Chelsea's accounts

Last week, Deloitte published its report into football`s finances. It placed Chelsea as the world`s 4th richest club. Today Chelsea published its own accounts. They made for interesting reading.The key figures are that the Chelsea FC plc turnover has increased substantially. Chelsea`s losses might have reduced, but they are still worryingly huge.Chelsea`s gross turnover of £223.3 million translates as a group turnover of £190,5 million. This is up 25% from last year. Helpfully, the components of that increase are also healthy: success on the pitch means that 'football activities` are up 27% to £165.3m. Matchday revenue is up 29% to £74.5m (mainly due to selling more tickets and fleecing corporate clients, rather than increasing the ticket price for the average supporter). Media revenues increased 13% to £59.6m. The improved Premiership television contract will see a further increase in this next year. And sponsorship revenues are up a huge 89% to £32m, mainly as a result of the kit supplier changing from Umbro to Adidas.These numbers are vigorous, and more or less concur with the rosy picture painted by the Deloitte report, which placed Chelsea as the 4th richest club in the world.Those figures, however, looked only at clubs` revenues. The other side of the coin is clubs` spending, and the Chelsea accounts paint a rather more sombre portrait.The club is at pains to stress that the annual losses have decreased for a second season running. Whereas Chelsea losses in 2004/2005 were a world record £120 million, and last year they were down to £80,2 million, last season they were 'only` £74.8 million.Chelsea`s control of some of the key costs is improving slightly. A key cost is wages and salaries as percentage of turnover, and the club has managed to reduce this by 5% to 71% from 76%.Whilst these figures are a slight improvement, the level of these improvements has to be offset by their huge proportion and sheer size. Chelsea`s losses are slightly better this year than last, they are still a mere 2 weeks of Drogba`s wages below £75 million. As a ratio, this means that Chelsea`s annual losses are at a level that is 1/3 of the turnover; by way of comparison, more than half of the Premiership have turnovers less than these losses.The volume of money that Chelsea gives in wages and salaries of personnel is also vast. Whilst this has improved as a proportion of turnover (from 76% to 71%), one has to take into account that that turnover has also increased by 25%. This suggests that Chelsea continues to increase the sheer volume of wages … but are only helped by the fact that turnover has increased faster than wages.As a proportion, 76% is more not as bad as a number of Italian clubs, who manage through 'creative accounting` to pay wages and salaries that are over 100% of turnover by hypothecating the value of future media contracts. However, the club`s stated target is to reduce this to 55%. Whilst this could be partly achieved by a continued robust increase in revenues, at some point Chelsea are going to have to rationalise its wage policy as well. However a number of players are pending contract renegotiations, Frank Lampard being a case in point.All these figures have to be compared to the overall aim of breaking even by 2009/2010, and few commentators missed the opportunity to refer to this oft-stated aim. "Our long term target of operating profit break even by 2009/10 remains ambitious but we are determined to meet it or get as close as we can" is what Peter Kenyon said yesterday. However, it is hard to imagine that Chelsea can manage to turnaround this situation over the next 2 years to the extent that the £75 million loss is reduced to nothing.We can expect that some of these figures continue to improve, particularly as Chelsea`s growth is extremely healthy. As already stated, the Premier League`s new television contract will, by itself, bring in an extra £30 million.All of Chelsea`s success in the Excel spreadsheets very much depends on continued success on the pitch. The downside is that it is clear that, should Chelsea start to stutter, our numbers will nosedive.Hidden in these results where two particularly interesting numbers. Roman Abramovich wrote a cheque for the £75 million loss, a gesture which must have caused the rest of the Premier League chairpersons their annual choking fit. But, at the end of the financial year, Chelsea also cleared our last remaining external debt by paying off the Eurobond under the terms of the bond arrangement. We are doubly debt-free.Clearing the Eurobond is a symbolic moment. Lest we forget, Chelsea were, apparently, only days away from going under due to an inability to service that debt in the heady days of July 2003. That`s when Roman Abramovich stepped in. What a strange journey it has been since then, and closing that Eurobond is emblematic of a change of status and regime.Another figure of interest is the reduction in transfer fees. The first year of the Abramovich era saw Chelsea spend £129 million over the summer. Last summer, Chelsea spent only £11 million, although this is partly because other player purchases were offset by the frankly ridiculous£26 million we received from Madrid for Arjen Robben. This is a very welcome development, the indication that Chelsea will not necessarily be taken for a ride. We also have to highlight that the club is committed to developing the youth structures. However, the frugal £11 million in net transfer spending has to be compared to circa £25 million spent over the winter … outside the 2006/2007 results.Should we be concerned? The simple fact is that Roman Abramovich`s level of commitment to our club suggests that he will continue to write the cheques. His generosity is likely to continue well beyond the £578 million of his own money which he has already put into the club. However, nobody at the club (and that includes the supporters) considers that, in the long-term, the club can continue to work like this. Break even by 2009/10? We doubt that. We can expect the numbers to be better next year, but the club will have to break with the past, cutting some of the costs (particularly wages and salaries) if it hopes to break even. Relying on a continued increase in revenue, however robust, simply won`t be enough.