The Chelsea hierarchy has been on a player-spending splurge these past transfer windows and now find themselves at a juncture where they shift their focus on outgoings. The current squad is undoubtedly bloated and needs clearing before the new head coach, Mauricio Pochettino, can get to work.
At the same time, the Chelsea board has another puzzling task to solve - maintaining the club's financials within the Financial Fair Play (FFP) regulations.
It is no secret that the Blues' nonchalant spending in the player market these past transfer windows have raised concerns about their ability to comply with the FFP mandates in the near future. And according to the recent club accounts, Chelsea recorded a £121.3 million net loss which is bound to increase with lesser commercial income after finishing in the bottom half of the Premier League for the first time since 1996 and record spending on transfers.
Despite the amortization loophole, as explored in a recent article on Football Reviews, Chelsea will need to find other sources of income to balance the books.
The necessity to trim an inflated squad coincides with the club's desperation to reduce losses.
And so, this article will look into the players that Chelsea could sell purely from an accounting point of view to generate the highest profits.
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Most fans without a financial or accounting education may assume that profit or loss on the sale of a player is the balance amount after deducting the purchase cost from the selling price. However, in the financial statements of a club, the accountants do not record the profit or loss from a player's disposal with that formula.
Before explaining their method, we must backtrack to understand a few accounting terms and standards.
Football players are considered intangible assets in the financial statement of a football club. Though they have a physical substance, a player is only valuable to the club over the length of the contract. After which, benefits from them cannot be derived upon contract expiry.
Therefore, the mathematical value of a player is associated with the services they will provide over the contract length. And this value is the transfer fee paid by the club to acquire the player.
As per the International Accounting Standards (IAS), an intangible asset (the football player) with a finite life (contract length) must be amortized annually.
And what is amortization?
It refers to the decline in the value of the intangible asset due to the fall in the useful life of that asset. Quite simply, the value of an intangible asset with a limited life will not be the same after use for a year or a few years. The amount of shortfall every year is the amortization expense.
On top of this, the net book value (cost of investment less amortization) can be brought down further by the club accountants in any given year if they believe there are valid reasons to write down the player's book value. And this further reduction is called impairment.
Why might that be?
For example, if a player suffers from a severe injury that rules them out to the sidelines for six months, that is half a year of services that the club did not derive from that asset. Therefore, club accountants can justify a reduction of the player's accounting value as they would be less valuable after a significant injury that might cause decreased output too.
Now that we have overcome the tortuous accounting terminologies, let us move on to the crux of the article - determining the players that would generate the highest accounting profits.
To calculate this, we will determine an estimated net book value of the players that might leave Stamford Bridge (impairment has not been taken into consideration as that amount would vary based on the club accountant's judgment) and subtract it from the estimated selling price - determined by examining the players' market value according to transfermarkt - a reliable and renowned website that pins conservative market values to every football player.
(Values in millions)
A common trait between three of the five players on this list is that they are former Cobham graduates. And they find themselves on this list because academy players do not have a purchase cost.
Although there are expenses to maintain an academy, it is difficult to determine the cost of developing an individual player as hundreds of kids and teenagers are a part of the club's youth development program.
As per the regulations, the profit on the income received from the sale of an academy player will be recorded in full as the purchase cost attributed to them is nil.
If Chelsea struggles to meet FFP thresholds, selling academy players would be a clever financial move they could adopt.
And historically, Chelsea have significantly benefitted from moving on their talented youth. According to Talksport, the Blues have generated an income of £210m between 2015 and 2022 - ranking first among Premier League clubs.
(Values in millions)
Moving on, we come to the players' sales that would result in losses or negligible profits.
(Values in millions)
And finally, we come to the accounting profit or loss generated by the compiled list of players that Chelsea could consider selling in the summer.
(Values in millions)
Over the years, Chelsea has been astute at maximizing income from player outgoings, collecting considerable revenue while showing the ability to move on the unwanted personnel. However, with extraordinary changes at the board level, many from the workforce with years of experience in this field have left their posts, leaving the newcomers with a colossal task to manage.
Now is the time for the latest recruits, Christopher Vivell and Paul Winstanley, to display their potential by squeezing as much revenue as possible on player sales. It will help balance the books and restore much-needed resources for Mauricio Pochettino to deploy during the summer for quintessential reinforcements.
At this intriguing crossroad Chelsea Football Club finds itself in, every decision has to be precise. An entire season just passed with nothing achieved due to shabby and rushed choices over the prior summer transfer window and over the course of the campaign.
As the Blues enter the summer transfer window of '23, the quality of players that arrive will be critical, but the ones that leave will immensely influence the events of the coming campaign.
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