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

Chelsea’s historic January transfer window pulled off in the early hours of Wednesday morning, as they confirmed a British record deal for Argentina’s World Cup winner Enzo Fernandez.

And, after an unprecedented winter window in which seven senior players were signed for over £280million, there is one question dominating the game.

How can Chelsea embark on such a spending spree while remaining within UEFA’s Financial Play (FFP) regulations?

The answer, as you might expect, is complicated.

Athletic is explained below.

How does Chelsea plan to work?

Chelsea supporters have given a crash course in amortization over the past month, as Todd Boehly and Clearlake have pushed the limits of what can be done with player contract lengths.

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Signing Mykhailo Mudryk to a deal that runs until June 2031, for example, allows his €70million (£62m) initial transfer fee to be spread over eight years on the books rather than the more conventional four or five, thereby greatly reducing it. annually from accounts.

Fernandez, Badiashile, Madueke and summer signing Wesley Fofana are on similar long drives. This amortization fraud – which could end up backfiring if players on these high-profile contracts fail to pitch – is one of the conditions Boehly and Clearlake are exploiting to increase their opportunity to pre-load spending levels. the most elite clubs during three or four summer windows, but not just one.

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Another one comes from another half that football clubs refer to in their accounts. Transfer fees for players bought could be amortized over the length of the contracts, but transfers paid for players sold are booked immediately in one lump sum (less the remaining costs are amortized in the books).

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These differences in accounting practices can be surprisingly easily offset by clubs significantly or even perfectly matched as many high-profile signings with as few as one reasonable sale in the annual events – especially if the player or players sold are already fully amortized or the academy. graduates who represent a mere profit in the books.

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

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

Does this work?

An important example from Chelsea’s recent history: in the financial year ending June 2022, despite signing Romelu Lukaku in a disastrous £97.5m deal with Milan, the club actually made a big profit from player sales – estimated by football financial analyst Swiss Ramble to be £160m – due to the departure of Tammy Abrahami to Roma, Kurt Zouma to West Ham, Fikayo Tomori to AC Milan, and Marc Guehi to Crystal Palace, among others.

Chelsea’s overall financial results for 2021-22 have not yet been made public. The club has until March 31 to file its accounts with the companies in the House. But in recent years, big profits from player sales have been enough to lift the club into the black overall, despite matchday and commercial revenue that has consistently lagged behind its Premier League rivals – most recently in 2019-20, when £143m of profit from player sales contributed to overall profits. £36* tax.

What is Chelsea’s current state of play?

Swiss Ramble estimate that Chelsea’s pre-tax profit for the 2021-22 year will be 19m. Between these two years in the black is a huge loss in 2020-21 of £156m, partly from the mammoth spending spree of the 2020 summer that brought Kai Havertz, Timo Werner, Ben Chilwell, Hakim Ziyech and Edouard Mendy to Stamford Bridge.

FFP has traditionally allowed clubs to lose up to €30m (£26.3m) during the three-year monitoring period, although many adjustments have been made due to the impact of COVID on club revenues.

Back in September, UEFA listed Chelsea as one of the 18 teams that “could technically fulfill a fraction or the demand through the application of the covid 19 emergency measures and/or because they have benefited from the positive historical results” adding that further financial information has been requested and the relevant logs “will be monitored in the next season “.

UEFA has also warned Chelsea that they will no longer apply those particular COVID-19 accommodations, but that FFP will vary the routes that make running for Boehly and Clearlac more viable. From 2023-24 the allowable loss limit is doubled from €30m to €60m, which should include the 2022-23 season as the third year of the monitoring period. A club judged to be in good financial health will also be liable for a further €30m in statutory damages over the three-year monitoring period, meaning Chelsea could be allowed to lose as much as €90m over three years – triple the old limit.

Before the deadline, when Chelsea finally agreed to a British record deal for Fernandez, Swiss Ramble estimated a €96m loss on Chelsea over the three years until 2022-23, slightly above the €90m allowable loss limit. He also estimated the cost of the club’s team at 92 percent of the revenue and profits from the sales of players; UEFA has ruled that all clubs must bring this ratio down to 90 per cent for 2023-24, then 80 per cent in 2024-25 and 70 per cent in 2025-26.

Chelsea finally got a deal for Fernandez in the early hours of Wednesday (Photo: Getty Images)

Chelsea finally got a deal for Fernandez in the early hours of Wednesday (Photo: Getty Images)

Will Chelsea have any concerns?

Chelsea’s recent history suggests that they have relatively little to fear from being caught in FFP fraud. UEFA’s latest round of penalties, announced in September, was reduced to a lump sum of money, a small percentage of which was to be paid immediately with the remainder subject to future compliance.

You could argue that it’s like spending a speed ticket to an ambitious big club.

Boehly has publicly emphasized on many occasions that Chelsea have FFP in mind, but it is clear that he and Clearlake are aiming as close to the limits as possible to try to build a squad capable of consistently competing for the biggest domestic and European trophies; perhaps it is worth remembering that economic and regulatory conditions in the coming year will not be so favorable for this scale of investment.

Is this level of spending likely to continue?

UEFA has already moved to close the amortization loophole for future transfer windows; 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 calculation.

Constantly tight squad cost control rules will also put pressure on Chelsea and their rivals for more discipline by handing out lucrative salaries to players and coaches.

Then there is also the 60m pounds in annual commercial income that Chelsea will lose from next season, from the end of the 40m pounds annual deal with the main shirt sponsor Tres and the first termination of £20m-a-. year deals with sleeve sponsor Whalefin. It has not yet been replaced, the football market is less inviting than it is now, and the clock is ticking before the manufacturing process for the next season should begin.

Most notably, Chelsea are currently facing the very real prospect of playing the 2023-24 season without Champions League football, and possibly without participating in any European competition. That was not at all in the initial Boehly-Clearlake deal, and would have had a significant impact on the club’s transfer ambitions over the two windows.

Todd Boehly completed the Chelsea takeover in May 2012 (Photo: Getty Images)

Todd Boehly completed the Chelsea takeover in May 2012 (Photo: Getty Images)

This is where it is important to note the very specific profile of the player that Chelsea is targeting in this January window: players aged 23 or under who have, to varying degrees, flashed elite ability and can flourish or become key components of the next team. at Stamford Bridge or resale value to grow in the years to come.

If enough of them prove to be good on or off the pitch, nine-figure transfer fees won’t be required in future windows.

After all, no one would expect this level of transportation spending to go on indefinitely. Boehly is not an oligarch and Clearlake Capital is not a high-end fund. The investment money is led by private equity, resulting in the expectation of a positive return, either in the form of an annual profit or, more likely, a significant increase in the value of Chelsea, which can be understood if the club is sold. .

(Photo: Getty Images)


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