In 10-years time someone far better at writing than me is going to release a book. Its title will be How not to run a football club – The story of Chelsea FC.
As Chelsea’s disorganized spending continues, as does the comments surrounding “does PSR not matter to them”. The simple answer is yes, it does matter. However those running the club are now having to juggle so many balls that when one collapses, it will probably lead to the collapse of the entire club.
Amortisation
Regular readers of the blog will know that amortisation is not a loophole found by Chelsea, but a common accounting procedure that all clubs have followed for decades. It is nothing new.
At the time of writing, Chelsea have pent £160milion this summer. Amoritised over 5-years, that equals an increase in expenditure of £32m. The deal for Joao Felix will take their summer spending to around £220m. And increased outlay of £44m a year.
That is an additional £44m in revenue Chelsea have to find to balance the books. They will do this by either selling players for above their book value, selling tangible assets, increasing sponsorship income, increasing revenue from European football, or increasing revenue from the TV deal.
Those last 3 will be almost impossible for Chelsea as they are tied with performances in the league, which are declining.
In fact, Chelsea will have to find more new revenue to cover the less of not being in Europe, and a reduction in sponsorship deals linked to European football.
That leaves just selling players and selling assets.
Selling players
As well all know, selling an academy player equates to 100% book profit. This means that the entire transfer fee can be used as a positive in the accounts.
Meanwhile, if you sell a player who still has an un-amortised transfer fee on the books (their book value mentioned above), any incoming fee most firstly offset the remaining fee, with the remaining being booked as profit.
Ian Maatsen, Lewis Hall and Omari Hutchison have all departed the club this summer. All had a book value of £0m, meaning Chelsea would bank 100% profit (50% of the Hutchinson deal was reportedly aid to Arsenal). Add in Conor Gallagher, they should expect to bank around £111m. More than enough to cover the £44m increase in spending.
The issue with relying on selling academy players is you can only sell them once.
Whilst the amortised fee goes across 5-years, the sale of a player goes into a single year.
In 2025/26, Chelsea will still need to find £44m to cover their 2024/25 spending. On top of that they will need to generate revenue to cover any expenditure in the summer of 2025, AND they still need to find the funds to cover previous years.
In 2023/24, Chelsea spent £400m. The year before it was £538m.
That means over the last 3-years, Chelsea would have increased their amorisation by around £230m a year.
Of course, they have then reduced their amorisation with the likes of Kai Havertz, Kalidou Koulibaly, Antonio Rüdiger, Jorginho, Michy Batshuayi, Timo Werner, Hakim Ziyech and N’Golo Kante departing.
My estimation is those players that have left would have wiped off around £80m a year in amoritesed transfers. That still leaves Chelsea needing to find £150m a year in additional revenue to break even.
Last season, they banked around £90m in pure profit from selling Mason Mount, Ruben Loftus-Cheek and Ethan Ampadu. A further £54m was banked by selling Havertz, Kovacic, Pulisic and Mendy, although the sale of Koulibaly cost them £8m giving them around a net £46m.
So player sales raised them around £144m in book profit, which allowed them to balance the books and stay with Profit and Sustainability Rules.
But they are now in a position where they need to keep selling players and generating book profit.
The £111m raised so far this season gets them close to covering the last 3 years increase in amorisation costs, and expect the likes of Trevor Chalobahto depart to help further close the gap. But having sold Mount, Gallagher, Chalobah, Loftus-Cheek and others, the academy is beginning to look a little dry.
Levi Colwill is really the only bankable asset still at the club, and will likely be sold next season. And if Chelsea can not raise over £150m in book profit from player sales, then they are in big trouble!
Selling assets
To help balance the books last season, Chelsea sold their training ground and a hotel to themselves to help generate revenue and balance the books. But you can only sell an asset once.
As Barcelona have found out, when you begin selling off the crown jewels without dealing with the elephant in the room (too much expenditure), then the issues simple return the next season. And this time you have less tangible assets to sell.
Chelsea still have “levers” the can pull, as Barcelona called them. They could “sell” future TV revenue to bring in immediate income like Barcelona did. They can also sell the ground (although not the pitch), which might bring in £400m, but will sot Chelsea in rent over the long term.
Like with selling players, eventually you run out of items that will make you a profit. And then you are in deep trouble.
Buying players
Such is Chelsea’s problems, they are now being forced to buy players they do not want to ensure players get sold.
Chelsea do not want Joao Felix, but without them buying him Atletico Madrid can not afford Conor Gallagher.
Gallagher generates about £35m in immediate profit, whilst Felix will cost the club around £10m a year.
Whilst they will be able to use the net £25m to balance the books this season, they are saddling themselves with a further £10m then need to find for the 4-years after. It is clearly not a smart deal for them long term.
Chelsea will need to keep doing these deals to sweeten transfers for outgoing players. They will be forced to overpay for players they do not want, to finance sales for players that are superior than those incoming.
Final thoughts
My thoughts on Chelsea’s spending has never really been about the risk / reward.
Yes, they are taking huge risks by relying on selling £100m+ worth of “book value” talent each year to balance the books. It is not easy, but as they have shown it is not impossible.
The issue is that, from the outside, they are signing players without a clear plan. For example they have signed 8 (I think) goal keepers since Todd Bohely et al came in. And they are already looking to sell players signed just 12 or 18 months ago.
And each summer, they get weaker. Those departing are better than those coming in. And each transfer they are just lumbering themselves with more debt in the future.
Most Chelsea fans with a brain reading this would have already shown concern about how their club is being run.
43 players in your first team squad is clearly not sustainable. And once you begin selling those players for a book loss rather than profit, things will quickly snowball.
In 1 or 2 summers time, Chelsea will find themselves needing to raise £200m in book profit to balance the books, but find themselves with very few stars that will raise them any significant profit. And at that point their only get out will be administration and relegation.
Back in the mid-late 00s, most of us were on forums saying “what will happen when Roman leaves”. We are now finding out. And the implosion will be on a grander scale than Leeds!
Fan will come to the comments of this blog and boast about European titles, Premier League titles and more, but most fans will not care about what the club has achieved in the past if they have no future. Most fans in our comments will simply find a new club or a new sport. And Chelsea will be back to “Save the Bridge” and beginning the match going fans for a handout just like the 80s and 90s.
It will be glorious.
Keenos
She Wore A Yellow Ribbon 