Chelsea FC has captured the football community’s attention due to its apparent limitless transfer budget under new owner Todd Boehly. Since May 2022, the club’s spending on the transfer market has reached nearly £1 billion, prompting questions about how Chelsea has managed to remain compliant with UEFA Financial Fair Play Regulations (‘FFP Regulations’) that have severely restricted or penalised other European clubs like Manchester City and Paris Saint-Germain.

What is FFP?

At the start of the 2011/12 season, UEFA, the governing body of European football, instituted the FFP Regulations to prevent football clubs from spending beyond their means in order to ensure the financial sustainability of European football. The concept was initially established in 2009 when UEFA discovered that over half of the 665 European clubs under its jurisdiction had suffered financial losses during the previous year, and more than 20% of these clubs were under serious financial pressure.

These concerns led to the creation of regulations that impose penalties on teams that exceed spending limits over multiple seasons within a specified budgetary framework. The primary regulation is the "break-even requirement", which stipulates that clubs must balance their expenses with their revenue over a three-year accounting period. A team is compliant with the break-even requirement of the FFP Regulations if the break-even result of a team is:

• Positive i.e. in surplus; or
• Negative but which is (i) not more than €5 million or (ii) not more than €30 million, if the excess is entirely covered by unconditional contributions from equity participants and/or related parties.

How Chelsea Has Remained FFP Compliant

While Chelsea has bought many new players, including several for substantial transfer fees, the club has signed new players to extended contracts, often lasting up to eight years. This practice effectively spreads the cost of transfer fees over a longer period, thereby reducing the annual accounting cost of each transfer, a concept referred to as amortisation and allowed under the ‘capitalisation and amortisation’ accounting principles of the FFP Regulations. Last year, Chelsea spent £600 million on players, with some players signing eight-year contracts. Therefore, that £600 million is an expense averaging roughly £75 million per year, significantly reducing the annual expense of the club.

Importantly, in January 2023 UEFA announced that a transfer fee can only be spread across a maximum of five years of a player’s initial contract which will somewhat limit the effects of extended contracts.

On the revenue side, Chelsea has also succeeded in selling certain players for substantial transfer fees. This has bolstered the club's earnings and helped facilitate compliance with the break-even requirement.

However, it is important to note that Chelsea's ability to meet FFP Regulations could falter if its revenue stagnates in the upcoming season(s). Such a scenario could necessitate the sale of more players or result in fines and/or other penalties under the FFP Regulations.

Whilst Chelsea has so far complied with the FFP Regulations, other high-profile clubs, such as Manchester City and Paris Saint-Germain have previously breached the FFP Regulations. In 2014, both clubs were fined €60 million, faced squad reductions, and encountered restrictions on transfers and spending, due in both cases to their respective failures to meet the break-even requirement. Similarly, Inter, AC Milan, Juventus, and Roma have faced fines for non-compliance with the break-even requirement.

The Future

It should be noted that the FFP Regulations are in the process of being gradually phased out by UEFA’s Financial Sustainability Regulations (the ‘Sustainability Regulations’). These cover 3 distinct pillars, namely:

• The ‘no overdue payable rule’, focused on protecting creditors and ensuring better solvency;
• The ‘football earnings rule’, focused on maintaining stability; and
• The ‘squad cost rule’, focused on cost control through restrictions on club spending.

It remains to be seen whether Chelsea’s strategic approach to the FFP Regulations will pay dividends on the pitch. However, it seems clear that with the gradual implementation of the Sustainability Regulations over the next 3 years, manoeuvring around the legislation will prove a trickier task for Europe’s elite.