Chelsea FC’s financial accounts and understanding Roman Abramovich
Chelsea’s billionaire owner Roman Abramovich is a man who polarises opinions. Most accept that a) he’s a smart businessman and b) he loves football and Chelsea, but beyond that there are two camps – those who believe that Roman will ‘grow tired’ of Chelsea and those who believe that Roman is truly dedicated to Chelsea.
Both camps are missing the point somewhat. Roman Abramovich’s attachment to Chelsea is based on both passion and sound business sense. This isn’t a sordid love affair (once you’re a fan, you’re a fan for life, right?) and considering his heavy investments in the club and the fact that it will take quite some time to recoup them, he’s not going anywhere for a long time.
In that backdrop, the latest (06/07) financial documents from Chelsea Limited make for some interesting reading (download PDF here).
The highlights:
- Operating expenses increased by 35m, of which almost 19m was a result of higher payroll costs (more wages to be paid).
- Loss was ‘reduced’ by less than 5m – but the extra 15m earned in 07/08 in TV revenue will help reduce it more in 07/08.
- Abramovich’s ‘covering’ of Chelsea’s losses and payments for transfers are listed as an interest-free loan (578m), repayable on 18 months notice – fun numbers for a doomsday scenario but as Azar will eventually drop in and explain, this is not as bad as it sounds.
- We can assume that Roman’s going to keep bankrolling Chelsea’s losses until they start showing a profit, so you can expect Roman’s loan to balloon up to around 650-700m.
- The squad was valued at 266m as of 20 June 2007.
The Numbers – do they mean anything?
News reporting is often an exercise in simplification – to reduce the complex into a single-sentence argument that evokes a primal emotional response, regardless of whether the argument is correct or whether the response is justified. Buttons need to be pushed, and nothing pushes them better than playing on fear and loss.
So when we read that the combined debt of Chelsea and Manchester United is 1.5bn, should one get worried? What for, really? The game is being played with the same passion, and considering that football is a business whether ‘fans’ own the club (Arsenal) or entrepreneurs own it (United, Chelsea, Liverpool), it’s not as if the lack of debt would make the world a better place for football fans.
The total amount of Chelsea’s debt – 736m – is an impressive figure to throw about but when taken in context it just points to Chelsea’s financial strength. Assuming that Roman is a smart money-man (it would be naive not to), we can safely say that he has catered for the worst-case scenario (Chelsea not breaking even in the next 5 years) and therefore if the owner can afford to bankroll a loss of 700m+ or so (while playing for profits and gains 30 years down the road) then isn’t this a sign of Chelsea’s strength as opposed to weakness?
In case you’re not clear on this, your illusions of what is fair and unfair in football has nothing to do with the financial stability of a football club.
The numbers give us valuable insight into how the club is being run (we’ve analysed Manchester United’s debt earlier this month) but in no way point to or predict an impending crisis.
Far from it, Chelsea are in a strong financial position as long as they can break even in the next few years (something that might need a cutback in wages and could spell the end of time for certain players at Chelsea this season).
But it’s easier to pander to the notion that Chelsea is staggering under debt and that Roman has made a mistake – isn’t it?
Also see:
Football Debt, Spiralling Wages and the future of European Football
Topics: Chelsea, Features, Help Football, Roman Abramovich
Football News 24/7
Lets not miss these..
1) 500m security in clubs name invested by Abramovich, which should be used in case of crisis(failure to bankroll club tomorrow)
2) next season season ticket is shown as debt, which is just technical.
I think chelsea is building a business model, keeping in mind long term profit. which means club is in risk at short term , spending money with out profit.
Luckily for them its from their owner and its interest free.
And owner is not worried for short term.
In Short, Its the risk Chelsea need to take in short term to grow big. Unlike united which was unnecessary to have a huge debt.
Wat did Utd gain from take owner? 666m debt + 81 m Interest every year.
Problem here for me is 81 m, which should be gained from on form pitch. they cant have blip until they finds a huge source of income (like shirt sales doubles etc)
They need to be No 1 , No 2 in EPL and be atleast in CL semi
in next 3-4 years to be even.
Last note :”What If fergie retires?”
May 20th, 2008 @ 08:56Chelseafc is the best by the help and susport of our boss roman (abr)
April 20th, 2010 @ 22:50This is just a jibe at Chelsea because of the article that showed that Manchester United’s debt is just pathetically high.
