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Michael Essien to AC Milan: The financial impact of the transfer

We break down the Essien deal from a financial perspective and explain how it affects Chelsea's bottom line with regards to financial fair play accounting.

Thananuwat Srirasant

Now that Michael Essien has been allowed to leave on a free transfer to AC Milan, it's worth taking a look at how the deal impacts Chelsea's bottom line from the perspective of financial fair play accounting (which, for Chelsea, is really the only sort of accounting that matters).

Chelsea originally purchased Essien from Lyon in the summer of 2005 for around £24.4m. He was originally signed to a five-year deal, but signed new five-year deals in 2007, 2008, and 2010.

When Essien signed the original five-year deal, the £24.4m transfer fee was amortised over the life of the contract for accounting purposes. However, when he signed the new deals, the existing book value was then re-amortised over the life of each new contract (book value is the remaining portion of the transfer fee that has not yet been accounted for on the books due to amortisation).

If you've been reading our various financial analyses during this transfer window, you're likely already well-aware of the concept of amortisation by now. However, for newcomers (welcome!), amortisation is the process by which an expenditure is paid off over time on the books, and it is a uniform accounting practise employed by football clubs (i.e. it's not just something Chelsea decided to do on its own to make the books look better).*

* Note that this is just an accounting practise. In reality, Chelsea likely paid Lyon the full £24.4m immediately.

Graham and I crunched the numbers and the amortisation of Essien's transfer fee is broken down as follows -

2005-06: £4.88m

2006-07: £4.88m

2007-08: £2.93m

2008-09: £2.34m

2009-10: £2.34m

2010-11: £1.4m

2011-12: £1.4m

2012-13: £1.4m

2013-14: £1.4m

2014-15: £1.4m

When a player is sold, his entire book value becomes due. As such, the remaining £2.8m of book value on Essien's transfer will now count on the 2013-14 books, rather than £1.4m each on the 2013-14 and 2014-15 books.

Note that Chelsea also has to account for Essien's wages during the first half of the 2013-2014 season. Essien was earning about £100k per week at Chelsea, and a half-season's worth of wages will is about £2.6m.

When one factors in the existing book value and wages already paid, Michael Essien will have cost Chelsea £5.4m this season. Had Essien stayed with the club, he would have cost £6.6m this season as well as next season (wages plus the amortised transfer fee).

Therefore, the Essien transfer essentially saves Chelsea £1.2m this season and £6.6m next season.

For perspective, Nemanja Matic will cost £3.7m this season and £7.4m next season, so this deal almost covers the first eighteen months of Matic's FFP costs (not that Chelsea needed to sell Essien to cover Matic's costs by any means, and I only mention Matic to simply provide some context of what the Essien savings amount to).

Despite playing 35 games for Jose Mourinho at Real Madrid last season, Essien hasn't played much at all now that the two are back at Stamford Bridge. Further, despite the close relationship Essien and Jose Mourinho have formed since Mourinho broke Chelsea's transfer record to bring Essien to Stamford Bridge back in 2005, the lack of playing time for Essien was unlikely to change this season or next. As such, getting Essien off the books is a great piece of business.

That said, on a personal note, Michael Essien is one of my all-time favourite players, and while the transfer is great business from a financial perspective, it is truly sad to know that the Bison will no longer be roaming in West London. I might have some extended thoughts on how much Essien has given to Chelsea down the road, but for now, I wish him the best in Milan and hope he can help get that club back on track.

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