Chelsea Claims To Be Debt-Free

I was shocked to read on the Chelsea   Web site  that the club is now claiming that the team is now effectively debt free.

So what happened to the £600 million that Roman Abramovich had put into Chelsea since he bought the team? Well it appears that Abramovich turned his interest-free loan to the club into equity (shares), thus wiping out the club’s debt.

The club’s statement on this is:

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“Following previous conversions of half of the debt, the remainder of the interest-free loans from the parent company, whose ultimate controlling party is Roman Abramovich, have been converted into equity making the group effectively debt free.”

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In a shot at UEFA President Michel Platini Chelsea, chairman Bruce Buck said:

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“The club’s debt load has been reduced almost to nil in order to provide more long-term stability for the club. The reduction will also enable the club to comply with any regulations on debt levels, which are being discussed by the football community.”

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Now this seems more like an accounting move by Abramovich than a change in operating procedure by Chelsea, who are still losing money as the numbers from Chelsea show.

• Group turnover was down from £213.1 million to £206.4 million.
• Turnover was generally flat. The small year-on-year reduction reflects the front-loaded nature of certain sponsorship revenues.
• Loss for the financial year reduced from £65.7 million to £44.4 million. 
• Remainder of shareholder debt of £340 million was capitalised.
• Net capital expenditure reduced from £85.1 million to £4.2 million following the completion of major capital projects such as the training centre at Cobham.
• Cash outflow reduced from £107.4 million to £16.9 million.

Chelsea’s PR group is hoping that the “debt-free” headline is what people will look at. But those are not good numbers. Revenue is down because in 2008 Chelsea signed some big sponsorship deals and got money up front. So I would expect that Chelsea’s revenue will be around the £200 million mark for the next several seasons.

The club is still losing over £44.4 million a year (they have lost money every year Abramovich has owned the team) and has a negative cash flow of just under £16.9 million.

If Chelsea, as chief executive Ron Gourlay says, "It is still our aim to be self-sufficient, and we will achieve this by increasing our revenues as we continue to leverage off our brand. We are reducing our costs by controlling expenses, including salaries and wages," then I cannot see how the club could finance any big signings like Franck Ribery. Chelsea does not appear to have the cash flow to fund this type of signing.