Chelsea

Last time, I wrote about Fulham. Time now to broaden our horizons, and where better to start than Fulham’s near-neighbours Chelsea. They’ve just had a triumphant season on the pitch, with victory in both the Champions League and the FA Cup. On the other hand, they didn’t maintain their usual standard in the Premier League, finishing only sixth. So where does all that leave Chelsea’s finances? Here’s how it looks to me.

1. The relatively weak Premier League finish won’t have hurt much. It will have meant about £3m less in prize money than the year before. But the FA Cup win will have made up for that – winning a semi-final is worth just under £1m in prize money, winning the final is worth nearly £2m, and the clubs that play in these matches get some of the gate proceeds as well. Meanwhile…

2. …winning the Champions League has a big financial effect. Chelsea usually earn around £30m from that competition. But for winning it, they got £50m. And with numbers like that…

3. …it’s no wonder that Abramovich’s trigger finger started to itch when AvB’s faltering team began to look as though it might miss out on Champions League qualification. Rich beyond the dreams of avarice he may be, but £30m of Champions League income is no small matter.

4. It’s been a good year for sponsorship income too. A new deal with Adidas took effect, increasing the amount they pay Chelsea from about £10m to over £20m. (Samsung pay about £13m.) All this means that…

5. …it was probably a record year for Chelsea, in terms of income. I reckon that they will have pulled in a whopping quarter of a billion pounds for the season just ended. To put that in context, it’s about three times as much as Fulham bring in each year.

6. The average Chelsea player earns about £120K a week. That’s my best estimate, anyway, and it certainly ties in with press reports that the likes of Lampard and Terry get around £150K, with lesser lights like Sturridge and Cahill on £80-90K. That’s pricey stuff – it means, for instance, that the £30m Chelsea usually earn from the Champions League only pays the wages for a couple of months. Which in turn means that…

7. …Chelsea are nowhere near self-sufficiency, even after winning the Champions League. Having spent heavily last pre-season (on Lukaku, Mata, and Meireles – and of course AvB’s Porto release clause) I reckon their cash outflow for the season will have been nearly £50m. If so, then…

8. …only once in the past five seasons have Chelsea broken even in cash terms (in Ancelotti’s first year, 2009-10). The aggregate cash outflow over that period will have been some £250m. It would be a bit less if they didn’t have such a penchant for sacking the world’s most highly-paid managers: they’ve shelled out a cool £60m in getting rid of the Special One, Big Phil, and Ancelotti himself. However…

9. …the Roman Empire can probably cover Chelsea’s cash needs easily enough. At an annual average of about £50m, it’s roughly equivalent to the interest on, say, one or two billion pounds – and Abramovich has eight billion. Which helps to explain why…

10. …the cash outlay on transfers this summer is already huge. It’s at least £60m (Hazard and Oscar, plus an undisclosed fee for Marin). Some of that may be deferred, or contingent on appearances, so it may not all flow out this season. And there may yet be some cash in from player sales. But at the same time…

11. …income looks likely to fall this season. That’s because the lion’s share of Champions League proceeds go to the sides that finish first or second in their domestic league (or that actually win the thing). The way the euro is currently losing value against the pound is also ominous (CL prize money is paid in euros). So…

12. …it looks to me like another £50m of cash out at Chelsea this season. (Even without sacking the manager.) All in all, it’s hard to see Chelsea as a club that’s mending its spendthrift ways in response to Financial Fair Play.

Fulham

To get the ball rolling, here's an edited version of my first foray into this field.  It deals with Fulham, and was originally published on the excellent Craven Cottage Newsround site in early July.  In it, I made ten observations. 

