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- Chelsea's Billion Dollar Shopping Spree 🤑 How are they doing it? Is it against the rules? Will it backfire on them? 🤔
Chelsea's Billion Dollar Shopping Spree 🤑 How are they doing it? Is it against the rules? Will it backfire on them? 🤔
ISSUE 018
Julian From Plei
September 08, 2023
The transfer window officially closed a week ago, and Chelsea were the clear winners. 🥇
They spent nearly $500m on new signings this summer, pushing their total expenditure under Boehly ownership to over a billion. 😳
In this newsletter, we explain why this is even possible, and what it could mean for the Blues in the next few seasons. 👇
As surreal as it seems, one of the biggest clubs in English football history is in the midst of a major rebuild.
Nobody is questioning the necessity of this new Chelsea era; they finished 12th place last season, which marked the first time this century that they finished in the bottom half of the table.
Most - if not all - football fans are scratching their heads about the fact that Chelsea have somehow managed to spend over a billion dollars in less than 2 years. To put that into perspective, most big European clubs finally reach that sort of figure in transfer fees after nearly a decade or so.
To reach a billion in expenditure, it took Tottenham the last 10 seasons. Meanwhile, Bayern Munich spent about €880m across the same stretch.
Todd Boehly and Clearlake Capital apparently had plans to make history, though, because they spent more than both of those clubs in just 12 months.
In this special newsletter, we answer the questions many people keep asking:
How are Chelsea splashing this much cash?
Are they not breaking any rules?
Will this type of mind-boggling spending backfire on Boehly and Co. in the future?
🤔 Who have they signed?
A lot of players. 28 of them, in fact, from the start of last season until now.
Before we get into the specifics of how exactly Chelsea have managed to spend so much money, we thought it would make sense to first lay out who exactly they’ve picked up with these extra zeroes.
For an approximated total of $655 million, these are the players that the Blues signed last season for a fee, either permanently or on loan:
Enzo Fernández from Benfica: $130m
Wesley Fofana from Leicester: $86m
Mykhaylo Mudryk from Shakhtar Donetsk: $75m
Marc Cucurella from Brighton: $70m
Raheem Sterling from Manchester City: $60m
Benoit Badiashile from Monaco: $41m
Kalidou Koulibaly from Napoli: $41m
Noni Madueke from PSV Eindhoven: $37m
Malo Gusto from Lyon: $32m
Carney Chukwuemeka from Aston Villa: $19m
Andrey Santos from Vasco da Gama: $13m
David Datro Fofana from Molde: $13m
Pierre-Emerick Aubameyang from Barcelona: $13m
João Félix from Atlético Madrid: $12m (loan)
Gabriel Slonina from Chicago Fire: $10m
Denis Zakaria from Juventus: $3m (loan)
And these are their signings from the recently closed summer transfer window (excluding free transfers):
Moisés Caicedo from Brighton: $124m
Romeo Lavia from Southampton: $66m
Christopher Nkunku from RB Leipzig: $64m
Cole Palmer from Man City: $50m
Axel Disasi from Monaco: $48m
Nicolas Jackson from Villarreal: $40m
Lesley Ugochukwu from Rennes: $29m
Robert Sánchez from Brighton: $25m
Djordje Petrovic from New England: $17m
Deivid Washington from Santos: $17m
Angelo from Santos: $16m
From their 11 most recent signings (for a fee). Chelsea spent a grand total of $496m.
Approximately $1,151,144,819 has been spent on a total of 27 new players in a year and a half. Man, the Todd Boehly era has really been something else.
🧾 A unique accounting technique
This is the section you were probably wanting to read if you clicked into this newsletter. We’ll go ahead and put things as simply as possible, because finances are a pain to deal with in the first place.
The main reason that Chelsea are able to sign so many players and splash so much cash has to do with one relatively straightforward accounting tactic: amortization.
The official definition is as follows: an accounting technique used to periodically lower the book value of a loan or intangible asset over a set period of time.
Don’t worry about trying to comprehend that; all it really means is that Chelsea are stretching their payments for players over a longer length of time than normal.
It’s important to understand that transfer fees and player wages are always paid over time. Yes, Chelsea may have spent over $1 billion in the past few transfer windows, but in reality, they aren’t actually spending that type of money all at once. Each player’s individual transfer fee and wage is being paid off in even annual installments. Signing a player to an 8-year contract rather than a 3-year contract, for example, naturally means that the club would have to pay a lot less per year, and can in turn mark in their books a way smaller amount.
Here’s a practical example that we found on this site of how amortization works.
