Ian Mallon: How Chelsea trade a fine line between trick and financial fair play
Chelsea owner Todd Boehly looks dejected. Photo credit: John Walton/PA Wire.
AS another astonishing Premier League transfer window draws to a close next week there are so many talking points from a financial period for which there were few limits.
Like the previous two trading periods, all the talk inevitably centres around Chelsea and what has been a world record period of investment for a club, eighth on the global Deloitte Football Money League 2023.
In the current window, the Blues have spent more than any other club in history, surpassing Real Madrid’s outlay in 2019 by €60m, investing in almost €400m worth of new talent – or two-thirds of its last recorded overall revenue.
The current rate of spending has brought Clearlake Capital’s player investments to €1 billion for the past three windows.
In this period the Todd Boehly-led consortium have spent between €560m and €727m more than its six richest competitors.
By using a little-understood financial reporting practice, the club has cleverly exploited a chink in the football financial system which skirts the rules, but doesn’t appear to break any. By initiating the financial mechanism known as player amortisation, Chelsea have been free to buy who they want, at whatever cost, but allowing it to report a healthy bottom line.
This summer alone Chelsea have paid out almost as much as the combined totals of Newcastle, Manchester City and Liverpool for the same period (see table).
Over the past three windows, they have invested €135m more than the total combination of Manchester United and Arsenal’s purchases. However, if you look at how much Chelsea invested this season (€385m) against the amount it earned in sales (€254.9m), the difference is only -€131m, having offloaded 18 players (nine of whom for fees exchanged).
The most profitable piece of business has been the sale of Mason Mount to Manchester United for €64.2m, with only one year left on his contract.
Of the 11 additions to the Chelsea squad this period (so far), eight players were cash investments, with one (Angelo) immediately loaned out – while three are U21 players promoted to the first team squad.
The Moises Caicedo record-breaking (Premier League) price may seem excessive but is the most accurate market valuation, based on Chelsea, Brighton and the player’s agent Manuel Sierra all agreeing a €116m fee.
An interesting aspect of the summer’s transfer policy at Chelsea has been the relative youth of its big-money signings, coming in at an average age of just 21 years.
This compares to Liverpool’s 23 average age and Manchester United’s 26 – which is mainly due to the recent re-signing of 35-year-old Jonny Evans.
Tellingly, Caicedo, Lavia and Ugochukwu together have an average age on the right side of 20 years, yet they cost more than €200m, and there lies a key aspect of Chelsea’s transfer policy - buy young and lock them in with long and lucrative deals.
The long-term contract is at the heart of Chelsea’s successful free-spending model but isn’t new to the club in this transfer window, having been introduced during the winter window.
Enzo Fernandez and Mykhaylo Mudryk both signed in January on eight-and-a-half year deals, while the strategy continued into the summer with Caicedo and Nicolas Jackson received eight-year agreements.
Lavia, Ugochunu and Sanchez have all signed seven year contracts, while Nkunku and Disasi are on six-year arrangements.
Such generous terms agreed are not just for the benefit of the players, with Chelsea identifying that reporting the cost of an asset can be spread over the length of a contract due to player amortisation. This commonly-used mechanism allows clubs to report the value of a purchase evenly over the number of years of the agreement.
For example, a €100m player signed on a four year contract by a club will have that investment recorded as -€25m per year on the books, while an eight year deal will see the cost at -€12.5m per year.
With the Caicedo fee, the financial reporting cost of that purchase works out at just €14.5m per year.
This allows Chelsea’s total summer spending to be reported for as little as €52.8m on the accounts for the current financial year.
Caicedo and Nicolas Jackson signed for €153m combined, with each player receiving eight-year contracts, while Lavia, Ugochuknu and Sanchez signed for €112m and received seven-year deals, while Nkunku and Disasi received 6-year agreements.
The combined total for all seven signings is €370m (or €385m with on-loan Angelo), but when divided by the total number of years on their contracts, works out at nearer to €53m.
Then there’s the money earned from Mason Mount, for a fee of €64.2m with no outstanding repayments or amortised accounting to cover.
The profit from the Mount deal works out as €11.8m profit, less the combined annually amortised costs for the other eight players.
That’s because the rules allow for any player investment fees to be spread over the lifetime of a contract, but on the flip side, grants that any transfer income can be reported in total on the current financial statement – but that’s all about to change.
In a word, no. New rules are set to come into the EPL next year and which have been introduced by Uefa in recent weeks and which allow for a maximum of five year contract limits from now on.
The law, will not retrospectively look at current deals, so Chelsea’s strategy up to this point is safe and due to the fact that the club won’t play in any Uefa competitions this season, having finished a lowly 12th last season.
Another negative of Chelsea’s amortisation trick, is that while a player’s cost can be spread over longer terms under the current model, the reality is that the player’s value is maintained for longer – even if that asset flops and depreciates.
With Caicedo locked into eight years at €250k+ per week, and others like him, such high risk across so many assets may end up costing the club in the long term as form dips, or players fail to perform.
Only then will we see if Chelsea’s trickery has been a sound business strategy or a transfer policy with too much emphasis on short-term illusion.
OUTSIDE of the United States, this weekend’s NCAA clash between Notre Dame and Navy at the Aviva Stadium, will be watched by the largest US audience for a global sporting event.
The Aer Lingus College Football Classic, a fixture in the sporting calendar, has been long sold out with revenues from the game going back to the US through the NCAA and Notre Dame, the ‘home side’ in this match.
The value for Ireland is the estimated €150m that flows into the economy through the large inbound arrival of up to 40,000 US visitors.
From a commercial standpoint Notre Dame’s ‘Fighting Irish’ football team are around the fifth biggest in the highly lucrative US college sports scene.
The university side arrives in Dublin on the cusp of a number of significant negotiations both commercially and in broadcast where a $10m partnership with Under Armour in the bag and negotiations set to resume for a $75m broadcast partnership.
The deal may well fall short of the $90m being negotiated with NCAA’s ‘Big Ten’ college sides, of which Notre Dame is not part of, due to reasons of independence.
WITH RTÉ’s announcement this week that the FIFA Women’s World Cup has continued to break all records for television audiences, the numbers revealed are quite staggering.
According to the broadcaster coverage of the tournament reached “over half of the TV-owning population” with the game against Canada achieving 551,000 viewers.
Given the time differences between here and Australia, with games taking place mid-morning and away from the off-peak viewing hours, the numbers demonstrate the enormous surge in women’s football.
And the numbers aren’t just a demonstration of nationalistic fervour, with the final itself between England and Spain continuing to generate strong interest, with more 400,000 having watched the games on television or mobile devices.
