How UEFA rule change will affect Chelsea contract strategy

Todd Boehly likes to paint himself as the arch-disruptor, "creating value where there are value gaps" and "always looking for structural advantages".

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

By dishing out unusually long contracts to his raft of new recruits, the venture capitalist had found a way of spending in excess of £500m across two transfer windows while remaining within the boundaries of Financial Fair Play (FFP) regulations.

However, UEFA - European football's governing body - have plugged the gap in their financial framework with their latest rule change. Here's how it will affect Chelsea and Europe's other canny operators.

How did Chelsea exploit the old contract regulations?

Chelsea bent the accounting technique of annual amortisation to breaking point under the old regulations. Amortisation is simply the practice of evenly dividing a player's transfer fee across the length of their deal.

For example, Wesley Fofana penned a seven-year contract when he joined Chelsea from Leicester last summer for an initial fee of £70m. That gargantuan sum would only go down as an expense of £10m each year on the club's accounts (70 divided by seven).

If Fofana had signed a four-year deal, Chelsea's books would show a loss of £17.5m each year (70 divided by four).

Amortisation only refers to the accounts of each club and does not dictate how the fee will actually be transferred to the selling team.

The likes of Enzo Fernandez, Mykhailo Mudryk and Benoit Badiashile have all committed their future to Chelsea for more than half a decade. As recently as this summer, Nicolas Jackson put pen to paper on an eight-year contract. However, UEFA's new regulations have caught up with Chelsea's accounting jiggery-pokery.

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What are UEFA's new contract regulations?

UEFA cannot forcibly cap the length of a contract one club wants to offer a player - as long as the FA has no objections, Chelsea can continue dishing out lengthy deals.

However, UEFA's new regulations stipulate that clubs can only amortise a player's transfer fee over a maximum of five years. Even though Jackson has signed an eight-year deal, his £32m fee can only be parcelled out in annual losses of £6.4m (32 divided by five). Under the previous rules, Chelsea could have lost just £4m a year (32 divided by eight).

Clubs can still spread the cost over additional years by extending a player's contract. But again, amortisation can only be stretched across a maximum of five years.

The executive committee brought in these changes in the hope that they would "ensure equal treatment of all clubs and improve financial sustainability".

Chelsea were not the only disruptors UEFA had in mind when making their annual amendments. Juventus suffered a ten-point deduction in Serie A last season - costing the club a Champions League position - as punishment for financial irregularities. One of the key offences Juve were accused of was the artificial inflation of player values during swap deals.

Under the latest rules, UEFA have tried to iron out any possibility for clubs to claim profit from these types of transactions. According to the International Accounting Standard - which straight swaps have to now abide by - if the fair value of a player cannot be determined, no profit can be booked from the sale.

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

When do the new regulations come into effect?

The 2022/23 campaign will go down as the first and last season in which Chelsea could fully exploit this loophole. As of 1 July 2023, the start of the new fiscal year for football clubs, UEFA's amendments are in effect.

Will the rule be back-dated?

UEFA may be bitter about Boehly's brazen tactics but they cannot retroactively punish the brash American for exploiting the system. The rule will not be back-dated, ensuring that Chelsea's accounts for the 2022/23 season will continue to look far more flattering than their extravagant spending may have suggested.

The club also embarked upon an early fire sale, raising more than £130m in player sales before 30 June which also count towards last season's accounts.

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