WHAT IS REALLY GOING ON WITH CHELSEA AND THEIR EYE-WATERING £354M LOSSES
Minutes after winning last summer’s Club World Cup, Chelsea released a video of a violinist performing the fan anthem We’ve Won it All inside an empty Stamford Bridge.
The pre-recorded 86-second clip was created to celebrate the club becoming the first to complete the full set of major trophy triumphs.
It is safe to say there will be no such video if they end up being the first in England to report annual losses of more than £200m.
It has been just over a week since data emerged showing that, as far as Uefa is concerned, Chelsea lost an eye-watering €407m (£354m) last season.
Telegraph Sport has been told club officials were blindsided by the publication of a figure far worse than they will report in their own financial results in the coming weeks.
But even if the number ends up being less than £300m, or less than the record £197m posted by Manchester City in 2011, Chelsea will still face questions about an enormous figure.
Chief among those questions will be whether the club have complied with Premier League and Uefa financial rules, the latter of which they broke for the period 2022-24. That landed them with a record €31m (£26.8m) fine while they were en route to Club World Cup glory, with a potential further €60m (£52m) looming for any further breach in the subsequent four years.
Yet rival fans banking on Chelsea facing fresh punishment will be disappointed.
Wages up, costs up, revenue down
Precisely how Uefa arrived at a £354m loss figure in its The European Club Finance and Investment Landscape report, the document does not make clear. But it certainly cannot be blamed on any transfer spending spree by Chelsea last season.
Their net spend was £39m, according to transfermarkt.com, after they sold almost as many players as they signed. Standard accounting practice, as well as Premier League and Uefa rules, would also have allowed them to bank incoming transfer fees in full, while spreading outgoing fees over the length of a player’s contract. Known as amortisation, this would have massively reduced last season’s £39m transfer deficit on their balance sheet.
However – for exactly the same reason – that would have been offset by instalments on fees still owed from a spending spree during previous years. Indeed, Uefa’s report states that Chelsea’s squad last term was the most expensively assembled in football history, with a combined transfer cost of £1.5bn.
That was also reflected in a wage bill of £387m, according to the report, £44m larger than the previous season. This increase was the third highest among Premier League clubs, lifting them ahead of Manchester United and Arsenal in wages paid, behind only Liverpool and Manchester City.
They also overtook United, Liverpool and City in workforce size, which ballooned from 958 to 1,169, making it the largest in the top flight. At the same time, their revenue was by far the lowest of the so-called “big six” at £511m. That gave them a wages-to-turnover ratio of 76 per cent, easily the most onerous of those same clubs.
Their non-wage operating costs – including utilities, transport, insurance, marketing and administration – also increased by more than 50 per cent from £159m to £240m, taking them firmly into the red.
Telegraph Sport has been told the loss calculated by Uefa was affected by other factors, including asset impairments (an accounting term for when an asset has a lower market value than that listed on a company’s balance sheet), settlements tied to historical regulatory matters, and extricating themselves from legacy contracts.
Champions League absence and a small stadium
That Chelsea’s income was insufficient to cover their costs was partly down to their failure to qualify for last season’s Champions League. They did win the Conference League but the roughly £15m they received did not compensate for missing out on the riches on offer in Uefa’s expanded premier club competition.
Their commercial revenue also dropped from £212m to £207m – £165m less than City – in another year which was played without a permanent front-of-shirt sponsor. Merchandising and kit-sale income flatlined, too, at £83m, barely half that generated by United.
Yet Chelsea’s overall revenue still grew by 13 per cent. Playing at the Club World Cup helped them to achieve a broadcast income of £192m, the second highest of any team behind City. And they grew gate receipts by 23 per cent from £74m to £92m (the fifth-highest in the Premier League) following ticket price rises that made the average cost of attending a match at Stamford Bridge £84 – second only to a game at Arsenal.
However, their ticketing income was still £28m short of fourth-placed Liverpool, reflecting the ongoing problem of Chelsea’s stadium being just the 11th largest in the Premier League.
Will Chelsea fall foul of financial rules?
All this would have put another club in danger of breaching both the Premier League’s profit and sustainability rules (PSR) and Uefa’s club licensing and financial sustainability regulations (CLFS). But not Chelsea.
Their 2024-25 accounts have already been signed off by the Premier League, while a settlement they reached with Uefa’s club financial control body (CFCB) in June for breaching its regulations between 2022-24 took last season’s £354m loss into consideration. Chelsea’s early reporting of that loss removed any risk of them automatically contravening any settlement agreement this term.
