How to Spend $1B+; Not Win Champions League

♠ Posted by Emmanuel in , at 4/09/2011 12:58:00 AM
It's time for another weekend feature! Having just visited Battersea Park by crossing Chelsea Bridge, my associational memory was jogged about a brace of articles I read in the Evening Standard that pretty much sum up the elusive quest of Roman Abramovich for a Champions League title for loathsome Chelsea FC. It's surely one of the funner jobs you can have: accountant at Stamford Bridge. Probably the most coveted and richest prize in club football, its theme adapted from Handel's "Zadok the Priest" is likely the most recognizable piece of classical music to run-of-the-mill football fans who are not exactly the last word in cultural sophistication. Meanwhile, Abramovich's example is probably not a highlight of sports management and something tournament organizers want to expunge.

Anyway, the aforementioned publication combed through the finances of Chelsea FC and claims that the Russian oligarch has pumped £740 million (nearly $1.2B) in interest-free loans into it without reaching Abramovich's ultimate aspiration of hoisting the Champion League winner's trophy. Sure Chelsea was a John Terry penalty shootout kick away from winning the title, but a famous slip-up prevented this happy outcome. And so Abramovich has continued spending as well as hiring and firing managers like crazy while adopting a highly interventionist approach to club management. It reminds me of the late George Steinbrenner whose club the New York Yankees always did best when he entrusted the manager and did not meddle so much in club affairs.

Let's just say Abramovich has mowed through managers and wads of cash at a rate that would make Steinbrenner blush. Worse yet, Abramovich has nothing to show for (yet?)
The desperation which greeted Chelsea's Champions League [quarterfinals] defeat to Manchester United deepened today after the club's latest financial figures revealed an increasing reliance on owner Roman Abramovich's wealth. Chelsea's holding company, Fordstam Limited, revealed the club owe just under £739.5million in loans underwritten by Abramovich since he bought the club from Ken Bates in 2003.

It comes after the club announced in January losses of £71m for the year ending 30 June 2010 despite winning the Premier League and FA Cup in that time and spending just £1m net on transfers.None of the figures revealed today include the £75m spent on Fernando Torres and David Luiz in January. That spending is highly likely to be the final throw of the dice in Abramovich's willingness to bankroll Chelsea's pursuit of Champions League glory.
The reason why Chelsea's free-spending ways are likely coming to an end is the 2012/2013 phased UEFA introduction of "financial fair play" rules. It disallows clubs to spend more than they earn in a three-year period. As I have mentioned before, this may still disadvantage clubs of lesser means with smaller revenue bases. Chelsea though will not be able to count on Abramovich-like cash infusions if this rule is properly implemented:
UEFA's Financial Fair Play regulations are set to be introduced from the beginning of the 2012-13 season and require clubs to break even over a three-year period when a club cannot spend more money than they generate...The key figures that UEFA will look at will be the yearly losses, turnover, wage bill and expenditure on transfer fees.

Chelsea's wage bill now represents 82 per cent of turnover - much higher than the 70 per cent UEFA will allow - and does not compare well to other leading clubs; Real Madrid (46 per cent), Barcelona (68) and Manchester United (44). UEFA will allow owners to make up the shortfall between turnover and expenditure to the tune of £38m for the first two years with that figure falling to £26m in 2014 with further reductions thereafter.

It is possible for clubs to strike sponsorship or naming rights deals with their owners to help close the gap but UEFA will test any such agreements to ensure the price agreed is in line with market valuations [to ensure that artificially inflated values don't become the vehicle for cash transfers]. The Blues have implemented a variety of cost-cutting measures but such frugality was at odds with the dramatic deadline day spending that appeared to undermine much of their good work this season.
The latter, of course, refers to splurging for the non-performing £50M in transfer fees man Fernando Torres--whose questionable form has continued since the 2010 World Cup--and the thankfully more impressive £25M defender David Luiz.

If there is one certainty in the run-up to 2012, it's probably managerial uncertainty at Chelsea. You wouldn't bet against Abramovich firing Carlo Ancelotti just a year after winning the Premier League and FA Cup double. Both are fine domestic prizes, but for Roman anything less than a Champions League title is coming up short. See Roman splurge!