Sunday will be a big day for Todd Boehly and Clearlake Capital, with Chelsea due to contest their first final since the end of the Roman Abramovich era.
Finding a way to upset Liverpool and lift the Carabao Cup would be a significant milestone for what has been a painful and, at times, chaotic rebuild at Stamford Bridge, and the first tangible return on more than £1billion ($1.27bn) committed to transfer fees in the first two years of their ownership.
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It would also bring European football back to Stamford Bridge next season in the form of participation in the Europa Conference League play-off round — but it is not clear whether Chelsea are in a position financially to enjoy that reward.
Currently, the club are only required to comply with the Premier League’s profit and sustainability rules (PSR), which allow losses of up to £105m over a three-year period. They did so — albeit narrowly — for the monitoring period ending June 30, 2023, and insist they intend to remain on the right side of the rules for 2023-24.
Many outside Chelsea, including respected football finance analyst Swiss Ramble, are convinced significant player sales will be required before June 30 to meet that objective. Returning to UEFA competition next season will only increase the size of the challenge, because it subjects the club’s accounts to significant new pressures.
All participants in the Champions League, Europa League or Europa Conference League must comply with UEFA’s club licensing and financial sustainability regulations (FSR), the rules that replaced financial fair play (FFP) in the summer of 2022.
These are considerably more restrictive than the Premier League’s PSR requirements. Clubs are permitted to lose up to €80m (£68.5m; $86m) for the 2024-25 monitoring period — which will encompass the 2022-23 and 2023-24 seasons — provided they are deemed to be in good health and not subject to existing UEFA sanctions.
That means £68.5m over the previous two years, not £105m over the previous three years, becomes the key loss threshold for Chelsea next season if they do succeed in winning the Carabao Cup and qualifying for the Europa Conference League next season.
But that is not the only financial ripple effect of returning to UEFA competition.
Chelsea’s players are likely to have bonuses written into their contracts that are tied to European qualification, which will increase the club’s overall salary cost. These will be offset by incentives in the club’s commercial agreements with kit manufacturer Nike and shirt sponsor Infinite Athlete that are linked to playing in UEFA competition, as well as the relatively modest TV and matchday revenue garnered from a Europa Conference League campaign.
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More significant is the effect on the amortised cost of Chelsea’s £400m in player signings in the summer of 2023. This was the first transfer window that followed UEFA’s decision to cap player amortisation at a maximum of five years regardless of the length of their contract. Premier League clubs voted to follow suit in December 2023, but this rule change only came into force domestically in the most recent January window.
This regulatory lag time means that Chelsea must juggle two financial equations to remain compliant with two distinct sets of financial regulations, since their spending in the summer of 2023 is more expensive in the eyes of UEFA than it is for the Premier League.
Football finance expert Kieran Maguire explains: “In the case of Moises Caicedo (who signed an eight-year contract with Chelsea after joining from Brighton & Hove Albion), his £100m transfer fee counts as £12.5m annually for PSR but, in UEFA’s calculations, it will need to be £100m divided by five (years). So it will count as £20m per year.”
Of the 11 signings that Chelsea made in the summer of 2023, 10 signed contracts of longer than five years. The Athletic estimates the amortised cost of these arrivals at £59.4m in the PSR calculations. When the five-year amortisation cap is applied to comply with UEFA rules, this figure rises significantly to £80.9m.
Qualifying for the Europa Conference League and returning to UEFA’s financial jurisdiction would lower the maximum amount Chelsea could lose by £36.5m, while increasing the amortised cost of their transfer spending in the summer of 2023 by £21.5m.
That is a significant financial squeeze just to take part in a competition that earned West Ham around £16m as winners last season. For context, Chelsea received around £82m for reaching the Champions League round of 16 in 2022-23. Is it worth it?
Four and a half years ago, AC Milan, having been found to have breached FFP in three separate seasons, struck a deal with UEFA to serve a one-year ban from European competition, rather than the standard two-year exclusion. They sat out one year of Europa League football, but were back in the competition in 2020-21 and qualified for the 2021-22 Champions League.
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“It could be in Chelsea’s interests to do the same as Milan,” Maguire adds. “We’re moving into the realms of three-dimensional chess here, which some clubs are capable of playing.
“By the time you pay the players’ bonuses for qualifying for the competition, transport, accommodation and other costs, you’re only making a small amount of money from the Conference League. You’ll struggle to get a decent number of fans to attend Stamford Bridge if the opposition is modest. That isn’t a criticism of them. It’s modern-day economics.
“If they are exceeding the UEFA limits, the question becomes: ‘Do we want to go and play in the Conference League next season?’. Because they won’t make any money from it.”
In his most recent analysis of Chelsea’s finances in August 2023, Swiss Ramble projected that the club is on course to post a £201m loss for the Premier League’s three-year monitoring period ending with 2023-24, well above the £105m allowable loss limit for PSR. On the UEFA front, he estimated a €159m (£136m) loss, also far over the €80m maximum acceptable deviation.
Both of these projections were made before Chelsea committed around £67m in transfer fees to acquire Deivid Washington, Djordje Petrovic and Cole Palmer in the final days of the summer transfer window. Boehly and Clearlake applied the handbrake to the club’s spending in January but, even with this new-found restraint, it is difficult to see how compliance with PSR — never mind UEFA’s stricter FSR limits — can be maintained without further player sales.
“Could they increase their commercial income? Yes, but the main deals can’t be improved upon,” Maguire says. “There’s relatively little wiggle room on the commercial side, so you have to look at (player) asset trading before June 30.
“If other clubs are aware of this, we then get into the Richarlison vs Brennan Johnson scenario where Everton sold early and felt they did so at a discount, whereas Nottingham Forest held out and got a higher price, but could face a points deduction on the back of it.”
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Chelsea’s eagerness to drum up a market for Armando Broja in January indicated a desire to raise funds from player sales, even as club officials continue to play down the club’s need to sell. Ian Maatsen has a £35m release clause in his new contract that is intended to attract suitors, while this summer represents the last realistic chance to sell Conor Gallagher if no contract can be agreed.
All three, as academy graduates, would generate pure profit on the books.
Several other Premier League clubs are understood to need to sell players in this accounting year to remain PSR compliant for 2023-24, which means June 30 will continue to be a significant date in the transfer calendar. Interestingly, however, it is not a hard deadline; The Athletic has been told by the Premier League and UEFA that clubs can choose to wait until July 31, the deadline imposed by Companies House, to file their year-end accounts, thereby giving themselves an extra month to sell players.
It is not clear why Forest elected not to do this when trying to wrangle a higher fee out of Tottenham for Johnson, but it is one of several options open to Boehly and Clearlake as they attempt to remain true to their pledge to keep Chelsea compliant with all of football’s financial sustainability rules.
Bizarrely, lifting the Carabao Cup on Sunday would make that task harder. But given that winning trophies is the whole point of this football business, it counts as a nice problem to have.
(Top photo: Mike Egerton – EMPICS via Getty Images)
