Bridge or will grow their resale value in the coming years.

If enough of them turn out to be positive assets in the space or beyond, nine-figure transfers won’t be required in future windows.

In any case, no one should expect these levels of transfer costs to continue indefinitely. Bohli is not an oligarch and Clearlake Capital is not a sovereign wealth fund. The money invested comes from private equity and with it comes the expectation of an eventual positive return – either in the form of an annual profit or, perhaps, a significant increase in Chelsea’s value if the club is sold. .

(Photo: Getty Images)


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