Chelsea is rather unique in football in that it is not run as a for-profit company, but rather as a for-trophies company.





Everything the club does to increase revenues is done with an eye towards improving the squad and its chances of winning trophies, rather than improving Roman Abramovich's bank account. Abramovich bought the club for around £140m in 2003, and has since sunk over one billion additional sterling pounds into the club. Now that Chelsea is profitable, no one would begrudge him for taking the profit to start paying himself back. That's not how Abramovich does business when it comes to Chelsea, however. Since Abramovich bought the club, Chelsea has embraced a "win at all costs" business model, and the club has worked very hard to maintain this philosophy in the financial fair play era.





Financial fair play dictates that clubs can't spend (much) more than they earn, so Chelsea has redoubled efforts to earn as much as possible in order to spend as much as possible in the pursuit of winning trophies.

FFP has forced Chelsea to maximise revenue streams.





Commercial revenues have skyrocketed and will increase even further next season with the new Yokohama deal kicking in (at £40m per year, this represents a massive increase over the previous deal with Samsung at £18m per year). For perspective, Chelsea's commercial revenues have increased 63% over the past three seasons, more than any of the top clubs (Manchester United is up 60%, Manchester City is up 48%, Arsenal is up 45%, Liverpool is up 30%, and Spurs have been stagnant).





Full disclosure, in raw numbers, Chelsea earned £109m in commercial revenues last season, which is considerably behind the Manchester clubs (United at £189m, City at £166m), but ahead of the others (Liverpool at £98m, Arsenal at £77m, and Spurs at £42m).





Chelsea's latest plan to earn more money involves redeveloping Stamford Bridge. Chelsea has been in the market for a new stadium or a bigger stadium for years, and redevelopment seems to be, by far, the most likely option at this point.





In a recent statement updating fans on last year's announcement that the club planned to expand Stamford Bridge, Chelsea specifically highlighted "the need to increase stadium revenue to remain competitive with our major rivals, [with] this revenue being especially important under Financial Fair Play rules."





That Chelsea would specifically refer to financial fair play and the need to increase revenues is especially noteworthy, as it demonstrates the club's unwavering commitment to earning as much as possible for the sheer purpose of spending as much as possible.





Spending a reported £500 million on expanding a stadium simply to have more money for which to build a better squad and win trophies sounds a bit crazy, but it is very much in line with how Chelsea has operated in the financial fair play era, i.e. staying within the rules, while finding ways to turn FFP into a competitive advantage. Also, Roman Abramovich stands out in that he is one of a handful of owners in all of sport who truly prioritise winning over profits. There's absolutely nothing wrong with an owner wanting to profit from his investment and his corporation (and football clubs are very much corporations), but as spending leads to increased chances of success, every single pound an owner puts in his pocket is a pound being taken off the pitch.





As Abramovich himself has said over ten years ago, "the goal is to win. It's not about making money. I have many 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." Quite a bold statement, but he has never deviated from it, and in fact, he has doubled down on it several times.





As an aside, Chelsea is valued at around £1.2 billion right now (for those interested, this is how to properly value Premier League clubs), and hypothetically, were Abramovich to sell now, he would likely make tens of millions of pounds in profit on what has amounted to a passion project, rather than an investment.





With that, we crunched the numbers and estimated that redeveloping Stamford Bridge could see Chelsea earn an extra £50 million per year, and in addition to explaining how we arrived at that figure, we also took a look at some of the biggest questions involving the finances of redeveloping Stamford Bridge.





Is there enough fan demand to fill a 60,000 seat stadium?

Absolutely.

Stamford Bridge has been operating at over 99% of capacity for years, and with a waiting list* for season tickets and fans willing to stump for the exorbitant prices unscrupulous touts sell tickets for, there are zero concerns about Chelsea's ability to fill the stadium.

*The waiting list is prioritised by the number of loyalty points each fan has accrued, not by the length of time since a fan registered interest in a season ticket.

How much additional revenue can Chelsea expect to see?

A lot.

Liverpool estimates that redeveloping Anfield to add 8,500 seats (4,500 corporate hospitality seats, 4,000 general admission) will see the club earn an additional £25 million per year (£20m in matchday revenue and a £5m for selling naming rights to the new stand).

Corporate hospitality will likely be a fundamental part of any redevelopment of Stamford Bridge. Put simply, corporate hospitality seating is far more profitable than general admission seating.

