Chelsea may be facing an existential threat

THE SUMMER of 1976 was a very warm one, but the event that made Chelsea fans extremely hot under the collar was the news the club was in dire financial straits and on the brink of extinction. For young fans, it was heartbreaking news, but nobody could really imagine Chelsea Football Club going under. Thankfully they didn’t, but they endured a lost decade before the Blues could really smile again.

The news today that Roman Abramovich, the club’s Russian owner, has been sanctioned by the UK government is even more catastrophic than the headlines of 1976. There is every possibility that, if  the war in Ukraine is prolonged and becomes even nastier, Chelsea could become a zombie club, unable to operate, unable to attract a cash injection and banned from selling assets. Abramovich has supported the modern Chelsea for 19 years, pumping in money when the cash flow demanded it, funding big transfers, paying top dollar to the men wearing the famous blue shirts. While the money is there, such a business model can exist unless something unexpected happens.

For years, opposition fans have predicted a collapse into non-league if Abramovich was to suddenly get up and leave, taking his wealth with him. The man himself was probably never likely to do that, but external events were a danger that nobody really factored in. But then, the world never really listens to warnings – the covid pandemic was predicted for years by people at the World Economic Forum, but everyone looked the other way. Roman may have been Russian, but ask any Chelsea loyalist and they would have replied, “yes, but he’s a decent Russian.”

Everyone knows the man or woman on the Moscow omnibus has nothing to do with the ambitions of Vlad Putin, but Russia has become a social pariah. It’s a comical reference, but there’s nothing to laugh about, the world is tip-toeing closer and closer to oblivion.

Therefore, it is difficult to exclude Abramovich from sanctions, not because he’s involved in football, but because his wealth was made within a corrupt, opportunist system and for all his hopping around the world to steer clear of Russia, the company he partly owns could be making the steel needed by the military. Football loves a bit of schadenfreude and Arsenal, Liverpool and Manchester United fans, among others, will lap it up, but the most staunch Chelsea fan would surely agree that some things are more important than football. It is in extremely bad taste that one pundit has encouraged Thomas Tuchel to quit Chelsea and head for Manchester United.

Of course, the announcement makes for good PR for the UK government – they’re nailing Abramovich, a person they’ve never warmed to, and one they know has had close links with the current enemy of all people. At the same time, they have permitted the club to operate under a license, but how long this will remain effective is anybody’s guess. The club cannot sell new tickets, but season ticket holders can attend games. They cannot sell anything, they cannot spend more than £ 500,000 per game on hosting games and their travel bill cannot exceed £ 20,000. As for the next round of the Champions League, if they get through that is, they may have to be play behind closed doors. The effect on morale at Chelsea should not be underestimated, though, as there could be a very negative impact from all the uncertainty, not to mention the squeeze on finances.

The club’s wage bill is £ 28 million per month, so they will need to draw on cash reserves at some point, and it is not an infinite pot. They could run dry and have no way of replenishing funds. In a worst case scenario, Chelsea could have a cash flow problem that cannot be solved. There is the possibility of contagion, too, with the club’s shirt sponsor Three, suspending its deal.

One can only hope – if you’re a Chelsea fan – that the UK government allows a sale to go ahead, but they’ve made it clear Abramovich will not get a penny of the proceeds. There seems, at this time, Chelsea’s owner will have to write-off more than the £ 1.5 billion loan he didn’t want back. The government will not want to be responsible for sending any club to the wall, so it is likely a solution will be found – the club is looking for some adjustments to the license – before the gates have to be locked. It does seem as though the golden age is over, and although Chelsea fans might consider it harsh, a bit of perspective is needed in this very worrying time for the world.

Barca, Messi and a big warning to football

IT IS not easy to be sympathetic to a club that makes a billion but still cannot afford its best player, indeed the world’s leading footballer. Lionel Messi has had to be sacrificed to ensure his employer gets through some dire financial problems and keeps within the law of La Liga. And with Messi’s departure from Barcelona, there is a collapsing deck of cards situation emerging. In short, if this was not Futbol Club Barcelona, we may be reading the obituary of a great football institution.

Because we are talking about a body that is Més que un club, it is unlikely anyone is going to be responsible for sending them to the wall, but Barcelona at present are having a major crisis that includes liquidity, debt and confidence. The news that Messi had gone was greeted with mild hysteria in Catalonia, with fans weeping outside the Camp Nou, shell-shocked and shaking their heads in disbelief. But nobody can say it wasn’t coming, the football world had a sneak preview a year ago.

Bullies

Now it would seem Messi is probably heading for Paris to join the world’s biggest flat-track bullies, Paris Saint-Germain. He has, of course, already turned down before, but in truth, there is only two or three clubs who could afford Messi and they all happen to be those owned by states or ultra high net worths with plenty of disposable cash. 

