Chelsea FC used to flatter to deceive until Russian Oligarch Roman Abramovich came along in 2003.
Abramovich who took the London club off previous owner Ken
Bates’ hands for an estimated £60m (sh300b) in 2003, was, and at the
beginning of the month asking for at least £3b (sh15trillion). This
represents a more than 20 percent annual capital gains return on his initial
investment. Nothing to be snorted at especially in Europe.
"But don’t cry for Bates, he in fact got a better return on the £1 he paid for the team, when he took it over 1982...
Bates inherited a team that was deeply indebted, had a bad
reputation for hooliganism and was floundering in the lower levels of the
league.
The coincidence of sport and business is never boring.
Since he took over the club Abramovich has invested about £1.5b
(sh7.5trillion), which probably explains why the club is still loss making, a
lot of its revenues going to servicing Abramovich’s debt to the club. Chelsea last year made a £153m loss off
revenues of £435m.
You can rest assured that the cashflows the club was throwing off,
made the Russian’s decision to sell the club a very reluctant one.
Abramovich has been singled out as a supporter of Russian
President Vladmir Putin, has been blacklisted and his assets frozen in Europe
and America. Punishment for Russia’s invasion of Ukraine.
Chelsea’s financial success under Abramovich is due to its
newfound success on the field – 16 trophies in England and Europe over the last
19 years, making it next to Manchester United the most successful club in
England during the period.
The interesting thing about sports franchises is that their
biggest assets are the players not the physical infrastructure that the club
may own.
In Chelsea’s case their squad is valued at a billion pounds
compare to its stated worth of about £2.5b.
Chelsea last year earned under ten million pounds from ticket
sales – because of Covid restrictions, but made £154m in commercial revenues,
which often comes from the sale of shirt sales and other merchandise sales.
Hobbled by a 40,000 seater stadium they would make more money on match days
with a bigger stadium. Arsenal’s Emirates stadium makes more than a hundred
million pounds annually from ticket sales.
"But even with Covid-19 they shrugged off the loss of match day income pulling £274m from their broadcast rights. It is no wonder they can afford to pay Romelu Lukaku £325,000 a week....
But you have to worry for the Chelsea, whose new owner may have
been announced by the time you are reading this column.
No one – unless the Saudi
bid won the day, has the deep pockets of Abramovich, willing to splurge, without
promise of a return for years.
Chances are to come up with three billion pound asking price, the
new buyer will have to take on debt and will be under pressure to pay this off.
What often happens in these cases is they will freeze the wage bill, try, sell
of some players and other assets of the club to pay down a large part of the
debt as quickly as possible. This could very well have affected the club’s
performance on the pitch/.
Given the momentum Abramovich has created a few more years without
a title but qualifying for champions’ league will not make the new owners sad.
Look at Arsenal, still a very profitable company despite not having enjoyed the
success they were used to previously. Or Manchester United for that matter.
From a purely business perspective a club does not have to be
successful on the pitch to show a return, especially if it has a rich history
behind it.
Of course you cannot stretch that point too far. The loyalty of the fans is enhanced by victory. This loyalty provides huge brand equity the business owners can leverage to boost commercial revenues....
Interestingly for the last two decades or so, with ticket prices
going through the roof – a ticket now can go far as much as £100 (sh500,000),
Chelsea’s ticket buyers are not the lowlier in society. In fact, it was
reported a few years ago that there is a lot of tourist traffic during match
days in the English Premier League, so you are more likely to passions do not
run as high in the stands as 30 years ago.
The physical infrastructure are not to be dismissed as well. When
not being used on match days can be used to host events like concerts,
conferences and exhibitions or as stated above be used as tourist attractions.
Given how investors from far and wide are falling over themselves
to be in the bidding for Chelsea, you just know Abramovich is letting go of a
good thing.
