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Chelsea FC are not debt free at all – it was all a huge con (or a mistake)

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Today’s Sponsor: “Making the Arsenal” – just so you can realise what it was like in the really bad times.

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By Tony Attwood

The BBC and a lot of other commentators and news sources said,  “Chelsea Football Club has said it is now “virtually debt-free”.”

You’ll remember it well.   30 December last year

Now it turns out not to be true.  Not at all.  Not one jot.  Of course I can’t say what was in Mr Abramovich’s mind when the story came out.  Maybe he never authorised it, and it was just an over-excited pressman at Chelsea who released it.  But whatever the cause, it was just a load of old cobblers.

But had the ruse not been rumbled, it might just have looked to Uefa (who as we know don’t always see things clearly) that Chelsea FC were indeed debt free and so eligible for the Champs league the year after next.

In fact the disappearance and finding again of Chelsea’s debt is one of the most extraordinary stories of either a deliberate attempt to slip one over Uefa, or a simple error that big boys in the world of finance should never make.

Here’s the whole story.

Chelsea (who we renamed The KGB in Fulham, after their proven ability to re-write the minutes of their own fans’ forum, to edit out the awkward questions) were given an interest-free loan from a company controlled by Mr Abramovich, in order for them to win the league and stuff.

Then Bruce Buck the “chairman” of Chelsea said: “The club’s debt load has been reduced almost to nil in order to provide more long-term stability for the club. It will also enable the club to comply with any regulations on debt levels which are being discussed by the football community.”

That is a really interesting quote – note that he is specifically thinking about the new regs which require clubs to break even on football related business after 2012.

Chelsea wrote that they were engaged in “disciplined management” of capital expenditure, a reduction in capital expenditure etc.  So Mr Abramovich wrote off £726m in loans.

Well, no.

It now turns out that Mr Abramovich loaned the money not to Chelsea FC at all, but to Chelsea Limited.   Who loaned it on to Chelsea FC plc, which is what we mere mortals know as the KGB in Fulham.

So it was the loans from Chelsea FC plc that were converted to shares.  But that awfully nice Mr Abramovich’s loan to the holding company which owns Chelsea FC plc, was not converted to anything.

Not only is the loan still there – it is getting bigger.  Because Mr A just loaned another £25m.

And now here is a funny old thing.  The name of Chelsea Limited (which you might think is a good old name, since it reflects the name of the club-type thing that plays football) has now been changed to Fordstam Limited.  Fordstam owes £726m, owed to Mr Abramovich.  So I guess the fans could sing…

“And its Fordstam Limited, Fordstam Limi-ted

You’re by far the greatest team whose name begins with F

Except Fulham.”

Now, in case you are fluent in Gobbledegook, this is what a spokesperson for the KGB in Fulham said to the papers that bothered to take an interest.

“Recapitalisation of loans happened at the level of Chelsea FC plc, not the holding company, therefore making the football club debt free.”

Well not quite sunshine.  Whichever way you stand on your head, Fordstam owns what we all know as Chelsea FC.

Now maybe Chelsea has done a deal with Uefa so that they can get away with this.  Maybe they thought no one would notice.  Maybe they will willingly give up their place in the Champions League in recovery.

But here’s an idea.  Maybe it was all a little slip and they never meant to change the name of the company at all.  You know how it is.  You are walking down the street in Cardiff, and happen to see as you head north out of the city this big building on your left, and you just happen to drop in, in case its a pub or something (forgetting that the pubs are on the other side of the road – they all have the word “Brains” written outside).  Then when the lack of a bar, pool; table and TV give you the club that this huge building is actually a government office and not a pub at all the man behind the till slips a piece of paper under your nose, and next thing you know you have changed the name of your company from Chelsea to Fordstam.  Must happen every day of the week in Cardiff.  Regular thing.  My how they laugh in the Topplledll Bollardll Publlic Hollusell.

I must stress of course that they have done nothing illegal, and they have no obligation to tell the press or anyone else what is going on.  So no allegation at all from me.  I’m just, well, I suppose, amused.

Yes, amused.

That’s it.

Amused.

Anyway, here’s the big thing.  When we all looked at what appeared to be the original Chelsea plan (that is when we believed that Abromovich had indeed made the club debt free by converting the loan of £700m to shares, a question was raised.

