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I. Introduction

After much fanfare, the FFP regulations finally take effect this season. While smart clubs have been planning for this for years, there are serious questions as to whether these efforts will have been for naught. That is, to say, there are serious doubts as to whether UEFA has the legal authority to regulate how much clubs spend. Furthermore, if UEFA does have the legal authority to enforce these regulations, there is much confusion surrounding the possible sanctions and the specific nature of the accounting practises UEFA will employ. Most importantly, there are questions as to how Chelsea will be affected by these regulations.

With that in mind, we’re going to tackle just about everything FFP related in one long-winded article. Full disclosure, long-winded doesn’t do this post justice. Call it protracted-hurricaned instead. Yep, this is the kind of Dickensian wordplay (or as I like to say, logodaedalic prowess) you have in store for you while we tackle the albatross that is financial fair play as it applies to our beloved football club.

II. FFP Explained

II.1. How did we get here?

The origins of FFP as UEFA touts it today can be found in the Club Licensing system, which has been in place since the beginning of the 2004-2005 season. The Club Licensing system proscribes a number of criteria that clubs must meet in order to remain eligible for domestic and UEFA competitions. There are dozens of criteria of various degrees of importance, from maintaining sanitary facilities in the stadium to ensuring that a club has a competent IT staff. Most importantly, the Club Licensing system provided a framework for the domestic governing bodies (the FA, for example) to follow when implementing their own financial reporting requirements.

In September 2009, the UEFA Executive Committee unanimously approved new "financial fair play" regulations (FFP) in response to what UEFA perceived to be unacceptable financial losses as well as a widening competitive imbalance.

II.2. What are UEFA’s goals with FFP and will they be achieved?

Essentially, UEFA is primarily concerned with correcting what it perceives to be two major problems that threaten to destroy everything that we know and love about the beautiful game .

First, UEFA has said that the "idea of financial fair play [is] to guarantee, among other things, competitive balance in European competitions."

This is a rather ambitious goal (no one would begrudge you for substituting the word "ridiculous" for "ambitious," but we’ll give UEFA the benefit of the doubt… for now).

On competitive balance, or rather, competitive imbalance, Brian Phillips of Slate Magazine aptly summarises the state of European football:

"winning a title in European soccer, like having fox-hunting experience or standing near Charlotte Casiraghi, is largely a matter of pedigree. Europe's top divisions are dominated by two- or three- or four-club blocs, groups of old-guard status-quo titans who manage, year after year, to win just about everything."

Indeed, since the Premier League was founded in 1992, just five clubs have raised the trophy, Chelsea, Manchester United, Arsenal, City, and ahem, Blackburn Rovers that one time.

This lack of parity extends far beyond the shores of Britain. For example, in Portugal, the Os Três Grandes ("Big Three"), comprised of Porto, Benfica, and Sporting, have claimed 77 of 79 league titles. In Spain, Barcelona and Real Madrid have combined to win 25 titles in the past 29 years. In Germany, Bayern and Dortmund have combined to win 16 of the last 20 titles. In Italy, AC Milan, Inter Milan, and Juventus have won 20 of the last 22 titles. Aside from achieving extraordinary success on the pitch, the one thing that these teams have in common is that they are all among the highest grossing clubs in the world.

UEFA is comprised of fifty-three countries. All of these countries have multiple domestic levels of professional football, and there are 733 clubs competing in top division football. Since the Champions League began in 1955, only thirteen countries have been represented in the finals, and 72 percent of all finalists have been from one of four countries (England, Germany, Italy, and Spain). Further, the most successful teams from each of those four countries (Liverpool, Bayern Munich, AC Milan, and Real Madrid) have combined to win nearly half of all the Champions League titles.

Source: UEFA Figure II.1

UEFA’s own internal benchmarking report concludes that "there is a strong correlation between club spending and success on the pitch and is one of the biggest factors determining the likelihood of success. In particular the league or knock-out structure of competitions and the access lists to European competitions bear an influence. Money does not guarantee success but it does improve the probability of victory." The correlation between club spending and on-pitch success is more pronounced in domestic competitions than it does in European competitions. Due to the knock-out nature of the Champions League and Europa competition, large spending does not guarantee progression. The knock-out nature of these competitions actually serves to facilitate on-pitch success for teams that spend below the average. This is largely due to the propensity for "upsets" in a knock-out format, as is similarly seen in the annual National Collegiate Athletic Association (NCAA) basketball tournament held amongst United States’ colleges and universities each spring.

Figure II.1 details the relationship between spending and on-field success in domestic competitions. The relative expenditure of each individual club from the top five leagues (in terms of aggregate revenues generated) is plotted against the achieved position of that club for the 2008-2009 season. While there is obviously an upper limit to on-field success, there are no such limits on spending, which gives rise to the curved nature of the plot distribution. The chart confirms the fact that clubs that spend over three times the league average will assure themselves of a top spot in their respective domestic competitions. By virtue of achieving a top spot in their domestic competitions, these clubs will also secure qualifying positions in the Champions League.

