It’s no secret that Chelsea have spent a huge amount of money since being taken over by Todd Boehly and Clearlake Capital in May 2022.
The Blues have splashed more than £1bn in transfer fees across three windows, which many thought would put them at risk of breaching the Premier League’s Profit and Sustainability Regulations (PSR).
Yet they have not done so in 2022-23, while Everton and Nottingham Forest both have.
i explains why this is the case and why it could change in the next few seasons…
Why have Chelsea not been charged with PSR breaches this season?
The Premier League’s PSR allow clubs to lose £105m over a three-year period. Due to the impact of Covid-19, the league annexed the 2019-20 and 2020-21 financial years together, meaning they both count within the most recent three-year PSR period.
Across the two Covid-19-affected seasons, Chelsea lost £60m, followed by £122m in 2021-22. This means that before Boehly and Clearlake had even bought the club and proceeded to spend £1bn on transfers, Chelsea were already at £182m in losses, £77m above the threshold.
Chelsea’s 2022-23 transfer spend of £539m is the highest in any Premier League season, over £200m more than their 2023-24 campaign, which comes second before a penny has been spent in January. Yet a number of factors explain why this does not directly correlate to a massive loss in PSR terms.
The first and most significant consideration is Chelsea’s policy of amortising transfers across long contracts. For those new to the concept of amortisation – if you sign a player, you are able to spread the cost of their transfer fee across the length of their contract in the accounting books. So, let’s say, if you sign an Ecuadorean midfielder from Brighton for £100m, then give him an eight-year deal, then that actually only costs £12.5m across each of the eight years.
This has been an accounting trick for a long time, but Chelsea’s fresh twist on it has been increasing contract lengths from four or five to seven or eight years. If Moises Caicedo had signed a five-year deal, then his amortised cost would have been 20m per year. Eighteen of Chelsea’s first-team squad have contracts which run until at least 2029, with Mykhailo Mudryk, Enzo Fernandez, Caicedo and Nicolas Jackson currently contracted until June 2031.
i has calculated Chelsea’s total amortised transfer cost at £97.2m for the 2022-23 season, including loan fees, although this is still an estimation. This figure is then counterbalanced by their outgoings, which have been significant.
Chelsea sold Kalidou Koulibaly (£17m), Mateo Kovacic (£25m), Edouard Mendy (£16m), Kai Havertz (£62m) and Ruben Loftus-Cheek (£15m) before the end of June 2023, meaning those sales were registered in the 2022-2023 financial year.
Given Koulibaly was sold for a loss and Kovacic and Mendy for slight profit, their deals are less important than the sales of Havertz and Loftus-Cheek. In principle, Havertz was sold to Arsenal for the same price he was bought for in 2020. Yet because some of his cost had already been paid off, the club actually made £37.2m in accounting profit from that deal.
And Loftus-Cheek is an example of something you will hear a lot around Chelsea – that academy products count as pure profit when sold, because there was no initial transfer fee to bring them in.
Given the actual amortised transfer cost was so low and because they sold key players early in the window, Chelsea actually ended up registering a small transfer profit for the 2022-23 financial year. Chelsea also have the fourth-highest revenue in the Premier League, according to the most recent published figures in 2021-22, which gives them a strong financial base.
Yet they have also lost money elsewhere. Graham Potter’s hiring and firing cost £35m, while Thomas Tuchel’s sacking cost £10m. Matchday revenue decreased as the club only hosted 24 home matches in 2022-23, five fewer than the previous season, having been knocked out of the third round of both the Carabao Cup and FA Cup. They also made significantly less from the Premier League’s TV income as they finished 12th – their £124.3m earnings were nearly £30m less than Newcastle in fourth.
This led football finance analyst Swiss Ramble to project a total loss of £182m for the period 2019-2022, then a further £70m for 2022-23, meaning Chelsea would have lost £252m between 2019-2023, more than double the £105m limit.
Yet this does not tell the full story. As clubs can deduct expenditures on the women’s team, academy, infrastructure and charitable work, as well as a significant adjustment due to the pandemic, Chelsea still managed to sneak below the limit for the 2019-2023 period.
Will Chelsea breach Premier League PSR next season?
While the Blues have proven they have some smart accountants, even this might be a stretch too far.
Chelsea lost £122m in 2021-22, then a projected £70m in 2022-23. While some of this will be deductible due to significant investment in the women’s team and academy, they are already close to, if not in breach of, the £105m limit for the 2021-2024 period.
This means they need to make a profit, or something close to it once healthy expenditure has been deducted, in order to not be charged for a breach under the current rules.
Their £400m transfer spend this season is something of a red herring – you need to look at what they will actually be paying in amortised costs. i estimates that figure will be around £57m for the 2023-24 incomings and £97.2m for the 2022-23 transfers.