What happens at each transfer window when Chelsea want to buy another player or four?   The club is losing money, which is why Abramovich has to keep pouring money into it.   Does he keep creating new shares?  If so, that would look daft, and surely even Uefa wouldn’t actually go with something as blatant as that.

Now it seems he doesn’t have to do it – he can just put money into Fordstam and feed it through that way.

Fordstam owes Abramovich £726m.  Unlike many loans in football, tThe loan is interest free, but it is repayable if Abramovich gives 18 months’ notice.  So that is the lifeline Chelsea are on.  18 months.  Not that long really.

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Chelsea: the dark origins

The Index of Indexes to Everything Positive and Nice (except Fifa and its bent world cup)

Woolwich Arsenal – now there is a club on the brink of disaster

The Book – not as useful as the Hitch hikers guide to the galaxy, but still, quite good for a read during the summer break.

30 comments to Chelsea FC are not debt free at all – it was all a huge con (or a mistake)

  • vote eboue

    ha 726!!!!?? is that in any way, sane? and the doom mongers say ARSENAL is Armageddon!? I dont know alot about it but, i know a little something about sitting on a mine field or building your house on top of an active volcano. Give it a few years (or even 18 months as you put it).

  • TheSKAGooner

    This reminds me of the CDO debacle that so many banks tried to hide. Bad mortgages tied to assets we can’s possibly recoup on? No worries…we’ll just list them over here, where no one ever looks. Viola! That balance sheet looks MUCH better now, doesn’t it Mr Auditor? And for your troubles, here’s some naked short recommendations to take advantage of next time you call your broker.

    Hopefully someone at UEFA sees through this flimsy skein of misdirection and holds the Chavs to account when it comes time to decide who really “qualifies” to play in the Champions League.

  • donkeyman

    lets be honest here, name me a club thats not in debt? thier ain’t one, even club who been taken over by billion air owneres are in debt ,why ? because these so called billionairs pour thier own debts into the club look at man utd liverpool,
    chelsea and aston villa are slightly different where they been loaned the money by thier owners (and who will want every penny back when they get bored and move on)
    arsenal are in debt so much the club can’t or won’t tell us if we got any money at all, they just paint over the issues,about if we can or can’t buy even wenger speaks differently from the boardroom, on how much cash he has.
    the problem is boardrooms make a big killing out of thier clubs,filling thier own pockets.within 5 to 10 years i onder if thier be any football clubs leave’t if banks and loanees want thier money back, chelsea liverpool man utd and arsenal are not save, soon a club will go out of business , and when it does expect a domino affect knockon its comming be ready to say good bye to your clubs.

  • MARK

    What goes up must come down!! Chelsea scum!

  • tim

    “creative” accounting strikes again!

    this will all end in tears for chelsea.

    i see them skirting by all the UEFA and FA rules, but my bet is roman A. will eventually get bored of his toy in a few years, and then cut his losses.

  • vote eboue

    By the way Tony they issued an ‘Official’ statement yesterday (Wednesday) on their wesite saying they do not owe F(spelling mistake)Ltd any money neither do they owe MR A. any money. How is that?

  • vote eboue

    sorry meant to say ‘website’

  • John

    Walter can you tell me what the debt level is on Arsenal emirates stadium please thanks great aricles by the way

  • Bart

    This, of course, makes enforcing financial fair play rules very difficult. With a myriad of parent companies and subsidiaries, where is the football club that that needs to comply with financial fair play? As I understand it, in case of Chelsea, there is a Chelsea Football Club, their parent company Chelsea FC plc and Fordstam plc which holds the shares in the plc. According to a statement on Chelsea’s website the first 2 are practically debt free. The debts to RA are booked in Fordstam plc, which is 100% owned by him, allegedly. At what level will de Fair Play rules come in to force?

  • Rhys Jaggar

    No Tony

    It’s simple. Mr A. went to see Mr B. in Monaco and he explained it all to him.

    He’s on good terms with Companies’ House and the HMRC after all.

    He did suggest ‘rebranding’ Chelsea Ltd as a shell in the Caribbean, but Roman’s yacht is in the Med, so they forgot that one. And the US military told him he’d need to fly his plane round the side of the US across the Sierra Madre to get home to Chukotka, and they wouldn’t let him land in Honolulu to refuel, so that was no good.

