Chelsea FC Takeover Could Get Sacked

The takeover of Chelsea Football Club by a consortium involving Americans Todd Boehly and Mark Walters along with Swiss billionaire Hansjoerg Wyss looks to be held up in the U.K. government’s review and approval process.  The U.K. government’s sanctions on Russian oligarchs with business interests and assets in the U.K. served to freeze the assets of those individuals that were sanctioned, which included current Chelsea FC owner, Roman Abramovich.

As discussed previously in this blog, the imposition of the sanctions was the trigger for Abramovich to put Chelsea FC up for sale and enlist The Raine Group from New York to broker the deal.  The sale process went fairly smoothly (barring a post-deadline bid proffered by British billionaire, and Chelsea supporter, Jim Ratcliffe) and resulted in the Boehly group being identified as the winning bidder. 

The proposal for the takeover was then submitted to the U.K. regulatory authorities who preliminarily approved the Boehly group as owners.  Unfortunately, reports have noted that the government’s review process has subsequently ground to a halt.  It has been reported that this delay has nothing to do with the Boehly group as potential new owners, the terms of the purchase offer or Chelsea FC but, rather, concerns as to where the proceeds from the sale might ultimately end up and, specifically, the repayment of loans previously made to Chelsea FC.

Chelsea FC currently owes approximately $2 billion to Abramovich’s company, Fordstam Limited, and Abramovich has previously stated that he will write-off these loans.  However, Chelsea FC also owes a similar sum to Camberley International Investments, a Jersey-based company suspected to have links to Abramovich, and forgiveness of this debt has still not been tabled. 

Furthermore, despite Abramovich’s pledge that the proceeds from the sale would be donated to charitable causes, those close to the U.K. government review process stated that Abramovich has been unwilling to give the legal commitments to effectuate such transfer of the sale proceeds.  The U.K. government is concerned that proceeds would be diverted to repay the debts owed to Fordstam and Camberley for the benefit of Abramovich and his affiliates which would be a breach of the U.K. government sanctions which froze the assets of those individuals sanctioned.  Accordingly, the U.K. government has stated that all of the sale proceeds should be placed in a special trust under the control of the U.K. government until appropriate charitable causes can be identified and approved.

Why does Chelsea FC have so much debt? 

It is common for football clubs to receive loans from their wealthy owners and for those wealthy owners to occasionally write-off, or forgive, that debt owed to them personally or to companies that they control, as is the case with Abramovich and Fordstam.  These loans are often used to pump revenue into a club to allow it to invest in facilities or, as the case was with Chelsea FC and its famous “Loan Army”, to purchase and accumulate a lot of talented players. 

The flip side is that often wealthy owners have very complicated and interwoven business interests that exist in a complex network of business entities—which is how it is suspected Abramovich has ties to Camberley.  There have been attempts by governing bodies to regulate and crack down on the use of these indirect sources of revenue (for example, UEFA’s Financial Fair Play Regulations), but some owners have been largely successful in skirting the rules.  If proceeds from the sale are used to repay the debt owed to Camberley, the U.K. government believes that this would breach the sanctions on Abramovich as it is believed that his interests would benefit by such loan repayment. 

What does this mean for Chelsea FC?

The club and the Boehly ownership group are facing a crunch with two important deadlines fast approaching—the registration deadlines for the next season’s Premier League and UEFA Champions League.  The is fear that the club could be used as a political pawn between Abramovich and the U.K. government to force the hand of the government’s approval so that the sale can be completed which would lift the restrictions currently preventing Chelsea FC from completing the necessary registrations for next season’s competitions (specifically, the special license to operate). 

If resolution of the flow of proceeds cannot be made quickly and the sale process drags into June, then Chelsea FC face the possibility of not playing in the Premier League or the Champions League next season, which could be catastrophic for the club and likely to kill any possibility of a takeover by the Boehly group or otherwise as the value of the club would plummet.

In the end, it is important to remember that when doing business acquisitions—whether in sport or not—there are many moving parts that can cause the collapse of a “fully agreed” deal, especially when the proceedings are complicated by affiliated debt and requires governmental approval.