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Monday, June 27, 2022

Explained: Why is Russian oligarch Roman Abramovich selling English club Chelsea?

Russian oligarch Roman Abramovich has put up five-time Premier League champions Chelsea football club for sale. Abramovich, in his statement, said he will donate all "net proceeds" from the sale to a foundation set up by his team to help victims of the Ukraine invasion. Why is he selling the club?

Written by Leela Prasad , Edited by Explained Desk | New Delhi |
Updated: March 4, 2022 9:45:41 am
Chelsea owner Roman Abramovich holds up the trophy at the end of a Champions League final in 2012. Abramovich has confirmed he is trying to sell the Premier League club he turned into an elite trophy-winning machine with his lavish investment. (AP Photo/Matt Dunham, File)

Russian oligarch Roman Abramovich has put up five-time Premier League champions Chelsea football club for sale. It appears the threat of sanctions connected to the invasion of Ukraine and the possibility of his move to transfer the “stewardship and care” of the West London club to members of its charitable arm falling through has forced his hand to exit the business he had built for almost two decades.

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Confirming the speculation that he is in the market for a buyer, Abramovich released a statement late Wednesday night (IST) that his decision to sell was “in the best interest of the Club, the fans, the employees, as well as the Club’s sponsors and partners”.

Interestingly, he also announced that he would be writing off all the outstanding loans that he extended to the club over the years. And the “net proceeds” of the sale will be donated to a charity foundation set up by his team that will use the funds to help victims of the Ukraine invasion.

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So why is Roman Abramovich selling Chelsea?

Ever since the Russian bought the club for £140 million in 2003 from British businessman Ken Bates, seemingly on a whim, he has been a regular fixture in the director’s box watching the league games, at least until 2018. His troubles with UK authorities began when his application to renew his investor visa was put on hold indefinitely, without any explanation, amid heightened tensions between London and Moscow over the poisoning of Russian double agent Sergei Skripal the same year.

It is an open secret that Abramovich, like most Russian oligarchs who made their fortune in oil and natural gas, is close to Russian President Vladamir Putin. He also served as Governor of Chukotka, an “autonomous” region in the east of Russia, till 2008. During this time, his application for Swiss residency was denied after a damaging police report recommended that he not be allowed to settle in the country because of suspicions of “money laundering and presumed contact with criminal organizations.”

Chelsea soccer club owner Roman Abramovich attends the UEFA Women’s Champions League final soccer match against FC Barcelona in Gothenburg, Sweden on May 16, 2021. (AP Photo/Martin Meissner, File)

Abramovich wouldn’t make an appearance at Stamford Bridge, Chelsea’s home ground, until 2021, when he arrived in London on an Israeli passport (holders don’t require a visa). Imagine owning and running a business while being virtually locked out of it for three years. He even hired a new manager, Thomas Tuchel, during this time without ever visiting the club’s offices.

Cut to 2022, Russia’s invasion of Ukraine has exacerbated Abramovich’s problems, despite his repeated denials of close ties with the Kremlin. British politicians have been pressing UK Prime Minister Boris Johnson to sanction Abramovich, with one MP even reminding the House of Commons of the “money laundering” allegations against the Russian. Caught up in these geopolitical tensions, Abramovich felt it was the right time to exit from the club and recoup his investment, even at least partially.

Why is he prepared to write off the loans?

Abramovich has, over the years, bankrolled Chelsea to compete with Europe’s best football clubs. He extended interest-free loans to the tune of £1.5bn, primarily to finance expensive player acquisitions. The club even broke several club and British transfer records over the years, including the record £31m transfer of Ukrainian striker Andriy Shevchenko.

In fact, Abramovich reportedly made it his personal mission to acquire the Ukrainian.

He was essentially subsiding the club’s losses through these loans. Last season alone, Chelsea declared a loss of more than $200 million despite winning the Champions League, a trophy that comes with a substantial prize purse and income from television rights.

So to saddle a loss-making club with another £1.5bn isn’t an interesting proposition to lure any prospective new buyers. According to various estimates, the West London club is already valued at anywhere upwards of £2bn. Though the club was offered to several billionaires, the price tag and its humongous wage bill appear to be a pain point. What better way than to sweeten the deal than by forgoing all outstanding personal loans? And, of course, the prospect of sanctions explains the tearing hurry to recoup as much as possible before any assets are frozen, thereby putting the sale on ice.

Why is he setting up a fund to help victims of the Ukraine invasion?

Abramovich, in his statement, said he will donate all “net proceeds” to a foundation set up by his team to help victims of the Ukraine invasion. The operative word here is “net proceeds”, meaning the profit after all costs have been paid. What exactly these costs could entail is unclear at the moment. And what is clear is that he would retain control over the net proceeds because the money is not being donated to an external organisation but to a setup under his control. So this is at best PR manoeuvring to soften any calls for a freeze over the sale. On Monday, his representatives even claimed that Abramovich was asked to try to negotiate a peace settlement in Ukraine. However, there is no evidence to substantiate this claim besides the fact that the comments came only after sustained pressure from British parliamentarians to sanction him.

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