Chelsea Debt to Roman now £1.5b...but it's not a debt

[We need an rvn]

So I'm reading a few articles about Chelsea's debt to RA is now over £1.5b since he took over, yet Chelsea are debt free because Roman owns both the parent company who lent the money (Fordstam Ltd), yet the loans are going to be repaid to Camberley International Inv Ltd (also owned by RA) to clear the debt. I get that part. But as Chelsea don't have the money to pay off the debt, I'm struggling to get my head around how they've managed to do this and how are the "debt free" when they've been granted all this money by their owner, which I thought was against Fifa / Uefa rules

 

[horsechoker]

Relegate them

 

[P-Ro]

Relegate them

This.

 

[duffer]

So I'm reading a few articles about Chelsea's debt to RA is now over £1.5b since he took over, yet Chelsea are debt free because Roman owns both the parent company who lent the money (Fordstam Ltd), yet the loans are going to be repaid to Camberley International Inv Ltd (also owned by RA) to clear the debt. I get that part. But as Chelsea don't have the money to pay off the debt, I'm struggling to get my head around how they've managed to do this and how are the "debt free" when they've been granted all this money by their owner, which I thought was against Fifa / Uefa rules

Being in debt isn't against the rules.

The FFP rules are about spending compared to income, not debt.

 

[Tarrou]

why would it be against the rules for the owner to give them money?

anyway even if it was against the rules it doesn't matter, he's a dodgy cnut and money always finds a way

 

[Skills]

Isn't a lot of that debt pre-FFP?

I think its just shit tabloid reporting - they're claiming that Chelsea are effectively debt free. That might be the case if RA decides to forgive the debt, but up until he does they're not debt free.

 

[Pexbo]

Being in debt isn't against the rules.

The FFP rules are about spending compared to income, not debt.

How do you get into £1.5bn debt while keeping within FFP guidelines?

 

[Tarrou]

How do you get into £1.5bn debt while keeping within FFP guidelines?

he bought them years before FFP started

anyway we don't need to speculate on how it's done - just look at City

 

[Crashoutcassius]

I'd imagine it is just the mechanism through which RA has funded chelsea over the years, covering any losses up to 30 a season since the start of FFP. He could put money in via equity or do it via debt, makes no real difference unless the club gets into dire straights and even then might make no difference.

 

[tomaldinho1]

he bought them years before FFP started

anyway we don't need to speculate on how it's done - just look at City

Precisely. Can you imagine if they ever revealed their true spend, people concentrate on the eye watering transfers but they've sunk multiples of that into the broader club & then multiples of that multiple into the City Football Group.

 

[Ish]

How do you get into £1.5bn debt while keeping within FFP guidelines?

I’d assume “signing” a player is regarded as a capital expense (ie you can take out “loans” to sign players) but wages being paid to said player, is an operational expense. IE income to expenses is calculated at revenue less wages, signing fees are not taken into account.

Players “purchasing fees” I assume though, are amortise/depreciated over the lifetime value of their contact, so that too, gets taken into account as an “expense”. Hence, they can be in debt because RA “loaned” them money to sign players, but spending £100m on Lukaku doesn’t factor into FFP. Only £100m/6 (assuming a 6 year contract) plus his annual wage, is an “expense” in any given year. That’s FFP and the loan would still be “outstanding” in the books unless they’ve repaid it.

FFP = income statement
Loans = Balance sheet

That’s what I assume at a high level anyway. I’m a CA, but have never worked for pro sports clubs and I’m no FFP expert.

 

[Skills]

Precisely. Can you imagine if they ever revealed their true spend, people concentrate on the eye watering transfers but they've sunk multiples of that into the broader club & then multiples of that multiple into the City Football Group.

Plus all the money they're most likely paying off the books as gifts in the UAE, where it's not possible to audit them.

 

[duffer]

How do you get into £1.5bn debt while keeping within FFP guidelines?

Typically you don't.

FFP guidelines were not a thing when Roman took over and lent himself a load of money.

 

[Jericho]

If RA ever gets bored and sells up are they basically fecked?

 

[ZolaWasMagic]

So I'm reading a few articles about Chelsea's debt to RA is now over £1.5b since he took over, yet Chelsea are debt free because Roman owns both the parent company who lent the money (Fordstam Ltd), yet the loans are going to be repaid to Camberley International Inv Ltd (also owned by RA) to clear the debt. I get that part. But as Chelsea don't have the money to pay off the debt, I'm struggling to get my head around how they've managed to do this and how are the "debt free" when they've been granted all this money by their owner, which I thought was against Fifa / Uefa rules

Its kind of debt free because if Abramovich sells the club, which i dont see happening for yrs, he'd have to repay himself out of the proceeds. I suppose he kind of owes himself the cash

The company which owns the club, is 100% owned by Roman, that company owes the holding company, again 100% owned by Roman, £1.5bn . ie. he owes himself money. I'm sure hes written some of it off, too

 

[ZolaWasMagic]

If RA ever gets bored and sells up are they basically fecked?