And before you decide to point your fingers at Arsenal, we know that 43% of Arsenal’s total value is debt. However, it should be noted that Arsenal’s debt is because of the new stadium & not because the owners decided to take bank loans and put up the clubs assets as collateral. Also, unlike the Glazer’s, Arsenal’s owners are repaying the debt instead of increasing it.
FYI: Arsenal is not owned by the fans as many presume, Danny Fiszman (a London diamond dealer) and Nina Bracewell-Smith (wife of grandson of former chairman Sir Bracewell Smith), who hold 24.1% and 15.9% respectively. Fellow director Richard Carr has 4.4% and club chairman Peter Hill-Wood owns 0.8%, with all the other directors holding nominal amounts. Stan Kroenke has 12.2%, whilst the other Russian has 24%. The remaining % makes up for a nominal amount.
May 20th, 2008 @ 09:47Why Ahmed is worried about Chelsea ? i think he is playing mindgame with chelsea fans ,carry on studing financial reports of chelsea who cares what you write.
May 20th, 2008 @ 13:30Language is important sometimes. Describing £736m as both a debt and a loss in the same paragraph highlights that. Putting in £585m over 5 years (Abramovich’s direct input) isn’t the same as his input of £85m in just one year. The former is unsustainable, even for him. The latter, comfortably so. With the Eurobond completely paid off, saving £3.25m interest payments into the bargain, the rest is manageable by the club with it’s own income, especially considering the increased media revenues. The key is in the amount of continuing purchases for the future. Even if Grant goes this summer there’ll still be a lot of buying (and selling) by any new manager. The past hs worked its way out of the system. Now there’s only the future to consider, which is completely in their hand.
May 20th, 2008 @ 14:14Okay..i don’t really understand the financial aspect..but i do now that abramovic has a net worth of 23.5 billion and is the 15th richest man in the world and isn’t cash strapped like the glazers. He should be able to handle any financial crisis..because he can handle debts and losses even uptil 2-3billion if they are recovered later. I’m just worried about what the glazers and what they end up doing to united. Any billionaires out there??
May 20th, 2008 @ 15:24Chelsea is fortunate to have an owner with the means to cover such debt. Likely it isn’t impacting Abramovich’s bottom line significantly.
May 20th, 2008 @ 20:37The bigger picture here may be when mid-tier and smaller clubs begin to bleed financially in similar ways (look at the dismal financial situation in Portugal for example with clubs late on wage payments etc.). That’s when you could see some sort of salary cap with a minimum spend and a ceiling on wages. Then you’ll see parity. Then you’ll see coaching and management take on ultra-importance.
That said, I recognize that American teams are not clubs, but franchises that essentially buy their way into leagues. Would franchising of clubs follow a salary cap (essentially ending relegation etc.)? Worth asking.
http://startingeleven.blogspot.com/2008/05/champions-league-final-preview.html
Us Blues supporters are theorizing on our boards that the interest free loan is desgianted as such because Roman is able to claim that as owned money each year and therefore avoid taxes on it.
May 20th, 2008 @ 21:58Brian,
Azar said something along the lines of how owner’s debt is quasi-equity, so what you say would make some sense.
May 21st, 2008 @ 03:08My view on Chelsea is quite simple. This club doesn’t need any financial analysis. A view on succession is more like it. If Roman walks away within 1-2 years, this club will reduce to a mid-table name in no time. If Roman stays till the time Chelsea creates a sustained track record of success…. (and track record means at least a decade long status of a formidable English/European team)… and waits till the club broadens its revenue base (see the link: Success -> Fan Base -> Revenue Base), this club might manage itself without Roman. But here’s the gist of it all:
1) Roman’s rich as hell. The stakes he offloaded from his commodities businesses (oil, gas, metals) has provided him billions of CASH. Glazers net worth (which isn’t more than one-fifth of Roman’s – verify this, I’m not wrong) is illiquid. Liquidity is THE definition of being rich. You might be living in a palace on Mayfair or Kensington, but you can only buy/spend as much as the amount of cash/plastic in your wallet allows you to. Why do you think Glazers went to a bank and Roman did not?