Given that Figure II.1 is from data compiled nearly four years ago, let’s take a look at this past season (2012-2013) and see how transfer expenditure correlated to points per match this past season in each of the five biggest leagues in Europe.

Source: CIES

Figure II.2

Table II.1is a list of the clubs who have spent the most on transfer fees to field their 2012-2013 squads. The "rank" column indicates where in the table each team finished in its respective league. As you can see, with a few exceptions (Liverpool and Inter Milan in particular did not have much to show for their lavish purchases, and, to a lesser extent, Aston Villa, Sunderland, and Wolfsburg suffered poor returns on their investments), the more aggressive a club is in the transfer market, the higher up the table the club is likely to find itself.

Source: CIES

Table II.1

Basically, all these statistics and fancy scatter plots simply underscore what we’ve always known (because it’s always been this way) – clubs that spend the most usually win the most.

There has never been competitive balance in football and in all likelihood, there never will be. While UEFA clearly would like to create a better competitive balance through regulating spending with salary caps or wage restrictions, it lacks any authority to implement these measures. FFP can attempt force clubs not to spend more money than it earns, but there is no limit to how much an individual club spends or earns. As such, the FFP regulations are woefully inefficient and essentially toothless regulations that do nothing to rectify the lack of parity.

Second, UEFA wants regulate clubs’ spending in order to combat what it feels are excessive wages and inflated transfer fees. It also wants to reduce and eventually eliminate the financial losses clubs are assuming.

UEFA is attempting to impose regulations that force clubs, in UEFA’s own words, to exercise "greater discipline and more rational financial behaviour from clubs, and encourage clubs to operate more responsibly by not spending more than they earn, while settling their liabilities punctually."

Table II.2

UEFA president Michel Platini stated that the FFP regulations are necessary to protect the future of European club football. Indeed, when one takes a look at the finances, it seems evident that European clubs are in a precarious financial position. In the 2011 financial year alone, clubs amassed £1.46 billion in net losses. These losses are climbing steadily (compare to £1.03 billion in losses in FY2009 and £514 million in losses in the 2006 financial year).

In the four-year period between 2007 and 2011, revenue has grown by 24 percent, but player wages have increased by 38 percent. In addition, wages plus transfer fees have increased from 62 percent of revenue to 71 percent. Obviously, this is unsustainable and it’s easy to see why losses continue to grow.

UEFA’s "solution" is to impose a break-even mandate. After each of the five monitoring periods seen listed above in Table II.2, UEFA will review each club’s accounts and determine whether each club has complied with the basic premise that it should not spend more than it earns.

UEFA defines a club’s break-even result as the difference between relevant income and relevant expenses.

Relevant income includes all revenue streams, player transfer disposals and finance income.

Relevant expenses include the cost of player transfer acquisitions, finance costs and all types of expenditure by a football club except depreciation of tangible fixed assets (e.g. the cost of stadium and training facilities), expenditure on youth and community development activities, and tax on profits.

During the first five monitoring periods (through the 2017-2018 season), UEFA will tolerate a break-even deficit (i.e. losses) between ~£25-38m (see Table II.2).

II.3. Are the FFP regulations even legal?

The jury is quite literally still out on this.

UEFA has made it clear that FFP is intended, in large part, to shift the competitive balance in European football towards parity. In order to significantly shift the competitive balance in European football, however, a continent-wide salary cap and/or some sort of restriction on player wages would have to be implemented.

There is absolutely no chance that either of these will be implemented with European Union (EU) law as it currently stands. The free movement of workers is one of the EU’s four fundamental economic freedoms, and any attempts to hinder free movement are often swiftly undone by the European Court of Justice (ECJ). In fact, some UEFA’s past attempts to impose restrictions on professional football players have been ruled illegal by the ECJ. For example, in the 1995 case, Union Royale Belge des Sociétés de Football Association v. Jean-Marc Bosman (most football fans know it simply as the Bosman case), the ECJ ruled that UEFA’s restrictions on the number of foreign nationals a club may play violated Article 39 EC. The Court further ruled that UEFA’s requirement that a transfer fee must be paid before a player whose contract has already expired may join another club also violated Article 39 EC . UEFA argued that these regulations were justified by the need to maintain a competitive and financial balance between clubs. The Court rejected this argument and held that those aims could be achieved by other means that do not impede the free movement of workers.

The legality of the FFP regulations could be challenged... it will likely be difficult for UEFA to successfully argue that FFP qualifies for an exemption

UEFA needs to tread carefully with enforcing FFP, as the regulations have already been criticised as an "unlawful barrier for ambitious clubs owing to their anti-competitive effect." The legality of the FFP regulations could be challenged in the ECJ as violating the free movement of workers, and UEFA would likely have to show that the regulations qualify under a legal exemption provision under Article 101(3) EC. According to Duncan McHardy, in order to qualify for this provision, it would have to prove that "FFP had positive effects in the European [football] market as a whole. Further, FFP must be deemed proportional and indispensible to warrant an exemption." As I have been arguing since I first started writing about FFP back in 2010, it is unlikely that FFP will have positive effects on the overall European football landscape. As such, it will likely be difficult for UEFA to successfully argue that FFP qualifies for an exemption under Article 101(3) EC.