    So Mr B. suggested Liechtenstein, San Marino and told him about pending opportunities in the Adriatic. Like stealing Luka Modric from Spurs. Or taking tea with Deripaska to hear how much longer Khordokowsky would last in Siberia before throwing in the towel.

    But in the end they decided to keep it simple. So they just changed the name of Chelsea Ltd to something silly. Like For The Stam, in memory of that hero who dissed Sir Alex in print before being sold to the Mafia. Whose henchmen were too scared of his big bald head so they went AWOL to Sicily.

    The Daily Mail has taken its reporters on a jolly to Ibiza.

    So they got me to make up this rubbish for them.

  • Kanenas

    I don’t mean to be smart, but if Abromovich owns both companies how is that a real financial problem? I mean he does own Chelsea and if he actually calls in his loan wouldn’t he be calling it on himself? It’s not like he is been conned into giving them the money, and he will suddenly realize it and want his money back. IMHO, the guy is playing football manager with a real team and wants to win the champions league. (In a funny way I think Chelsea’s real problems will start after he actually wins it and then looses interest)

  • Alcovinco

    So eventually when Abramovich is bored with his pansy blue toy
    He will start to claim his investment?
    Start milking it?
    Much like Berlusconi at Milan?

  • Joe

    Funny how it’s all lies and conspiracies when anything is printed about your beloved team, that the press are all snakes and can’t ever be trusted. Until it suits your agenda that is!

    Clubs official statement:

    ‘Contrary to media reports today, other than a small residual balance Chelsea Football Club and our parent company Chelsea FC plc are debt free and do not owe any money to our shareholder (Fordstam Ltd). Neither do we owe any money to Roman Abramovich.’

    So, Roman gets to sue the press again. I suppose he should thank them for giving him the opportunity to bank even more green!

  • AaronGSi

    Chelsea will be in the shit, only if Roman decides to sell the club, and the buyer is not an Arab multi-billionaire or Bill Gates, but how long can he keep pumping millions into it to support players wages and transfers? There is already media speculation about £70m bids for Torres and £40m bids for Aguero and De Maria etc, so if bids like these are to happen then he will be digging deep again. Chelsea are not even worth £726m on the open market, so if he does ever plan on getting his money back, then he is already a couple hundred million out of pocket at least (unless he can find somewhere to build a new 80,000 seat stadium and fill it – very unlikely as they can’t even fill Stamford Bridge most of the time).
    What is quite interesting is that they have refused to allow Michael Mancienne to stay at Wolves next season according to one or two media articles. He’s not even really that great a player, but they are desparate for home grown players for their squad, so he’ll be warming their bench at best next season. In fact, I’d be surprised if they spent much money at all really – exept on a few young english players or overseas youths. Give it another season or two and they will be on the slide for sure.

  • Kanenas – there’s no problem with the set up at all in a legal sense. The problem only arises

    a) if Mr A wants his money back

    b) if Uefa impose the balance the books rule. This is such an obvious way to get round the balance the books rule that if they allow it, there’s no point putting the rule in place.

    We have much greater problems with Tottenham H whose finances are based in the Virgin Islands, and where there is no disclosure of losses. That is the one that Uefa are really going to have to look at.

  • John – that was one of my articles, not Walter’s so I’ll try and answer it.

    The stadium debt is around £230m (sorry don’t have absolute up to date figures) and the property debt outside the stadium is zero.

    To go behind that figure, it is a regular mortgage being paid off month by month. That is the big difference between us and Chelsea – there is no way Chelsea have the provision to pay off any of the Abramovich loan at all, and there is the danger that it could be called in with 18 months notice. Arsenal’s debt can’t be called in, and it can be paid off.

    The club statement is that as long as we get 50,000 in the stadium for each game, and as long as we are in the group stages of the Champs league once every four years, we are ok.

  • lp

    great article Tony.

  • Joe, before you start making fatuous comments like this, at least spend a moment to contemplate what is going on.

    You said, Funny how it’s all lies and conspiracies when anything is printed about your beloved team, that the press are all snakes and can’t ever be trusted. Until it suits your agenda that is!

