Chaos at Chelsea, but what next for the World and European Champions?

When the announcement came, it was surprising as it was sweeping.

More than a week after the European Union and United States placed sanctions on the Russian oligarch Roman Abramovich, and following prevarication and criticism, the British government finally froze the billionaire’s UK assets. At the heart of these restrictions was his ownership of Chelsea FC.

Simultaneously, the government issued a license that would allow Chelsea to continue functioning – albeit under tight conditions. 

“I know this brings some uncertainty, but the government will work with the league and clubs to keep football being played while ensuring sanctions hit those intended,” the culture secretary Nadine Dorries said on Twitter shortly after.

“Football clubs are cultural assets and the bedrock of our communities. We're committed to protecting them.”

In short, the license allows Chelsea to:

• Continue paying their employees.
• Pay for the maintenance and upkeep of Stamford Bridge.
• “Reasonable” travel costs for match fixtures, but not exceeding £20,000 per game.
• Home matchday costs up to a maximum of £500,000.
• Existing transfer obligations, although incoming fees must be frozen.

The club’s shop, hotel, and ancillary businesses have effectively been forced to cease trading.

Backdrop to sanctions

The situation is unprecedented in European football’s modern history and effectively place restrictions on Chelsea’s day to day business akin to a club administration.

Stephen Taylor Heath, Partner and Head of Sports Law at Manchester law practice JMW, says that he believes there will have been lobbying of the government by “very high level lawyers” ahead of the sanctions announcement and that the government will have similar counsel “advising them whether they would be exceeding their authority and their power to impose these sanctions.”

Could they be challenged? 

“There is a possibility that it could be challenged, in the same way that the Russian Football Union have gone to the Court of Arbitration for Sport to challenge their exclusion from the World Cup.

“Normally you will have some form of ability to challenge a decision that affects your legal rights. But obviously there is some totally unchartered territory here in relation to this situation. Once you've got uncharted territory you are also breaking new ground in relation to legal precedent and the application of the law to the situation.”

Day to day impacts

It seems, however, for the immediate future, that these restrictions are here to stay. But what do they mean in practical terms?

The sanctions put enormous practical pressure on Chelsea as they seek to complete the season.

It is not clear how they will manage cashflow, or whether there is enough money in the bank to keep paying players and staff until the next tranche of Premier League money comes in May. Chelsea currently pay out £28 million monthly in salaries.

Sanctioned companies usually have to comply with special measures imposed by a central bank and this is likely to impact any short term credit facilities Chelsea possess. Long term the club are reliant on Abramovich’s largesse, and a note in its most recent accounts made clear that reliance.

Even travel is likely to be affected, with a limit of £20,000 matchday expenses permitted.

“For context, a usual Premier League away game with a flight, security, food, hotels etc would be about £30k,” tweeted Hugo Scheckter, Founder of the Player Care Group and previously in charge of player care at West Ham and Southampton.

“Going abroad, don’t see how they can do anything other than either commercial flights or drive their bus & significant drop in standard of hotel. Will make a big impact.”

Chelsea face Lille in their next Champions League match, a relatively short journey by road, but may need to travel to Italy or Spain in future rounds.

Sponsor exit

Then there is the reputational risk.

"Chelsea FC is still one of the biggest clubs in the world and its on-field success still makes it an attractive commercial partner," Conrad Wiacek, Head of Sport Analysis at GlobalData, a leading data and analytics company, told us via email on Thursday morning. 

"However, given the rate at which many brands are looking to dissociate themselves from the Russian state, some may be wary of continuing partnerships.

"Nike’s deal with Chelsea runs until 2032, so the apparel brand may decide to wait the situation out until the club’s sale is able to continue. However, brands such as Hyundai and Hublot, which have deals worth over $20 million combined expiring at the end of 2021/22 season, may not have that luxury."

A few hours later, Three, Chelsea’s shirt sponsor had suspended its association with the club.

Taylor Heath says that the license only deals with the immediate situation facing Chelsea.

He says that inbound transfer negotiations ahead of the summer window are likely to be suspended, and it is not clear what arrangements can be made with existing players seeking renegotiations. The license expires on 31 May and an updated version will presumably be issued at that point.

Asset seizure

Could today’s announcement, be the prelude to a confiscation of Abramovich’s UK assets?

Taylor Heath says that seizure of assets only usually happen in criminal cases in the UK, when a court can order assets it deems to come from criminal proceeds to be taken and sold.

“But that doesn't equate equally for this particular situation because it's not necessarily saying that Mr Abramovich is in breach of the law,” he says. If those sanctions were to be breached, however, that may change the dynamic, he says.

“The interesting dynamic here is that he may have been intending to sell the club because he was worried about sanctions being posed. Now that those sanctions have been imposed, he may decide he doesn't want to sell the club and see what happens if those sanctions are lifted on the basis that he would then continue to own the club.

“It may be that the dynamic changes so that the decision as to whether to sell the club is taken out of his hands, and if the government decides that not only is this asset frozen, but he can't own this any longer and there's a forced sale of the club. But again, that's speculation as to how that might happen.”

Sale Impact

In a press briefing the prime minister’s official spokesperson said that they were in discussions with Chelsea over a potential sale and suggested that they may permit such a transaction to take place under a “specific license”.

Under the terms of any such sale Abramovich, whose companies are owed £1.5 billion in loans by Chelsea and in 2003 paid £150 million to buy the club, the sale would not allow him to profit from the sale.

Taylor Heath, however, points out that Abramovich has already said that he doesn’t want to benefit from the sale and had said any profits would be put into a charitable fund to benefit the victims of the Ukraine war.

“But that was that was his choice to potentially set that up,” says Taylor Heath. “The government may not necessarily share his views on where the money from the sale of the club should go.”

Heath says that an administrator could potentially handle the sale, but acknowledges that such a scenario is still “four or five steps ahead” and that much of the commentary on Chelsea’s future is speculative, given the unprecedented nature of events.  

Conrad Wiacek told Off The Pitch in a telephone interview that he thinks a forced sale could be “legally very messy”, and the government will probably want to avoid such a drastic step. He adds that such a situation could also be riven with risks for any prospective owner too.

“This is going to be a challenge for anyone to sort of gamble or be willing to take that kind of legal liability on,” he says.

Government view

The prime minister’s official spokesperson said that the Government were in discussions with Chelsea in which “the terms of any specific licence that is granted to allow the sale to proceed” would be negotiated.

“The important thing is under no circumstances would any sale allow Roman Abramovich to profit from that or take any money from that sale”.

They added: “The principle has been to try and mitigate the impact on fans and the wider football pyramid. These measures are obviously designed to punish Putin and ensure any revenue generate cannot make its way through the Russian war machine.

“It’s fair to say the government’s open to a sale of the club but… it would require another licence and that would require a further conversation with the Treasury”.