1. Chairman Mo has been wonderfully generous – but not recently.  His last big cash injection was in 2007-08, the season of the Great Escape. He put in over £20m that year, mostly to fund Sanchez’s summer spree in the transfer market – Kamara, Davis, Konchesky, Baird, and others.  Hodgson spent some more when he arrived in the January, on Hangeland and (Eddie) Johnson.  The fees weren’t disclosed, but it looks to me as though they cost about £3m in total.
2. Since then, outgoings have more or less been matched by income.  And that’s despite at least one relatively costly signing in each season: (Andy) Johnson in 2008-9 (the 7th place finish); Duff in 2009-10 (Hamburg); Dembele in 2010-11 (the Hughes year); and Ruiz in 2011-12.  A self-sufficient football club – now there’s something you don’t see every day!
3. The Europa League has been good to Fulham.  Sure, it doesn’t bring the kind of riches you get in the Champions’ League.  But they did make £12.5m out of the run to Hamburg, and I reckon they would have made £8-9m this season, despite going out at the group stage.  That’s because the bulk of the TV revenue is awarded just for getting to the group stage – and the lion’s share of it goes to clubs from countries with large TV markets, like England.  So that’s £20m over the past three seasons.  To put that in context, it’s roughly the amount Fulham paid to buy Duff, Dembele and Ruiz.  Without the Europa League, would they have those players?
4. But most of the money comes from the Premier League.  About half of it, in fact, just for taking part.  Then roughly another quarter comes from gate receipts – mostly league games, of course – and the Sky/ESPN/BBC deals. 
5. Fulham players earn about 40 grand a week.  That’s my best guess, anyway.  We know that about two-thirds of the club’s income goes on pay – for everyone at the club, not just the players.  Invoking the old 80/20 rule, for want of anything better, would suggest that the playing squad is collectively paid about £40m.  That’s for about 60 players (!) and again, I’d guess that 80pc of it goes to the 20-odd leading players. In which case, they’re getting about £40,000 a week, on average.  That ties in which press reports I’ve seen regarding the wages of Duff and Zamora, before he left.  Just remember - the average at big clubs is probably at least twice that.
6. Jol has probably balanced the books in his first year.  Ruiz and others cost about £15m, and Zamora, Greening and Dikgacoi brought in about half that, leaving a shortfall that was covered by the Europa League proceeds.  But they won’t recur in this coming season, so… 
7. …Jol might have to bring in £5m more than he spends in the transfer market this year (i.e. the summer window plus the January window).  That’s what I think it would take to keep cash inflow in line with cash outflow.  Of course, Al-Fayed may decide that he’s willing to cover a net cash outflow.  Otherwise, a plausible scenario is that Jol raises £20m by selling Dembele and Dempsey, and gets to spend £15m of it.
8. Alternatively, he could achieve much the same effect by not replacing the big earners who have been released this summer (Johnson and Murphy).  If they were on 40 grand a week, they’d have getting on for £5m a year between them.  That wouldn’t prevent Jol making other new signings – they’d just have to be on packages similar to the players released (Grygera, Riise BH, Sa and the Pog).  It’s a fair bet that 31-year old Mladen Petric falls into that category.
9. All this was probably the scenario that former boss Mark Hughes could see coming a year ago.  So when he quit and talked of a “lack of ambition” perhaps that’s what he had in mind.   
10. Change is afoot.  First, there's the Premier League's monster new broadcasting deal with Sky and British Telecom.  Second, there's the proposed stadium expansion.  I'll write on another occasion about how these developments might affect Fulham's fortunes - and the money at Jol's disposal.

Introduction

This is a blog about the finance of football.  It isn't the first blog on the subject - take a look at the excellent Swiss Ramble and AndersRed for some superb examples. But I want to take a slightly different approach.

First, I want to focus less on profits and more on cash flow. That’s because profitability in football is hugely skewed by the depreciation of transfer fees, and its cousin – transfer market profits and losses. For me, it’s more meaningful to look at the amount of cash coming in and going out.

Second, I want to try and do a bit of forecasting. Unlike listed companies, which have to report financial results pretty soon after their fiscal year ends, football clubs usually take months to file their accounts at Companies House. And since their financial years tend to end on 30 June, that means that the accounts don’t typically appear in public until the following spring. I think that some intelligent speculation is in order to fill that gap – and, in particular, to assess the prospects at transfer window time.

To begin with, this blog is going to have a west London focus, because I watch most of my football at Craven Cottage.  But the idea is to extend its coverage to all the Premier League clubs, and perhaps the Championship and the Scottish Premier League too.