Quite how a club like Barcelona discovered their debt problems were much worse than first advised is a mystery. These hidden pools of murky debt should make any Barca fan worry – this is not a complex financial institution reliant on shadow markets or desks of testosterone-drenched traders, this is a football club – how deep do the chasms actually go? The comment made by the club’s president, Joan Laporte sounded like something from the 2008 financial crisis. If the club’s financial department have not been aware of the scale of the problem, surely some heads should be rolling?

Laporte currently resembles a bank CEO who has inherited a basket case, but he’s been very candid in informing the club’s fans that “continuing the relationship [with Messi] means jeopardising the future”. If a new contract for Messi had been implemented, even at its agreed knock-down rate, then Barca’s outgoings would still represent 110% of income, a figure the Spanish league could not possibly tolerate. Furthermore, the club’s losses, apparently, could run to almost € 500 million rather than the previously estimated € 200 million. 

Clearly, Barcelona have been pole-axed by the unexpected event that was covid-19, but the problems have been building long before the virus developed. Most people believe it was the transfer of Neymar to Paris Saint-Germain that began the spiral. Barcelona were almost bullied by PSG and there was something of a loss of face in the departure of one of the world’s top players to a club long considered inferior to Barca. 

The response to the loss of a headline-maker like Neymar triggered off hasty and misinformed activity in the transfer market under president Josep Maria Bartomeu. It didn’t help that every other club knew Barca had cash on the hip that was burning a hole in their pockets. Ousman Dembéle was signed from Dortmund for a fee that could have risen to € 150 million, Philippe Coutinho went from Liverpool to Barca for € 160 million and Ajax’s young star, Frenkie De Jong, was secured for € 75 million. And then there was the € 120 million acquisition of Antoine Griezmann that has really yet to bear fruit. While some of these signings seemed extravagant, the swap of a potential-rich Arthur Melo for Juventus’s 30 year-old Miralem Pjanic looked like a convenient piece of book-keeping. Another strange move was the signing of Martin Braithwaite from Leganés when Luis Suárez was injured, hardly a like-for-like addition to the squad. Between 2013-14 and 2019-20, Barca spent around € 1.1 billion in the market, about € 200 million more than their rivals, Real Madrid. This summer’s new boys have largely been free transfers, a very graphic illustration of how far the club has fallen.

Messi was hoping that Bartomeu would try and lure Neymar back to Barcelona, especially as the player had told his former team-mate he wanted out of the French capital. It never happened even though Barca gave the impression they were negotiating with Neymar, but how would they have paid for such a deal? Messi didn’t buy it and a year ago, he told Barca he wanted a move. The fact is, at the heart of Barca’s problems was meeting the extraordinary salary paid to Messi, so they started to trim back their squad to relieve the wage bill. Hence, Suárez was no longer wanted.

Messi, as we all know, is a phenomenal player who has few equals in the history of the game, but the older he got, the more unhealthy the over-reliance on the Argentinian became. As Barca’s squad aged and the star quality started to fade, Messi has found himself ploughing a lonely furrow – he always looks like he’s got the weight of a nation on his shoulders. He scored 30 of Barca’s 85 goals in La Liga in 2020-21, the club’s lowest tally for years. Since 2017, Barca have lost 31 goals and 27% of the total scored in 2016-17.

Red flags

Laporte rightly says that Barca’s financial position would be in dangerous territory if they had accommodated Messi, but Brand Finance estimates the Barca brand would also be negatively impacted by his departure, by around 11%. Given Messi is so synonymous with the Barca name, commercial revenue, matchday income and merchandise sales would all be compromised. A good example of how the loss of a talismanic player can affect a club’s value was seen only a few years ago when Cristiano Ronaldo departed Real Madrid – their brand lost 19% of value. 

There’s a huge message for the rest of big-time football in the plight of Barcelona. When things are going well, the spending and the huge wage bills can be accommodated, but when there’s a problem, the business models of even the biggest clubs are tested, they simply don’t have margin for error. Messi has been priced out of the market, he’s too expensive for the vast majority of clubs, especially in the current climate. Nobody can blame a professional from getting the best deal out of any job, but if the money’s not there and its killing your employer, serious questions have to be asked about the sustainability of such lucrative jobs. The clubs that have been insulated against the pandemic include those that are effectively outside the conventional corporate model – in other words, PSG, Manchester City and Chelsea. What has happened at Barca should terrify the industry and, if people truly care about football, prompt some adjustments to the financial management of the biggest clubs, who are really systemic institutions that should behave responsibility. For Barca, the events of the past week or two will not only wave red flags, there should be a few red faces around the Camp Nou at the moment.

