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Sifting Through The Rouble


Dorset

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Dear Shed Enders,

Quite frankly, I’m worried. No, scared ****less, in fact, by the current global recession. Not for myself you understand [i’m hoping to just about get by] but for my football club and for the following combination of reasons. It would appear that this financial crisis is likely to affect sport of every kind, everywhere, no more so than in the Premiership and especially in the case of the Big Four clubs, where Chelsea and ManU are already under fire from Michel Platini and David Taylor regarding their ‘relationship with debt’. Those of a nervous disposition like me cannot help but put two and two together and make five [quickly before the market drops] because it is obvious that our club is vulnerable whereas others are tickety-boo by comparison. I have this on good authority, from none other than Jeremy Wilson of the Telegraph, so let me share his thoughts with you - that is if you feel you can overcome the shock of a reality check headline that really put the wind up me, I can tell you!

Chelsea deny £730m debt is a problem - by Jeremy Wilson (9/10/08)

“Chelsea strongly defended their financial structure and have rejected any suggestion that the club's estimated debt figure of £730 million could ultimately jeopardise their participation in European competitions. Uefa president Michel Platini specifically pinpointed Manchester United and Chelsea earlier this year when he highlighted the issue, while Uefa general-secretary David Taylor threatened to bring in new rules to regulate clubs' relationship with debt. However, Chelsea believe that the club's unique ownership model should be taken into account.â€

[b]Unique ownership model, eh? Sounded fishy to Jeremy so, unique journalist model that he is, he contacted the club and got this explanation…

"Our debt is not external, we don't owe it to a bank or an insurance company, we owe it to the owner of the club who is a committed investor in the club," said Chelsea chairman Bruce Buck. And the fact that it is characterised as debt or equity is irrelevant. I think it's even softer than soft debt. Its equivalent to equity for all practical purposes.

Our objective – as it has been for several years and will continue to be – is to break, or as close to, break-even as we possibly can in order that we don't have to look to Mr Abramovich to fund us continually. Was Platini misinformed? As best I can remember the quotes and the context, then I would say yes, he probably didn't understand the actual financial condition of Chelsea."[/b]

Enough to go on, Jeremy? I have to say I breathed a sigh of relief myself and have been able to imagine the debt differences between ourselves and United in a malleable context ever since. Chelsea’s softer than Mr Soft debt is the sort that lives in a corporate box, you can poke it and prod it all you want and still get a demur smile and a half decent team in return. I suppose [team-wise] the same applies to United, but I visualise their debt to be typically Northern [albeit American], dragging itself up into one big lump from a bloody hard background known as the banking system and sitting in the corner of the stand snarling defiant obscenities - “ Don’t think you can ever pay me back, sucker!â€

So, feeling a little better, I looked to Jeremy’s piece to convince me that, despite his headline, all is, in effect, well at the Bridge. Not a bit of it, apparently, as Jezza decides to wind up proceedings instead and go off, on what he would no doubt technically call a tangent, as follows…

“Liverpool are estimated to be £350 million in debt. Chief executive Rick Parry said: "It's a complex issue, you cannot possibly say per se 'debt is bad'. If you're funding a stadium it would be inconceivable – at least until about a fortnight ago – for anyone to do it with anything other than debt. Is it an issue? Yes. Is there a one-size- fits-all solution? Obviously not."

Football Association chairman Lord Triesman also raised the issue of the Premier League's 'fit and proper person' ownership test that he regards as "ineffective". "You're opening a Pandora's box with that one," said Parry. "Are we saying foreign ownership per se is bad? Are all British owners paragons of virtue? It's one thing to raise all the issues, it's another to find all the answers."

Well then, that clears everything up for us all?! Just when I was expecting, at the very least, a few words from a Glazer [any Glazer would do] on their Big Boppa of a debt and off Mr Wilson trots to Rick Parry for something resembling complete and utter b******ks. Clearly this financial thingy, the origins of which once lay in the US housing market, has moved further a field, probably settling entirely in Russia by now, which is why the Telegraph felt obliged to pinpoint our plight whilst ignoring that of Messrs Glazer, Hicks and Gillett completely. What do they know that I don’t??? Is Abramovich about to pull what’s left of the plug and take everything back to home with him, including fixtures, fittings and players? Is Ashley destined to spend the rest of his days in a cupboard under Roman’s stairs? What will happen to the Academy and Youth Teams - are they going to grow old on the Russian Steppes?

I make no bones about it, this whole Chelsea finance business is turning me into a nervous wreck on my club‘s behalf. Can anyone respond and put my mind at rest. I’ll be honest with you, I’m that close to sending food parcels.