As an example, Manchester United's most expensive box for the upcoming 2015/16 season is a sixteen-seater and costs £125,000. In that section of Old Trafford, a season ticket costs £646 per year. Even assuming that you could fit three times as many general seats where the box is located, that amounts to "just" £31,000 per year, or less than 25% of the revenue generated from the box.

As such, expanding the capacity of Stamford Bridge by around 50% should see the club's matchday revenue increase by considerably more than 50%, assuming an increased focus on corporate hospitality.

Currently, Stamford Bridge has around 25,000 season tickets, 14,300 general tickets, and just 2,400 corporate hospitality and executive box tickets.

Chelsea hasn't raised season ticket prices since 2011/12 and with consistently deep runs in domestic and European cup competitions, matchday revenue has been largely stagnant, fluctuating between £67m £77m over the past several years (the fluctuation depends on how many matches are contested at Stamford Bridge each season).

With a focus on corporate hospitality, Chelsea's matchday revenue could increase by over £50m

If Chelsea's specific redevelopment plans (which we are not privy to at the moment, so this is just speculation) include 7,000 corporate seats and 13,000 general admission seats, revenues should increase from £71m in 2013/14 to at least £125m when the project is completed.

The £125m assumes zero increase in ticket prices (more on this in a bit) and a 4:1 price ratio between corporate and general seating. It also assumes the aforementioned 13:7 split between corporate and general seating and doesn't take into account any additional sponsorship money the club could see with regards to sponsorship opportunities and naming rights.

This represents an overall increase in matchday revenue of over 75% from 2013/14 to whenever construction is completed. This is a massive increase amounting to over £50m more per season, and as you can see from the numbers, this is a fairly conservative estimate.

How will a temporary move to Wembley or Twickenham affect matchday revenue?

This is tougher to pin down, and there are a lot of issues that need to be squared away before either venue becomes a reality -- most importantly, convincing the residents of Twickenham and the Brent Council that 50,000+ football fans stopping by the neighbourhood twenty-five to thirty times a year is a good thing (make no mistake, it is a good thing, as fans spend money with local businesses and the boost to the local economy will almost always outweigh the very temporary congestion issues)

For what it's worth, Wembley needs Chelsea a lot more than Twickenham does. Wembley is owned by the FA, and the FA is still liable for £263m in bank loans resulting from financing the construction of the stadium (the FA also carries £50m in liabilities related to St. George's Park).

The FA is committed to finding ways to increase the revenue generated from Wembley and has earned around £85m in gross revenue in each of the past two years (around £30m net, before including the debt servicing) from hosting sporting events, concerts, and National Football League games.

Conversely, Twickenham is owned by the Rugby Football Union, which is completely debt free.

(as an aside, my two cents - I've actually had meetings at Wembley and Twickenham on the same day, and for me, Wembley would be the better option, mostly because North London is simply easier to get to than Twickenham and it seems like there's a lot more going on around Wembley Stadium. At Twickenham, it's like they put a gigantic stadium right in the middle of a nice residential town that somehow magically transforms into rugby heaven twenty times a year. As far as the stadium experience goes, I've only seen them empty, but it doesn't seem like you could go wrong with either).

Depending on the terms of the lease, Chelsea would almost certainly see matchday revenue increase if and when the club temporarily plays at either stadium. Stamford Bridge can only accommodate 42,000 fans, whereas Twickenham and Wembley can host twice that number.

Would Chelsea sell 80,000 tickets for each match? They certainly would for big Premier League and Champions League matches. For a league cup match against Burton Albion on a Tuesday night? Probably not.

Keep in mind this is a very rough estimate, but if Chelsea signs a lease with either stadium for £14m per year plus 10% of the gate receipts (£500,000 plus 10% per game, assuming 28 fixtures) and sells an average of 65,000 tickets (55% more than they currently sell at Stamford Bridge), Chelsea would take home around £95m after paying the venue.

Keep in mind this is probably a fairly high estimate for the cost to lease Wembley or Twickenham and a low estimate on ticket sales (and doesn't take into account the additional hospitality seating Twickenham and Wembley can offer), but "worst case scenario," Chelsea would earn about £20m more than they currently do at Stamford Bridge.

What does this mean for ticket prices?

Ideally, not much, but historically, stadium projects have not been very kind to fans' wallets.

