How Chelsea are now free to make big signings without FFP becoming an issue
A look at how letting players go and extending player contracts will actually help Chelsea with respect to Financial Fair Play regulations
This week, the Telegraph published a fascinating article explaining that Chelsea's position now under Financial Fair Play rules has been strengthened with the permanent sale of Fernando Torres. The article was such an eye opener, I wanted to feature it here and to explain the situation using quotes from it because I believe that not all of us are aware of how FFP works.
Fernando Torres off Chelsea’s books
"Torres has hit Chelsea for just over £18m-a-year in FFP costs and this summer is the first in which the Blues can budget for not having the Spaniard on the books. The permanent move to AC Milan that allowed Torres to join Atletico Madrid on loan saw Chelsea accept an £18.72m Financial Fair Play hit on the striker this season in order for him to be wiped off next season’s books.
Financial Fair Play accounting dictates that players are valued annually, which is calculated by adding the amortised transfer fee to the annual wage. Chelsea paid Liverpool £51.5m for Torres in January 2011 and handed him a five-and-a-half-year contract worth £175,000-a-week. That means, in terms of FFP, his fee was amortised to £9.36m a year, plus £9.1m a year in wages – making his annual cost £18.46m.
Once a player is sold, even if there is no fee involved, his entire ‘book value’ is calculated within FFP accounting. When AC Milan made the Torres move permanent, the £9.36m that would have been applied to the 2015/16 books reverted to this season’s accounts – meaning his total cost this year was £18.72m as Chelsea were no longer paying his wages.
Eden Hazard’s new contract actually helped Chelsea save money
Chelsea have also saved themselves money on FFP by handing Eden Hazard a new contract, even though they have increased his wages to £200,000-a-week. Hazard’s annual FFP cost after joining Chelsea from Lille was £16.02m, but that figure will go down to £13.31m from this summer due to the fact his remaining book value is now spread over the next five-and-a-half years.
It is not widely known outside football accounting that clubs can actually save themselves money in terms of FFP costs by giving their players new contracts, even if they are earning more,” said Cohen.
“Although Hazard’s wages have increased from approximately £9.62m a year to £10.4m annually, his FFP ‘book’ value has gone down. That’s because his £32m fee was amortised at £6.4m a year over an initial five-year contract.
"That deal had two-and-a-half years left to run, so the remaining £16m in ‘book’ value was spread out over the new five-and-a-half-year contract Hazard signed in February, decreasing his annual FFP cost from £6.4m to £2.91m.
"So even with the increase in wages, Hazard will cost Chelsea £2.71m less a year in FFP money from this summer.”
New Yokohama sponsorship better than current Samsung deal
The Yokohama shirt sponsorship that was signed at the end of last month is worth around £40m-a-year, which is £22m-a-year more than Chelsea have been receiving from Samsung.
Even without factoring in any further player sales, new contracts, commercial revenue or the increase in television money for Premier League and Champions League clubs, Chelsea have already freed up more than £40m in FFP cash through Torres, Yokohama and Hazard’s new contract.
Mourinho has operated with a smaller group of senior players to pick from than his Premier League and European rivals over the past two seasons to meet FFP regulations, but can now boost Chelsea’s first-team squad without having to make major sales.
“There is no doubt Chelsea have the freedom to spend big money this summer,” said Cohen.
“Unlike the last two years, Jose Mourinho does not have to rely heavily of significant player sales to fund incoming transfers and meet FFP rules.”
It's an interesting perspective, isn't it? And something I wasn't aware of. I would have thought that Hazard's new contract would hit us financially - not to save us money! It will be interesting to see if Chelsea do spend big this summer because once again it seems they have the money to do it!
Who would you like to see at Stamford Bridge?