We are now self sufficient Chelsea fans cried after showing a pre-tax profit of £13,113,000 in their 2017 accounts.
What was not made clear was this was simply clever accounting. And this week it has been exposed how dangerous having a single owner that you rely on to keep a club afloat and moving forward can be.
On Thursday, Chelsea’s Russian billionaire owner Roman Abramovich put the club’s stadium plans on hold. Chelsea issued a statement saying the club had delayed work on Stamford Bridge because of “the current unfavourable investment climate”.
This comes on the back of delays to Abramovich’s renewal of his UK visa, which expired earlier this year.
The delay in issuing him a new visa comes amid increased diplomatic tensions between London and Moscow after the poisoning of former Russian spy Sergei Skripal in Salisbury.
And those delays have since led to him cancelling his visa application.
Rumours are that Abramovich is unwilling to invest in a major project in a country where he is not allowed work.
The new stadium has been hit with problems over the years, with the estimated cost for a new 60,000 seat Stamford Bridge increasing to £1bn after delays, which included a disputes with local residents.
The club added added: “No further pre-construction design and planning work will occur. The club does not have a time frame set for reconsideration of its decision.”
The fact that the decision to pull the plug was made by one man, Roman Abramovich, shows what a precarious position Chelsea are in.
When the Russian first took over, way back in 2003, I remember the discussions on the message boards.
“What will happen if he gets bored?”
“What will happen if Putin takes him out?”
“What will happen if the money disappears as quickly as it came?”
The answer to all was simple. Chelsea would be in a lot of trouble.
No one was saying that issues would happen soon. Abramovich had moved to London and seemed happy. His family lived here, and he owned numerous houses throughout Kensington and Chelsea.
His 2007 divorce saw him give his ex wife £1bn and four houses throughout the world, including an £18 million Sussex estate.
Over his 15 years a the club, he has bankrolled Chelsea to the tune of £1bn. A few years back, those loans were reportedly written off by Abramovich, but under a complex structure, he is stil lowed nearly £1bn.
A look at Chelsea’s accounts shows how much trouble they would be in if he decided to call it quits in England.
When Abramovich loaned Chelsea the money, he did not loan it direct to Chelsea Football Club Limited (the Companies House registered limited company that deals with the football side of the business). He instead loaned it to Chelsea Limited, the group holding company.
This loan was then passed from Chelsea Limited to Chelsea PLC – the company that runs Chelsea Football Club Limited as well as Chelsea Football Club Women Ltd, The Hotel at Chelsea Limited and various other companies related to the non-football side of the business.
Chelsea Limited was renamed Fordstam Limited in 2009 – when Abramovich reportedly wrote off the debt that Chelsea owned him. This meant that whilst recapitalisation of loans happened at the level of Chelsea FC PLC, it did not happen within the holding company (Fordstam).
So whilst Chelsea FC PLC do not owe anyone £1bn, the overall group holding company Fordstam Limited have horrendous financials.
Fordstam Limited’s accounts are so bad that they do not actually get a credit limit. A recent credit search on them showed “cash transactions only”.
Underneath Chelsea PLC is the football business, Chelsea Football Club Limited. This is the trading name of the real club, having been established in 1985. Chelsea FC PLC was established in 1990 (originally named Chelsea Village) to oversee both the football club, and the surrounding “village” that was built around Stamford Bridge under Ken Bates.
Chelsea Football Club Limited is in equally as bad shape. They get just a £500 credit limit. That is not a typo. They basically get the same credit as a teenager at University.
As a comparison, the Arsenal Football Club Public Limited Company – which is the equivalent of Chelsea Football Club Limited in terms of that is the company which oversees the football side of Arsenal – gets a £47,100,000 credit limit.
In between Fordstam Limited and Chelsea Football Club Limited is Chelsea FC PLC. As explained, this is the company that owns Chelsea Football Club Limited, and other companies such as the hotel. This is the only major company within the complex structure that gets a credit limit, but in football terms this is not huge
Again, for a comparison, Arsenal Holdings PLC gets £22,000,000.
When you delve deeper into the accounts of all 3 companies involved in the running of Chelsea, you get an understanding of just how problematic things will be if Abramovich decides “enough is enough” and walks away.
Chelsea’s accounts do show a profit last year of about £15m, but this was mainly driven by player sales. A £50m loss turned around due to the sale of Oscar to China.
In their next accounts (up until June 2018) that will be announced later this year, it will once again show a huge operating loss, bought back to break even due to player sales – they raised over £100m last summer.
It means that Chelsea are in the situation where they even need another injection of cash from Abramovich or need to continue to sell to buy.
The club is on the verge of breaking down.
The likes of Eden Hazard and Thibaut Courtois want out. Both had team mates begging them to stay in their post-game interviews after the FA Cup. The sale of both will be key to raising finance to ensure the books stay even. In 2019, Chelsea will once more post an operating loss before player sales, especially with lack of Champions League football.
If they fail to sell either Hazard or Courtois, they will struggle to invest in the playing side of the club, unless they are comfortable posting an pre-tax loss. Clearly recent actions by Abramovich show that he does not want either Chelsea Football Club Limited or Chelsea FC PLC to make a pre-tax loss. He does not want to put any more of his own cash into the club.
Add in the future of Antonio Conte, the cost that it will be to get rid of him and his coaching staff – and the problems at Chelsea are really starting to mount up.
Abramovich might use the situation with his UK visa to get out of the club. He has two options that I can see.
The first is to liquidate Fordstam Limited. This is the holding company that oversees the entire group structure. This will then lead to administrators coming in to sell off parts of the club. It will be one of them £1 deals that happen in the lower leagues (and I think how Ken Bates originally bought the club).
Administration would see points deduction and potential relegation for the Premier League. The debt would disappear and what would be left is the football club. Players contracts will be considered null and void, allowing them to leave on a free.
A new owner would come in and have to rebuild from the bottom up, like we have seen with Leeds.
Alternatively, before putting Fordstam Limited into administration, Abramovich could sell Chelsea FC PLC.
Chelsea FC PLC carries no debt, but high costs.
A new owner would be unlikely to want to spend big on such a loss making enterprise, one which he might have to pump £50m a year into to ensure it stays afloat. I would be surprised if Abramovich gets much for the club if he decides to sell due to its poor financials.
If he sells Chelsea FC PLC, the club does not enter administration, it does not lose points, players or gets relegated. It just needs an owner with deep pockets willing to service the debt.
Once sold, Abramovich will send Fordstam Limited into administration, with its £1bn debt.
Some might claim “Abramovich will not want to write off £1bn”, but he is a man worth £10bn. Remember, he was happy giving his ex-wife £1bn and 4 houses!
Abramovich has always had a questionable background with links to the KGB and Russian government. Abramovich was the first person to originally recommend to Yeltsin that Vladimir Putin be his successor as the Russian president.
His friendship with Boris Berezovsky saw him purchase numerous companies after the break up of the Soviet Union for “25 times less than the market price”.
He strikes me as the type of man that will do things on the whim, and out of spite.
Whatever happens with the future of Chelsea and Abramovich, one thing is clear. Arsenal fans would be crazy to wish for Alisher Usmanov to take over at Arsenal and be subject to a single mans control, relying on him financially.
Keenos