I've been advocating for clubs to reduce ticket prices for a while, not on moral grounds, but rather because it could prove to be good business.

The 40,000 fans at Stamford Bridge make up a tiny percentage of Chelsea's worldwide fanbase, but their importance cannot be understated. For the millions of fans watching matches around the world, the fans in the stadium are a large part of the Chelsea experience and serve as an extension of the club and its brand.

Therefore, it makes sense from a business perspective for clubs to keep their loyal match-going supporters happy. Banners like this, this, this, and this make sponsors nervous and are embarrassing images for clubs to project around the world. The PR boost any club would see by 1) cutting ticket prices and/or 2) offering substantially reduced packages for younger fans (who tend to bring a more enthusiastic brand of support to the stadium) would be well worth the hit a club would take on matchday revenues.

If Chelsea were to reduce season tickets by £15 per game across the board right now, it would cost the club around £7m per year. £7m is not an insignificant sum (in terms of player costs, Nemanja Matic costs around £7.4m per year) and represents nearly 10% of the club's current matchday revenue, but the investment in the core group of match-going supporters would likely pay off (happier fans equal louder fans and a bit more disposable income could see more fans making the trips on away days, making for a better atmosphere for the squad to play in). Chelsea and other major clubs are investing heavily in attempts to capture fans and market share in emerging markets all over the world right now, and I think it's only natural that clubs should invest a bit to ensure that their most visible and influential group of fans are happy.

With commercial and broadcasting revenue seeing incredible growth rates, matchday revenue is becoming an ever-smaller percentage of overall revenue, even with redevelopment projects at Etihad, Anfield, and elsewhere. Cutting ticket prices would be a bold move for a forward-thinking club and I think it would pay off in the long run.

That said, owners overwhelmingly tend to pass the cost of stadium development on to the fans in the form of higher ticket prices and even personal seat licenses (otherwise known as debenture).

For example, the cheapest season ticket for Arsenal, which has been paying off its debt from building Emirates, is over £1,000. This is more than the most expensive season ticket at all but three Premier League clubs (Spurs' most expensive ticket is £1,900, Manchester City's is £1,750, and Chelsea's is £1,250).

Of course, as mentioned, the way Chelsea does business is dramatically different from the way Arsenal does business, and unlike Arsenal, Roman Abramovich likely won't have to get loans to fund the projected £500m redevelopment costs and saddle the club with debt financing costs (more on this below).

How will a £500m stadium redevelopment project affect the FFP books?

It won't.

UEFA wants to encourage investment in infrastructure and community development, and including stadium costs as part of the break-even calculation would only serve to stifle that. Additionally, UEFA has comprehensive regulations with regards to stadium safety, and to force clubs to choose between upgrading its sanitation facilities or its striker situation is counterproductive.

The regulations -- specifically Annex 10(C)(1)(j) for those interested -- exclude stadium costs as part of the break-even calculation. If you're not interested in the specifics, UEFA has simplified things, simply stating "in order to promote investment in stadiums, training facilities and youth development, all such costs are excluded from the break-even calculation."

In terms of where the £500m will come from, the most likely option is for Roman Abramovich to loan the club the full £500m, interest-free.





The fact that it actually seems reasonable to think that Abramovich would just write a £500m cheque to cover the costs of redeveloping Stamford Bridge should not be glossed over. No matter how rich you are, it's not easy to liquidate £500m and would represent an extraordinary investment in Chelsea from a man who has already put over £1 billion into the club.





Are the obstacles standing in the way of redeveloping Stamford Bridge? Most definitely. Chelsea has been trying to upgrade its stadium situation for years without success. Breaking ground on any redevelopment project requires jumping over quite a few hurdles and perhaps WAGNH will break those issues down in a forthcoming article (briefly, securing approval from the Fulham and Hammersmith Council could prove difficult, as would actually building the proposed stands above the East Stand and Matthew Harding Upper -- there's not exactly a lot of spare room to work with). If Chelsea gets these issued squared away, however, there is a massive payday at the end of the road, which will very likely be used to further strengthen the squad. For an idea of what an extra £50m per year buys you in FFP terms, that's an extra £150m in transfer fees AND £385,000 per week to the wage bill completely covered. So, Chelsea could bring in three of the best ten or twelve players in the world and cover their costs with just the additional matchday revenue the club could earn from redeveloping Stamford Bridge.