No. If sold, he has to pay himself back out of the money he gets for selling. Im almost sure of it.

Plus, him selling just isnt happening anytime soon

 

[finneh]

If RA ever gets bored and sells up are they basically fecked?

Not really... In theory the club should be at least as valuable as the sum of its parts so stripping assets would be worth less than just selling the club... and selling the club would effectively just be paying back a portion of his own investment.

If he changed tack to for example a Glazer style model, whereby he wanted to take for argument's sake £60m out of Chelsea every year; it would likely be at the expense of a similar figure in annual Champions League and sponsorship revenue, (since Chelsea aren't able to generate United's revenue).

Effectively even from a strictly business perspective the best way to protect his £1.5b investment is to run Chelsea in a way that would see them regularly qualify for the Champions League which maximises sponsorship revenue and continues to make great profit from academy players; or to sell the club.

Unless of course he sold to someone who's business model involved borrowing large sums against the business to raise the capital.

It would be a bit different if Chelsea weren't close to a sustainable business though (like Man City). If City's owners departed they would take the a huge chunk of City's sponsorship revenue with them, as well as tens of millions in employee wages returning to City's books from the holding company (or having to be replaced). The drop in sponsorship money would require a fire sale of players, which would result in lost TV revenue, which would require further player sales (and so forth). Given their investment though it's difficult to see them leaving before City become sustainable.

 

[Pronewbie]

He's been an amazing Sugar Daddy for Chelsea. If he writes off a portion of the debt it'd cement his legacy. My guess is he will.

 

[Gringo]

Deserves a statue

 

[Harry190]

It's his club man. He does what he wants with his money he stole.

 

[arthurka]

It's his club man. He does what he wants with his money he stole.

Exactly who gives a shit about some old Russian people not having any money in their savings account when you can have a bunch of overpaid footballers running around financed by your hard work and labour.

 

[pratyush_utd]

Being in debt isn't against the rules.

The FFP rules are about spending compared to income, not debt.

Do Chelsea pay interest on this debt?

 

[duffer]

Do Chelsea pay interest on this debt?

No.

 

[Jippy]

I’d assume “signing” a player is regarded as a capital expense (ie you can take out “loans” to sign players) but wages being paid to said player, is an operational expense. IE income to expenses is calculated at revenue less wages, signing fees are not taken into account.

Players “purchasing fees” I assume though, are amortise/depreciated over the lifetime value of their contact, so that too, gets taken into account as an “expense”. Hence, they can be in debt because RA “loaned” them money to sign players, but spending £100m on Lukaku doesn’t factor into FFP. Only £100m/6 (assuming a 6 year contract) plus his annual wage, is an “expense” in any given year. That’s FFP and the loan would still be “outstanding” in the books unless they’ve repaid it.

FFP = income statement
Loans = Balance sheet

That’s what I assume at a high level anyway. I’m a CA, but have never worked for pro sports clubs and I’m no FFP expert.

Your Lukaku example would explain one of the reasons FFP has had such little impact if you can just spread the fee across the duration of the contract. If you extend the contract, could you keep cutting down the annual amount then?

 

[King Kendrick]

Your Lukaku example would explain one of the reasons FFP has had such little impact if you can just spread the fee across the duration of the contract. If you extend the contract, could you keep cutting down the annual amount then?

while im not a football accountant, it should only be on the original contract. if you lease a car, for example, you amortize it over the extent of the original contract, regardless of extending said contract.

 

[bringbackbebe]

What Abramovich cares about is increase in value of Chelsea, not cashflow - same as City. He purchased the club for $0.2b, spent $1b on net spends and the club is now valued at $3.2b according to forbes if he sells it. That's a 9% return on investment compounded a year for 18 years. How many assets have outperformed this?

 

[Champ]

Do Chelsea pay interest on this debt?

Isn't the issue that they just don't pay the debt, at all?

