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A detailed look at Chelsea's financial results, the future, and financial fair play

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Earlier today, Chelsea announced that it earned £318.9m for the 2014 financial year (1 July 2013 to 30 June 2014). This represents a 25% increase over the previous year's earnings (£255.8m) and marks the first time in history that the club broke the £300m barrier.

Chelsea also earned a profit of £18.4m, a marked change from the nearly £50m the club lost in 2012/13, and includes the profit received from player sales.

The £318.9m includes income received from matchday revenues, broadcasting revenues, and commercial revenues, and does not include the profit received from player sales. Unfortunately, the club did not provide a revenue breakdown, but we can make some reasonable estimates based on earlier research conducted by WAGNH.

Six months ago, we projected that Chelsea would earn £302.9m in turnover, plus an additional £36.9m in income from player sales. As the figures showed today, we were off by exactly £16m, or about 5%. At WAGNH, we take a conservative approach when projecting finances, and intentionally overestimate Chelsea's expenditures (player wages, transfer fees) while underestimating income (revenues, player sales). We follow this practise with our FFP player wage database and our various financial breakdowns when a transfer occurs.

The £16m difference likely comes from our decision to intentionally leave off any revenue earned from Chelsea's pre-season tour to the United States, as no financial information was available, and taking a conservative approach to projecting commercial revenues.

Now that we have the official figure of £318.9m in revenues, we can take another look at our earlier projections and try to make up that £16m.

Matchday revenue - £71.5m projection (2.5% increase from £70.7m in 2012/13)

We originally projected a small increase in matchday revenue to £71.5m, and this seems to be a solid projection. As the club itself stated earlier today, "There was a small rise in matchday income but with Stamford Bridge filled to capacity year after year there was no scope for significant financial growth in this area."

Matchday revenue remains largely fixed, as Stamford Bridge operates at 99 percent of capacity, although the further Chelsea goes in cup competitions, both in Europe and domestically, the more home matches the club receives (and therefore, more revenue). However, Chelsea often goes quite deep into cup competitions already, so there is little room for improvement at present time without substantially raising ticket prices (and I think the club realises that gouging loyal match-going supporters isn't the way to increase revenues).

Broadcasting revenue - £129.7m projection (23% increase from £105.5m in 2012/13)

We originally projected £130m in broadcasting revenue, and are adjusting down by £300,000 after finding that Chelsea earned a £94.1m share of the Premier League television pie, instead of £94.4m.

This is a massive increase over last season's Premier League share, and is fueled by the new Premier League broadcasting deal kicking in.

The three-year broadcasting deal runs through the 2015-16 season, after which clubs should expect to see revenues increase once again. Domestic broadcasting revenues will remain fairly stable until then as long as Chelsea continues to perform well, as a portion of the payments are directly tied to on-pitch performance.

Chelsea also received £35.6m from the Champions League, and Champions League revenues are directly tied to on-pitch performance. The existing broadcasting deals expire after this season, and next season will see a significant increase in Champions League revenues, and therefore, the amount of prize money to be distributed.

Commercial revenue - £119.7m projection (50% increase from £79.6m in 2012/13)

We originally projected commercial revenues at £101.7m, and this seems to be where we underestimated the club. If these projections hold, a 50% increase in commercial revenue in just one year is outstanding, and shows that the club is not only committed in its efforts to grow the club's brand, but more importantly, has been very successful in doing so.

We know that there was an additional £14.2m in shirt-related sponsorship, with the adidas deal expanding from £20m to £30m annually, and the Samsung deal improving from £13.8m to £18m annually.

We also projected 10% growth across the board, but we intentionally disregarded the revenues generated from the pre-season tour to the United States, as there was no financial information available. Those revenues could have been significant, and we could've also underestimated the amount of money Chelsea can now command from potential sponsors.

Whereas matchday revenue are largely fixed and broadcasting revenue is tied to on-pitch performance and negotiations that Chelsea doesn't have a major part in, Chelsea has full control over commercial revenues.

Curiously, the club's commercial revenues had been lagging behind the competition for years. As I originally wrote in the Plains of Almeria season preview, this was perhaps due to the fact that Abramovich's Chelsea has been in the odd (and up until now, extremely fortuitous) position of never really being forced to maxmise its revenue streams.

Discounting PSG, which was essentially paying itself with its massively inflated QTA sponsorship, Chelsea was tied for the ninth most commercial revenues during 2012-13 (the latest available figures).