The very same lawyer who successfully challenged UEFA’s transfer rules in the 1995 Bosman case, Jean-Louis Dupont, has already filed a case on behalf of a Belgian agent in the Court of First Instance in Brussels. Without getting too bogged down in the finer points of EU civil procedure, Dupont has taken the first step towards arguing his case before the European Court of Justice (ECJ). The ECJ has the power to prevent UEFA from imposing any rule or regulation that violates EU law.

I could spend days talking about the legal issues involved in FFP, but for all of our sakes, I’ll simply refer you to football lawyer Daniel Geey, who has written an excellent article here and FFP legend Ed Thompson, who summarises the situation here.

Wait a second Jake, you just said that the ECJ will often render any attempt to restrict the free movement of workers illegal. You also just said that implementing a wage cap won’t fly either. Well, then, how do explain the transfer window? Clearly, players are restricted from moving between clubs except during the months of January, July, and August? What gives? Also, while you’re at it, how do you explain the fact that the Premier League instituted a wage cap this season?

While I confidently state that restrictions on wages and player movement will be extremely unlikely at a European level, there are certain restrictions on domestic levels (league transfer windows, which determines when a player can move from one club to another, for example).

This discrepancy is due to the fact that the free movement of workers provision does not apply to situations that are wholly internal to a member state.

In layman’s terms, despite the globalized nature of the Premier League (and just about all of the other top-division European leagues), EU law defines the Premier League as a self-contained entity operating entirely within the UK. The other top-division leagues are afforded the same designation, and are therefore permitted to engage in domestic activities that would be illegal if attempted at a continental level.

If you find this answer is unsatisfying, I don’t blame you. How can a league host a match on a Saturday afternoon between a team owned by an American family and a team owned by a Russian businessman with Scottish and Portuguese managers overseeing players from nearly 20 different countries, and still be defined as "wholly internal to the UK"? These are the questions that keep me up at night. All I know is that this is how the ECJ has decided to interpret Article 39 EC, and it is what it is.

In 2002, UEFA wanted to implement a uniform transfer window. This almost certainly would have been ruled illegal under EU law. Instead, it smartly decided to issue "recommendations" to each nation’s governing body to harmonise their respective transfer windows. As it stands now, most European countries’ transfer windows are within a day or two of each other and most often take place in January, July, and August.

Similar to the transfer window situation, the Premier League is allowed to impose certain wage restrictions because, as mentioned, it is "wholly internal to the UK." As I’ll show in a bit, these new regulations won’t have any effect on the way Chelsea does business.

II.4. What happens if a club violates one of the regulations?

There is a misguided notion that if a club that earned its spot in the Champions League overspent by £1 in its pursuit to get there, said club will then be excluded from the competition.

it is extremely difficult to envision UEFA stripping away a club’s CL spot because its wealthy owner overspent by £1, £1 million, or even £10 million Laurence Griffiths / Getty Images

In reality, it is extremely difficult to envision UEFA stripping away a club’s CL spot because its wealthy owner overspent by £1, £1 million, or even £10 million.

To be fair, however, UEFA let our minds run wild for nearly three years before they decided that it might be a good idea to let us know exactly what horrors will befall clubs that run astray of FFP.

In June 2012, UEFA created its own judicial board (called the Club Financial Control Body, or CFCB) to adjudicate alleged FFP violations and impose sanctions if and when they deem them necessary (if we’re splitting hairs, they actually "replaced" an existing judicial board, but in the sense that Napoleon "replaced" Louis XVI).

For anyone wishing to subject themselves to the minutiae of CFCB procedures, you can take a look here. Don’t say I didn’t warn you.

Article 21 of the aforelinked document lists the sanctions that can be imposed on a club that the CFCB finds guilty of violating FFP.

What are the possible sanctions?

Assuming FFP manages to stand up to the legal challenges in front of them now and the many more legal challenges it will face down the road, and assuming Chelsea manages to run afoul of the regulations, there are nine potential sanctions that the CFCB can impose on the club.

warning reprimand fine deduction of points withholding of revenues from a UEFA competition prohibition on registering new players in UEFA competitions restriction on the number of players that a club may register for participation in UEFA competitions disqualification from competitions in progress and/or exclusion from future competitions withdrawal of a title or award

