City & Chelsea’s Success Built On £250M+ ‘Black Hole’

The new Financial Fair Play rules are beginning to be brought into effect by UEFA with the news that the institution has withheld prize money to 23 clubs across Europe for failure to pay debts and tax bills, the first penalty of its kind. 

Although no English sides are directly involved, the punishment dished out will no doubt serve as a warning to the likes of Manchester City and Chelsea that UEFA are not going to implement these rules as softly as initially expected.

Financial Fair Play (FFP) was principally introduced in September 2009 as a way of preventing clubs spending beyond their means and racking up uncontrollable levels of debt, and is due to officially come into effect in time for the 2014/2015 season.

The net result of these new regulations is likely to see a cutback of heavy spending, something commonly associated with both Man City and Chelsea.  As far as Manchester City are concerned, this appears to already be taking some sort of effect at the club with them spending far less in the transfer window just gone than in previous transfer windows, despite Mancini’s continuous pleas for the needs for further reinforcements.  As for Chelsea, victory in the Champions League last season was rewarded to the tune of £47 million in terms of prize money, so that explains their busy summer of transfer activity.

It is likely that in years to come Chelsea too will be cutting back on their spending.

Both Man City and Chelsea are heavily financed from overseas investors, and as such both sides have seen a change in fortunes coincide with a far more flexible budget.  Man City have moved from little more than Premier League also rans to Premier League winners in the space of three years, and Chelsea have enjoyed three Premier League titles, and were finally able to add the Champions League to their trophy cabinet, Abramovich’s most sought after prize.

It will be interesting to see how both clubs fare without these seemingly unlimited budgets.

The deficits racked up by both clubs is something that needs to be addressed in the coming years.  In the 2010-2011 season, Chelsea ran at a deficit of £72 million, yet the club remain confident that they can fulfill the break even requirements, and blame this high deficit on the sacking of Carlo Ancelotti and subsequent appointment of Andre Villas Boas.  Manchester City’s deficit in the same season was a staggering £179 million, but again there were obvious reasons for the high figure.

Manchester City knew how important breaking into the Champions League before the introduction of FFP was from a financial point of view.  There is a vast contrast in terms of the money received if you qualify for the Champions League compared to if you don’t.  Therefore City spent big, and the gamble paid off as they secured a place in the top 4, and you would presume that City will now receive income from qualification for the Champions League for the next few years.

These new rules may create a more level playing field within the Premier League, but it could also go the other way and see the gap between the top 4 sides and the rest of the division stretch.  The good news for both Man City and Chelsea is that they are in that group of top 4 sides playing Champions League football, so they should be able to remain in financially strong positions, albeit not at the same level as before.

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