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Romelu Lukaku to Everton: what it means for Chelsea's finances

Jan Kruger

As we wrote back in February, Chelsea's youth development policy and its strategy for financial fair play compliance go hand in hand.

To wit,

The increasing number of loanees is part the plan for the future Michael Emenalo, Roman Abramovich, and Bruce Buck have implemented. In the era of financial fair play, Chelsea has smartly recognised that the club cannot continue solely rely on the highly-inflated transfer market to bolster its talent reserves. The club must begin to build from within, and the loan policy reflects that. Significant resources have been devoted to Chelsea's global scouting network and unique partnerships have been formed, like the one the club has with Vitesse.


Chelsea has a system where its scouts can identify talent, then place that talent somewhere else, check in regularly, and then watch that player develop into a valuable commodity.  In that sense, it's like playing the stock market with Michael Emenalo as Warren Buffet and Piet de Visser as Carl Icahn.  Of course, Chelsea has had its share of misses, but because each player represents such a small financial commitment, the club only needs a few players to "hit big."

Indeed, the FFP cost to field Chelsea's entire army of loanees last season (thirty-odd players), was around £30m, or about £1m per loanee. Amortisation and comparatively low transfer fees and wages keeps costs down and ensures that Chelsea only needs a few successes for this model to be economically viable.

Part of the reason costs are so low is because for Chelsea's best prospects, not only are their wages covered by the loanee club, but there's a loan fee on top of that. For example, the combined FFP cost of Thibaut Courtois, Romelu Lukaku, and Victor Moses was £2.5m last season (or less than two months worth of Fernando Torres).

Chelsea's loan army ends up paying for itself and then some. The £10.8m FFP profit from the sale of Kevin de Bruyne and the £2.5m FFP profit from the Jeffrey Bruma sale last summer last winter paid for nearly 50% of the loan army costs just by themselves.

The other £17m will be recouped later on. For example, Chelsea has finally brought Thibaut Courtois to London, and have essentially been paid by Atletico Madrid for the privilege of developing Courtois over the past three seasons, and giving him back now that he's established himself as one of the best goalkeepers on the planet.

Courtois' increased value alone likely makes it worthwhile, to say nothing of Kurt Zouma, Lucas Piazon, Tomas Kalas, Ryan Bertrand, Josh McEachran, Kenneth Omeruo, Christian Atsu, Thorgan Hazard, and Bertrand Traore just to name a few.

Those ten players alone could fetch £100m on the transfer market today, and just think about what they'll be worth in a few years when it's time to make the decision on whether to bring them into the first team (in the case of Zouma, that decision has already been made) or sell them for profit (Ryan Bertrand seems to have headed down this path).

The Romelu Lukaku sale is a perfect example of this approach.

Chelsea originally bought Lukaku from Anderlecht for around £19m, including add-ons. Note that the original fee was fairly uniformly reported as £13m plus £6m in add-ons back in 2011, but recently, outlets have been reporting that the original fee was actually £11m plus £6m in add-ons.

I'm not sure where the disconnect is, but for our purposes, we're going to use a £16m fee (the originally-reported £13m, plus we're going to impute 50% of the add-ons). While the add-ons may not have been met due to the fact that Lukaku only made fifteen appearances for Chelsea, we don't know how the add-ons were specifically triggered. While the add-ons were likely conditioned on appearances, goals, honours, and perhaps tenure with the club, we don't know what the language of the contract states and it's impossible to speculate if the performances must be while wearing the Chelsea shirt, or simply while Lukaku was under contract with Chelsea.

As such, we're going to impute 50% of the add-ons just to be safe, as it's always best to estimate high when calculating expenses.

When Lukaku signed the five-year deal, the transfer fee was amortised over the life of his contract for accounting purposes. As such, his £16m fee was amortised to £3.2m per year. When a player is sold, however, his entire book value becomes due. As Lukaku had two years left on his Chelsea contract, there was £6.4m in remaining book value on his transfer.

Therefore, the £28m fee is offset by the £6.4m in remaining book value. As such, for the purposes of FFP accounting, Chelsea's total profit from selling Romelu Lukaku to Everton is £21.6m. Chelsea will record the entire profit on the 2014-15 books, and strictly in terms of a return on its investment, this is a terrific deal for the club.

That said, Chelsea will likely never have a problem complying with financial fair play and can spend freely this summer, so I didn't see the logic in letting such a talented, young striker leave. While £21.6m profit for a player who's played just 444 minutes in a Chelsea shirt is obviously a great deal (tough to argue with earning £48,648 per minute), Lukaku is worth more today, and will almost certainly be worth much more in the future.

Further, while £28m is a tidy sum, it does not reflect Lukaku's market value, given 1) his production in the Premier League at such a young age, and 2) domestic transfer inflation, resulting from the huge increase in Premier League broadcasting revenues.

Of course, not every deal is solely motivated by finances, and if Jose Mourinho doesn't need him, then it only makes sense to sell him, but I strongly believe this is going to end up being a fantastic deal for Everton.

Seven months ago, I wrote that "Chelsea is likely to continue to accrue as much young talent as it can find, and for those worried about youngsters eventually starting to shy away from Chelsea, there are very few clubs on the planet that can offer what Chelsea can in terms of wages and the prestige of being part of one of the few truly global clubs." Little has changed, and Chelsea continues to scour the globe for players for which to buy low. No other club has come close to matching Chelsea with regards to acquiring cost-effective young talent, and the Lukaku deal is just one example of how the club's unique approach to acquiring young talent has been successful.

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