    That is just so plain daft. I have repeatedly made it clear that my argument is with unattributed comments or comments from sources repeatedly found to be wrong. If Arshavin is quoted without a source, or the source is a Russian magazine, I tend to disbelieve because such material has been ludicrously wrong in the past. If a writer here says, “Wenger said xxx” and I can’t find a source, I often write to that person and say, “what’s your source”. If they don’t reply, then I discredit them.

    Now in this case I believe the source, as I will explain below.

    But first, you write…

    Clubs official statement:

    ‘Contrary to media reports today, other than a small residual balance Chelsea Football Club and our parent company Chelsea FC plc are debt free and do not owe any money to our shareholder (Fordstam Ltd). Neither do we owe any money to Roman Abramovich.’

    So we might ask, why are you choosing to believe Chelsea’s official statement, rather than what I wrote. You don’t debate the issue, you just charge in. Since I have in the past exposed how Chelsea have manipulated even their own supporters’ statements (hence the name KGB in Fulham) that is perverse.

    You then say,

    So, Roman gets to sue the press again. I suppose he should thank them for giving him the opportunity to bank even more green!

    That is a most bizarre statement. As far as I know the only paper Mr Abramovich has sued is the Sunday Times, over the story that he was thinking of selling Chelsea. As far as I know the case never came to court. But since you are a stickler for history, should you not also balance that with the point that the European Bank for Reconstruction and Development sued Mr Abramovich.

    But let’s come back to the source. The source was the official accounts of Chelsea Limited (now known as Fordstam Limited, and they show £726m, owed to Mr Abramovich at the time that Chelsea made its initial statement.

    So what it comes down to is that you believe what is on the Chelsea web site.

    Fair enough that is up to you. But what then is the point of putting your point of view here? This is a web site set up to support Arsene Wenger and the Arsenal team. I think you should stop commenting here and go and comment on Chelsea blogs where you will find other people who believe what is on the Chelsea web site.

  • cape gooner

    Tony, is it possible that you have got it wrong? Why are you saying the Chelsea statement is wrong when it is clearly true? True, but intentionally misleading. It says that “Chelsea Football Club and our parent company Chelsea FC plc are debt free and do not owe any money to our shareholder (Fordstam Ltd). Neither do we owe any money to Roman Abramovich.’

    All that is true! As you have pointed out previously, the money is owed by Fordstam to Roman.

    The Chelsea statement is a poor attempt to mislead the gullible. Joe clearly falls into that category.

  • Marcus

    Joe is a secret Arsenal fan I think Tony.

    ‘I’m a secret lemonade drinker’…..

    He’s probably got a tattoo of Ian Wright in a cleft somewhere.

  • Finsbury

    My favourite attempt to mislead the gullible in Football in recent years were the words of the departing Liverpool chairman, before he pocketed a nice lump sum.

    Regarding those amazingly budget, off of a ZX Spectrum CGI renders put up in the international media (3D modelling geeks were passing out around the world) that showed the new Kop (An interesting proposal, I wonder why there are not thousands of single tier stands built around the world…?…cost…???):

    “The stadium isn’t important. It’s the people inside that matter.”

  • Finsbury

    There is a modern single tier in the UK at Old Trafford.

    But it’s due for redevelopment. (hah!)
    There were plans to increase the capacity up there.

  • Finsbury

    I should explain myself:

    Walter expressed his doubts about the Tiny Totts’ planning application earlier in the season.:

    http://www.kissmyarsenal.co.uk/news_story.php?id=7225

    I’m familiar with reasons why a ‘developer’ may desire such stalling tactics.

    It seems West Ham might well end up with a new ground before the Sp*ds do.
    Maybe that Secret Offshore Portfolio could afford to buy the sinking Wembley off the crumbling FA?

  • Richard B

    If I understand all this correctly the debt that used to sit on Chelseas books has been turned into equity. If that equity is in Chelsea itself then it must be valued against Chelseas own assets – which are way lower than £726m. If those shares are in Fordstam then they must be valued against Fordstams assets which can only be a debt that it holds against Chelsea. Whichever way round it is the only route for repayment of that debt is via the earnings that are made by Chelsea who are well known for making significant losses every year. There is no secret to the fact that Chelsea have been the end beneficiaries of that money and that they still cannot pay their way without his financial input – hence the latest additional payment of £25m. UEFA appear not to care about debt as long as it is demonstrably ‘sustainable’ – in other words it can be serviced out of existing and future revenues. Even the most lenient view of the Chelsea situation must require them to dramatically increase their revenues and/or dramatically reduce their costs. Otherwise they will continue to make huge losses and will keep needing to go back to their sugar daddy (Mr. Fordstam) for more ‘gifts’. Such gifts are not permitted under those UEFA regulations. The Chelsea business plan (such as it is) has already been ripped up once and must now be changed again. Not a well run business is it?

