With UEFA's Executive Committee approving the financial fair play regulations on Thursday, high-spending European clubs including Chelsea are faced with the prospect of losing out on European football if they fail to meet the objectives set by UEFA.
As per the clauses of the new regulations, clubs cannot spend more than they earn and are required to operate within their financial means, thereby curtailing the excesses that have endangered football's health recently.
Other key objectives of the newly adopted regulations are to reduce pressure on salaries and transfer fees, protect the long-term viability of European club football, and ensure that clubs settle their liabilities in a timely manner so as to avoid another Portsmouth-like situation.
There will be a phased implementation over a period of three years before the most important part of the regulations—the "break-even" requirement where clubs must not spend more than they generate—comes into effect for financial statements for the reporting period ending 2012. Initially sanctions against clubs who do not fulfil the break-even requirement will be taken in the 2013/14 season, on the basis of financial information from the two previous seasons.
So the recently-crowned Premier League Champions need to find ways to cut down their losses and break even if they are to avoid getting banned from European football.
As per their financial reports, Chelsea have registered a loss of £44.4 million for the year ended 2009. It means the Blues' have considerably brought down their losses, which were previously £65 million.
Chelsea's cash outflow has also been massively reduced from £107.4 million to £16.9 million, mostly as a result of their minimal transfer spendings last season. With the completion of projects such as the development of the training centre at Cobham, the Blues' net capital expenditure has been reduced from £85.1 million to £4.2 million.
Also included in last year's accounts is an "exceptional" expenditure of £12.6 million which was paid out as compensation to sacked coach Luiz Felipe Scolari and his staff.
Chelsea's balance debt of £340million was eventually absorbed by their owner Roman Abramovich and converted into equity shares which made the club literally debt-free and thus allows them to escape any sanctions under the new regulations.
The high-spending West London outfit should presently try to reduce their losses to nil and break even within the next two years so when the regulations come into effect they do not face any ban from competing in European competitions.
To reduce their losses the club needs to spend less. They can start that by not spending much in the transfer market although they look to do so. The Chelsea youth players can be brought into the first team, which will go a long way in reducing Chelsea's transfer budgets.
Chelsea are set to offer their players new contracts with revised reasonable wages unlike the huge wages they used to pay earlier. This will allow Chelsea to cut down on their losses considerably.
Moreover, the Pensioners should start catering to the ex-European markets and gather funds from sale of kits and accessories. The Blues' fan base is increasing at a rapid rate all around the world, and they should cash-in on their popularity.
A few pre-season tours to Asia and other parts of the world will do Ancelotti and his men a world of good regarding their popularity. Moreover, they can cash in on lucrative TV sponsors, which will bring in a lot of cash.
Chelsea's prime objective for the next couple of seasons should be to achieve their financial break-even point. With their Russian owner looking set for a long association, the club should strive to become self-sufficient, and for that they need to start making profits.
With a disciplined financial planning the Stamford Bridge club can easily reduce their losses and comply with the rules to avoid any sanctions from UEFA.
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