Now, some of that near-£100m outgoing from last season is made up of Denis Zakaria and Joao Felix’s loan fees. Alongside this, two of the players – Kalidou Koulibaly and Pierre-Emerick Aubameyang – were sold for a loss and their amortised costs paid off at the time of sale.
But at least £70m of the 2022-23 transfer payments will carry over to 2023-24, on top of the estimated £57m of amortised expenditure from this season. This means the club will be on the hook for at least £127m of cumulative amortised fees between 2022-23 and 2023-24. This figure also does not include previous signings, including 2021-22 season’s big signing – £97.5m for Romelu Lukaku on a five-year deal. Chelsea already had the highest amortisation in the league before Boehly took over, so there is still a significant hangover from the Roman Abramovich years.
This is going to be a continued issue – even if they don’t buy or sell any more players in 2024-25, Chelsea will still have to pay at least £127m in amortised fees in that season – Swiss Ramble estimates the actual figure is closer to £192m.
But this is balanced against outgoings. Mason Mount’s £50m sale counts towards the 2023-24 financial year as “pure profit”, going a long way to cancel out this season’s expenditure, as does Newcastle’s obligation to pay £28.5m for Lewis Hall in the coming summer. Chelsea also made small profits on the sales of Christian Pulisic, Callum Hudson-Odoi and Ethan Ampadu in the 2023 summer window.
Another positive is that Chelsea’s wage budget is going down, with only four players now earning £200,000 per week or more. Raheem Sterling’s £325,000-per-week salary is an outlier rather than a rule as younger players tend to be happier to accept lower wages.
Yet this is about where the positivity ends. Chelsea’s absence from European football in 2023-24 will cost them £80m in lost TV and matchday revenue as well as prize money, income which kept losses reasonable in 2022-23. With European football looking unlikely in 2024-25 and lower Premier League prize money for the second consecutive year, Chelsea’s traditional streams of TV and matchday revenue are weaker than in recent years.
Swiss Ramble estimates that Chelsea’s 2021-2024 PSR loss will be £323m, adjusted to £201m by taking away allowable deductions. This leaves them almost £100m over the current loss limit.
How can Chelsea avoid breaching PSR regulations in 2024-25?
There is no more effective way to make up Chelsea’s massive deficit than selling players. The club need significant outgoings before the 2023-24 financial year closes on 30 June 2024, but probably also need to save some exits for later in the window (the next financial year) to protect themselves for the future.
As has been the case throughout the Boehly-Clearlake era, academy talent is likely to be on the chopping block, and Chelsea have lots of it. Trevoh Chalobah, Armando Broja, Conor Gallagher and Ian Maatsen may well all be for sale in the summer, as they reportedly have been this January.
Chalobah seems destined to leave the club at some point in 2024, only still there due to injury. He clearly does not feature in Mauricio Pochettino’s plans, yet could still command a healthy transfer fee which can be registered as pure profit.
The same appears to be true for Maatsen, who recently signed a new contract before being loaned out to Borussia Dortmund. The new contract offer may seem odd, but as football finance expert Dr Rob Wilson explains: “It’s to protect asset value. The closer he gets to the end of his contract, the cheaper he becomes as an asset to acquire [for the buying club]. Getting them tied to the club makes them more likely to realise their transfer value.
“It’s smart business on Chelsea’s behalf. It also says ‘let’s spin the wheel on him’ – he might have a really good loan move then come back and play for the first team. But the reality is he’ll play sufficiently well to protect his transfer value and then they’ll transfer him in the summer.”
And it already looks like Chelsea’s plan is working – Maatsen has immediately gone into the Dortmund starting line-up and picked up an assist against Cologne last weekend. Given he has failed to break into Pochettino’s plans so far and played just 17 league minutes at his preferred left-back spot, it seems likely he will return to be sold in the summer.
Another name linked with a departure is Broja, who has just two goals in eighteen Chelsea appearances this season. With interest from elsewhere and a possible £50m price tag, he seems almost guaranteed to leave the club by the end of the 2024 summer transfer window.
The final name seemingly constantly linked with a Stamford Bridge exit is Gallagher. This lifelong Chelsea fan has been one of their best players this season and there has been significant fan backlash at a potential move, but his reported refusal to sign an eight-year contract and a current expiration in June 2025 leave him vulnerable.
Chelsea also have an array of potential excuses they will call on to avoid serious PSR punishment, even if they are charged with a breach. They can point to lost revenue when sanctions were applied by the government at the end of the Abramovich ownership, player sales being affected by Covid-19 and exceptional player impairment, which Everton have claimed.
Chelsea’s final option, or more of a hope, is that PSR boundaries are altered. Premier League chief executive Richard Masters has said the regulations will be reviewed later this year, with a possibility the £105m loss limit will be extended to reflect common spending practices in 2024, rather than 2014, when the regulations were introduced.
These potential changes could come into place just in time for Chelsea, meaning they have much looser restrictions to try and adhere to.
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