Chelsea report big financial loss

The authoritative Swiss Ramble reports on Chelsea’s 2018/19 financial results, including an explanation of why they reported a £102m pre-tax loss. The Zurich-based analyst notes, 'Chelsea swung from £67m profit before tax to a £102m loss. a huge £169m deterioration. Although revenue slightly increased by £3m (1%) to a record £447m, the damage was done by profit on player sales falling £53m to £65m and expenses rising by a hefty £119m. Loss after tax was £97m.

He continues, 'Unsurprisingly, Chelsea's £102m loss before tax is the highest reported to date in the 2018/19 Premier League and significantly more than the worst reported in 2017/18 (Crystal Palace £36m). Both Manchester clubs posted profits: United £27m and City £10m.'

'The £102m loss was their second biggest ever, only surpassed by £140m in 2005. It follows two consecutive profitable years: £16m in 2017 and £67m in 2018. This season should be better, due to the return to the lucrative Champions League and the sale of Eden Hazard to Real Madrid.'

Commercial income increased £15m (9%) from £165m to £180m, but there were reductions in the other revenue streams, mainly due to impact of playing in Europa League instead of Champions League: match day down £7m (10%) from £74m to £67m and broadcasting £4m (2%) lower at £200m.

Reporting from one of Europe's leading financial centres, the Swiss Ramble states: 'The loss would have been even higher without £60m profit on player sales, mainly from Thibaut Courtois’ move to Real Madrid. This is the highest reported in the Premier League to date, ahead of City £39m and United £26m, but it is only around half Chelsea’s £113m in 2017/18.'

As has been noted in previous reports from this page, player trading is becoming an increasingly important source of income to leading clubs across the world. You can make good profits, but also big losses. Above all, it is a volatile source of income so it is unwise to depend on it too much.

Nevertheless, player trading remains extremely important for Chelsea. In fact, five of the 15 highest ever profits in the Premier League from this activity have been delivered by Chelsea. The Swiss Ramble emphasises, 'Chelsea's business model is far more reliant on player sales than any other major English club. In the last six years, they made a hefty £398m from this activity with only Tottenham Hotspur and Liverpool anywhere near them (£265m and £260m in five years).'

Providing further detail, he states: 'Profit from player sales has had an increasing influence on Chelsea. Between 2010 and 2013, they averaged £15m profit from this activity, but this more than quadrupled to £66m in the six years since then. Excluding player sales, Chelsea’s 2019 loss would have been a massive £162m.'

'Figures were hit by £27m for the exit of Antonio Conte and his coaching team (including legal costs), compared to £6m prior year to buy retail and merchandising rights. Total £234m in last 15 years, mainly £96m for sacked managers and £93m for early termination of shirt deals.' [WG: The sum for sacked managers strikes me as rather a lot, but it could be argued that it has been the Chelsea path to success. Hopefully Frank Lampard will usher in a period of stability.]

Chelsea have grown revenue by £118m (36%) in the three years since 2016, mainly commercial £63m and broadcasting £57m, with match day relatively flat. Chairman Bruce Buck described the revenue growth as “consistent”, but worth noting that the 2019 increase was only £3m (less than 1%).

{WG: Chelsea really need a new stadium, but the costs on such a constrained site are high and such projects inevitably fall behind schedule and go over budget]. In this connection, 'match day income fell £7m (10%) from £74m to £67m, despite staging two more home games due to the Europa League run. They are now only the fifth highest in the Premier League, outpaced by United £111m, Arsenal £99m, Liverpool £81m and Spurs £71m.'

Chelsea earned €46m (£41m) from Europe for winning the Europa League, a fair bit less than the €65m they got for reaching the Champions League last 16 in 2017/18. However, this was the highest distribution in the Europa League, €7m more than beaten finalists Arsenal €39m.

Despite winning the Europa League, Chelsea's €46m was only around half the €93m that the two Manchester clubs received for reaching the Champions League quarter-finals. Winners Liverpool €111m and finalists Tottenham Hotspur €102m earned €55-65m more, underlining the importance of Champions League qualification. Despite not qualifying for Europe in 2016/17, the club have earned an impressive €220m from Europe in the last five years, within striking distance of the two North London clubs and Manchester United, though a fair way behind Manchester City €337m.

Since 2016 commercial income has increased by 54%, which is the highest to date in the Premier League. The absolute £63m rise is better than both City £49m and United £7m, where growth has stalled.

Average attendance down 3% from 41,482 to 40,436, partly due to reduction in capacity to improve access for disabled supporters and away teams not taking up their allocation. Only 8th highest in top flight (4th best in London).

The wage bill surged £42m (17%) from £244m to £286m, which means an increase of £66m (30%) in the last two years. The wages to turnover ratio worsened from 55% to 64%. Total directors’ remuneration more than doubled from £916k to £2.257k.

Chelsea only have £79m debt in the football club, though it should be noted that the holding company, Fordstam Limited, has £1.5 bln of debt in the form of an interest-free loan from the owner, theoretically repayable on 18 months notice.

Since Roman Abramovich acquired the club, he has put £1.2 bn into Chelsea (including a chunky £247m in 2019), split £876m loan and £350m share capital. Most of this funding has been seen on the pitch with a massive £1.1 bn (83%) spent on players (net).

The chairman Bruce Buck said, 'the club is well placed to sustain its pursuit of success both on and off the pitch, as well as maintain its financial stability over the coming years.' The Swiss Ramble's parting shot is 'This is true, but the strategy still relies on player sales and Champions League qualification.'