How Chelsea Can Save Themselves from Financial Fair Play?
An analysis of how The Blues tackle their financial strides over a three-year period.
Chelsea FC is one of the biggest spenders in this summer transfer window. In total, they have spent €247 million on seven players (two of them on free transfers). With that amount of money, Chelsea fans are starting to worry about where they stand in the Financial Fair Play regulation.
Financial Fair Play is a regulation that limits the losses of a football club in three years to €30 million. The purpose of this regulation is to keep a football club in a healthy financial condition and keep the club from bankruptcy. This regulation, however, only counts the expenses that affect the operation of the club directly, which allows the club to deduct indirect expenses, including asset depreciations, youth development expenses, and women’s football expenses.
Club’s Profit and Player Amortisation
Football clubs treat a player as an asset, as they amortize the player every year and count it as an expense. Amortisation evenly spreads the transfer fees over the length of the player’s contracts. For example, Chelsea bought Kepa Arrizabalaga from Athletic Bilbao for €80 million on a seven-year contract. Therefore, Chelsea recorded €11.42 million for the expenses of having Arrizabalaga for a year, which comes from the division of the contract value by the length of it. Amortisation writes off Arrizabalaga’s book value every year by €11.42 million until the book value is 0 at the end of the contract.
With the decrease in the book value every year, there are profits or losses recorded when a player is sold. If Chelsea sells Arrizabalaga in his fifth year for €40 million, then Chelsea can make a €17 million profit from that transaction.
Monitoring Period
As mentioned before, Financial Fair Play limits a football club’s losses to a maximum of €30 million over a three-year monitoring period. For example, in the 2020 monitoring period, 2016–17, 2017–18, and 2018–19 were the seasons counted in the monitoring period.
The COVID-19 pandemic that is currently happening in the world affects a lot of industries, including football. The Premier League is expected to accumulate a €700 million loss because of the pandemic. For this matter, the UEFA decided that in the 2021 monitoring period only two years, the 2018–19 and 2019–20 seasons, will be covered. In addition, the 2022 monitoring period will cover four years, 2018–19, 2019–20, 2020–21, and 2021–22 with the 2020–21 and 2021–22 seasons assessed as a single period and counted by the average.
2021 Monitoring Period
The 2021 monitoring period will cover the 2017–18 and 2018–19 seasons. The numbers in this article were taken from the Twitter account @SwissRamble, transfermarkt.com, and Chelsea FC’s web page.
In 2018, Chelsea made the most profit from player sales. Chelsea sold Diego Costa, who joined the club under a five-year contract, in a €60 million deal after playing the club for three and a half years. The calculation for Diego Costa’s sale can be found below.
Chelsea made a €44.8 million profit in selling Diego Costa. Chelsea also made €33 million profit from the selling of Nemanja Matic.
After all the numbers are counted, Chelsea is in a safe place for the 2021 monitoring period since they made a profit of €18 million over the course of two years.
2022 Monitoring Period.
For the 2022 monitoring period, the year that is included for the measurement is 2017–18, 2018–19, and the average of 2019–20 and 2020–21.
By the time this article was written, there is still no financial reporting for 2019–20 and 2020–21 so the profit and loss calculated for those two years will be based on the previous year.
For the 2019–20 profit and loss, the calculation will exclude player sales from the previous year assuming that there is no significant financial difference for the next two years.
After the profits and losses from players' transactions and their amortisation measurements are calculated, the 2022 monitoring period will roughly look like the table below.
Based on that calculation Chelsea is in the safe zone for the 2022 monitoring period with €33 million profit.
2023 Monitoring Period
Chelsea is safe for at least the next two years monitoring period as calculated above, but how Chelsea will do in the next monitoring period will determine how much Chelsea can spend for the upcoming years. Olivier Giroud and Willy Caballero are the two players whose contracts are going to expire next year. In total, their salary is €7.5 million. Both players are fully amortised.
Chelsea is rumored to bring Declan Rice with €40 million euro on a €7.5 million per year salary with the assumption he will sign a five-year contract. If Chelsea is planning to get Declan Rice from West Ham, they will have to ship away Olivier Giroud and Willy Caballero. With Olivier Giroud and Willy Caballero out, Chelsea will decrease their player salary expense by €7.5 million. The Declan Rice transfer will even it out and add €8 million to the players’ yearly amortisation.
With the simulation above, Chelsea is in a dangerous FFP zone because they have €41 million loss, €11 million more from the FFP limit. Chelsea has to sell a few players to be in the safe zone.
Few players that Chelsea could sell to comply with the FFP are Marcos Alonso with an €18 million market value, Emerson Palmieri with a €15 million market value, Andreas Christensen with a €20 million market value, and Antonio Rüdiger with a €30 million market value. If Chelsea is able to sell them with their market value, Chelsea will be inside the safe zone.
In conclusion, for the next two monitoring periods Chelsea is in the safe zone, but for the 2023 monitoring period, if they are planning to bring Declan Rice or other players, they have to sell some of their current players too.
