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FootballChelsea’s debt write-off raises doubts over future

Chelsea’s debt write-off raises doubts over future


By Nick Harris

30 December 2009

Chelsea continue to lose money at a greater rate than any other football club in England, with today’s financial figures showing a £44.4m loss for the year 2008-09. That news was made worse by a reduction in income over the period, down year-on-year from £213.1m to £206.4m, at a time when Chelsea’s main rivals Manchester United and Arsenal are improving their results each year and making big profits.

Chelsea’s natural reaction to the poor figures was to put some heavy positive spin on them in their official press release. It said: “Chelsea FC plc today (Wednesday) announced that as of its year end 2009 virtually all outstanding debt has been converted into equity and the company is now effectively debt free. The group also announced reduced losses for the fourth consecutive year.”

Those reduced losses mean that Chelsea are now losing only slightly less than the one-year £49.5m loss that sank Leeds; and that Leeds deficit remains the biggest one-year loss in English football, apart from multiple and bigger one-year losses by Chelsea. They have posted a variety of £80m-ish losses, then £65.7m last year, now £44.4m. In that sense, they are heading in the right direction.

As with much of the business at Stamford Bridge though, there are contradictions. Roman Abramovich has written off £340m of debt so the club can now pronounce itself virtually debt free. But there has been no convincing explanation as to why. Chelsea’s chairman Bruce Buck said: ‘The club’s debt load has been reduced almost to nil in order to provide more long-term stability for the club. The reduction will also enable the club to comply with any regulations on debt levels which are being discussed by the football community.”

This is a red herring. Abramovich wiping his debt gives no more stability. If he walked away and demanded “the club” give him his £340m, it would be unable to do so because it doesn’t have the money. The only way he’ll get that cash back is by selling all the assets (players, stadium, land), and that won’t make him as much as selling the club as a going concern. And now it’s a debt-free going concern. As for regulations, Uefa hasn’t even announced what these regulations are going to be when they supposedly come into force in 2012-13, let alone worked out how it will overcome the inevitable legal challenges that will water them down.

Chelsea’s chief executive, Ron Gourlay, said, sounding not unlike Peter Kenyon: “It is still our aim to be self-sufficient and we will achieve this by increasing our revenues as we continue to leverage off our brand. We are reducing our costs by controlling expenses, including salaries and wages.”

The only problem with that is that Chelsea’s revenues are going down, not up, and that was in a season (08-09) in which they were one place off the Premier League title, Champions League semi-finalists, FA Cup winners, and expanding their “brand” into China and other new markets. They cannot match Arsenal or United in terms of stadium capacity and have given up on the idea of moving. They have the biggest Premier League wage bill by far yet no title for three years and no European glory, and they are still losing tens of millions per year.

It makes no business sense for Abramovich to wipe his loans now, apart from it being business sense to be in possession of an asset he can tout to buyers as debt-free. If he’s wiping the debt now because he loves the club and wants it secure, that raises two questions.

Why didn’t he do it long before now?

And what’s he making it secure for – the day he walks away?

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