2) Roman takes pride in being a Russian, and in being a Jew. Apart from that all he cares for London is two hoots. Chelsea was his route into football. It’s his favorite sport. And being a rich boy who owns a Boeing, a cruise etc, he also owns a football team. His view of Chelsea is “his team”, not an economic entity. Some of his decisions pertaining to Chelsea have had no financial/business sense at all. He pays for his fun. But of course, the man is rich, not dumb. He expects the club to rely less and less on him going forward.
3) To add to what Ahmed said: Owner’s debt is almost always subordinated to any bank debt. If things get really bad for Chelsea, and Roman reprimands the management by saying “Fu**off, I am not feeding you more!”…. Chelsea can simply subordinate Roman’s debt (with his consent of course) and banks will then view it as good as equity! From this angle, Chelsea is in a SWEET financial condition to leverage LOADS of money from financial institutions.
4) And by the way, I hope people acknowledge the “economic meaning” of an interest free loan from an owner. With each day going by, the loan is decreasing in value. With Chelsea paying no interest, Roman is essentially CONTINUALLY investing into Chelsea.
May 21st, 2008 @ 10:51It’s good to see a bit of clarity when it comes to the Chelsea money situation, epsecially as most people always fall back on the opinion that eventually Roman will get bored and leave them in the lurch, this won’t happen and what makes you so sure they would go to a mid table team in no time if he did leave – I don’t know what that opinion is based on.
May 21st, 2008 @ 15:47Ben: Market forces. The day transfer market watches Roman ditch Chelsea, they’ll know how to literally dismantle the team by their bids. It’s not easy to retain 6 national team captains without “certainty” and “hope” within the dressing room.
May 21st, 2008 @ 18:56im just asking, but is it possible that manU will do a Leeds United? What do they have to do to avoid that!?
May 22nd, 2008 @ 10:49it is absolutely clear that Chelsea is great team,and absoluetly clear that roman make it great.
May 23rd, 2008 @ 07:57you guys have done justice to issues that have made me an object of redicule out here in Nigeria,cuz the jealousy amongst the fans of the big four,dont really get along so it feels good that i get to use some of the materials from you guys in my defence…As mush as i wanna give kudos to peter keneyon and roman, roman needs to be more know that football isnt paintings,marriage etc,but more of a great culture that has been b4 he was born,so he should respect it and it elements and not be a dictator or close to it… i wish him well though…
p;s
January 16th, 2009 @ 00:34i dont believe liverpool can make it to get the title this season…but i like rafa’s comments to fegie, he needs to be investigated but as usual the english syndicate in english football wouldnt allow that,but some day MAN U would go down…it happened in ITALY ENGLAND wont be an exception…no wonder they fought Mourhino even to his dog,but he lft ENGLAND a HERO with his deeds in the sand of time… CHELSEA RULES………
we pray for Better improvement. And we pray That Carlo will bring the whole cup to us this season
July 24th, 2009 @ 09:16Concerning financial status, I think chelsea should learn from d past by trying to b conservative in d amount being placed on signing a new player to d team. Pls Anceloti should warn d players on avoiding costly mistake which most time has caused us conceded goal especially towards final whistle.the blues I know and to which I belong wil always avoid to be d first to concede goal bt be d first to scope goal. Also our midfield should be more sharp in attacking to create chance for strikers to score goals.
August 26th, 2009 @ 14:50i like your guys’ comments on the financial analysis on chelsea so far. its throwin more light on the issues at stake. only dumbs will refuse to concede to your arguments. only yesterday night (after the arsenal/barca uefa match) we had a heated argument on the dbt profile of chelsea, man u and arsenal. a man u fan was very particular about the debts of chelsea and was cock sure chelsea would go down. he couldnt explain further. he didin’t even know his club, man u was very indebted and that there were rumours of an iminent take over (red knights). much i felt his passion, i still fell sorry for him anyway. i think its high time fans begans to understudy the financial status of the clubs and provide meaningful constributions to forums like this and elsewhere, afterall, the essence is for all to learn. thank you guys
April 1st, 2010 @ 14:15I love wen a matter like dis is been throw on air, cos chelsea was only club be4 now dat its debt are known and talked about, by opposite fans, but thank God, man utd whose fans dat became chelsea owner dat sing with our debt, are also in worst state than chelsea.
April 8th, 2010 @ 16:14