Chelsea Football Club – The Abramovich Era

27.07.2021

Back on May 29th, Chelsea FC have for the second time in their history climbed to the top of European club football with their win against domestic rivals Manchester City FC in the 2020/21 UEFA Champions League final. With this latest trophy, the club have now collected 17 major pieces of silverware for their cabinet – most significantly five Premier League and two Champions League titles – the most of any English club, since 2003, when Russian tycoon Roman Abramovich took the organisation over. While in a previous article we considered Manchester City's and Paris Saint-Germain's rise under their respective ownership, the piece which follows examines Abramovich's takeover, which preceded the others' and provided a blueprint for modern day large-scale investment in football clubs.

Abramovich purchased Chelsea in July 2003 for a reported fee of GBP 140m. While the club were by no means small at the time, they weren't typically in the running for the most significant honours. Abramovich wasted no time and immediately pumped upwards of EUR 150m into the playing squad, bringing, among others, the likes of Hernán Crespo and Claude Makélélé to the club. His first season in charge showed the level of financial commitment he was willing to make.

The “Abramovich effect” was also immediately apparent off the pitch, with Chelsea's total operating revenues increasing 62% in the first year of his reign. A steady, long-term upward trajectory was seen, resulting in record operating revenues of EUR 513m in 2018/19 during the last full season prior to the COVID pandemic, a 282% increase since his takeover. As we will explain in more detail hereafter, such growth was fuelled by broadcasting revenue increase and even more by spectacular commercial revenue growth.

Unsurprisingly, the club have also suffered from the global health crisis in the unique 2019/20 season. As such, all of its three major revenue streams have diminished: matchday revenues due to the lack of fans in stadia; broadcasting revenues due to a number of matches played after the financial year-end closure and to rebates paid to TV partners as compensation for diminished product’s quality; commercial revenues due to the lack of sponsorship activation opportunities as well as physical merchandise stores closing across the globe.

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As the club remained at 42,000-capacity Stamford Bridge, a relatively small stadium compared to that of their closest rivals, matchday revenues have remained fairly stable with a slight decline in recent seasons. Frozen season ticket prices since the 2011/12 season in combination with the devaluation of the British pound mostly explain this phenomenon, despite the club's continued success. Chelsea have taken steps to catch up to their competitors when they gained planning permission to rebuild and expand their home in 2017, but the project was scrapped because of an unfavourable investment climate.

One main driver of growth were broadcasting revenues stemming from the skyrocketing Premier League TV rights: focusing on the domestic TV deals only, the value in the current cycle at league level expanded fivefold to around GBP 5bn from 2003. As such, Chelsea's improved finishes in the league allowed the club to take a bigger slice of a more substantial pie, resulting in a 166% broadcasting revenues increase from 2003/04 until 2018/19.

The other main growth driver were commercial revenues, which serve as the best proxy for the evolution of the club's brand. Since the Abramovich takeover, Chelsea's commercial income increased by a stunning 366% by the 2018/19 season. The swift development is obviously attributable to on-field improvements, but it also demonstrates the club's power to attract global fans in the increasingly international football and media landscape, also taking advantage of being one of the most successful clubs in the city of London. Among others, Chelsea frequently conduct pre-season tours overseas to engage fans on multiple continents and has also manoeuvred swiftly into complementary spaces like esports through the FIFA video game franchise. These efforts resulted in EUR 69m p/a kit supplier deal with Nike and a EUR 46m p/a shirt sponsorship with telecommunications company Three, both amongst the most lucrative deals in their categories.

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Chelsea's global popularity is also well demonstrated by their social media following across popular platforms. The club are the second most followed English outfit behind only Manchester United FC, and the fifth most followed globally, with 111 million followers. They have grown their social media fan base by 30% in the past two years by strategically focusing on a new generation of fans through TikTok, starting a new account and reaching 3.5m followers, and on Instagram, where their following increased by 57%. The club have also made calculated moves to capture the Chinese market as their following on Weibo, one of China's biggest social media platforms, nearly doubled from 5.4m to 10m in the same time span.

