This article analyses Chelsea finances in respect of the 2020/21 season.
Season review
Chelsea had an eventful 2020/21 season, with a poor run of form saw club legend Frank Lampard sacked in January 2021. He was replaced with former PSG manager Thomas Tuchel. Improvement was instant, with Chelsea winning its second UEFA Champions League (UCL) trophy and securing a top four finish in the Premier League.
It could have been even better, but Tuchel’s side lost in the FA Cup final to Leicester City.
Despite Chelsea finances being boosted by its UCL triumph, the loss of matchday revenue and a big summer of spending saw losses reach £169m, the highest in Chelsea’s history.
Chelsea Finances – Revenue
Revenue rose from £412m to £437m (6%) as the club’s success in the UCL outweighed a season behind closed doors. Other income fell significantly from £18m to £3.6m (80%). This was due to 2020 including the £18m sale of a subsidiary. 2021 income included £0.8m in insurance claims and £1.1m in Research and Development Tax Credits. Therefore, total income rose from £430m to £440m (2%).
Matchday
Matchday revenue fell from £55m to £7.7m (86%). The return of fans should result in much of this revenue being recovered (subject to any further restrictions in the New Year).
Broadcast
Broadcast revenue rose from £183m to £274m (50%). This was due to two reasons. Firstly, the club’s UCL triumph saw UEFA distributions rise significantly. Secondly, the delay in the 2019/20 season meant that some revenue from that season was deferred into its 2021 financial year. Chelsea 2020 financial year ran to 30 June 2021; however, the Premier League season didn’t finish until 26th July 2020.
Broadcast revenue will fall in 2022 under all circumstances given the absence of the deferred broadcast revenue, however the fall could be much greater depending on Chelsea’s UCL performance. Each round progressed is worth at least £9m.
Commercial
Commercial revenue fell from £175m to £155m (11%). Despite Chelsea benefitting from bonuses gain from its UCL win, the sanitary restrictions imposed in the past year were reduced commercial opportunities, both in terms of sponsorship activation and retail. A new shirt sponsor in Three on similar terms to its previous sponsorship had limited impact on finances. Despite no new major deals, commercial revenue is likely to rise slightly in 2022 as the club welcomes fans back to Stamford which boosts sponsorship activation opportunities.
Chelsea Finances – Revenue summary
Success in the UCL was a huge revenue booster for Chelsea in a challenging year for all clubs. This and the deferred broadcast revenue outweighed the fall in matchday and commercial revenue. With both these revenue streams expected to recover in 2022 (subject to further restrictions), Chelsea’s revenue growth or decline will be predicated on UCL progress.
Chelsea Finances – Operating costs
Operating costs rose from £418m to £456m (9%) following significant investment in its playing squad. Cost growth outpaced revenue growth, hurting operating profitability.
Wages
Chelsea’s wage bill rose from £287m to £334m (16%). This was driven by the new signings, but also bonuses and contract renewals. The wages to revenue ratio rose from 70% to 77%, as wages growth outpaced revenue growth. UEFA recommend a ratio of 70%, which Chelsea is slightly above, however a more ‘normal’ 2022 should see this ratio decline. Several departures in 2021/22 and only one major incoming signing means wages are likely to fall.
The club did not use the Government’s job retention scheme throughout the period.
Other costs
Other operating costs fell from £131m to £122m (7%) as the club saved on matchday costs. It is worth noting a sizeable exceptional cost of £24m was incurred by Chelsea relating to an ‘ongoing legal matter’. The accounts do not go into any more detail of the nature of this legal issue.
Chelsea Finances – Operating costs summary
Significant investment in Chelsea’s squad saw wages rise which increased the cost base of the club despite matchday savings. It is likely that wages growth will be subdued in 2022 or in fact decline given only one major signing in Lukaku and several fringe outgoings. This will help offset the rise in other operating costs due to the return of matchday costs.