“So let’s say that ‘Club A’ signed a ‘Player X’ for a total sum of £50m and offered him a five-year contract, the transfer fee will be divided into five installments for accounting purposes. So the balance sheet of the first year will show that ‘Club A’ spent £10m in transfer fees on ‘Player X’, in the particular year.
The following four years would probably offer the same figure, unless the club manages to put the player’s signature on a new contract. In this case, the remaining nominal value would be spread upon the new number of years determined by the new agreement.
In the previous example, let’s suggest that three years following the player’s initial signing, ‘Club A’ extended the contract of ‘Player X’ by two additional years. At this point, the club had already paid £30m from the total fee, with only £20m remaining. So based on the new contract (which would expire in four years), ‘Club A’ will spread the remaining £20m nominal value over the next four years, registering £5m on every yearly balance sheet.”
By using this technique, Chelsea are effectively going without breaking any Financial Fair Play rules. FFP actually works in 3-year cycles; during each cycle (known as an assessment period), UEFA assesses the spending of every club. As long as clubs haven’t spent approximately $5 million more than what they made after those 3 years, they are in the clear.
Chelsea are strategically working around this because they are paying off these player contracts over a longer course of time, making it way easier for them to balance the books when the time comes.
Longer story short, amortization works, and as of right now, it is perfectly legal under the watchful eye of UEFA, despite a recent revision to limit the strategy to no more than 5-year contracts. It’s a proven technique in the financial world, and Chelsea are perfectly happy to take advantage of it.
👉🚪 Who have they got rid of?
Amoation isn’t the only thing Chelsea have relied on in recent transfer windows. Despite using the loophole to be able to pay off their debt in smaller installments, they still need revenue to further help balance the books.
They may have been buying a lot of players, but they’ve also done very well to clear out what was previously a very congested squad.
These are the players that Chelsea have sold off, either on loan or permanently, in the summer 2023 window:
Kai Havertz to Arsenal: $80m
Mason Mount to Manchester United: $69m
Mateo Kovacic to Manchester City: $31m
Kalidou Koulibaly to Al-Hilal: $25m
Christian Pulisic to AC Milan: $21m
Timo Werner to RB Leipzig: $21m
Édouard Mendy to Al-Ahli: $20m
Ruben Loftus-Cheek to AC Milan: $17m
Romelu Lukaku to AS Roma: $6m (loan)
Callum Hudson-Odoi to Nottingham Forest: $4m
Diego Moreira to Lyon: $3m (loan)
Kepa Arrizabalaga to Real Madrid: $1m (loan)
A total of 12 departures meant that Chelsea earned a grand sum of $298m in the most recent transfer window.
Splendid business, if we’re being honest.
🔮 What the future holds
With such an unprecedented situation, it’s hard to predict Chelsea’s future at this stage. Sure, they may have only taken one win out of four matchdays so far this season, but that doesn’t change the fact that potential and sheer talent is overflowing in this Blues squad.
What we can say is that the risks that Chelsea are taking severely outweigh the positive outcomes. It’s a lot of new, young players that take up the majority of this squad. To put this into perspective, the average age in the current team is 23.8, with Thiago Silva and Raheem Sterling being the only two players older than 26.
Signing so many new players, most of which are relatively unproven at the highest level, can lead to disaster for Chelsea if they don’t end up performing. It’s not necessarily something they’ll need to worry about this season or even next, but if many of Chelsea’s new pickups don’t end up becoming top players after a few seasons, they’ll be stuck with them for the next 7-8 years of their long contracts.
Think about it: most of these new players are more than likely content with the security that their long-term deals provide. They can continue to develop knowing that it would be quite the expensive feat to buy out the remainder of their contract and be forced to leave the club for whatever reason.
On the other hand, what if one or a number of these guys become superstars? In this particular case, now you’d have to ask the question of whether they’d remain happy with their salary compared to other Premier League stars. If another big club comes calling, offering a shorter term contract for a lot more money per year, it’ll probably be hard to say no.
To make things worse, Chelsea can’t afford to miss out on Champions League qualification again. There are many millions to be made from just participating in the group stage, let alone advancing through the knockout stage. If they can’t secure at least 4th place, they will be forced to look to other less-favorable avenues for profit.
The last thing they want is to fall into a similar situation to that of Barcelona in recent seasons.
Butof the negative outlooks. At the end of the day, what matters is the football, and Chelsea have plenty of talent waiting to be unleashed. It may not have shown in the first month of the season, but there are simply too many prospects in this squad - with a world class manager in Pochettino at the helm, no less - for things not to click.
As much as the risks may outweigh the potential rewards, Chelsea is very much intent on playing this long game.
We’ll just have to wait and see if there will be any consequences for this billion dollar venture.