As the sanctions could relate to Chelsea:

nothing happens nothing happens, except perhaps that during the next Champions League draw, Gianni Infantino refuses to engage David Barnard in friendly banter. The annual Christmas bonuses for the Eclipse crew are slashed by two percent. This is a serious sanction and would very likely be applied to the points accrued during the group stage. Depending on the amount of points docked, it would render advancement to the quarter-finals extremely difficult given the oft-competitive nature of the group stage. The revenue itself is not a huge problem, as we are fortunate enough to have an owner who won’t be too fussed about losses. However, losing out on CL revenue would make it even more difficult to comply with FFP regulations the following year. One wonders whether a club would still be able to claim the revenue on the balance sheet it hands in to UEFA for review. Elsewise, it seems like UEFA would be setting the club up for failure when the following year’s balance sheets are due. This sanction likely means that new transfers would be ineligible to compete in UEFA competitions. Hypothetically, if Chelsea were hit with this sanction this season, this would likely mean that the likes of Andre Schurrle, Mark Schwarzer, Marco van Ginkel, Willian, Samuel Eto'o would not be eligible for the Champions League roster. UEFA allows a club to name a 25-man squad (plus a seemingly-unlimited amount of young home-grown players) for the Champions League (there are a number of guidelines that these players must meet, and Deg0ey does a great job explaining the UEFA roster nuances here). This sanction would reduce the number of players Chelsea could utilize in Champions League matches, which would obviously create problems relating to depth and tactical diversity on the pitch. This is the sanction we’ve been hearing about for years. I would be shocked if UEFA disqualified a first-time offending club with a wealthy owner from European competition for moderately overspending (i.e. less than £50m over the limit). I believe that this sanction is going to be reserved for clubs who have already had FFP trouble and have not demonstrated that they are taking measures to comply with the regulations. The only scenario I can envision UEFA levying this sanction on a first-time offender is where that club engaged in financial doping. Chelsea’s wins and trophies could be erased from the record books. This would give the media and your friends who cheer for Arsenal, Spurs, etc. some anti-Chelsea fodder, but that’s about it. Ask Southern Cal (American) football fans if this sort of sanction lessened their experience watching the 2004 season and 2005 Orange Bowl (spoiler alert – it didn’t).

When will sanctions be imposed?

The CFCB will meet and determine what, if any sanctions to levy on clubs sometime between December 2013 and April 2014.

Didn’t the Premier League adopt its own FFP regulations this year?

Indeed they did. We've already briefly encountered Daniel Geey, a London-based attorney who focuses on European competition law. He has been tracking the developments for months now, and I urge you to read his articles, as he does a great job explaining exactly what the Premier League financial regulations entail (of course, if you want to read the regulations for yourself they can be found starting on page 104 of the 2013-14 Premier League handbook).

Briefly, I will say that the regulations are less restrictive than UEFA’s regulations, and since clubs like Chelsea, who expect to compete in the Champions League every year, have been planning for UEFA’s FFP regulations for years, they will have absolutely no problem complying with the PL’s regulations.

There is a common misconception that teams are only allowed to spend £52m on wages this season, £56m next season, and £60m in 2015-16.

Of course, this couldn’t be further from the truth. In reality, clubs are prevented from using more than £52m of their broadcasting revenue on wages (that number climbs by £4m in each of the next two seasons). Clubs are still permitted to spend their matchday and commercial revenue on income. For reference, Chelsea earned a total of £148.2m in matchday and commercial revenue. When you add those revenue sources to the £52m in broadcasting revenue, the wage cap, standing at £200m plus, starts looking a little less restrictive.

Furthermore, clubs are allowed to overspend by £105m over the next three years, so long as the club’s owner is willing to cover at least £90m of those losses. It’s unlikely that Chelsea will ever have to use this provision, given that their baseline wage cap is £200m+ (and will most likely increase each year, as commercial revenue increases), but it’s nice to know that Chelsea won’t be docked points in the Premier League unless its wage bill skyrockets to £300m plus.

As Geey notes, "Under the PL constitution, a two-thirds majority is required to authorise regulatory change. As only 13 of the 19 votes cast were in favour, the vote was a close call… Southampton, Swansea, Manchester City, Fulham, West Brom and Aston Villa voted against the proposals and Reading abstained."

If Chelsea were at all concerned about these regulations, they simply could have chosen to vote them down

These regulations only impact clubs who commit a large portion of their turnover (i.e. total revenue) to wages. Indeed, the six largest clubs with the largest proportion of wages to turnover are, in order: Aston Villa, Manchester City, Sunderland, Fulham, Everton, and West Brom (four of the six "no" votes).

The most recent data available is from the 2011-2012 season, but if you look at Southampton’s activities in the transfer market over the past two seasons, it becomes clear that they have overextended themselves financially. Southampton has expended £67m net in the transfer market (transfer expenditures offset by transfer sales) since 2011-2012 (and that doesn’t even include the wage increases that come along with big-money purchases such as Gastón Ramírez and Victor Wanyama).

Swansea, on the other hand, has exercised fiscal prudence and has one of the lowest wage to turnover ratios in the Premier League (18th, just above Manchester United and Norwich City). Swansea has apparently shifted course since the official vote and now favours the new financial regulations, no doubt after someone explained to them how the regulations prevent a club from mortgaging their future in an attempt to stay up in the Premier League.

