Sunday, January 30, 2005

Is Chelsea Viable?

Chelsea Football Club has just posted full-year results showing a loss of £87.8m, thought to be the largest ever loss by a football club. The main expense is a payroll bill of £115.5m, mostly for players.

Chief Executive Peter Kenyon admits this is too high. "You don't need to be a mathematician to work out that is not sustainable. We clearly had a squad that was too large and too expensive."

But the new owner of Chelsea, the Russian billionaire Roman Abramovich, has deep pockets and a long-term vision for the club. The investment in players may be justified if it turns Chelsea into a global sporting brand alongside Manchester United and Real Madrid.

Ultimately, the viability of a football club depends on the willingness of its supporters to provide funding. This may involve rich directors putting in millions, television viewers demanding access to the matches, or ordinary supporters buying tickets and merchandise. Meanwhile, success breeds success. Highly paid footballers help clubs win trophies; successful clubs attract the best players.

So there is an interesting set of long-term cause-effect relationships between sporting viability (silverware), brand viability (popular support) and financial viability (profit/loss, investment/risk, ROI).

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