Continual improvement on the pitch and on the revenue side have provided both an opportunity and a need for continuous investment into the playing squad. As a result, Chelsea's staff costs have increased 60% since 2011/12 to EUR 326.8m in the pandemic-impacted 2019/20 season. Executive Director at the club since 2014, Marina Granovskaia rules over Chelsea's rigid wage structure with an iron fist, managing them to consistently remain below the 70% staff costs-to-revenue ratio recommended by UEFA despite numerous major transfers. However, Chelsea's revolving door approach to managers can be felt in the evolution of staff costs, as it has caused significant additional burdens. For example, in 2015/16 a small spike is present in relation to the EUR 11m compensation paid to José Mourinho and his coaching staff upon his dismissal, while an even more lucrative sum of EUR 30m was paid to Antonio Conte and his staff for their discharge back in 2018/19.

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Chelsea are England's biggest presence on the transfer market. Since Abramovich's takeover, the club have reportedly spent EUR 2.22bn on incoming players, more than any other club in the Premier League in this time frame. The club's record signings are Kai Havertz and Kepa Arrizabalaga, both acquired for reported fees of EUR 80m. Similarly, Chelsea lead all Premier League clubs in income generated through player trading, receiving EUR 1.17bn reportedly since 2003/04. Granovskaia's influence is evident in the club's recent transfer policy, as Chelsea transformed into one of the few elite clubs consistently generating relevant income on their player disposals. Out of the EUR 1.17bn transfer income, approximately EUR 800m has been amassed throughout her tenure since 2014. The most famous examples are Eden Hazard's massive sale to Real Madrid CF with only one year left on his contract, or Diego Costa's departure back to Club Atlético de Madrid despite him approaching the twilight of his career.

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Currently, the Chelsea squad is valued at EUR 1bn, a significant rise from the EUR 422m figure in 2011. The most valuable players are recent signings from Germany, Kai Havertz and Timo Werner, and homegrown talent Mason Mount, demonstrating the club's tendency to purchase ready-made players as well as to reap the fruits of continuous and significant investment in the youth teams. The latter tendency was especially important during the club's transfer ban in the 2019/20 season, which prevented Chelsea from conducting any transfer activity for two transfer windows.

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A unique aspect of Chelsea's finances is a EUR 1.4bn intercompany debt, as Abramovich has been supporting the club by loaning a significant amount of money since his takeover in 2003. While on one hand, the debt exposure towards related parties is significant, on the other, Chelsea have no interest-bearing financial debt owed to other parties, such as financial institutions. This debt structure allowed the club to aggressively tap into the transfer market even during the pandemic downturn last summer/autumn, in a period where most clubs were forced instead to apply a spending review in relation to their transfer activities.

The culmination of the evolution of the business fostered by Abramovich can be summarized by his club's showing in the KPMG Football Benchmark's Club Valuation report, in which Chelsea are consistently ranked amongst the most valuable clubs by Enterprise Value. The club's valuation peaked in January 2019, reaching EUR 2.2bn, a major 53% expansion from the inaugural 2016 report. In the latest 2021 rankings, the club place seventh with a valuation of EUR 1.9bn, a downturn mostly due to the effects of the pandemic.

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Lastly, it is important to note that besides the running of the men’s team, Abramovich has also taken great care of other areas of the club, such as the women's team. Indeed, investments have been undertaken in this field, as Chelsea boast the most expensive transfer in the history of women's football following Pernille Harder's signing in the summer of 2020. On the pitch, some rewards are also starting to be reaped, as the team were crowned domestic champions and reached the UEFA Women's Champions League final in the recent 2020/21 season, lost against FC Barcelona.

Following in the footsteps of patrons running football clubs in the 1980s and 1990s, Abramovich and Chelsea are the modern day example of massively investing in a football club, as the Russian tycoon has been able to turn a club with relevant-but-limited history upside down, turbocharging them into a European superpower. However, the advent and implementation of UEFA Financial Fair Play Regulations would nowadays limit such free investment capacity as that enjoyed by the tycoon, if not backed by the parallel growth of a club’s revenues; that's why it is unlikely to expect such a business model to be replicated in modern football.