Chelsea's £50m loss signals end to big spending as club looks to meet Uefa's Financial Fair Play guidelines

Jose Mourinho was given a stark reminder on Tuesday that the days of virtually limitless spending at Chelsea are over when the club posted a huge annual loss of £49.4 million but still promised to meet Uefa’s strict new financial rules.

The losses for the 2012-13 season arose in spite of a record £255.8 million turnover and represent a significant step back from the previous financial year, when the club posted a small £1.4 million profit. That was the first time that Chelsea have been in profit under Roman Abramovich and ensures that the club will meet Uefa’s Financial Fair Play guidelines for the first formal monitoring period at the end of this season.

Uefa’s acceptable variation for the first two years of FFP is £37.5 million and, after subtracting spending of around £15 million on youth development and infrastructure, Chelsea expect Uefa to calculate a combined loss for 2011-12 and 2012-13 of £33 million.

Crucially, however, Uefa’s acceptable variation for the next monitoring period, the three accounting years from 2011 to 2014, is also £37.5 million. It means that Chelsea must not lose more than about £4.5 million in the current financial year, 2013-14, to comply with FFP.

The challenge then gets even harder, with Uefa only accepting losses on a rolling three-year basis of a maximum of £25 million. Given that these new 2012-13 accounts will form the first year of that equation, Chelsea will actually have to make an overall profit of around £9 million over the next two years to meet the Uefa guidelines at the end of the monitoring period in 2016.

Uefa is adamant that its FFP regulations will be backed up by ­meaningful sanctions that range from warnings to fines and possible exclusion from the Champions League. However, it will also take into account a club’s direction and there has been a very clear sense that Chelsea have made an effort to control their spending and move towards the Uefa principle of self-sustainability.

Chelsea remain adamant that they will continue to meet the FFP regulations but the club’s reliance on owner Abramovich and also the need to limit spending is clear. Clubs that do not have an owner willing to turn losses into equity are not permitted to lose more than £4.2 million over any monitoring period.

The accounts also place a question mark over the extent to which Chelsea can keep making major signings at the same time as funding a wage bill that is second only to Manchester City in the Premier League.

Mourinho has recently said that Chelsea would be vastly improved with two major signings and has repeatedly outlined his concern that other clubs follow the FFP rules.

City spent £90 million on four new players during the summer transfer window despite running at a loss of £97.9 million in their most recently published accounts.

“Next year Chelsea will have a phenomenal team,” said Mourinho. “Between the work we are doing and evolution of the players and a couple of clinical signings – two clinical players to complete the puzzle you are building – Chelsea next season will have a very good team.”

In Chelsea’s favour are their growing revenues and a commercial income that rose in these accounts from £67 million to £79.6 million. New deals with Adidas – worth £300 million over 10 years – and Audi will also take effect from next year’s accounts.

The difference of more than £50 million in Chelsea’s profit/loss figure of 2011-12 compared to 2012-13 is largely explained by the cancellation of BSkyB shares in the club (worth around £17 million) and the fact that Chelsea won the Champions League in 2012. Although they win the Europa League last year, the Champions League triumph brought in around £60 million compared to about £43 million in Uefa competitions in 2012-13. Chelsea are also relatively well placed in terms of the age of their squad after signing younger players in recent seasons, including Eden Hazard, Juan Mata, Oscar, David Luiz and Ramires.

Ron Gourlay, the Chelsea chief executive, said: “To achieve a record level of turnover despite our first group-stage elimination from the Champions League shows we have structured our business and are growing in the correct way for long-term stability.”

Chairman Bruce Buck added: “From the beginning of the current ownership, a long-term objective was financial sustainability, and the implementation of Financial Fair Play brought that to the top of the agenda. We are pleased that we will meet the stipulations set down by Uefa in their first assessment period.”

Blues in the red Why club’s finances suffered so badly in 2012-13

Transfers
Chelsea were highly active in the transfer market in 2012-13, spending £57  million combined on Eden Hazard and Oscar. Even if not all that money was due immediately, that is still a large outlay, and it was not balanced by many significant sales. It may now be that Jose Mourinho will have to do without a large spending spree this month.

No Sky windfall
A major reason behind Chelsea’s 2011-12 profit was BSkyB’s cancellation of shares they owned in a subsidiary of the club, Chelsea Football Club Ltd. That was part of a deal that saw Chelsea take full control of Chelsea Digital Media, a joint venture with BSkyB. Chelsea banked £18.4 million from the deal, but it was just a one-off windfall.

Manager pay-offs
Chelsea insist they no longer pay their former manager Roberto Di Matteo following his sacking last November, but his dismissal would still have incurred a hefty severance payment given he was reported to be earning £130,000-a-week. Hiring his replacement Jose Mourinho and his staff could dent next year’s figures, too.

Champions League exit
Having banked £60 million in 2011-12, when they won the Champions League, Chelsea made 'only’ £43 million from Uefa competitions last year, having been knocked out of the competition at the group stage. Even that figure would have been far lower had Rafael Benítez not won the Europa League for the club.

Key figures

£49.4m: Chelsea’s annual loss for 2012-13
£255.8m: Chelsea’s turnover in that period
£4.5m: The amount they can lose in 2013-14 to comply with FFP