Yours in need,

Dorset

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Dorset,

First of all, I would calm down about what problems this might pose. My meager understanding of the situation is that Roman has invested in the club, with all that money, but because he is the majority holder of the company. I believe thats the reason he cannot simply bestow this money to the club and erase it all. Even for Roman, 700 million is no laughing matter. But we are in a FAR FAR better position than the likes of Liverpool or ManUnited. Roman is not worried about getting that money back, and is tied to the club and to London. The Glazers, for example, owe their 600 million to banks like JP Morgan Chase, and others, who backed the takeover, and will soon want to see a return on investment. They have been lucky enough to win a lot of trophies the last few years and pay down that debt, but it still remains large. Liverpool are really not in a bad situation, unless tehy go ahead with the stadium. Like Arsenal, Barca, and other clubs, everyone has a substantial amount of debt.

The best comparable for our situation would be Inter, where Moratti holds all the power and has alot of cash at his disposal.

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I'm just a humble carpenter and wouldn't for a moment pretend know or understand the ins and outs of the club's finances. And I say that even after reading Dorset's post which, as usual, is as informative and entertaining as ever.

However, throughout the 70's, 80's and most of the 90's Chelsea was a name synonomous with the word "debt". With, it has to be said, much justification. We all know the story of the club "allegedly" being on the verge of bankruptcy and collapse immeditately prior to Roman's takeover. As Tea Bar Boy will tell you it's not a story I have ever personally believed. But of course, I do accept that the club were in debt and the financial picture under the Bate's regime could have been far rosier.

But that was all in the past and Mr Abramovich had arrived to save us. And I was led to believe that the really big plus of Roman's arrival was that, finally, the words "debt" and "Chelsea" would never again be an issue. Not even a topic for discussion. So, I was somewhat suprised and perturbed to hear part of an interview with Mr Buck this week admitting the volume of debt we now carry and hearing him say that debt is a legimate business tool. Well, he could be right. That may well be the case Mr Buck. But as a Chelsea fan who suffered through the 70's/80's and early 90's. I don't like it much. And I suspect there are many others who are just as uncomfortable with it as me. In fact I'm suprised this thread has not had a lot more posts submitted to it given the potential gravity of the topic.

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I can't say I'm particularly worried about our situation regarding debt, for as long as Roman is okay I think we will be and by the looks of these articles he's not yet been affected by the dreaded credit crunch: Cap’n Roman Abramovich builds his Bismarck and Abramovich's fortune still intact

What I would be interested to know is how transfer fees are paid in our business model? Does Roman just right a cheque say for £8million like when we signed Deco (which I imagine he could easily do) or are there staggered payments over a period of time (the likes of which you can do on Football Manager)? Because if it is a case of staggered payments wouldn't that contribute to our overall "debt"?

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I can't say I'm particularly worried about our situation regarding debt, for as long as Roman is okay I think we will be and by the looks of these articles he's not yet been affected by the dreaded credit crunch: Cap�€™n Roman Abramovich builds his Bismarck and Abramovich's fortune still intact

What I would be interested to know is how transfer fees are paid in our business model? Does Roman just right a cheque say for £8million like when we signed Deco (which I imagine he could easily do) or are there staggered payments over a period of time (the likes of which you can do on Football Manager)? Because if it is a case of staggered payments wouldn't that contribute to our overall "debt"?

I think transfers is outside of the UK they are usually paid over a period of time but within the UK the transfer can only be paid in 2 instalments , I could be wrong.

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I'm just a humble carpenter

Wondered where you were going there for a minute Just; I remember another book that started like that...

I always thought our debt was billed as debit for fancy tax dodging reasons both for the club and for Mr A.

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I always thought our debt was billed as debit for fancy tax dodging reasons both for the club and for Mr A.

I would say you are exactly right.

Reading the full interview with Buck, he stresses the point that Abramovic's investment in Chelsea could be seen as either a debt or equity - as he's the owner of the club. We have no external debt, which is very much a rareity amongst big clubs.

Whichever way you look at it, Roman has invested 730 million of his own money into the club.

I'm sure there are a lot of good tax reasons why you are better of "loaning" money at 0% interest to the club, rather than a direct investment.

This investment is different from the likes of Glazer's investment in United or Hicks/Gillett in Liverpool, as Roman has invested his own, debt free money, and at this stage is not expecting or getting any kind of a return on his investment.

I doubt you could say the same for any of the other big-money investors in Premier League clubs - possibly bar the new owners of City (they haven't really been all that open about what their exact situation is).

The majority of them are wealthy businessmen, but aren't in the same picture as Roman (who is still in the top 20 richest people in the world list). As wealthy as they are, there's no way they couldn't afford to write off hundreds of millions as an interest free investment that they might never see back again.

All their investments would have to be funded externally, which puts them in a difficult position in the current climate if they need to invest more money into the club (for new stadiums etc), as external money is not quite as easy to get as it was a year ago.

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