Chelsea’s attempts to shape their transfer recruitment to ensure they comply with Financial Fair Play (FFP) rules have been described as “smart but risky” by football finance experts as they pioneer multi-year contracts for new signings to ensure they can go on spending.
But it is not just at Stamford Bridge where FFP is casting a shadow. Top four rivals Newcastle are also wrestling with the rules as they consider whether to push the boat out in January.
Recent takeovers at both clubs have prompted substantial investment as they aim to compete for top European honours. But Chelsea’s owners have had freedom to spend big in the transfer market – breaking all previous records for expenditure with a £400m splurge which is “ongoing” – while Newcastle’s owners continue to fret about FFP.
If the Magpies spend now, it is likely to eat into what sources call “exciting” summer plans that are already well advanced.
This is the dilemma for ambitious, heavily-backed clubs. FFP clearly reduces their ability to spend big to bridge the gap to those already in the top four and banking Champions League cash regularly.
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Everton still sticking by Frank Lampard with transfers the priority to save spiralling season16 January, 2023Football finance expert Kieran Maguire has told i it amounts to “protectionism” and – clearly – it is not yet a problem for Chelsea, long established in Europe’s elite competition.
Their new ownership group believe their innovative approach to contracts can help them navigate Uefa’s financial fair play rules and Mykhailo Mudryk’s £88.5m move, confirmed on Sunday, is a case in point. He got an eight-and-a-half year deal to add to the six-year contracts handed out to four new arrivals and Benoit Badiashile’s recent seven-and-half year contract.
The reason for those contract lengths is Chelsea making the most of amortisation. What amortisation means in practice is that the £88.5m Mudryk fee will be divided over the eight years of his deal, working out as roughly £10m a year.
“It is the difference between buying one player on a big contract or bringing in two or three,” football finance expert Keiran Maguire says. It is clever but comes with some risk – Chelsea are committing substantial wage packages on players they will be “stuck with” if they fail to perform.
“It’s a substantial investment in their potential but also the club’s ability to maximise that potential. It protects Chelsea if the player does well and Real Madrid start sniffing around them but they risk being stuck with them if it doesn’t work out. We all remember Winston Bogarde sitting on a long contract but never playing,” Maguire explains.
Chelsea’s recent success means they always had the capacity to spend big when Clearlake took over. Uefa’s new rules, introduced next season, limit club spending to 70 per cent of their revenue. They are only allowed permitted losses of just under £50m over a three-year period but Chelsea’s most recent losses over a three year period were just £5m.
“They had plenty of room to work in because Todd Boelhy bought a successful club,” Maguire said.
“Chelsea won the Champions League in 2021 and the European Super Cup. That’s £119m in additional revenue, along with the sales of Fikayo Tomori and Tammy Abraham, which brought in £70m.”
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Player trading is very important to FFP. “For FFP and accounting reasons, it is key,” Maguire says.
“If you sell a player, profits are calculated in the accounts immediately but if you buy a player it’s calculated over the length of their contract.” Newcastle having few saleable assets is a big problem for them.
Champions League revenue is massively important to increasing spending potential and for a club like Newcastle, the unexpected top four charge represents a huge opportunity.
A senior Newcastle source hailed potentially earning a top four place as “transformative”. Revenue would balloon significantly overnight but also would aid the club’s other big ambition: to grow commercial revenue.
“If we could, I’m sure our inclination would be to spend big in January to push on for that top four spot. But FFP is a real concern which is why getting into Europe as soon as possible is so important,” a Newcastle source told i.
Any new commercial deals over £1m that are agreed must go through an independent ‘fair market assessment’. For Newcastle that is pertinent – they will need to justify the value of any deals signed with Saudi firms, for example. With Champions League exposure, that is much easier.
Nearly a decade since the rules were agreed, it feels like FFP is having a profound impact on English football. Not everyone is a fan.
Maguire said: “It’s protectionism. The authorities say it is about sustainability but it’s not. The motivation for putting these rules in place – both in the Premier League and Champions League – is simply to protect the cartel.
“It makes no sense. Why shouldn’t Stoke or Newcastle, if their owners clearly can afford it, be allowed to spend more freely?”
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