If Chelsea were at all concerned about these regulations, they simply could have chosen to be the deciding seventh vote and successfully voted down the regulations (for reference, Chelsea’s wages as a proportion of turnover ratio was 66 percent in 2011-12, 14th in the league, i.e. the sixth-lowest).

Given that 1) Chelsea are already subjected to significantly more restrictive financial regulations by UEFA, 2) the "wage cap" is not really a wage cap, and 3) Chelsea voted in favour of the regulations, it seems clear that the Premier League’s financial regulations will not affect the way Chelsea does business.

III. Chelsea and FFP

So, where do Chelsea sit with all this?

The best way to explain Chelsea’s financial position FFP-wise is to 1) look at how the club is generating revenue 2) examine how Chelsea can further maximise revenue, 3) look at how the club is spending, 4) compare the club’s revenue and expenditures to likely domestic and European competitors, and 5) summarise the FFP loopholes that Chelsea can exploit utilise.

III.1. How much revenue does Chelsea generate?

The most recent financial statement covers fiscal year 2012 (the 2013 statement is not due to Companies House until 31 December 2013).

Source: Deloitte

Figure III.3

In fiscal year 2012, Chelsea earned £261m (€323 million) in total revenues, making it the fifth highest earning club in the world. The club derived 43 percent (£112.8m) of its revenue from PL and Champions League broadcasting distributions. It earned £68.8 million from the PL and £44 million from the Champions League. It derived 30 percent of its revenue (£77.7m) from matchday income (i.e. gate receipts) and the remaining 27 percent (£70.5m) came from commercial revenues, such as sponsorships and merchandising.

£261m sounds nice and all, but can Chelsea do better?

As we all know, fifth place doesn’t cut it around these parts. Chelsea can and will continue to increase revenues. As Graham reported about a year ago, Chelsea (along with the other 19 PL clubs) should expect to see significant increases in broadcasting revenue starting this year.

The new TV deal kicked in this season and over the next three years, the PL will generate £3.018 billion in just domestic broadcasting revenue. It is estimated that the PL will generate an additional £2 billion over the next three years for internet and overseas rights (the US rights alone were sold for £160m over the next three years).

This amounts to over £83m annually for each club on average. Given that half of the PL revenue sharing is directly tied to 1) where the club finishes on the table, and 2) how often the club’s matches are shown on television, it is extremely likely that Chelsea will earn a significantly larger amount than £83m annually from PL broadcasting revenue over the next three years.

The Champions League revenue is estimated to increase as well. In 2012-13, participating clubs shared £771 million. For this coming campaign, UEFA estimates that clubs will share £1.14 billion, a 48 percent increase from last year.

Clearly, broadcasting revenues are going through the roof, and as one of the most successful clubs in the world, Chelsea are primed to earn one of the largest pieces of the pie.

Conservatively estimating Chelsea’s broadcasting revenue for 2013-2014 at £150m (£100m PL, £50m CL) represents a £27.2m increase from FY2012.

It is important to note that after this years large increase, broadcasting revenue should remain relatively consistent over the next three years (the Champions League revenue should continue to increase slightly, assuming Chelsea’s results on the pitch are consistent with recent years).

It also doesn’t hurt that every PL broadcasting revenue outpaces all of its European counterparts by a wide margin. This gives PL clubs a significant advantage over every other European club in terms of FFP compliance.

Matchday revenue is unlikely to significantly change anytime soon. In fact, it may actually decrease given that the £77.7m accrued in FY2012 is a 15 percent increase over the previous year. The FY2012 increase is solely due to the additional home matches Chelsea had during their brilliant 2012 CL campaign.

The club already generates the fifth highest matchday revenue in all of football, and its potential for improvement is limited by a number of factors. For one, Chelsea play at Stamford Bridge, a one hundred and twenty-five year old stadium with a capacity of less than 43,000. Given the stadium’s location on Fulham Road, it will be difficult, if not impossible to further expand the seating capacity. In addition, the already-high ticket prices (second in the PL, behind only Arsenal) combined with attendance at 98 percent of capacity severely limits the club’s ablity to generate significant growth in matchday revenues.

For comparative purposes, Chelsea’s per-match revenue in FY2012 was £2.6m, which leaves them at a significant disadvantage when compared to Manchester United (£3.9m) and Arsenal (£3.3m). That is, if Arsenal ever spent any money.

Since matchday revenues are likely maximised and since broadcasting revenues are fixed (and all Chelsea can do to maximise broadcasting revenues is to win as much as possible, which is already the club’s primary goal), the club has focused on increasing commercial revenues.

In FY2012, the club earned £70.5m in commercial revenue.

Most of us already know that Chelsea just signed a 10-year extension with adidas to be the club’s kit manufacturer through 2023. The deal is worth close to £30m annually, and represents a £10m increase over the previous deal. It’s important to note that the previous deal was signed in 2010 and was originally an eight-year deal. The fact that Chelsea were able to renegotiate is a great sign. Even though Chelsea has one of the most lucrative kit deals in football now, that might not be the case in five years. It is likely that there are several opt-out clauses in the contract that Chelsea can and will take advantage of long before the 10-year deal expires.