Chelsea Finances – Transfers
Chelsea had an expensive transfer season as it saw the opportunity to invest while many clubs were financially fragile. In came Havertz (£72m), Werner (£48m), Chilwell (£45m), Ziyech (£36m) and Mendy for a combined £222m. Departing Stamford Bridge were Morata (£32m), Pasalic (£13m), Nathan (£2.7m). Also leaving on loan were Bakayoko (£1.8m), Sarr (£1.8m), Tomori (£0.5m) and Moses (£0.3m). This led to a net transfer spend of £171m, its highest ever. It is worth noting Chelsea recorded a net transfer income of £101m last season, meaning over the past two years the net spending is a lot more modest at £70m.
Amortisation
Player amortisation rose from £127m to £180m (41%) following the substantial player investments. This £180m includes £18m in impairments. With the club bringing in Lukaku for a big fee, player amortisation charges are likely to increase slightly in 2022.
Profit on player sales
Profit on player sales fell from £143m to £28m (80%) following the reduction in player sales. This was the major cause of its record losses with a £115m reduction in sales. This highlights the critical nature of player trading to the business model operated by Chelsea. An increase in player sales in 2021/22 to date will see this figure rise significantly.
Transfer debtors / creditors
Chelsea does not disclose its transfer fee debtors and creditors. However, Chelsea has trade creditors of £163m and debtors of £180m. It is likely most of these balances relates to player transfers, suggesting that the club owes and is owed a similar amount of transfer fees.
Chelsea Finances – Transfers summary
Player trading is a key part of Chelsea’s business model with the club’s strong academy and young recruitment a lucrative income generator. The return of significant sales in 2021/22 to date will help curb the high losses of 2021.
Chelsea Finances – Profitability
Losses reached record levels following heavy investment in the playing squad.
Operating profit / loss before player trading
Before player trading, a £12m operating profit turned into a £16m operating loss (-235%). This was driven by cost growth outpacing revenue, with the investment in its playing squad causing a significant rise in wages. The return of fans and associated matchday and commercial revenues, combined with subdued wages growth should help reverse this trend next year, predicated on UCL progress.
Operating profit / loss after player trading
After player trading, am operating profit of £27m turned into a £168m operating loss. The £115m decline in profit on player sales and £52m increase in amortisation resulted in a huge £167m swing in the impact of player trading on Chelsea’s finances. This highlights the importance of player trading once again. Much higher player sales in 2021/22 will contribute to lower losses in 2022.
Profit / loss before tax
Finance costs of £1m saw Chelsea record a loss before tax of £169m. This compared to a profit before tax of £43m in 2021. While this loss may alarm some fans, financial fair play regulations are significantly relaxed due to the pandemic and therefore it is highly unlikely that Chelsea will be sanctioned, while the losses over the last two years pale in comparison to some of Europe’s other elite clubs.
Chelsea Finances – Profitability summary
It was a big and opportune year of spending for Chelsea with its strong owner backing meaning the club felt it could spend heavily despite the financial challenges faced. Despite record losses, Chelsea had generated significant player sales in 2020 which were reinvested plus some spending on top which the club appear very comfortable with.
Chelsea Finances – Assets / Liabilities
Despite huge losses, the strong cash position of the club meant that there was only a need for £20m in funding from Mr Abramovich in 2021.
Cash flow
Chelsea’s cash reserves remained stable at £18m. Cash outflows on player transfers (£86m) and capital expenditure (£10m), were absorbed by cash inflows from operations (£76m) and operating activities (£20m). The majority of this new financing was via new ownership debt with a small equity injection.
Debt
All of Chelsea debts relates to amounts owed to Mr Abramovich. This figure stands at a huge £1.4bn (£1,398m), highlighting the level of investment it has taken to turn Chelsea into the European powerhouse it is now.
Net debt
Net debt hence increased remained relatively stable at £1.4bn (£1,380m). This debt has been long standing and Roman Abramovich has shown little signs of requesting significant repayments with him benefiting from a significant uplift in the value of the club since acquiring.
Chelsea Finances – Final Remarks
Chelsea became the Champions of Europe in one of the most financially challenging years in recent football history. Despite the lucrative nature of a UCL trophy, the pandemic and its impact on revenue and the transfer market hit Chelsea hard and led to record losses. Chelsea will be confident of returning to smaller losses (or even profitability) in the coming seasons given the strong pipeline of talent and recovery of matchday and commercial revenue.
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