Fresh update on £750m issue that could make or break Chelsea's PSR situation
Chelsea have been bullish about their compliance with PSR, but the margins are razor-thin.
The Premier League will move to a new revenue-based system from next season, but the current Profit and Sustainability Rules limit allowable losses over a rolling three-year period to £105m.
A cursory look at Chelsea’s last set of accounts, for the 2022-23 financial year, shows that Chelsea almost exceeded that limit in one season alone with a deficit of £90.1m.
That was down on the previous year, when they lost £121.4m. However, the official line from the club is that they are confident about their PSR position.
Certain costs such as academy and infrastructure investment are exempt from the calculation, and Chelsea have found a number of PSR loopholes that have so far kept them afloat.
In the early days of the Todd Boehly and Clearlake Capital regime, Chelsea signed players to ultra-long contracts to amortise their transfer fees over an period, reducing the strain on their PSR quota.
The Premier League have since closed that particular loophole, limiting the maximum length over which transfer fees can be amortised for PSR purposes to five years.
Chelsea have also resorted to intra-company property trading to offset the circa £1bn they have spent on transfers since May 2022, selling two on-site hotels and their women’s team to a sister company.
But the Premier League is also moving to close this loophole too, while UEFA – who have their own separate set of financial regulations – do not allow the practice for PSR purposes.
Even with every PSR-busting trick taken into account, Chelsea are very close to the upper limit.
And there is bad news in that department, as a major revenue generating opportunity could be about to slip through their fingers.
FIFA windfall diminishing
Next summer, Enzo Maresca‘s Chelsea will compete in the first edition of FIFA’s revamped Club World Cup.
The tournament in the United States will now feature 32 teams and will take place on a quadrennial basis, with Chelsea qualifying thanks to their Champions League triumph in 2021.
However, with less than nine months to go, FIFA have run into a number of problems relating to the controversial tournament.
As well as a legal challenge from FIFPro – the union that represents professional footballers – relating to player welfare and workload, FIFA is also yet to source a TV deal for the competition.
World football’s governing body had previously aspired to earn £2bn in media rights, which would be used to give clubs prize money up to £84m.
For Chelsea, that would be transformative in terms of their PSR situation. And indeed the noise coming from behind the scenes at the club is that they are banking on the tournament delivering financially.
But the only offer FIFA have had so far came from Apple and was worth just £750m, which would deliver far more modest prize money of around £34m, according to sources.
Now, Sport Business have reported that FIFA have significantly lowered their asking price for the media rights. Again, not good news for Chelsea, who are desperate for additional revenue.
The Club World Cup will still provide a financial boost for Chelsea and it also gives them global brand exposure at a time when they are looking to expand their commercial operation.
But with FIFA scrambling for a TV deal and potentially facing fronting up prize money themselves, the tournament will not be the seismic financial event that has been forecasted.
Why have Chelsea not breached PSR?
On face value, Chelsea’s combined losses of over £200m in the last two published financial years plus a projected loss of around £97m for 2023-24 mean they are well over the PSR limit.
But unlike Nottingham Forest and Everton, they have not been found to have breached PSR. Why?
There is no doubt that Chelsea’s financial losses are severe, but the headline figures do not tell the whole story. PSR is assessed on a different profit-loss figure, with certain costs excluded from the calculation.
The sale of two on-site hotels for a PSR profit of £76m as well as the sale of the women’s team for somewhere in the region of £150m have insulated them from a breach.
Separately, Chelsea are under investigation for the Premier League for alleged historic breaches of PSR.
But they have not been charged, and those alleged offences – which the new owners themselves reported to the Premier League – pre-date Boehly and Eghbali‘s arrival at Stamford Bridge.
It is a different story in terms of Chelsea’s compliance with UEFA spending rules, however.
European football’s governing body is phasing in a new system which will eventually cap spending on revenue on wages, transfers and agent fees at 70 per cent of turnover. This year, the cap is 80 per cent.
For context, Chelsea’s wage bill alone in the last financial year was 79 per cent of their income, while a staggering amortisation bill of over £200m took that to 119 per cent.
The club have briefed journalists that they have reduced the average weekly wage to around £60,000, but that does not take into account bonuses.
When the accounts are released for 2023-24, the wage bill will still be astronomical and certainly not low enough to take them under UEFA’s 80 per cent cap.
It is difficult to see how Chelsea will escape reprisal – and that might mean a sporting sanction or a financial penalty. Or both.
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