The kit manufacturing deal is entirely separate from the kit sponsorship deal, and of course, that means more money for Chelsea. The Table III.1, compiled by the always-excellent lads at sportingintelligence, details all of the relevant financials involved in PL kit sponsorship deals:

Source: sportingintelligence

Figure III.1

While Arsenal are at the top of this table (something no one is used to seeing) thanks to the enormous raise it received from Fly Emirates, Chelsea are at the bottom of the big six clubs. Graham recently covered this issue here, and I have a few notes of my own.

The Samsung sponsorship has been increasing steadily over the past four years (Chelsea received £8.8m in 2009-2010, £13.8m the past three years, and now £18m), but Chelsea are leaving some money on the table with respect to shirt sponsorship revenue. One silver lining is that the long-term relationship with Samsung has apparently created 15 million South Korean Chelsea supporters. So, there’s that.

For comparative purposes, Manchester United will average £51m annually from their sponsorship deal with American car manufacturer GM beginning next season (as part of the deal, they will also receive nearly £13m this year for additional sponsorship). Barcelona’s 5-year deal with Qatar Airways began this season and is worth £28m annually. Real Madrid signed a 5-year deal with Emirates that will begin next season and is worth nearly £25m annually. Bayern Munich’s shirt sponsorship deal with Deutsche Telekom is worth £25m annually.

Aside from kit deals, the summer tours remain a lucrative source of income. It’s likely that Chelsea will continue to fill the off-season with as many friendlies as it can schedule.

In addition, if Chelsea continues to grow their sponsorship portfolio, maintain their position as a leader among football clubs when it comes to social media, and continue to search for innovative partnerships (like the partnership with the Sauber F1 team), commercial revenues should continue to grow.

Perhaps most importantly, however, Chelsea need to keep winning in order to increase commercial revenue. Commercial revenue is entirely dependent on the Chelsea brand, and the brand is dependent on the club being successful on the pitch. Brand Finance, a publication that ostensibly tracks, you guessed it, the migratory patterns of zebras , brand finance, rates Chelsea as the 5th most valuable brand in world football, second to only Manchester United in the Premier League (and behind the two Spanish giants and Bayern Munich on the global scale).

Why doesn’t Roman just use one of his Russian holding companies to buy £100m worth of sponsorships? I know I’d rather see the lads wear "Abramovich and Daughter’s Shipbuilding Emporium" kits than Samsung kits.

Good question. Given Abramovich’s willingness to overspend, one would wonder why he doesn’t use one of his Russian holding companies to buy £100 million worth of sponsorships. Then Chelsea could count that money as commercial revenue for FFP accounting purposes and we’d never have to worry about this pesky little regulation ever again? Right?

This is an example of financial doping, and this is the one area where I can seriously imagine UEFA banning a club from the Champions League.

Financial doping can be defined as a wealthy owner injecting revenue into the club under the guise of sponsorship. The FFP regulations have safeguarded against this sort of conduct.

Article 58.4 states that "relevant income and expenses from related parties (i.e. anyone involved in the ownership group) must be adjusted to reflect the fair value of any such transactions." This means that if an owner overpays for sponsorships, tickets, etc., the value of the transaction will be adjusted down to fair market value when UEFA starts reviewing the financials of each club.

Paris Saint-Germain have already engaged in financial doping, and they are likely going to find themselves in serious trouble with UEFA. Aside from that fact that it’s quite shocking that they attempted it, it blows my mind how poorly they tried to hide it in their books. The gory details can be found on Ed Thompson’s terrific FFP blog, where he first broke this story.

III.2 How is all this money being spent?

FFP accounting is completely different from the regular accounting you see in the public statements clubs submit to Companies House every year.

In light of this, I’ve completed a comprehensive wage database that contains everything you could ever want to know about player wages, contracts, transfer fees, and the overall FFP cost of every last player on the books during the FFP era. If the length of this post doesn’t crash the servers, I will very happily sort through every last sterling pound of Chelsea player wages with you in a forthcoming article.

As we know, Roman rarely gives interviews, but one public comment he’s made effectively summarises Chelsea’s financial ethos when it comes to FFP; "the goal is to win. It's not about making money. I have many much less risky ways of making money. I don't want to throw my money away, but it's really about having fun, and that means success and trophies."

As far as FFP is concerned, Chelsea will spend every pound it earns and will likely meet the break-even provision by the slimmest of margins every year by design.

III.3 You said something about loopholes?

Why yes I did. There are a number of "write-offs" available to clubs. That is, with regards to breaking even, there are a number of expenditures that won’t count towards the FFP accounting of relevant expenses.

The final five paragraphs in the 87 page regulations contain a nifty little clause that erases almost £80m from the books.

