Earlier this week the BBC ran a story announcing Chelsea’s financial results for the last financial year.
The story pretty much towed the party line with a nod to financial fair-play and it noted that financial losses for the period had shrunk from $113M last season to $108M this term. A record turnover of $356M seemed to be a big deal for Chelsea and it was given some prominence in the BBC article.
It strikes me that a record turnover combined with a loss of $108M is a bit like celebrating because your team has set a record for goals scored in a season while ignoring the fact that for every three goals scored by your bunch they also allowed four.
There again a supporter who is not up on the intricacies of Financial Fair Play might be easy lulled into a feeling that things are not really that bad. The reason? Well the Beeb article tells us that “the club’s accounts to June last year improved despite spending £50m to buy Fernando Torres from Liverpool.” (£50m = $80M).The reasoning might go something like this. There is a loss of $108m but Chelsea spent $80M on Torres so if the club hadn’t bought Torres then the loss would have been only $28M – not bad really when you consider it was a loss of $113M a year ago.
Sounds good except it isn’t true. When paying a transfer fee the amount paid is spread over the length of the contract.
Torres was reputed to have signed a 5 and a half-year contract last January. Chelsea’s financial year is to June 30. What it means is that rather than an $80M Torres-hit being taken in the 2011 financials (as the article infers) the hit was more like $8M or 10% of the fee based on around 10% of his contract term being attributable to the last financial year.
What’s more the Torres transfer fee will impact the financial results for the next five seasons at a rate of around $14M annually or until the player’s contract is renegotiated, he is sold or he departs.
It was down to Chairman Bruce Buck to address the Financial Fair Play implications of the financial results. “The club is focused on complying with the requirements of Uefa’s financial fair play regulations while maintaining its ability to challenge for major trophies,” he said. “We would expect this to be reflected in our results for the current financial year.”
Ah, next year. It has become the standard response for clubs recording unsustainable losses. The problem, of course is that when next year comes the overall financial position is not much different than the year before.
How Chelsea can achieve a record turnover, spend money that is 30% greater than they generated and tell everyone that next year will be better and seemingly get away with it without being laughed at is one of the mysteries of our time.
One year, next year will come and there will be no dodging the reality of Financial Fair Play anymore.
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