How the new UEFA rules will impact Chelsea’s contracting strategy

Chelsea took advantage of accounting principles by giving new signees long contracts

UEFA responded by closing the loophole

Todd Boehly likes to portray himself as the archdestroyer, “creating value where there are value gaps” and “always on the lookout for structural advantages”.

When he became chairman of Chelsea in the wake of the £4.25bn takeover of BlueCo a year ago, Boehly quickly exploited a loophole in the murky world of football finance.

By handing out unusually long contracts to his band of new recruits, the venture capitalist had found a way to spend more than £500m over two transfer windows, whilst staying within the confines of Financial Fair Play (FFP) rules.

However, UEFA, European football’s governing body, has closed the gap in its financial framework with the latest rule change. Here’s how it will affect Chelsea and other experienced operators in Europe. How did Chelsea use the old contract rules?

Chelsea have taken the annual depreciation accounting technique to breaking point under the old regulations. Depreciation is simply the practice of distributing a player’s transfer fee evenly over the life of a contract.

For example, Wesley Fofana signed a seven-year contract when he joined Chelsea from Leicester last summer for an initial £70m fee.

That gigantic sum would cost just £10m a year to the club’s accounts (70 divided by seven). If Fofana had signed a four-year contract, Chelsea’s books would show a loss of £17.5million each year (70 divided by four).

The write-off only affects the accounts of each club and does not determine how the fees are actually transferred to the selling team.

Players like Enzo Fernandez, Mykhailo Mudryk and Benoit Badiashile have dedicated their futures to Chelsea for over half a decade.

Nicolas Jackson signed an eight-year contract this summer. However, the new UEFA regulations have caught up with Chelsea’s accounting wrangles.

What are the new UEFA contract rules?
UEFA cannot forcibly limit the length of a contract a club is willing to offer a player: as long as the FA has no objection, Chelsea can continue to offer long-term deals.

However, new UEFA rules stipulate that clubs can only cancel a player’s transfer fee for up to five years. Although Jackson has signed an eight-year contract, his £32m fee can only be divided into annual losses of £6.4m (32 divided by five).

Under the previous rules, Chelsea could only have lost four million pounds a year (32 divided by eight). Clubs can still spread the cost over several years by extending a player’s contract. But again, depreciation can only be spread over up to five years.

The executive committee approved these changes in the hope that they will “ensure equal treatment for all clubs and improve financial viability”.

Chelsea weren’t the only disruptive factor UEFA had in mind when making the annual changes.

Juventus were granted a 10-point deduction in Serie A last season – which cost the club a Champions League position – as punishment for financial irregularities.

One of the main offenses Juve were accused of was artificially inflating player values ​​in swap deals.

Under the latest rules, UEFA tried to deny clubs any possibility of profiting from these deals.

According to the international accounting standard, to which rights swaps must now be subject, no profit can be recognized on the sale if the fair value of a player cannot be determined.

Given the difficulty of determining true value in a market as volatile as football transfers, this rule change could cause plenty of problems for creative accountants across Europe.

When will the new regulations come into effect? The 2022/23 season will go down in history as the first and last season in which Chelsea were able to take full advantage of this gap.

From 1 July 2023, the start of the new financial year for football clubs, the UEFA changes will come into effect.

Will the rule be backdated?
UEFA may be bitter about Boehly’s cheeky tactics, but they cannot retroactively penalize the cheeky American for exploiting the system.

The rule will not be backdated, ensuring that Chelsea’s 2022/23 tally continues to look far more flattering than their extravagant spending would suggest.

The club have also launched an early bailout and, as of June 30, have racked up over £130m in player sales, which will also count towards last season’s accounts.