Chelsea, a June 30 ‘transfer deadline’ for domestic sales and why it really matters
Todd Boehly and Behdad Eghbali have a lot of work to do this summer. Chelsea’s struggles on the pitch in their first season of ownership have exposed that the most expensive squad in football history still has a number of glaring holes in it — not least the lack of a striker who can be relied upon to score even semi-regularly.
More signings will be needed and the ownership will hope not to be scrambling in the final hours of deadline day on September 1 to secure key targets, as they were in the successful pursuit of Enzo Fernandez in January. Before then, however, Chelsea will have in mind another date that may act as a transfer deadline of sorts for them, if not for anyone else: June 30.
That is the cut-off date for any player sales to be booked in the club’s accounts for 2022-23 — the season that covers Boehly and Clearlake Capital’s eye-watering commitment of more than £500million ($626m) on transfer fees across two windows, so far only modestly offset by the departures of Timo Werner, Emerson Palmieri, Jorginho and Billy Gilmour for approximately £59m. While not yet officially confirmed, the 2023 summer transfer window in England is expected to open in the second week of June, giving Chelsea around 20 days to finalise domestic sales (most of the other major European leagues do not open for transfer business until July 1) that will help their books.
As things stand, Chelsea are poised to make a sizeable loss on player trading in this year’s books. That is a significant problem because, for much of the second half of the Roman Abramovich era, profit from player sales was a key part of the business model that mitigated the club’s overall losses, ensuring compliance with UEFA’s financial fair play (FFP) regulations as well as the Premier League’s profit and sustainability rules.
Chelsea have reported overall losses totalling £343m over the four years of published accounts up to 2021-22 (a figure that includes significant revenue loss due to the COVID-19 pandemic), despite making £354m profit on player trading over the same period. These startling numbers provide an indication of how much more perilous the club’s road to FFP compliance will become if they remain significantly in the red on player trading.
It must be noted that football club finances are extremely complex and published accounts filed with Companies House are snapshots of the recent past rather than reflections of the present or projections of the future. As such, only Chelsea’s accountants know the full, up-to-date picture of what needs to be done between now and the end of June to stay on the right side of FFP.
But there is a growing perception within English football that there may be a fire sale at Stamford Bridge in the final days of June and rival Premier League clubs are monitoring the situation in the hope of exploiting it. A significant Chelsea clearout is inevitable this summer, primarily because a first-team squad bloated under Thomas Tuchel last summer ballooned to the point of being utterly unmanageable under Graham Potter in January.
The club’s official website lists 31 players on its first-team page — a number that does not include academy graduate Lewis Hall, who has started four Premier League games this season, or a lengthy list of loanees that features Ethan Ampadu, Levi Colwill, Malo Gusto, Andrey Santos, Romelu Lukaku and Callum Hudson-Odoi. Christopher Nkunku is also joining from RB Leipzig in a deal agreed last summer.
Six players in the squad and four loanees are about to enter the final year of their contracts, headlined by Mason Mount, Mateo Kovacic and Christian Pulisic. Another seven will have two years left at the end of this season — the point that Boehly and Eghbali want to establish as the threshold for tying players to contract extensions or selling them. That group includes Kai Havertz, Conor Gallagher and goalkeepers Kepa Arrizabalaga and Edouard Mendy.
Chelsea players nearing free agency
Chelsea officials insist the club are relaxed about the situation. They point out that in January and last summer they chose not to sell a number of players who attracted real interest from around the Premier League and clubs in Europe and there is confidence suitors will once again present themselves this summer.
That confidence looks particularly well founded with regards to academy graduates Mount and Gallagher, who would represent pure profit in the accounts if sold. But in those and other potential negotiations, what incentive do buying clubs have to work to a June 30 deadline? Brinkmanship is the dominant language of the transfer market and if suitors get the impression that delaying might pressure Chelsea into lowering their asking price, that is what they will do.
Chelsea would hope to raise north of £100m for Mount and Gallagher if they decide to sell both. They are demanding £70m for Mount alone, which seems optimistic for a player who is entering the final year of his contract. Lofty player valuations tend not to lead to quick transfers and the coming transfer window will follow a miserable season in which almost no player at Stamford Bridge has increased their value.
Beyond the end of June, the situation looks no simpler. Trimming the wage bill of several large Abramovich-era contracts is also desirable for Boehly and Eghbali — not least ahead of a season in which Chelsea’s revenue is likely to take a massive hit from failure to qualify for any European competition — as they strive to implement a more incentivised salary structure. Yet doing so will require either the players in question to accept pay cuts to leave Stamford Bridge or interested clubs to pay them at the same level.
