E
CHELSEA FC: FINANCES
A detailed look at
Chelsea's financial
results, the future,
and financial fair play
By Jake Cohen
JakeFCohen on Nov 13
2014, 8:56p
arlier today, Chelsea
announced that it
earned £318.9m for the
2014 financial year (1 July
2013 to 30 June 2014).
This represents a 25%
increase over the previous
year's earnings (£255.8m)
and marks the first time in
history that the club broke
the £300m barrier.
Chelsea also earned a profit
of £18.4m, a marked
change from the nearly
£50m the club lost in
2012/13 , and includes
the profit received from
player sales.
The £318.9m includes
income received from
matchday revenues,
broadcasting revenues, and
commercial revenues, and
does not include the profit
received from player sales.
Unfortunately, the club did
not provide a revenue
breakdown, but we can
make some reasonable
estimates based on earlier
research conducted by
WAGNH.
Six months ago, we
projected that Chelsea
would earn £302.9m in
turnover , plus an additional
£36.9m in income from
player sales. As the figures
showed today, we were off
by exactly £16m, or about
5%. At WAGNH, we take a
conservative approach
when projecting finances,
and intentionally
overestimate Chelsea's
expenditures (player
wages, transfer fees) while
underestimating income
(revenues, player sales). We
follow this practise
with our FFP player wage
database and our various
financial breakdowns
when a transfer occurs.
The £16m difference likely
comes from our decision to
intentionally leave off any
revenue earned from
Chelsea's pre-season tour
to the United States, as no
financial information was
available, and taking a
conservative approach to
projecting commercial
revenues.
Now that we have the
official figure of £318.9m in
revenues, we can take
another look at our earlier
projections and try to make
up that £16m.
Matchday revenue
- £71.5m
projection (2.5%
increase from
£70.7m in
2012/13)
We originally projected a
small increase in matchday
revenue to £71.5m, and this
seems to be a solid
projection. As the club itself
stated earlier today, "There
was a small rise in
matchday income but with
Stamford Bridge filled to
capacity year after year
there was no scope for
significant financial growth
in this area."
Matchday revenue remains
largely fixed, as Stamford
Bridge operates at 99
percent of capacity,
although the further
Chelsea goes in cup
competitions, both in
Europe and domestically,
the more home matches
the club receives (and
therefore, more revenue).
However, Chelsea often
goes quite deep into cup
competitions already, so
there is little room for
improvement at present
time without substantially
raising ticket prices (and I
think the club realises that
gouging loyal match-going
supporters isn't the way to
increase revenues).
Broadcasting
revenue -
£129.7m
projection (23%
increase from
£105.5m in
2012/13)
We originally projected
£130m in broadcasting
revenue, and are adjusting
down by £300,000 after
finding that Chelsea earned
a £94.1m share of the
Premier League television
pie, instead of £94.4m.
This is a massive increase
over last season's Premier
League share, and is fueled
by the new Premier League
broadcasting deal kicking
in.
The three-year
broadcasting deal runs
through the 2015-16
season, after which clubs
should expect to see
revenues increase once
again. Domestic
broadcasting revenues will
remain fairly stable until
then as long as Chelsea
continues to perform well,
as a portion of the
payments are directly tied
to on-pitch performance.
Chelsea also received
£35.6m from the
Champions League, and
Champions League
revenues are directly tied to
on-pitch performance. The
existing broadcasting deals
expire after this season,
and next season will see a
significant increase in
Champions League
revenues, and therefore,
the amount of prize money
to be distributed.
Commercial
revenue -
£119.7m
projection (50%
increase from
£79.6m in
2012/13)
We originally projected
commercial revenues at
£101.7m, and this seems to
be where we
underestimated the club. If
these projections hold, a
50% increase in
commercial revenue in just
one year is outstanding,
and shows that the club is
not only committed in its
efforts to grow the club's
brand, but more
importantly, has been very
successful in doing so.
We know that there was an
additional £14.2m in shirt-
related sponsorship, with
the adidas deal expanding
from £20m to £30m
annually, and the Samsung
deal improving from
£13.8m to £18m annually.
We also projected 10%
growth across the board,
but we intentionally
disregarded the revenues
generated from the pre-
season tour to the United
States, as there was no
financial information
available. Those revenues
could have been significant,
and we could've also
underestimated the
amount of money Chelsea
can now command from
potential sponsors.
Whereas matchday revenue
are largely fixed and
broadcasting revenue is
tied to on-pitch
performance and
negotiations that Chelsea
doesn't have a major part
in, Chelsea has full control
over commercial revenues.
Curiously, the club's
commercial revenues had
been lagging behind the
competition for years. As I
originally wrote in the
Plains of Almeria season
preview, this was perhaps
due to the fact that
Abramovich's Chelsea has
been in the odd (and up
until now, extremely
fortuitous) position of
never really being forced to
maxmise its revenue
streams.
