This is one other thing that has bothered me for a long time (as far as I know) that has slipped completely under the football world’s radar.
Maybe it is because it needs a greater understanding of the tactics of the world of finance than the world of football but here it is (please bear with me, in the end I hope it will be worth your time).
Claim/opinion: The write-off of Chelsea FC’s £1.5 billion loan from former owner Roman Abramovich is the biggest jailbreak card (or biggest financial stimulant depending on how you look at it) in the history of the sport.
Before I get to the analysis of the above, I would like to make a small accidental detour towards another interesting and overlooked aspect of the Chelsea acquisition, namely the cause of increased interest from buyers’ associations for this highly priced sports entity, before I hope to return to the headline topic.
Without going into the laundry list, the reported interested parties/bidders/investors included the Ricketts family, Ken Griffin, Martin Bruton, Josh Harris, Nick Candy, Stephen Baglioka, Boley, Weiss, Goldstein, Clearlake Capital, Barbara Charon, Ethel Partners, Catalina & Co. and some South Korean group backers, Saudi media, Taiwan’s Tsai family and a few other parties – mostly billionaires and venture capital firms with some political ties.
To add to this, there were wealthy athletes like Lewis Hamilton, Serena Williams (she is herself a junior investor), Coy, Vialli, John Terry and even boxers like Mayweather and Pacquiao were interested – although they didn’t join any bids. Names from the entertainment world such as Beyoncé and Taylor Swift have been added to the rumours. Conor McGregor did “Elon Musk” when he sparked an attempt on social media. Why was the entire global elite interested in this particular English franchise, more than any other sporting entity offered for sale in the past, especially since the asking price is well over £3 billion, higher than the NYSE based market valuation at that the time?
The answer lies in the circumstances and rules surrounding the transaction. With the UK government mandated that all proceeds from the sale go to charity(s), this presented a unique opportunity. Over the past decade, we’ve seen many billionaires pledge a large portion of their fortunes to charitable causes. While on the surface this may seem noble, as demonstrated in detailed investigations by publications such as Watchman And the The New York TimesThis was to reduce, and even eliminate, future tax payments on their wealth, while large portions of the money could be redirected through charitable trusts as a donation/investment in allied entities – I think Bezos gives $10 billion to fight climate change through (gulp) Bezos Earth Fund. The case of Mark Zuckerberg and his wife Priscilla “donating” 99% of their fortune to a charity where the primary beneficiary/guardian would be their infant daughter, has featured prominently.
Most countries around the world give tax breaks to the wealthy in lieu of charitable donations, CSR activities, and goodwill in the books. Then there was the “commercial deal” where the proceeds would be “forced” into charitable trusts thus providing potential tax breaks several years into the future for all consortium members in the winning bid. Then a £4.3 billion lottery (including investment over the following decade), which was won by the union of Boehly, Wyss, Goldstein and Clearlake, to the envy of all other suitors around the world like no other opportunity for any group of wealthy individuals – which It wasn’t made by them – I can remember it.
This now brings us to the point of contention. Chelsea has had a perpetual cloud hanging over them for two decades. That the ever-increasing loan (£1.5 billion in the end) is interest-free from Abramovich which would be called during a potential sale during normal times and cause the potential for buyers to fall back, or the club to exit if it had to pay it once.
With the UK government mandated not to return any proceeds, including the repayment of the loan, to the Russian oligarchy, the loan was written off under some kind of duress. If we look at Football club market assessment By Deloitte/Forbes or other authorities until 2021, we found that Chelsea’s valuation was approximately £2.2 billion ($3.2 billion @ Apr 21 – conversion rate).
So why did the advisors responsible for the sale – the Raine Group – push to bid closer to £3.5 billion (Boehly’s £4.25 billion winning bid includes a commitment of £1.75 billion of future investment in the club)? If £1.5 billion in loans had to be sought, it would make sense – valuation + outstanding debt = roughly £3.5 billion. Bohli (and others) are likely to advance this amount due to competition to claim tax benefits accrued in the future, as well as Chelsea’s higher valuation forming the basis for an increased valuation in the future when seeking partial exit in 2032+ (after 10 years of holding) to recoup part of their investment (This is unfortunately how the venture capital startup world works.)
But what this situation has also created is a once-in-a-thousand-year bonus for Chelsea FC. They were sold without having to repay a penny of the loan and yet they wrote off their books. After £1.5 billion of “financial doping” by Abramovich over two decades to win trophies, they no longer have to foot the bill for that success, a bill that has always hung in the background like Damocles’ sword. I initially expected the new owners to take over the debt, which was the reason for the £3.5 billion valuation, and was shocked to learn that PL, FA, FIFA, government, tax authorities, etc., had all given them a free pass. The government has gone so far as to say it is eliminating any taxes owed on it from the sale (minus costs) in order to help make the sale – a potential £10m hit to taxpayers when, ironically, buyers were likely to have tax breaks. in their home countries because of the money paid that finds its way to charities through escrow accounts.
I’m sure this would not have happened if the name of the club in question had been Newcastle United or Leicester City. This is now reimagining Chelsea Lines of credit/ratings are at maximum capacity and can help reduce the cost of future spending, thus helping them to statement of profit and loss, balance sheet and perhaps even in terms of FFP (financial fair play).
It certainly seems to have helped in terms of transfers as Chelsea broke the world record for Spending Transfer In one window this summer.
The amount of the loan written off is staggering. For this sum to be effectively added to the club’s valuation, the mind is boggled to the point of unbelievable (think of liabilities being transferred to assets side by side with a step of the fingers). The government may think it was doing what is right, but by doing it the way it did, it has unfairly given Chelsea a major (positive) handicap, the full benefits of which we may not realize until the future.
In a Premier League that already suffers from huge disparities among its members, this is an additional unnecessary and unwanted development which unfortunately no one has considered yet. Nobody except the new Chelsea owners I think.
Money may not be guaranteed to buy success, but in the world of football and especially with an amount of this size, it is as close to a sure thing as you can get. Chelsea actually got two bites of poisoned apples – in 2002 and 2022 – but enjoyed the benefits of the apples both times with the poison’s impact instead being reduced on their rivals both times.