Chelsea recently became the first club to accumulate losses of over $1 billion.
Many financial experts think Chelsea’s sudden loss of revenue was because of British government sanctions put on previous owner Roman Abramovich, which hurt ticket sales, contract negotiations, and more.
Chelsea post huge loss
The operating loss, valued at $292 million, puts them in big danger of suffering Financial Fair Play rules, which prevent clubs from spending so much they make losses. Players like Hakim Ziyech, Édouard Mendy, and Pierre-Emerick Aubameyang are all set to leave the club in the summer, and more are on the way.
With Chelsea set to miss out on the Champions League and European soccer, they may not have replacements to bring in the summer due to their perilous economic future.
To combat this, they have used a high-risk, high-reward financial strategy called amortization, where they sign players for big transfer fees but spread the fees out among long contracts.
Many big transfers; Neymar to PSG, Pogba to United, Felix to Atletico Madrid; have come over long-term contracts with big prices. That way, clubs can spread a $100 million transfer over 5 years, paying $20 million every year.
Chelsea has gone to the extreme using amortization. Enzo Fernandez was signed for a league record $133 million dollars over an eight-year contract, for example. The problem with that is the club could be stuck paying a lot of money for someone who may bust, financial journalist Kieran Maguire told Sky Sports.
If the players really develop and are a huge success it gives the club protection for when other potential clubs come in and try to poach those players because they will still have many years left on their contracts.
The downside is if the player doesn’t perform then you’ve got the complication of they are likely to be on very high wages and you are committed to those wages for the next six, seven or eight years. Therefore, if it works it is fantastic but if not, it is weighing the club down a bit like an anchor slowing things down.
You can’t just keep adding to the player roster and remember that each of these players is likely to be on a contract that is worth £7m, £8m or £9m-a-year.Maguire speaks to Sky Sports on Chelsea’s amortization strategy
Chelsea has a target to reach $1 billion in revenue in the future, but with the harsh economical losses they are suffering, their hope is fading away. Chelsea’s plan to increase capacity at Stamford Bridge likely will not happen for a few years.
Chelsea spent $672 million on incoming player transfers and only $75 million on player sales. Their total gross salaries are worth an eye-watering $262 million, and Goal.com estimates they could lose another $120 million if they do not qualify for the Champions League this season.
If they do fall foul of FFP rules, fines, point deductions, restrictions on registering players and earning money, and even exclusion from certain competitions. Despite the big losses and not-big-enough gains, the club says they are not in danger of breaching the rules.
Despite the loss in the year and the operating challenges due to the sanctions, the Club continues to comply with UEFA and Premier League financial regulations.Chelsea’s club statement concerning their massive financial losses
Photo credit: IMAGO / PA Images
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