How did Chelsea stay compliant with the PSR?

On Tuesday morning it became clear that Chelsea’s house was in order and they were in compliance with the Premier League’s Profit and Sustainability Regulations (PSR) for the three-year cycle ending in 2023-24.

Chelsea have long maintained their confidence that they would not break the rules – which would likely result in a points draw – and that has proved to be true.

This is despite not playing in the Champions League in 2023-24 and having a poor season in the Premier League, finishing sixth.

Athletics explains how they stayed on the right side of Premier League rules.

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How much money have Chelsea lost in recent years?

Looking solely at the relevant three-year PSR cycle (2021-22, 2022-23 and 2023-24), Chelsea had a pre-tax loss of £121.4m ($148m) in 2021-22 and followed that up with a £ 90.1 million pre-tax losses in 2022-23 totaling £211.5m over the two years.

We will not know whether they have made a profit or loss in 2023-24 until their full accounts are published. They had to submit their application to the Premier League by December 31, but the figures will remain confidential until the club posts them at Companies House.

Premier League financial rules allow clubs to lose £105m over a three-year reporting cycle with spending on youth football, infrastructure and community projects.

Despite the losses, Kieran Maguire, a football finance expert and co-host of Price of football podcast, was not surprised that Chelsea remained in line with the Premier League’s financial rules.

“I always felt Chelsea would be fine because of player sales and property sales,” Maguire said Athletics. “I don’t think they’ve ever been this close because they took the amortization route in terms of player recruitment.”

Chelsea exploited a loophole that allowed them to offer extra-long contracts to new signings and amortize the transfer fee over the course of that deal. Enzo Fernandez’s £106 million move to Stamford Bridge, for example, will be written off over eight years (the length of his contract).

However, Premier League clubs shut down the clever tactic by voting to limit the number of years a club can spread the cost of a transfer fee over a player’s contract to five years, meaning if a player signs an eight-year deal now, so they could only amortize the fee for the first five years of this contract.

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Has their spending continued this season?

Since Clearlake Capital and Todd Boehly bought the club in May 2022, they have spent more than £1 billion on new recruits, more than any other Premier League side in the same time frame.

According to the respected data website Transfer marketChelsea spent £219m – more than any other top team – in the summer transfer window, signing players such as Pedro Neto from Wolves for £51.4m, Joao Felix from Atletico Madrid in a £44.5m deal and Kiernan Dewsbury- Hall from Leicester City for £30m.

This was largely offset by player trading, which meant Chelsea ended the window with a net spend of £72m.

Ian Maatsen (£37.5m), Conor Gallagher (£35.8m), Lewis Hall (£28m), Romelu Lukaku (£22.5m) and Omari Hutchinson (up to £22.5m), among others, were sold for notable fees, to ease the burden of the money spent on new signatures.

“Chelsea are by far the best club when it comes to the trade market and player sales,” added Maguire.

“They’ve generated five times as much money from player sales in the last decade in terms of profits as Manchester United. And that’s exactly the aspect of the club that tends to fly under the radar and probably doesn’t get the credit it deserves it deserves.”

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So how have they been consistent with the PSR?

Chelsea’s accounts for 2023-24 will not be publicly available until later this year, with the last two sets of results being published at Companies House in April 2023 and April 2024, so that means we won’t have the finer details until then.

Their accounts for the financial year ending June 2023 revealed that they had sold the Copthorne and Millennium hotels outside Stamford Bridge to BlueCo 22 Properties Ltd, a subsidiary of BlueCo 22 Ltd, which is the holding company that also owns the football club, for a total of £ 76.5 m.

Following the Premier League’s fair market value process, £76.5m is been adjusted, although neither party confirmed the amount. Regardless, without this sale, their losses for 2022-23 would have been significantly higher, making tax compliance much more difficult.

On 28 June, a filing at Companies House indicated that Chelsea had sold the women’s team to the club’s parent company, which was confirmed via a separate filing on 11 July.

The June 28 date appeared to be important because it is just before the cut-off point for the annual accounts, meaning any sale could in theory be recorded in the 2023-24 filing.

However, Chelsea insisted that although the sale of the women’s team was registered on 28 June, the deal took place after 30 June. Athletics previously reported that the club’s ownership valued the women’s team at around £160m.

The Press Association reported in July that the Premier League assessed this sale from a fair market value perspective. Athletics asked the Premier League if the investigation was ongoing, but they declined to comment, noting that they do not discuss individual club matters.

“The women’s team sale was weird because no one knows how much it sold for, but I think it would have been an exciting profit,” says Maguire. “It seems strange that although the club filed documents on June 28, the sale took place after that date. But in the world of accounting – especially creative accounting, which is legal – anything is possible.”

Chelsea were also able to complete the sales of Maatsen and Hutchinson for a combined £50m before June 30, meaning they could be added to the 2023-24 accounting period for PSR purposes.

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Is this sustainable?

There is only so much furniture to sell and Chelsea have already taken advantage of selling the hotels and women’s team to the parent company so they can’t do that again.

One asset they can still make money from, however, is their front-of-shirt sponsorship. Athletics detailed in December that they are closing in on a deal, with advanced discussions taking place with airlines as well as tech firms.

This, Chelsea hope, will net them around £60m a year, although it remains hopeful and speculative until a deal is signed. The Premier League side are confident that a contract will be agreed before the end of this season, meaning their finances should be boosted before the June 30 cut-off for PSR.

It looked at one point that Chelsea may be challenging for the title – although it was not something that those at the club ever thought possible at this stage of their project. Their form during the first half of the season has given them a great chance to qualify for the Champions League, which would be hugely beneficial from a financial perspective.

Their 2022–23 involvement in the competition, where they reached the quarter-finals, was estimated to be more than €90m. worth it, according to Kieron O’Connor, the person behind the award-winning Swiss Ramble blog.

Should they return to Europe’s elite club competition, it will also be beneficial for their finances going forward, just like this summer’s Club World Cup, which takes place in the USA.

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Do other Premier League clubs have PSR concerns?

No Premier League team was accused of breaching the PSR, although Leicester still face sanctions.

A Premier League statement on Tuesday morning read: “Questions regarding the Premier League’s jurisdiction over Leicester City Football Club in relation to PSR compliance are currently the subject of confidential arbitration proceedings.

“Therefore, neither the League nor the Club will make any further comment at this stage on any aspect of the Club’s compliance or otherwise with any of the PSR or related regulations, except that no complaint has been made against Leicester by the League for any breach on the PSRs for the period ending the 2023-24 season.”

(Top photo: Clive Rose/Getty Images)