In recent times, there has been much argument about why football clubs are allowed to spend so much on signings, especially when considering issues such as FFP (Financial Fair Play).
Arguably not since Roman Abramovich’s first couple of years as Chelsea owner have the club brought in as many signings during the transfer windows.
Under owner Todd Boehly, since the American took over the club in the summer of 2022, the West London outfit spent just over £900 million on new players in 12 months (three transfer windows); an eye-watering amount.
It has raised numerous questions by many in the game surrounding just how they are able to do this; despite Boehly having a net worth of over £3.5 billion. In most issues such as this, it comes down to clever accounting that sees clubs able to exploit loopholes.
Many of Chelsea’s new signings have joined on long deals (some as much as seven years), with the intention of paying off their mega transfer fees across the length of their contracts. However, following a UEFA ruling, after the January 2023 signings of Enzo Fernandez (£106 million) and Mykhailo Mudryk (£62 million), the club was given a five year limit to pay these off, in order to avoid flouting FFP restrictions.
It also means that the club’s auditors will be responsible for ensuring that the regulations are being followed, with this new approach from the club giving them the ability to break their previous transfer records.
Under Abramovich, the club gradually started to become sustainable following significant outlays during his early years, though they did adopt what was recognised as a particularly astute model. Signing the best young players for nominal fees, the club would then send them out on loan for two or three years at a time to let them establish themselves before selling for substantial profits.
This did, though, backfire a couple of times, in the case of Kevin De Bruyne, who joined the club for £7 million. Hindsight is a wonderful thing in football. At the time, selling the Belgian to Wolfsburg for £22 million seemed like smart business (essentially a £15 million profit). That was until he became one of the best in the world in his position, which saw him move to fierce rivals Manchester City for £55 million and become arguably the most influential player in the Premier League.
What Is Amortisation
Amortisation is not a new concept it is just that it has become well known in football recently thanks largely to Chelsea’s spending strategy. Amortisation is a word that comes from accounting and it is a technique that is used to lower the value of an asset (like a player) or a loan periodically over time (like the length of a contract).
In football the practice allows you to gradually write off initial cost of a player over the course of a contract. The longer the contract the longer the period over which you can spread that cost. Enzo Fernandez, for example joined Chelsea for £106 million but spread over 8.5 years it will only be recorded as a loss of around £12.5 million each year in terms of UEFA FFP rules.
The practice is not new and all clubs have been doing it for years. What is new is the magnitude and scale at which Chelsea in particular are using amortisation. It comes with potentially big risks given the length of the contracts but also could potentially be very rewarding. What could be interesting is UEFA are shutting the loophole in these longer contracts and will force clubs in future to spread the cost over a maximum of five years. This will mean Chelsea and other clubs will need to find a new way to spread these costs in future.
Is Amortisation A Smart Move In Football?
Essentially, this is a huge gamble, especially for clubs that don’t particularly have a huge status. Many clubs rely on revenue from numerous sources, such as sponsorship deals, merchandising, media deals, ticket sales, prize winnings, player sales and many other commercial avenues.
As a result, if a club knows that it is not at a level where it is considered to be a ‘brand’; Manchester United are a prime example here, where they can be sufficiently sustainable, then going down the route of amortisation is a major gamble.
This is also regardless of how rich the club’s owners are. Newcastle United (despite being the richest single football entity in the world), had to be sensible in the two transfer windows following their takeover.
The reason for this being, is because they do not currently earn enough commercially to justify major financial outlays on players. No doubt, this will be the main goal following their takeover and performing well in the Champions League and continuing to qualify for this competition will be a major priority.
Despite Manchester United not having qualified for the Champions League for a number of years, this has affected their balance sheet, however, the fact that they are globally recognised means that commercial deals more than make up for this. Amortisation is a route that they haven’t really pursued, especially to the extent that Chelsea have.
It is a gamble for Chelsea and, despite spending a significant amount on players and signing them to long contracts, the club has put together a squad that is more than capable of challenging for major trophies with the talent that is at their disposal following Boehly’s takeover.
In the case of Fernandez, he signed a deal that was eight-and-a-half years until 2031, while Mudryk’s is also the same length. Moises Caicedo who signed for the club in August 2023 also committed to a deal that will last until 2031 (eight years), having joined for a British record £115 million deal. Fellow midfielder Romeo Lavia followed Caicedo through the door at Stamford Bridge on a seven-year contract, with the club outlying £58 million on the Belgian talent.
Meanwhile, striker Nicholas Jackson joined on an eight-year deal from Villarreal, with Chelsea paying just over his £30.1 million release clause in exchange for more favourable payment terms and attacker Christopher Nkunku signed a six-year deal joining from RB Leipzig for £63 million.
The last player through the door in the 2023 summer transfer window, which, more or less came out of nowhere, was 21-year-old attacker Cole Palmer from title rivals Manchester City who joined for an initial £40 million, signing a seven-year deal. The youngster who has an abundance of potential is a shining example of the strategy that the club are trying to implement with their transfer strategy.
One of the common denominators of all of these players is that they are still in their early twenties, already being recognised as some of the best young talent in world football, with the hope that they can grow together to forge the core of a world class team capable of winning trophies consistently.
Should this be the case, then the amortisation strategy is likely to pay off, while there could also be substantial returns on investment for one or two of these signings if one of the ‘big four’ Saudi clubs is tempted to pay a couple of hundred million for one of them. It would essentially mean that most of these transfer fees could be paid off in one go.
It would require the club to then demonstrate prudent financial literacy in the transfer market should an offer arrive for a player that makes astute economic sense.
Notable Chelsea Signings Under Boehly That Reflected The Amortisation Model
|Player||Age||Contract Length||Transfer Fee|
|Enzo Fernandez||22||8.5 years (2031)||£106 million|
|Moises Caicedo||21||8 years (2031)||£115 million|
|Mykhailo Mudryk||22||8.5 years (2031)||£62 million|
|Nicholas Jackson||22||8 years (2031)||£30.1 million+|
|Christopher Nkunku||25||6 years (2029)||£63 million|
|Romeo Lavia||19||7 years (2030)||£58 million|
|Cole Palmer||21||7 years (2030)||£40 million (+£2.5 million in add-ons)|
What Can We Learn From Amortisation In Football?
Essentially, to go down this route in football is dependent on a number of factors, not least of which being the application of sound financial and strategic judgement. It comes down to performance on the pitch and whether clubs who adopt this model are confident in their ability to achieve success.
If this is the case, then this is a gamble that might pay off in the long-term. Chelsea, who failed to qualify for any European competition in the 2022/23 Premier League season (despite spending nearly half a billion on players in two transfer windows), were prepared to gamble on the fact that they would qualify for the competition in the following season.
This would then mean a substantial increase in revenue, due to receipts from being in Europe, while challenging for the Premier League title would also have been highlighted as a major priority.
Although the club now has somewhat of a global status, due to the nearly two decades that Abramovich was in charge, which brought with it numerous Premier League titles and two Champions League victories, getting back to this level is certainly key for the club’s sustainability.
For clubs that are not at this level, amortisation is a risky business; there are so many variables to consider, even if the club has significant financial backing. As such, this model may bring with it more complications than necessary for a club that is not in a position to realistically make this gamble.