In May 2022, a consortium of Todd Boehly and Californian private equity firm Clearlake Capital completed a £4.25bn takeover of Chelsea, bringing Roman Abramovich’s 19-year tenure to an enforced close.
Just over two years later, it has been reported that the two co-owners are looking to buy each other out amid a rift at Board level. Chelsea CEO Chris Jurasek has also just left his post after a year in the job as part of a ‘reshuffle of management operations’, yet the word ‘reshuffle’ doesn’t come close to describing the changes seen on the pitch over the last couple of years- with many questioning both how and why so much has been spent in an environment of financial regulation.
With Chelsea’s future again in the headlines, UCFB’s football finance experts Claire O’Neill and Christopher Winn look to explore some of the mechanisms Chelsea have utilised to execute their strategy so far under Boehly and Clearlake – and in doing so, debunk some of the media myths doing the rounds.
Organised chaos or a cultural shock?
From the outside, the Boehly-Clearlake era has, thus far, been eventful.
Since the new owners’ arrival in May 2022, Chelsea have had four managers, and signed over 35 new players across five transfer windows (excluding loan signings), with a total outlay per transfermarkt of almost £1.2 billion.
In comparison, only c.£440m has been generated in player sales over the same period, resulting in a net transfer spend exceeding £700m in a relatively short space of time.
Such has been the churn in the Chelsea squad, only Bettinelli, Chilwell, James, Kepa and Chalobah remain from the 2021/22 squad (just three seasons ago), with the latter two out on loan to Bournemouth and Crystal Palace respectively, and Chilwell currently frozen out of the first team picture altogether.
Indeed, with a total first team 2024/25 senior squad size of c.42 players per transfermarkt (13 of whom are currently out on loan), Boehly and Clearlake have transformed 88% of the playing squad inherited- a huge rate of change in such a short space of time.
Squad numbers in their own right have made the headlines, with it being widely reported prior to the transfer window closing that in order to manage such a bloated squad, a large group of players had been told to train away from the first team so as to alleviate squad cohesion and harmony.
But what has caused even more scepticism is the contract lengths being handed out by the club, with deals upwards of seven years becoming normalised at Chelsea, and Cole Palmer effectively being on a ten-year deal.
This rails against the cultural norm in English football; as shown below, Chelsea’s practice is extreme in comparison to their peers, with the average contract years (excluding players in or out on loan) remaining within the other Premier League senior squads being just 75 years – less than half that of Chelsea’s 29 active players.
Taking into account the other 13 players Chelsea have sent out on loan for the 2024/25 season, this figure reaches 213 years of remaining contractual player commitment for the club, this representing c.80% of the total contract lengths the club has awarded to the existing squad.
Whilst this shows that Chelsea are extremely heavily stocked in playing assets for the long-term, it is also a significant wage commitment over a time period where, in football, anything can happen- regardless of the reported strategy of structuring contracts with lower base wages and greater performance related bonuses.
Combined with the amounts invested of late, and with so much scrutiny currently directed at clubs via the Premier League’s Profitability and Sustainability Rules (despite being in situ for a decade!), many have naturally questioned how Chelsea are remaining compliant given their transfer activities, especially given the club made combined losses before tax of over £210m in the years ended June 2022 and 2023 alone.
Amortisation – not a regulation loophole!
First and foremost, let’s set something straight when it comes to accounting practices – in particular the concept of amortisation.
While the media might have you believe that ‘amortisation’ has been creatively invented by football clubs in the face of financial regulation and is some kind of ‘magic button’ that is pressed, mainly by Chelsea, to try and avoid breach of Profitability and Sustainability Rules……it is not!
Far from being a creative accounting practice it is in fact a ‘standard’ accounting practice that all organisations who hold intangible assets (assets with no physical substance) in their balance sheet must abide by.
Acquired player contracts are classified as intangible assets (it is the intangible contract or ‘player registration’ that a club accounts for, not the actual physical player). A player registration is included in the balance sheet at time of acquisition at the cost of the contract plus any directly attributable costs.
Then as the club ‘uses’ that player’s services they account for the cost of using that player over the life of the contract. For example, if Club X acquires Player Y for £50m on a 5 year deal, at acquisition Club X will include the contract at £50m in the balance sheet and the cost of ‘using’ that contract year on year will be:
£50m divided by 5 years = £10m per year
That £10m is included in the profit and loss account as an amortisation expense and simultaneously the £50m contract value in the balance sheet is reduced by £10m as the contract is used up. The idea being that you are ‘matching’ the costs and expenses incurred to the year in which you are deriving associated revenues.
With the magic of amortisation demystified, it is important to note that all of this is separate to the actual cash transaction on the acquisition of the player contract. When a player registration is acquired, a club will typically pay for it in instalments over a number of years.
Accounting for the associated cash outflow to the selling club only impacts the balance sheet; the cash balance is reduced by the amount of any upfront payment and a ‘player creditor’ is created in respect of the amount still to pay. There are no impacts to profits whatsoever.
Amortisation the Chelsea way
One way clubs could be creative with this standard accounting practice is via the time period over which they amortise the contract. As already demonstrated, Chelsea’s recent player contract policy has brought this under the spotlight.
The longer the contract, the greater the number of accounting years over which they can spread the initial acquisition cost. And that’s fine in accounting terms, as that is the useful economic life of the asset; namely the periods it is available for use. But recent changes to financial regulations have hindered this as a method of reducing annual costs.
