With Chelsea FC set to announce their eighth signing of the January transfer window in the form of Enzo Fernandez, for a reported fee of £105 million at the time of writing, many have asked how they can afford these players and keep within Financial Fair Play (FFP) spending restrictions. This post seeks to highlight how clubs account for the sale and purchase of players, why it is important for FFP compliance and crucially, how Chelsea have unearthed themselves a favourable loophole.

In strict accounting terms, when a player is purchased, their cost is capitalised on the balance sheet and is ‘amortised’ (written down) over the length of their contract. This means that transfer fees for accounting purposes are spread over the length of a player's contract. If we take Chelsea’s purchase of Mykhailo Mudryk as a recent example, £88.5 million (£62 million up front and £26.5 million in add-ons), over an eight-year contract, works out as roughly £10 million a year. This strategy for tying down players to multi-year deals (bucking the current trend on length of contracts) allows Chelsea to effectively 'spread the cost'. Although this is not without risk; if a player does not perform and the club is committed to paying hefty wages whilst a player is under contract, they will be haemorrhaging funds for little return. Indeed, Chelsea are proposing to pay the £105 million fee for Enzo Fernandez in instalments, which is proving a sticking point with Benfica in current negotiations.

The other important amortisation topic is the accounting procedure when a player is sold. Here we can use the ex-Chelsea player, Alvaro Morata, as an example. Chelsea originally purchased Morata from Real Madrid in 2017 for a reported £58 million on a five-year contract, so annual amortisation was £11.6 million. After famously failing to perform, he was sold after three years, so cumulative amortisation was £34.8 million, leaving a value of £23.2 million in the books. Sale price to Atletico Madrid was reported as £26 million, so Chelsea reported a profit on sale of £2.8 million in the 2020/21 accounts. Therefore, Chelsea showed an annual profit improvement of £19.6 million after this deal: £5.2 million lower wages (Morata was on a £126,000 per week deal), plus £11.6 million lower amortisation and £2.8 million profit on sale. This outlines how clubs write-off the transfer value of a player over the time-line of their contact, and also highlights that because Morata was worth £23.2 million two years into his five-year deal, Chelsea actually made an accounting profit on his transfer of £2.8 million. Fans would see the sale of a player for £26 million, bought two years previously for £58 million as terrible business. However, the club in their accounts will class it as a £19.6 million profit improvement.

UEFA have now moved swiftly to close the door on future dealings of a similar vein and have set a five-year limit over which a transfer can be spread – coming into force during the summer. The supposed thought process behind the move is not to be a direct punishment to Chelsea, but to eliminate the possibility of other ambitious (yet financially restricted) clubs following suit and finding themselves in trouble in the future and unable to stay afloat.

With news now breaking of the transfer of Jorginho from Chelsea to Arsenal on deadline day for £12 million, recouping previous expenditure to buy further players is evidently of high importance to Chelsea for working within FFP, hence why they’re ready to allow players to leave the club and help ‘balance the books’ – even to such a close London rival in the league.