Yesterday I looked at what Chelsea and Roman Abramovich have been saying about the £1.5bn+ that the club owes to the owner. Do Chelsea need to repay all the loans? Will the new owner be an extra £1.5bn in the hole despite Abramovich originally saying “I will not be asking for any loans to be repaid”? The answers aren’t yet clear, but how much of an issue is this for the club anyway?
Well let’s look at some figures. First, what is Chelsea worth? A purchase figure of £4.25bn has been bandied around by journalists, eg The Times on 9 May, who commented on Todd Boehly “watching the team he and his consortium had just agreed to buy for £4.25bn”.
I can tell you Chelsea is not worth £4.25bn for a start. The two easiest comparisons are Arsenal (fairly recently bought) and Man Utd (shares publicly traded). Arsenal was valued at £1.83bn when Stan Kroenke took 100% control in 2018. Man Utd is valued at about £2.2bn based on recent share price and debt. There are lots of other comparisons you could do regarding income, profitability, levels of debt and so on, but the uncertainties of football mean they don’t give us anything remotely definite anyway. A reasonable ballpark figure for Chelsea is £2bn-£2.25bn, so £2.5bn is on the high side and seems to assume that there’s potential to generate a lot more revenue or cut a lot of cost (unlikely).
Or else the buyer needs to be a generous Abramovich-style owner who is happy to chuck money into a hole and presumably not ask for it back later. That’s not the way Americans tend to do business (cf. Kroenke, Glazers), so Todd Boehly and his mates must think there’s profit to be made.
So we have purchase price £2.5bn.
Plus a commitment to spend £1.75bn on ‘infrastructure’ – infrastructure spending is outside of FFP rules of course.
Total so far: £4.25bn.
On the face of it, that in itself is a crazy figure.
Even if you’re only handing over £2.5bn now, that is mostly going to be borrowed, so there will be interest and the capital to repay.
Let’s say you borrow just £1bn at a very generous 2% interest, over 20 years. You need to pay out £20m a year in interest, plus capital repayment, so about £60m a year total. But it’s more likely at least £2bn of borrowing and higher than 2% interest, so realistically the cost could be more than double the £60m; say £130m a year.
Then there is the extra commitment of £1.75bn over the next decade. It’s not clear from the publicly available information how concrete this commitment is as part of the deal, but it’s obvious that Chelsea need a much bigger stadium to generate more revenue, so a big spend is needed anyway. So a new or rebuilt stadium at a cost of say £1bn, and that’s another £60m a year in debt servicing. That makes close to £200m extra cost per year, and Chelsea has been a loss-making business up to now. A bigger stadium benefits the owner with extra income, but you have to build it first and even when it’s finished the extra income from tickets is probably only enough to pay back the cost of the stadium, not the rest of the debt.
I’m ignoring the small matter of the other £750m, to be spent on sundry other infrastructure improvements, assuming the stadium rebuild doesn’t eat the lot. Maybe the owners won’t bother with pumping in the whole amount.
Back in the days of Arsène Wenger and Ivan Gazidis, Arsenal used to claim they budgeted to be in the Champions League three years out of four. Chelsea seem to be budgeting for winning it every year in front of 200,000 fans per game.
As if that wasn’t enough, there’s the matter of the pesky loan of £1.5bn, which the current owner is now saying needs to be paid to the new Abramovich charitable foundation for the suffering of the Russian economy war victims.
So either the buyer needs to commit at least £5bn (£2.5bn purchase price + £1bn stadium + £1.5bn loans), which means an extra £90m of debt servicing per year to pay off the £1.5bn they’ll borrow to repay the loans (total debt servicing now an absolute bare minimum £250m a year, probably a lot more), or they have to divert nearly all the infrastructure money to Abramovich. In which case there’s no new stadium and no consequent increase in income.
Where does this leave Chelsea FC?
Either Todd Boehly and all his backers are philanthropists who see Chelsea as a deserving charity case, or they expect Chelsea’s income to increase massively. It’s not option A – the borrowed consortium money will likely come from things like pension funds, who hand it over on the strict basis it gets repaid on time.
So that leaves option B. Even before you factor in the cost of borrowing, just the purchase price and covering the existing losses of £50m a year makes it look as though they’re expecting income to rise. But how? Chelsea are going to have to play World Super League matches every week in front of a TV audience of a billion with sponsorship by a very generous Elon Musk in order to support this, because otherwise the figures make no sense at all.
Maybe I’m missing something. Any financially literate Chelsea fans want to tell me where my figures are wrong?