Chelsea’s historic January transfer window drew to a close 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 they signed seven senior players for over £280 million, there is one question dominating the sport.
How was Chelsea able to embark on such a spending spree while flouting UEFA’s Financial Fair Play (FFP) regulations?
The answer, as you might expect, is complicated.
The athletic explained below.
How do Chelsea plan to make it work?
Chelsea supporters have been given a crash course in amortization over the past month as Todd Boehly and Clearlake have pushed the boundaries of what is possible with the length of a player’s contract.
By signing Mykhailo Mudryk to a deal that runs until June 2031, for example, they are allowing his €70m (£62m) initial transfer fee to be spread over eight years on the books rather than a more conventional four or five, and thereby their Reducing his annual cost on these accounts.
Fernandez, Badiashile, Madueke and summer signing Wesley Fofana are on similarly long deals. The amortization trick – which could end up backfiring if the players on the super-sized contracts fall below expectations on the pitch – is one of the conditions that Boehly and Clearlake have exploited to maximize their opportunity to front load the spending level. That most elite clubs would stretch over three or four summer windows, but not the only one.
Another splash from the other half of how football clubs report transfers in their accounts. Transfer fees for purchased players may be amortized over the length of their contracts, but transfer fees for sold players are booked outright in one lump sum (minus their remaining amortized costs on the books).
The different accounting practices can make it surprisingly easy for clubs to significantly offset or even completely balance some high-profile signings with as little as one fair-sized sale in their annual results – especially if the player or players sold are already fully amortized or academy Graduates, who represent pure profit in the books.
Mudryk joined Chelsea in the January window (Photo: Getty Images)
Does this work?
An important example from recent Chelsea history: for the financial year ending June 2022, despite signing Romelu Lukaku in a disastrous £97.5m deal from Inter Milan, the club actually made a huge profit from player sales – estimated by respected football finance analyst Swiss Rumble to be £160 million – due to the departure of Tommy Abraham 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 2021-2022 have not yet been made public. The club has until March 31 to file their accounts with Companies 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 consistently lagging behind their Premier League rivals – most recently in 2019-2020, when a £143m profit from players Sales contributed to an overall pre-tax profit of £36m.
What is the current state of Chelsea?
Swiss Ramble estimates that Chelsea’s pre-tax profit for 2021-2022 will be £19 million. Between the two years in the black is a huge loss of £156m in 2020-21, partly resulting from the mammoth spending spree of summer 2020 that brought Kai Havertz, Timo Werner, Ben Chilwell, Hakim Ziyech and Eduard Mendy to Stamford Bridge.
FFP has traditionally only allowed clubs to lose up to €30m (£26.3m) over a three-year monitoring period, although a number of accommodations have been made in recognition of the impact of COVID on club revenues.
Back in September, UEFA listed Chelsea as one of 18 clubs that “could technically fulfill 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,” adding. That additional financial information was requested and the relevant clubs “will be monitored closely in the upcoming period”.
UEFA also reminded Chelsea that the particular COVID accommodations no longer apply, but FFP is changing in ways that make Boehly and Clearlake’s current spending more viable. From 2023-2024 the allowable loss limit is doubled from €30m to €60m, which would include the 2022-23 season as the third year of the monitoring period. Clubs judged to be in good financial health will also be given an additional €30m in allowable losses over a three-year monitoring period, meaning Chelsea could be allowed to lose as much as €90m over three years – triple the old class.
Before deadline day, when Chelsea finally agreed a British record deal for Fernandez, Swiss Rumble estimated a €96m loss for Chelsea over the three years to 2022-2023, just slightly above the €90m allowable loss limit. He also estimated the cost of the club squad at 92 percent of revenue and profit from player sales; UEFA has ruled that all clubs must bring the ratio down to 90 per cent by 2023-24, then 80 per cent in 2024-25 and 70 per cent in 2025-26.
Chelsea finally secured a deal for Fernandez in the early hours of Wednesday (Photo: Getty Images)
Should Chelsea have any concerns?
Recent history suggests Chelsea have relatively little to fear even from being found in breach of FFP. The latest round of UEFA penalties, announced in September, amounted to a list of fines – of which only a small percentage should be paid immediately with the rest conditional on future compliance.
You could argue that is the equivalent of a speeding ticket for an ambitious club determined to spend big.
Boehly has publicly insisted on numerous occasions that Chelsea have FFP in mind, but it is clear that he and Clearlake are pushing as close to the limits as possible to try and build a squad capable of consistently competing for the biggest domestic and European trophies , perhaps mindful that financial and regulatory conditions in the coming years may not be so favorable for the balance of investment.
Is this level of spending likely to continue?
UEFA have already moved to close the amortization loophole for future transfer windows; Even if a player is signed on a seven or eight year contract from the summer onwards, their transfer fee will be spread over no more than five years in any FFP calculation.
The steadily tightening squad cost control rule will also put pressure on Chelsea and their rivals to be more disciplined when handing out lucrative salaries to players and coaches.
Then there’s also the £60m in annual commercial income that Chelsea will lose from next season, as a result of the end of a £40m-a-year deal with the main shirt sponsor Three and the early termination of a £20m per year. Year deal with sleeve sponsor Whalefin. They haven’t been replaced yet, the football sponsor market is less than inviting right now, and the clock is ticking before the process of manufacturing next season’s kit must begin.
Most of all, Chelsea are now facing the very real prospect of playing the 2023-2024 season without Champions League football, and perhaps without European participation of any kind. This is absolutely not in the initial Boehly-Clearlake business plan, and would have a significant impact on the club’s transfer ambitions in the next two windows.
Todd Boehly completed a Chelsea takeover in May 2022 (Photo: Getty Images)
This is where it is important to note the very defined profile of players that Chelsea have targeted in the January window: players aged 23 or under who have, to varying degrees, flashed elite ability and can melt into key components of the next great team in Stamford bridge or grow their resale value in the coming years.
If enough of them prove to be positive assets on or off the pitch, nine-figure transfer splurges won’t be required in future windows.
In any case, no one should expect this level of transport spending to continue indefinitely. Boehly is not an oligarch and Clearlake Capital is not a sovereign wealth fund. The money invested is drawn from private equity, and with it comes an expectation of an eventual positive return – either in the form of annual profits or, more likely, a significant increase in Chelsea’s value that can be realized if the club is Sold on.
(Photo: Getty Images)
