Hurting Chelsea is an interesting way to make a point to Putin
Outside Chelsea FC’s Stamford Bridge stadium some graffiti appeared on a set of hoardings
“Leave our club alone” the wavy spray-canned writing read, “Europe is funding the war - not CFC.”
The message was a blunt objection to the unprecedented sanctions the club was hit with last week by the UK government.
Measures taken against the Chelsea owner Roman Abramovich have effectively stopped it from bringing in any meaningful capital, ticket sales are barred, TV money is frozen and merchandise cannot be sold.
The stunning development was explained by Prime Minister Boris Johnson as being part of efforts to speed up sanctions against oligarchs the UK had deemed to be aligned with the Russian government.
"There is enough connection, enough of a link between the Putin regime and the individuals in question to justify the action,” he told Sky Sports.
Abramovich was in the process of trying to sell Chelsea and it seems unlikely the British state's decision to act now was not connected.
Although the oligarch had promised “all net proceeds from the sale [would] be donated for the benefit of all victims of the war in Ukraine,” the powers in Westminster moved in before any deal could be completed.
The question is what does the British government want to achieve by blocking the sale?
Relying on money in the bank
With all its means of making money restricted, Chelsea is in a tricky situation.
As any accountant will tell you, it’s not revenue, profit or loss that businesses rely on, but cash.
If cash doesn’t flow properly through a company even the most successful enterprises can rapidly unravel.
Premier League clubs need a lot of money because their outgoings are remarkably high, driven by the player’s high salaries.
At Chelsea, weekly wages are the region of $195,000, which is a heavy cost to bear even in times of plenty.
Fortunately for the team its cash position, according to its most recent accounts for the year ended June 30, 2021, is relatively healthy. The club's cash at bank and in hand was $20 million.
Based on that figure, the club would be able to cover the cost of wages alone for at least 10 weeks.
But other bills will have to be paid in that time and the considerable expense of putting on games at Stamford Bridge. So a crunch point might come sooner.
Chelsea, like many businesses, will be used to having times when the cash coming in and the payments going out don’t quite match up and it has to borrow money.
In the past, the club, unlike other businesses. which have to borrow money from the bank, could call on the wealth of its owner Roman Abramovich through his company Fordstam Limited, Chelsea’s ultimate parent company, for funds.
The amount the club asks for varies, last year its net borrowing was around $24 million, but in the Covid-19 hit 2020 it was as high as $324 million. Not all of it was lent by Abramovich, but a large portion was.
That’s all quite enough to deal with. But there have also been reports that corporate credit cards have been temporarily suspended, while corporate partners Three and Hyundai have pulled their sponsorships following the sanctions.
What happens when the cash runs out?
If Chelsea gets into a position where it is unable to cover its ongoing commitments and can’t pay its creditors it would face the possibility of having to enter administration. Where an external accounting firm comes in to run the business on behalf of the creditors.
It’s a possibility some experts anticipate emerging soon.
“I don’t believe that they have enough cash in the business, without owner support, to meet their ongoing obligations, such as paying players. I suspect administration will be on the table soon,” football finance expert at Sheffield Hallam University told the Independent newspaper.
Before adding; “if that happens, player sales would be permitted but you would expect them to be at a much lower value. The administrators’ role will be to pay creditors, a task made easier [because] Roman Abramovich wouldn’t be one, as the shareholding is diluted under administration.”
But this is not like a normal administration, where a failing business has lived beyond its means. This is the result of sanctions, so the question is; would the UK government sign off on some sort of deal where the club was sold but Abramovich did not benefit from the sale?
It’s difficult to know. Putting Chelsea in this situation is a public way of the British state showing it means business with its sanctions against Russian oligarchs.
However, you have to wonder what the ultimate goal of this is. Chelsea being put into administration is likely to cause far more heartache in West London than it will in the Kremlin.
It was a point the mayor of London Sadiq Khan made when he described the fans as being “completely innocent” in the whole debacle.
“It’s important to distinguish Chelsea and what’s happening in Ukraine,” he said. “They were a great club before the current owner and they’ll be a great club after the current owner.”