  • shotta-gunna

    Poor old Joe is so simple minded and deluded, he is unable to comprehend how his beloved Chelsea’s future depends on whims of the mighty Roman. In 18 months the club could be wound up if Roman makes a demand for repayment of principal by Fordstam Ltd. Having no other assets but those of Chelsea PLC, Fordstam’s only recourse is to liquidate the assets of Chelsea PLC. That would include the selling players less any o/s debt, selling the stadium and any other real property.
    The very prospect of this happening must have left Joe in such a shock that he wrote that load of gibberish and bollocks.

  • Mark the spark

    Tony,
    Your post on May 20th at 12.55.

    “The club statement is that as long as we get 50,000 in the stadium for each game, and as long as we are in the group stages of the Champs league once every four years, we are ok.”

    Could I ask for clarification of that?
    My understanding is that the business model/projection allows for one season in four for the champs league to be missed out on? You seem to be saying that we can miss out on 3 seasons in four and still stick to the ‘money plan’?
    Cheers,Mark

  • Mark and Cape G – I might well be wrong in both cases. The problem is that I try and stay up to date with the site and keep it moving through the day, while I am at work – and obviously should be working. So a lot of the time I work from memory and go too quickly.

    I think Cape Gooner’s answer is probably right – it seems perfectly logical. I do remember that we only had to get into the Champs league once every four – but where I saw that I don’t know.

    And now I am about to dash out again, having driven miles to get my glasses checked, and now wanting to go for a dance (jiving in case you ask).

    I’ll try and catch up on this – but can I explain. I really do work on the articles and try and get these dead right, but sometimes my replies to comments are a little too hasty.

    Final point, my understanding is that the Uefa rule is at the moment cast in the form not of sustainability (which is the EPL argument) but in terms of break even. At the heart of the issue is the Benefactor Model, which the EPL except Arsenal is based on.

    I will return to this anon, unless anyone has some good info that can be turned into an article

    Note to self: slow down

  • Richard B

    I was at an AST meeting with Ken Friar a couple of years back when he said that the break even level at the stadium was much closer to 40000. Of course it depends on the price of the seats that are being sat in. One person in the Diamond Club pays for 20 in the ‘cheap seats’ for instance. Fully sold, Club Level provides the same level of revenue as the whole of Highbury did. Meaning that the remaining 50000 is all a bonus. It’s also a fact that a full stadium brings in five times the ammount needed to pay the mortgage on Emirates – and that’s the only debt the Club now has. If it uses the revenues/profits from other property sales to pay off that mortgage then the financial equation moves even further towards our advantage. It’s paying the players that’s the problem for everyone and that’s the reason why Chelsea, at least publicly, are so supportive of the UEFA regulations. It’s just the way that they’ve tried to get round them that’s so fishy.

  • habika

    There is no secret to the fact that Chelsea have been the end beneficiaries of that money and that they still cannot pay their way without his financial input – hence the latest additional payment of £25m. UEFA appear not to care about debt as long as it is demonstrably ’sustainable’ – in other words it can be serviced out of existing and future revenues. Even the most lenient view of the Chelsea situation must require them to dramatically increase their revenues and/or dramatically reduce their costs. Otherwise they will continue to make huge losses and will keep needing to go back to their sugar daddy (Mr. Fordstam) for more ‘gifts’.
    =======================================
    Debt Free Seattle

  • Pete

    So we are 29 months down the line from the doom-mongers here stating Chelsea have only 18 months to get their act together, Abramovich leaving and taking his money out (how much longer will people try that one – it’s been 10 years). Chelsea are still there, more management upheavel and yet ironically, more and more success has gone to CFC while the club have little to fear from FFP regs and are becoming increasingly more financially sound. And in the north side of London the tumbleweed continues to blow. Funny old world isn’t it..?