  1. Bayern Munich - £203.2m
  2. Real Madrid £181.3m
  3. Manchester United - £152.5m
  4. Barcelona - £151.5m
  5. Manchester City - £143m
  6. Liverpool - £97.7m
  7. Borussia Dortmund - £93.4m
  8. AC Milan - £82.4m
  9. Schalke - £79.6m
  10. Chelsea - £79.6m

Tied for ninth in the world isn't bad, but the club was well off the pace at the top. As a club that fancies itself as one of the few truly global football clubs, and rightfully so, its commercial revenues should reflect that status.

Success in European competition and Chelsea's willingness to embrace the globalisation of football by planting flags all over Asia and the United States (two emerging markets) have been crucial to Chelsea's commercial growth, and the club's hard work is now paying off in a huge way.

There is still plenty of work that needs to be done in order to catch up with Real Madrid, Barcelona, Bayern Munich, and Manchester United (all of which are also seeing significant commercial growth), and matching the commercial might of those clubs is still a long way off. That said, the improvement Chelsea has already made and the club's hire of Christian Purslow should help Chelsea to build upon its recent success.

On the £18.4m profit and FFP

Chelsea's £18.4m profit includes income received from player sales. I originally projected that the profit from the sales of Juan Mata (£23.6m), Kevin de Bruyne (£10.8m) and Jeffrey Bruma (£2.5m) would total £36.9m.*

*For more on how we calculated the profit from the Juan Mata sale, see this article, and for more on how we calculated the profit from the Kevin de Bruyne sale, see this article.

Other reports include the sale of David Luiz, pointing to the fact that the deal was announced prior to 1 July, when the 2014/15 financial year begins. However, for international transfers, the player's registration can't move until 1 July at the earliest (when the transfer window opens), and as such, I have been working under the impression that the David Luiz sale will count on the 2014/15 books.

The fact that the profit was "only" £18.2m seems to support the notion that the Luiz sale will go on the 2014/15 books, but since Chelsea declined to provide any details, we'll have to wait until the club files its complete 2013/14 accounts to know for sure (due by 31 December).

Given that we projected that player sales would total almost £37m and Chelsea recorded an £18.2m profit, Chelsea would've recorded a loss without the player sales.

This might seem a bit concerning, but there's little to worry about. A £20m loss in the financial accounts Chelsea submits to Companies House likely equates to a profit on the financial fair play accounts, as certain expenditures are exempt from the FFP breakeven requirement (infrastructure costs and the reported £8m per year Chelsea spends on its academy, for example).

Additionally, while relying on player sales as a steady source of income is a risky business model and something only a handful of clubs can pull off, this isn't what Chelsea does. Rather, Chelsea's ruthlessly effective approach to acquiring and developing talent means that players deemed surplus to requirements are often going to be sold, and sold for a decent profit. Chelsea will also see income on the 2014/15 books from the sales of Romelu Lukaku, David Luiz (unless he went on the 2013/14 books), Demba Ba, Patrick van Aanholt, George Saville, and anyone sold this winter.

As far as financial fair play goes, it was never going to be a serious problem for Chelsea, and these financial results only further solidify that fact. However, that doesn't mean that FFP doesn't significantly impact the way Chelsea does business. It certainly does.

Chelsea supporters would do well to view financial fair play as a soft wage cap. That is, Chelsea can only spend what it earns. The more the club earns, the more it can spend. As it has long been proven, increased spending leads to an increased chance of success, and Chelsea will very likely continue to spend heavily.

However, there is a difference between spending and spending wisely, of course, as Liverpool and Brendan Rodgers have demonstrated. Financial fair play dictates that Chelsea and every other club have finite resources, so now, more than ever, it is of paramount importance that Chelsea maximise those resources.

The club has done a fantastic job by getting excellent returns on their investment in talent, and in addition to acquiring extremely cost-effective first team players (Thibaut Courtois, Kurt Zouma), the club also earns millions of sterling pounds to simply watch their young players develop on loan and ideally become better (and more valuable) footballers.

I wouldn't be surprised if the profit is immediately reinvested back into the club, as Chelsea is not a for-profit company. Rather, it is a for-trophies company. As Roman Abramovich said when he first bought the club over ten years ago, "The goal is to win. It's not about making money. I have many much less risky ways of making money. I don't want to throw my money away, but it's really about having fun, and that means success and trophies."

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