Annex 11 §2 states, in full:

For the purpose of the first two monitoring periods, i.e. monitoring periods assessed in the seasons 2013/14 and 2014/15, the following additional transitional factor is to be considered by the UEFA Club Financial Control Body: Players under contract before 1 June 2010 If a licensee reports an aggregate break-even deficit that exceeds the acceptable deviation and it fulfils both conditions described below then this would be taken into account in a favourable way. i) It reports a positive trend in the annual break-even results (proving it has implemented a concrete strategy for future compliance); and ii) It proves that the aggregate break-even deficit is only due to the annual break-even deficit of the reporting period ending in 2012 which in turn is due to contracts with players undertaken prior to 1 June 2010 (for the avoidance of doubt, all renegotiations on contracts undertaken after such date would not be taken into account). This means that a licensee that reports an aggregate break-even deficit that exceeds the acceptable deviation but that satisfies both conditions described under i) and ii) above should in principle not be sanctioned.

Put simply, the wages of any player that Chelsea had signed prior to June 2010 will not count towards UEFA’s calculation of a club’s expenses for the 2011-2012 accounting period.

So, for the purposes of FFP accounting, Chelsea paid Didier Drogba, Frank Lampard, John Terry, Ashley Cole, Petr Cech, Branislav Ivanovic, Michael Essien John Obi Mikel, Salomon Kalou, Nicolas Anelka, Yuri Zhirkov, Jose Bosingwa, Daniel Sturridge, Florent Malouda, Alex, Paulo Ferreira, Ross Turnbull, Henrique Hilario, Gael Kakuta, and Jeffrey Bruma a total of £0 in 2011-2012. Not too bad, that, considering they were actually paid a combined £79.3m that year.

Since the 2011-2012 accounting period is only included in the first two monitoring periods (this season and next season), the wage exclusion will not be a permanent mechanism by which to offset what would otherwise be prohibitively high wage bills. For now, though, it makes the road to FFP compliance much easier for big-spending clubs.

Given that the wage exclusion loophole is only applicable for this season and the next, let’s take a look at a loophole that will benefit Chelsea’s road to FFP compliance for years to come.

FFP Article 58.2 states that any expenditures a club makes on its youth system will be excluded from UEFA’s calculation of the club’s expenses.

FFP dictates that not only are Chelsea (and every other club) permitted to spend an unlimited amount of money on developing youth players, but in fact, it will help a club evade sanctions should it run afoul.

That is, committing significant financial resources to youth development will likely be viewed as a positive thing should Chelsea not "break-even." To wit, our favourite Annex (#11, of course) states that as long as a club has "implemented a concrete strategy for future compliance" and there is a positive trend towards the break-even requirement, that club won’t be sanctioned.

FFP permits (and even encourages) Chelsea to go country to country and scoop up anyone who’s ever kicked a football, provided that the lad has yet to sign a professional contract (i.e. so there won’t be the pesky matter of a transfer fee), and UEFA will count this as £0 spent for FFP reporting.

Chelsea will easily comply with FFP during the first monitoring period. Clive Rose / Getty Images

Keep in mind that while the rules pertaining signing a foreign-born youth player to the academy remain in place, we are going to be seeing an increasing number of foreign-born youth players at Cobham .

Small wonder why Manchester City is building a £100m youth facility that will train up to 400 youngsters on 17 pitches (including a 7,000 seat stadium).

UEFA also excludes exceptional items in its break-even calculation. Due to the managerial merry-go-round prior to Mourinho coming home, Chelsea owed £28m in compensation fees in 2011-2012 alone to Carlo Ancelotti, Andre Villas-Boas, and Porto. In addition, Chelsea is not on the hook for things like the tax on image rights (£6m in 2011-2012) .

With all of the available loopholes and write-offs, I am confident that Chelsea will be well clear of the break-even mandate.

Including all of the write-offs, I estimate Chelsea to be £42.8m in the black for 2011-2012 .

While Chelsea haven’t filed their 2012-2013 financial statement yet, it’s fairly clear that, with all the loopholes available (not to mention the £19.25m a club is allowed to overspend by per year during this first monitoring period), Chelsea will easily comply with FFP during this first monitoring period.

Woah, wait a second Jake. Didn’t Platini (and his predecessor, Lennart Johannson) specifically target Chelsea and City when steaming ahead with FFP? Why does it seem like Chelsea and City are actually coming out ahead in this?

It is an incontrovertible fact that UEFA implemented FFP as a direct result of the Chelsea and City spending. UEFA wanted to prevent new wealthy owners from outspending everyone else.

The combination of FFP incentivising youth development while also discouraging high transfer fees is going to lead to serious problems for selling clubs (your West Hams, Benficas and Portos).

Historically, West Ham have had an extraordinarily strong youth system, which has allowed the club to develop its promising young players into stars. There are few, if any other clubs that have been able to develop as much talent as West Ham has. West Ham’s academy has developed over 20 senior international players and another sixty or so lads who have been capped at the youth levels.