The current landscape of the transfer market is not amenable to the latter scenario. January underlined that Europe’s other major leagues have been left far behind in the financial wake of the Premier League. Significant transfer fee commitments from Spanish, Italian and German clubs are increasingly rare and many of those in the Champions League simply cannot even afford to match the higher-end wages offered by English top-flight clubs outside the traditional ‘Big Six’.
Brexit has also complicated selling from the Premier League to mainland Europe. English footballers count as ‘non-EU players’ for the purposes of squad registration rules and Serie A clubs, for example, only have two such slots, limiting the opportunities to do more deals like selling Fikayo Tomori to AC Milan and Tammy Abraham to Roma.
Real Madrid, Paris Saint-Germain and Bayern Munich still very much can pay top salaries but their appetite for signing expensive cast-offs from the likes of Chelsea, Manchester City and Manchester United is limited. Mid-tier Premier League clubs are better equipped, though the remarkable recent successes of Brighton and Brentford in building squads through smarter, cheaper overseas recruitment is a more attractive model for many to try to emulate.
In reality, the markets that develop for players like Kovacic, Pulisic and Hakim Ziyech are unlikely to be broad and the transfer fees offered are unlikely to come anywhere near what Chelsea paid to sign them in the first place. Fortunately, they do not need to be in order for these sales to be recorded as profitable transactions in the books.
For anyone not yet acquainted with how football clubs account for player trading, when a footballer is bought their transfer fee is spread evenly across the length of his contract (a process called amortisation), but when a footballer is sold the entire transfer fee is registered immediately in one lump sum — minus his remaining amortised value in the books.
So if a player is signed for £40m on a five-year contract and sold three years later for £20m, the club records a £4m profit: the sale price minus £16m, his remaining book value on the final two years of his deal. That, coupled with the accounting benefits of lowering overall player amortisation and the wage bill, means it is often more worthwhile for clubs to sell players even at heavily discounted prices than many people would assume.
The table below shows the estimated remaining book values of the Chelsea players in the final two years of their current contracts, based on their reported transfer fees. Most are either almost fully amortised or, in the case of the Cobham graduates, cost nothing to acquire (and subsequently their book values are listed as ‘N/A’). Selling these players for anything more than the figures listed this summer would count as a profitable player transaction.
Book values of pending free agents
None of the above figures appear insurmountable obstacles to potential summer sales. It is very different in the case of Lukaku, however, who has three years left to run on the five-year, £340,000-a-week contract he signed as part of his disastrous £97.5m transfer to Chelsea from Inter in the summer of 2021. His remaining book value should be £58.5m, far beyond what any club would pay for a 29-year-old who has missed almost as many matches due to injury as he has played on loan at his former club this season.
There is one other accounting technique to note at this point: if a club deems a player’s value is less than what is listed in the accounts and there is a legitimate reason — such as serious injury or a player falling out of first-team favour — it can book a one-off impairment charge. This reduces the player’s remaining amortised value for future years, provided that auditors agree to sign it off. Is your head spinning yet?
It is complicated but important to bear in mind, since Chelsea reported a huge £77m player impairment in their 2021-22 accounts, without specifying which players had their book values reduced. It is very possible that some of the club’s worst recent signings, most notably Lukaku and Kepa, are part of that figure.
The big picture is a challenging one for Chelsea. Respected football finance analyst Swiss Ramble estimates the club are around £92.5m over UEFA’s allowable loss limit for the current FFP monitoring period, and will therefore require Europe’s governing body to grant allowances for revenue lost due to UK Government sanctions in 2022 and the player impairment — unless there are additional player sales prior to June 30 that improve the situation.
Of course, it may be that Boehly and Eghbali are privately not all that concerned about failing to comply with FFP; the latest round of fines imposed by UEFA on PSG, Inter and Juventus among others as part of settlement agreements in September 2022 were not particularly onerous. If you are determined to leave everyone else in the dust, a speeding ticket is a small price to pay. The prospect of actually being kicked out of European competition for excessive spending — whenever it is that Chelsea qualify again — does not appear to be a realistic outcome.
That said, the consistent public position of Chelsea’s new owners has been that they intend to remain compliant with FFP and are confident they will be able to do so. With that in mind, any Premier League clubs interested in players in Frank Lampard’s massive first-team squad will be paying very close attention to what happens in the days leading up to June 30.
(Top photo: Clive Rose/Getty Images)