Discounting PSG, which was
essentially paying itself with
its massively inflated QTA
sponsorship, Chelsea was
tied for the ninth most
commercial revenues
during 2012-13 (the latest
available figures).
1. Bayern Munich -
£203.2m
2. Real Madrid £181.3m
3. Manchester United -
£152.5m
4. Barcelona - £151.5m
5. Manchester City -
£143m
6. Liverpool - £97.7m
7. Borussia Dortmund -
£93.4m
8. AC Milan - £82.4m
9. Schalke - £79.6m
10. Chelsea - £79.6m
Tied for ninth in the world
isn't bad, but the club was
well off the pace at the top.
As a club that fancies itself
as one of the few truly
global football clubs, and
rightfully so, its commercial
revenues should reflect that
status.
Success in European
competition and Chelsea's
willingness to embrace the
globalisation of football by
planting flags all over Asia
and the United States (two
emerging markets) have
been crucial to Chelsea's
commercial growth, and
the club's hard work is
now paying off in a huge
way.
There is still plenty of work
that needs to be done in
order to catch up with Real
Madrid, Barcelona, Bayern
Munich, and Manchester
United (all of which are also
seeing significant
commercial growth), and
matching the commercial
might of those clubs is still
a long way off. That said,
the improvement Chelsea
has already made and the
club's hire of Christian
Purslow should help
Chelsea to build upon its
recent success.
On the £18.4m
profit and FFP
Chelsea's £18.4m profit
includes income received
from player sales. I
originally projected that the
profit from the sales of
Juan Mata (£23.6m), Kevin
de Bruyne (£10.8m) and
Jeffrey Bruma (£2.5m)
would total £36.9m.*
*For more on how we
calculated the profit from
the Juan Mata sale, see this
article, and for more on
how we calculated the
profit from the Kevin de
Bruyne sale, see this
article.
Other reports include the
sale of David Luiz, pointing
to the fact that the deal was
announced prior to 1 July,
when the 2014/15 financial
year begins. However, for
international transfers, the
player's registration can't
move until 1 July at the
earliest (when the transfer
window opens), and as
such, I have been working
under the impression
that the David Luiz sale
will count on the 2014/15
books.
The fact that the profit was
"only" £18.2m seems to
support the notion that the
Luiz sale will go on the
2014/15 books, but since
Chelsea declined to provide
any details, we'll have to
wait until the club files its
complete 2013/14
accounts to know for sure
(due by 31 December).
Given that we projected
that player sales would total
almost £37m and Chelsea
recorded an £18.2m profit,
Chelsea would've recorded
a loss without the player
sales.
This might seem a bit
concerning, but there's little
to worry about. A £20m
loss in the financial
accounts Chelsea submits
to Companies House likely
equates to a profit on the
financial fair play accounts,
as certain expenditures are
exempt from the FFP
breakeven requirement
(infrastructure costs and
the reported £8m per year
Chelsea spends on its
academy, for example).
Additionally, while relying
on player sales as a steady
source of income is a risky
business model and
something only a handful
of clubs can pull off, this
isn't what Chelsea does.
Rather, Chelsea's ruthlessly
effective approach to
acquiring and developing
talent means that players
deemed surplus to
requirements are often
going to be sold, and sold
for a decent profit. Chelsea
will also see income on the
2014/15 books from the
sales of Romelu Lukaku,
David Luiz (unless he went
on the 2013/14 books),
Demba Ba, Patrick van
Aanholt, George Saville, and
anyone sold this winter.
As far as financial fair play
goes, it was never going
to be a serious problem
for Chelsea, and these
financial results only further
solidify that fact. However,
that doesn't mean that FFP
doesn't significantly impact
the way Chelsea does
business. It certainly does.
Chelsea supporters would
do well to view financial
fair play as a soft wage cap.
That is, Chelsea can only
spend what it earns. The
more the club earns, the
more it can spend. As it has
long been proven,
increased spending leads
to an increased chance of
success, and Chelsea will
very likely continue to
spend heavily.
However, there is a
difference between
spending and spending
wisely, of course, as
Liverpool and Brendan
Rodgers have
demonstrated. Financial fair
play dictates that Chelsea
and every other club have
finite resources, so now,
more than ever, it is of
paramount importance that
Chelsea maximise those
resources.
The club has done a
fantastic job by getting
excellent returns on their
investment in talent, and in
addition to acquiring
extremely cost-effective
first team players (Thibaut
Courtois, Kurt Zouma), the
club also earns millions of
sterling pounds to simply
watch their young players
develop on loan and ideally
become better (and more
valuable) footballers.
I wouldn't be surprised if
the profit is immediately
reinvested back into the
club, as Chelsea is not a for-
profit company. Rather, it is
a for-trophies company. As
Roman Abramovich said
when he first bought the
club over ten years ago,
"The goal is to win. It's not
about making money. I
have many much less risky
ways of making money. I
don't want to throw my
money away, but it's really
about having fun, and that
means success and
trophies."
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