Due in large part to West Ham’s somewhat unique ability to develop top-level talent on a consistent basis, they has earned just over £192m in transfer fees since the PL began in 1992. Other teams have generated higher gross revenues from transfers but only Blackpool (whose transfer finances are skewed due to it making it’s debut in the PL for the 2010-2011 season) has seen a better net transfer revenue. West Ham have only had to spend an average of £1.1m per season in transfer costs (the average annual transfer expenditure was a shocking £136,000 before West Ham rather shrewdly spent £21.5m on Andy Carroll and Stewart Downing).

At first glance, one could look at these numbers and conclude that West Ham is simply unwilling to spend money on bringing new players to Upton Park, but a further look at the financial statements show that to be incorrect. Out of the 20 PL teams, West Ham rank 11th in terms of money spent on incoming transfers. The £216 million West Ham has spent on transfers places them right in the middle of the pack of PL clubs. The virtual lack of net transfer expenses is a major reason why West Ham have been able to compete in the PL (the hiccup with our old friend Avram in 2011 notwithstanding).

FFP will almost certainly cause transfer fees to decline, as most clubs will be increasingly hesitant to spend large sums of money on transfers when they know that they have to meet the "break even" requirement. While FFP allows transfer costs to be amortised over the life of the player’s contract with the new club for accounting purposes, these costs will still be included in the calculation of the purchasing club’s expenses.

Under FFP, rather than spending large sums on transfers, the would-be purchasing club will be better served by spending that money on its own youth system. As has been discussed, larger clubs, which may have otherwise sought out top young players from West Ham and other selling clubs, are in fact heavily investing in developing their own youth systems.

The global giants pay smaller clubs exorbitant transfer fees on a regular basis (another quick example – Benfica generate more revenue than any other Portuguese club, and the David Luiz and Ramires transfer fees combined to equal to about 45 percent of their total 2012 revenue. More, way more actually, if you factor in Nemanja Matic’s value). These transfer fees provide the smaller clubs with the freedom to go out and buy several new players, make improvements to their facilities, pay down any existing debt, or simply line the owners’ pockets.

Chelsea and the other global giants will actually benefit from FFP

In practise, FFP will likely hurt PSG and Monaco at some point, it will definitely hurt every single club that doesn’t have a wealthy owner that is willing to take significant personal losses in pursuit of trophies, but Chelsea, City, and the other global giants will actually benefit from FFP.

Stefan Szymanski is likely the world’s foremost expert on the economic realities of competitive balance in European football. He has been writing on the subject since 1991, and in December 2012, he co-authored a paper with Thomas Peeters, an applied economics professor at the University of Antwerp entitled Veritcal Restraints in Soccer: Financial Fair Play and the English Premier League.

This paper uses economic modelling to show that "pre-eminent clubs" will not be adversely affected by FFP (Manchester United, Liverpool, and Arsenal). Chelsea are afforded "pre-eminent" status by virtue of Abramovich injecting a ridiculous amount of money into the club since 2003 and having enough time to adjust to the FFP regulations.

From Chelsea’s standpoint, FFP was timed perfectly in that the club has had just enough time to transform itself into a "pre-eminent club" well suited for dealing with FFP. Given that the paper argues that FFP will drive wages downward, Manchester City could run into some problems given it’s extraordinarily high wage bill.

While not specifically mentioning Monaco and PSG, the models would show that they are in serious trouble.

Szymanski and Peeters further argue that what they label "sugar daddy" clubs are a thing of the past . Indeed, less than two weeks ago Szymanski said that "the new rules are actually likely to ossify European competition and limit the potential for big clubs of today to be challenged."

That is, FFP essentially prevents a club from receiving an enormous influx of cash and becoming very successful very quickly. This is great news for Chelsea, as it ensures the status quo for the foreseeable future. As a top-five club in terms of annual revenue, this is great. As long as FFP is in effect, Chelsea will not have to worry about Sunderland, Sampdoria, Sevilla, Socheaux, or SC Freiburg being bought by a multi-billionaire and instantly competing with Chelsea for players and challenging for a top-four spot domestically or making the Champions League even more competitive than it already is.

For those of us who have been following FFP for years and recognise that UEFA directly targeted Chelsea (and Manchester City), it is hilarious to see that all UEFA has done make it easier for us to compete for domestic and European laurels by blocking the path for new clubs to mount challenges to our chances.

In conclusion, UEFA will face an uphill legal battle when it tries to enforce its first FFP sanction on a club (and in fact, shots have already been fired). I find it extremely difficult to envision a scenario, outside of a PSG-type situation where a club engaged in blatant financial doping, where UEFA successfully disqualifies a club from the Champions League without being tied up in court for years and paying millions of pounds in damages from the resulting lawsuit.

Even if UEFA somehow finds itself on firm legal ground and is free to enforce sanctions, it is extremely unlikely that Chelsea will be in trouble. In fact, based on the fact that FFP ensures that Chelsea will not face any heavier competition on the pitch than they already do, FFP actually helps Chelsea cement their place as one of the handful of clubs with the resources to mount successful campaigns both domestically and in Europe year in and year out.