 

[We need an rvn]

why would it be against the rules for the owner to give them money?

anyway even if it was against the rules it doesn't matter, he's a dodgy cnut and money always finds a way

I thought that was exactly what isn’t allowed as otherwise why wouldn’t these super rich owners just give them £1b in cash to spend on players.

the clubs can only spend what they earn via revenue…which is why this debt thing is a way around it

 

[marktan]

I thought that was exactly what isn’t allowed as otherwise why wouldn’t these super rich owners just give them £1b in cash to spend on players.

the clubs can only spend what they earn via revenue…which is why this debt thing is a way around it

Loans are allowed but it's the club losses that aren't allowed. In that sense giving money directly and loaning money as debt from the owner is the same thing as it makes no difference to the underlying cost of running the club, signing transfers, wages etc, it's just a way to pay for any losses. Most of Abromovichs money to Chelsea pre-dates FFP I believe when they ran up larger losses.

Now I believe you're allowed a certain amount of losses across three years and then no more to not breach FFP. For example Everton spent a shit load Moshiri in his first 3 years, and are now having to bargain hunt since they can't make any big signings as they've hit the loss limit. This all from memory though so may not be 100% accurate, not sure if Corona has changed the picture or not as a lot of clubs have registered larger losses than usual over the last year.

The better way around it is to just get companies you own to sign dubious sponsorship deals to the club, which is what City do. That way it shows up as revenue. In theory you're not meant to be allowed to do that anymore but City still do and no one wants to deal with all the legal headaches cballenging it.

 

[LoneStar]

How rich is this guy, that he can afford to loan 1.5B to a football club?

Aren't United valued at 3-4B?

 

[::sonny::]

When he will sold the club, the club have to pay

Same thing with City

 

[::sonny::]

Do Chelsea pay interest on this debt?

no

 

[Ish]

Your Lukaku example would explain one of the reasons FFP has had such little impact if you can just spread the fee across the duration of the contract. If you extend the contract, could you keep cutting down the annual amount then?

It should technically be over the original contract (as the value was attached thereto), so renewing the contract should only “change” the amount of wages each year, but on this one I am unsure because I’m not sure if the use revaluation methods and estimates to reassess player values on the balance sheet. I would assume not because then it becomes rife for manipulation.

 

[Lastwolf]

So I'm reading a few articles about Chelsea's debt to RA is now over £1.5b since he took over, yet Chelsea are debt free because Roman owns both the parent company who lent the money (Fordstam Ltd), yet the loans are going to be repaid to Camberley International Inv Ltd (also owned by RA) to clear the debt. I get that part. But as Chelsea don't have the money to pay off the debt, I'm struggling to get my head around how they've managed to do this and how are the "debt free" when they've been granted all this money by their owner, which I thought was against Fifa / Uefa rules

The majority of it is historic, even if City didn't prove it's mostly toothless, the UEFA/ FIFA Rules only bother to look at 3/5 year windows, after that it's only what's affordable and "reasonable". I'm pretty sure the buts of the billion was generated before FFP, it was 578m in 2008 and seems to be growing 100m or so a year.

Debt isn't that big a deal as long as you can afford the finacing, since it's interest free, it's just about not making massive losses to stay in line with FFP.

 

[Zen86]

It'll be funny when Roman eventually calls those loans in.

 

[captain666]

How rich is this guy, that he can afford to loan 1.5B to a football club?

Aren't United valued at 3-4B?

He still has around 14B to play with

 

[Flyer1]

When he will sold the club, the club have to pay

Same thing with City

Wrong, city are completely debt free and don't owe anyone a thing including the great man.
These clubs with huge debts get around ffp because they helped design ffp, the theory being they can carry and service the debt, h nice utd, Barca, Chelsea etc don't get sanctioned.
My question is how much debt needs to be saddled onto the club before it becomes an ffp issue?
Barca got to a billion or so, utd around half a billion and Chelsea owe the crook around 1.5 billion but that's just fine, nothing to see!
Is it fair if a club runs up a billion in debt buying players? Is it fair to get handouts from the Spanish league or govt to buy players?

 

[TheLord]

From the opposition fans' perspective, I don't think there's a better football owner today than Abramovich.

I don't know too much about the Sheikhs as they haven't been that long. In comparison, our Glazers are parasites.

 

[duffer]

It'll be funny when Roman eventually calls those loans in.

People have been saying stuff like this for nearly 2 decades now.

 

[Jippy]

It should technically be over the original contract (as the value was attached thereto), so renewing the contract should only “change” the amount of wages each year, but on this one I am unsure because I’m not sure if the use revaluation methods and estimates to reassess player values on the balance sheet. I would assume not because then it becomes rife for manipulation.

while im not a football accountant, it should only be on the original contract. if you lease a car, for example, you amortize it over the extent of the original contract, regardless of extending said contract.

Thanks, that makes sense.

Separate issue, but would be interesting to understand how clubs value their own players and factor that into their accounting.