Clubs signing players on long contracts in accounting terms dilutes the year on year amortisation expense, thereby lessening the impact to profits, or in many cases reducing losses thereby reducing risk of breach of Profitability and Sustainability Rules.
To mitigate against clubs exploiting this potential loophole in the financial regulations, the Premier League Shareholders agreed to ‘amend the rule on amortisation of player registration costs’ on 12 December 2023. They agreed a five year maximum will apply to all new or extended player contracts going forward. Such brought the domestic regulations in line with Annex G3.4 part (c) of the UEFA Financial Sustainability Regulations (FSR), amended in June 2023.
This rule cannot be applied retrospectively- which means any players that Chelsea awarded contracts to (and remain in situ) between Boehly and Clearlake’s purchase of the club in May 2022 and December 2023 (so their first three transfer windows) will carry on being amortised over their full contract lengths regardless of whether this exceeds five years.
As such, with the bulk of their transfer business to date executed before this cut-off, some may argue that Chelsea already have an upper hand in terms of diluting their annual amortisation expense.
Players or tradeable assets?
With this loophole closed, where does the incentive lie to continue to sign players on long-term contracts?
Chelsea have signed several players this summer on deals exceeding five years, including Pedro Neto (7 years) and Joao Felix (7 years), whilst extending Cole Palmer’s deal to a decade. Experience shows that players rarely stay so long at any one club.
One could speculate that the rationale is operational, that Boehly and Clearlake are seeking to lock in the talent. Or is the rationale one of capital gain – whereby the players are being treated as investments and they are building a portfolio of appreciating commodities to trade for future profits.
Such might be evidenced through the sale of Angelo Gabriel for £19.4m to Al-Nassar having never made a competitive appearance for the club, albeit this sale happened only one year into contract. Contrary to the reported £6m ‘profit’ erroneously reported by the media, profits on this sale would equate to £9m as follows:
= Consideration – (initial transfer fee – (1 year’s amortisation))
= £19.4m – (£13m -£2.6m) = £9m
Indeed, looking across player sales under Boehly and Clearlake, the c.£440m of transfer receipts appear to have equated to c.£285m of accounting profits on player sales thus far; this metric being more pertinent when adhering to financial regulations.
With the current size of the squad standing at 42 (including players out on loan), around three quarters of which were signed on contracts exceeding 5 years, Boehly and Clearlake may well be seeking to create a large reserve of playing talent to trade in years when gains are much needed.
But unusual contract lengths are not the only decision that has attracted much interest…..
Keeping it in the family
In the 2022/23 accounts of Chelsea FC Holdings Limited, they presented a loss of £89.8m – a concerning figure, but it would have been £76.5m worse had it not been for the sale of its two hotels (the Millenium and Copthorne) to related company BlueCo 22 Properties Limited (a subsidiary of BlueCo 22 Limited – Chelsea’s intermediate parent company). While this is a bone fide accounting transaction, shuffling the property across to a related party does raise eyebrows as to the underlying rationale.
In the Directors’ Report they declare it as a ‘restructure of its real estate portfolio’ but with a generous £76.5m profit arising from the sale it conveniently helps to offset in part the loss-making position and makes for a more favourable position when it comes to Profitability and Sustainability compliance calculations.
Under the Premier League’s Associated Party Transaction (APT) rules, such sales to related parties must be at ‘fair market value’ and if the Premier League has reasonable grounds to suspect that it is otherwise than at ‘arm’s length’, they will conduct a ‘Fair Market Value Assessment’ of the transaction.
At the time of signing the 2022/23 accounts, the sale was under assessment but has since been cleared by the Premier League. Interestingly, despite being governed by the same Profitability and Sustainability Rules (albeit with differing allowable losses) if the club sat in the Championship such a practice would be prohibited under Appendix 5 of the EFL Handbook where sale of fixed assets should not help clubs meet requirement of the rules.
But for now, Chelsea can breathe a sigh of relief with the favourable ‘boost’ to the 2022/23 accounts which has been cleared for Profitability and Sustainability Rules compliance.
So, let’s turn our attention to the 2023/24 accounting period.
Accounts for this season are not yet publicly available but in this set of accounts we expect to see the sale of the Women’s club to … a related party.
The transfer of Chelsea Women’s team to BlueCo 22 Midco Limited, calls into question the motivation behind selling another key asset (to Chelsea’s immediate parent company).
Media sources report that Chelsea have described the repositioning as a strategic move to encourage parity with the men and attract direct sponsorship. However, with the year end falling on Sunday 30 June 2024, meaning the timing of the transfer (Friday 28 June 2024) fell on the last working day of the financial year, one can’t help but speculate that nervousness around Profitability and Sustainability compliance might have had a part to play.
The transfer is evidenced by Companies House filings in respect of Chelsea Football Club Women Limited on 11 July 2024, but no proceeds of sale have been disclosed. We shall have to wait with bated breath for the next set of accounts for the big reveal as to how much Chelsea has made in selling their women’s team.
And so what next? With Chelsea’s future again seemingly at a crossroads, it remains to be seen who will be at the helm in a year’s time. But one thing is clear; loopholes, lengthy contracts and lavish spend have got them this far, and these strategies show no sign of abating as Chelsea strive to reach their former glories.
Claire O’Neill is Course Leader for BA (Hons) Football Business and Finance, Manchester campus. To find out more about our BA (Hons) Football Business and Finance course, or other undergraduate degree courses on offer, click here.
Christopher Winn is Course Leader for MSc Football Business. To find out more about our MSc Football Business course, or other postgraduate degree courses on offer, click here.