@GameofthePeople / Photo: Alamy

Football’s bubble is slowly bursting

THE long era of growth enjoyed by football looks to be coming to an end judging by the recently published Deloitte Review of Football Finance for 2021. With broadcasting revenues possibly peaking, wages flat-lining, lost revenues due to the covid-19 pandemic, not to mention other concerns around club stability and the moral obligations of the game, the sport may have passed what could be looked at as a golden age.

The European football market contracted by 13% in 2019-20 with overall revenues falling by € 3.7 billion to € 25.2 billion. This was the first decline in income since 2009. All football leagues were affected by the pandemic, but the big five European leagues saw their income decline by 11%.

Furthermore, the disruption to world football has, at long last, slowed-up the growth in player wages, which have been on a dramatic upward spiral for the past 20 years. In the Premier, total wage bills for 2019-20 were £ 3.3 billion, compared to £ 3.2 billion in 2018-19. But with revenues declining, the wage-to-income ratio rose by 12 percentage points to 73%, higher than UEFA’s recommendation. A total of 14 clubs from the Premier exceeded this limit.

How long can clubs continue to pay wages at such a level? Not only is the Premier League, for all its wealth, treading a dangerous tightrope, but it also encourages clubs below the Premier to spend way too much. In 2019-20, the Championship paid out £120 for every £100 earned, while League One and Two have ratios above 70%.

With the exception of Germany’s Bundesliga, which has a ratio of 56%, all of Europe’s major leagues are paying out far too much. France’s Ligue 1 is in the midst of a serious economic crisis and has a ratio of 89%. France’s situation also highlights the over-reliance on broadcasting revenues. Ligue 1’s deal with MediaPro was cancelled in December 2020 and they have struggled to fill a big gap, losing more than 40% of revenues from this stream. Similarly, new broadcasting deals are generally lower than the previous cycles, suggesting the days of wine and roses may be coming to an end.

Football has shown it can be vulnerable to market downturns and unexpected setbacks. Many clubs have very little put aside for a rainy day and have been exposed. The Premier League made a combined pre-tax loss of £ 966 million, attributable to a £ 648 million drop in revenues and a £ 126 million increase in wages. Two clubs – Everton and Manchester City – generated losses of well over £ 100 million. Even before the pandemic, profitability was in decline in football and has since proved to be the catalyst for greater cost controls and concepts aimed at creating a more exclusive environment. The transfer market certainly saw the effect of a diminished appetite, with gross expenditure dropping by 40%.

Falling profits obviously had a negative impact on some owners and their business models. While few clubs have changed hands in the Premier – Burnley was one such club that was sold to new owners – the current climate suggests there could be spate of acquisitions in the coming year or two.

All the major European leagues saw their operating profits eroded while some saw their losses increased. Germany saw combined profits reduce by 45% to € 215 million, their lowest level since 2012. Spain also experienced a 60% fall to € 183 million. Italy’s operating losses worsened, from € 17 million to € 274 million, while France’s position worsened by almost £ 270 million to € 575 million.

Deloitte highlighted the growing presence of private investment in football. Between January 2020 and February 2021, the investment flow into US and European sport properties totalled € 7.8 billion, a 50% increase on 2019. As well as long-term commercial partnerships with leagues and federations, private equity and institutional investors have been buying clubs and creating portfolios. Companies like ALK Capital, Silverlake and Elliot Management have all made forays into club ownership. There remains a good deal of suspicion about the motives and practices of investors such as private equity and their involvement has been met with resistance in Germany and Italy, to name but two leagues. The concept of multi-club ownership is also frowned upon, fans believing that it goes against the spirit of the game.

Clubs clearly need cash and in the Premier League eight increased their bank borrowings in 2019-20, including Tottenham and Liverpool, who have borrowed £ 173 million and £ 147 million respectively. No surprise that Premier clubs’ net debt has risen during the pandemic to £ 4 billion, some £ 500 million higher than 2018-19. 

There is a great deal of uncertainty around the finances of football and its clubs and the coming season will surely reveal more hurdles to be encountered. The full cost of covid-19 has yet to emerge and there may still be seismic events that demand innovative solutions. The biggest challenge will be around cutting expenses, including player wages, which represent the biggest outlay at almost every club.

The European Super League, which was a reaction to the crisis as much as a deep-rooted desire by some clubs to squeeze a great share of the spoils for themselves, may rear its head once more as it is an idea that has been rolling around for the best part of 20 years. This ill-judged and ill-timed announcement created a huge rift in the game which may take time to heal, but the manner in which it collapsed suggested a lack of conviction and confidence in the project and in the fragile character of the clubs involved. 

One thing is certain, the football world is a far less stable place than it was two years ago and we may yet see some more serious casualties if clubs lurch into trouble and fall into the abyss. The post-pandemic football world has to learn from the unprecedented events of the past 18 months and must present a united front rather than clandestine schemes that are less inclusive and somewhat self-serving. This may be easier said than done. 

@GameofthePeople

Photo: dom fellowes CC-BY-2.0