They have previously gone to extreme lengths in an apparent effort to adhere to Premier League regulations that limit teams to allowable losses of £105m over three years. Moves that may have helped them comply started in the season after BlueCo Holdings bought the club for £4.25bn and inherited an annual loss of £121.3m – one largely caused by sanctions imposed on former owner Roman Abramovich following Russia’s invasion of Ukraine.
The new regime started signing players on super-long contracts, most notably Enzo Fernández and Mykhailo Mudryk, who agreed eight-and-a-half-year deals. This allowed them to reduce the immediate financial impact of those players’ transfer fees.
The Premier League and Uefa responded by changing their rules to place a five-year cap on the amortising of such fees when assessing clubs’ compliance, a move that would have affected the calculation of Chelsea’s £354m loss figure last season.
Teams are still allowed to sign players on longer contracts for other purposes and, after continuing to do so, Chelsea’s co-sporting director, Paul Winstanley, told Telegraph Sport PSR concerns were “never at the forefront of the owners’ minds” when the policy was introduced.
Whether the same can be said about the club’s next move to cut their annual loss, a day before the end of their 2022-23 financial year, is another matter. Chelsea were on track to post losses of £166.4m when they sold the Millennium and Copthorne hotels next to Stamford Bridge for £76.5m to a sister company. That reduced their losses to £89.9m, helping them comply with PSR – albeit not with Uefa rules that forbid the use of such transactions to balance a club’s books.
Their domestic rivals failed to close what many saw as a loophole in the Premier League’s own regulations, allowing Chelsea to benefit from a similar deal two days before the end of their next financial year. This time they sold their women’s team and potentially other subsidiaries to their parent company for £198.7m, enabling them to report a £128.4m profit instead of a £70.3m loss. Sources close to Chelsea dismissed suggestions the club were exploiting any loophole, maintaining the new arrangement was already driving up revenues for the women’s team. After excluding the transaction from its own calculations, Uefa deemed the club lost almost €111m (£96.6m) that season, breaching its rules.
Asset-sale and swap-deal loopholes close
The use of asset sales to comply with PSR will not be permitted by the Premier League from this summer after clubs voted three months ago to introduce new financial regulations based on squad costs.
Such transactions could only be one-off fixes to balance a club’s books. That is unlike another tactic from which certain teams may have benefited shortly before the end of their 2023-24 financial year.
Chelsea were among those involved in so-called swap deals in which academy players were traded in a way that could have aided PSR compliance. In one such deal they sold Dutch left-back Ian Maatsen to Aston Villa for £37.5m, with Omari Kellyman moving in the opposite direction for £19m. The move meant both clubs could book in full the transfer fee they received without having to do the same with that which they paid.
The Premier League wrote to teams warning it would apply fair market value to such deals if it deemed any transfer fees to be over-inflated. Chelsea’s settlement agreement with the CFCB also stated that the club’s compliance with Uefa rules had been assessed with particular attention on “the exchange of players [so called ‘swaps’] and the transfers of players between related parties”. The latter is a reference to the growing number of deals done between Chelsea and sister club Strasbourg, which this season included one for manager Liam Rosenior.
Performance bonuses and new sponsors
Chelsea’s €31m CFCB fine was made up of €20m (£17.4m) over their football earnings and €11m (£9.4m) for breaching a cap banning clubs spending more than 80 per cent of revenue on player-related costs.
By the terms of their settlement agreement they also accepted a “sporting restriction”, stopping them registering any new player to their Champions League squad unless their transfer balance was “positive”. Their net spend in the market this season has accordingly been close to zero, despite them bringing in almost £300m in new signings.
This is much more in line with the policy in place towards the latter years of the Abramovich era, when the club began turning a profit. Telegraph Sport has also been told player contracts are now structured with performance incentives aligned to Champions League participation. They are estimated to have made £80m already this season from reaching the last 16 of the competition.
They also signed a partnership last month with AI technology company IFS until the end of 2027-28 which included front-of-shirt sponsorship for the remainder of the current campaign. They are seeking more than £60m a season from any longer-term deal for the prime advertising spot.
Sources have told Telegraph Sport the club is now profitable on an operating basis and that they expect to meet their obligations under their CFCB settlement agreement.
They are adamant they will not be forced to sell the likes of Cole Palmer to Manchester United or Moisés Caicedo to Real Madrid, regardless of their losses last season and whether this one ends with Champions League qualification or even another trophy triumph.
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