Just had a read through the Sw1ss R@mble report on Chelsea's finances... TLDR - Playing a dangerous game, but will probably find a way to pay their way out of it.
Now Sw1ss R@mble subscription based, it'd be a bit wrong of me to post all of it here, but in essence;
Chelsea will fail to comply with FFP this year BUT will have a number of levers available to them that will allow them to argue away 10-15m to comply with Prem rules.
They will be well out of EUFA rules next year if they qualify for Europe, but will again work a deal to pay fines in conjunction with an extended plan to comply with the EUFA rules at the end of the extended period.
Quite a bit of interesting stuff in there aside, particularly them taking a 77m hit on player impairment (reduction in the value of a players book value), which is the highest ever recorded by a top flight club by over 30m.
From the back end of the report:
Profitability and Sustainability
Chelsea stated that the club has complied with Premier League and UEFA financial regulations “since their inception in 2012 and expects to do so for the foreseeable future.”
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 have relaxed the regulations to neutralise the adverse impact of COVID, so the current monitoring period assesses the seasons 2019/20 and 2020/21 as a single (average) period.
Chelsea’s losses over the monitoring period for 2021/22 are £283m, which is well over the £105m maximum loss.
However, clubs are allowed to make a number of deductions, which means that the P&S loss is smaller than the loss reported in the accounts.
First, clubs can deduct “healthy” expenditure, which included infrastructure, academy, community and women’s football. I estimate that these were worth £36m in 2021/22 for Chelsea: academy £14m, women’s team £5m, community £3m, depreciation £12m and amortisation £2m. This adds up to £104m over the 3-year monitoring period.
In addition, Chelsea can make an adjustment for £128m losses caused by COVID, which worked out at £64m after averaging the 2019/20 and 2020/21 seasons.
After taking both of these adjustments into consideration, my model suggests that Chelsea are still struggling to be compliant, with their adjusted loss of £116m being £11m above the £105m target.
However, the club would argue that further adjustments should also be taken into consideration:
- Revenue lost when sanctions were applied by the government
- The exceptional player impairment (as Everton have also claimed)
- Lost player sales – due to: (1) the transfer market being deflated by COVID; (2) the economic sanctions preventing deals being made.
Given how close Chelsea were to target, this was probably a fairly easy case to make.
That said, Chelsea will have more issues with UEFA’s FFP rules, which are stricter than the Premier League, as the allowable losses (“acceptable deviation”) over 3 years are only €30m (including €25m equity contribution).
Here, I estimate that Chelsea are €105m over the limit, so UEFA would have to accept pretty much all the further adjustments listed above.
In fact, Chelsea were already on UEFA’s watch list, along with another 18 clubs (including Leicester City, Manchester City and West Ham), 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.”
Going forward, Chelsea would also be subject to UEFA’s new squad cost control ratio (assuming they qualify for Europe). This limits player wages, transfers and agent fees that to 70% of revenue and profit on player sales, though there will be a gradual implementation over 3 seasons (90% in 2023/24, 80% in 2024/25 and 70% from 2025/26).
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. However, this is the worst ratio of England’s Big Six.
One possibility is that Chelsea would simply make a deal with UEFA, as many other clubs have done, with a 3-year or 4-year settlement agreement, which would allow them to fully comply at the end of the agreed period.
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 a cost of doing business.
Conclusion
Chelsea’s loss was again enormous, though it was significantly impacted by large once-off charges. However, it would have been even higher without considerable player sales.
It is likely that player trading will continue to be a very important part of Chelsea’s business model for the foreseeable future, partly because their squad is now ridiculously bloated, but also because it is their best chance of complying with FFP regulations (especially if they fail to qualify for the Champions League).
It would therefore be no surprise if many players leave this summer, including the likes of Conor Gallagher, Ruben Loftus-Cheek, Trevor Chalaboah, Callum Hudson-Odoi, Hakim Ziyech, Levi Colwill, and potentially even Christian Pulisic and Mason Mount.
