The Future of Russian Oligarch Abramovich’s Soccer Club Chelsea is in Jeopardy Due to Sanctions

The Future of Russian Oligarch Abramovich’s Soccer Club Chelsea is in Jeopardy Due to Sanctions

One of the most prestigious soccer clubs in the United Kingdom, Chelsea FC, is facing an uncertain future after its owner, Russian oligarch Roman Abramovich, was subject to penalties because of his associations with President Vladimir Putin.

The club’s proposed £3 billion sale ($3.9 billion), player transfers and merchandise sales have all been halted as part of the penalties imposed by British authorities. Major sponsors have also cut ties with the club whose reputation has been tarnished by its owner’s involvement in the conflict in Ukraine.

The U.K. said Thursday that Abramovich enjoyed a “close relationship” with the Russian president and had benefited from “preferential treatment and concessions” from the Kremlin over the years.

He, alongside six other oligarchs named on Thursday, had his assets frozen and travel restricted.

Chelsea caught off guard

The clampdown on Abramovich was largely expected of a government facing increasing pressure to toughen its stance on Putin’s inner circle.

In fact, the 55-year-old billionaire appeared to know what would happen when he started last week a fire sale of his U.K. assets, including the club and a number of luxury properties.

However, the London-based club, which on Thursday marked its 117-year anniversary, appeared to be caught largely off guard.

The situation at Chelsea does demonstrate, yet again, why we need an independent regulator with really tough owners’ tests.

British MP Tracey Crouch

Following the announcement, manager Thomas Tuchel said Chelsea FC’s future was uncertain, indicating that he would remain in situ awaiting more clarity.

“We take it day by day,” he told BBC Radio 5 Live. “I didn’t see that coming yesterday and I don’t know what is coming tomorrow.”

The club did not immediately respond to CNBC’s request for comment.

What it means for the club

Under the sanctions, the sale of Chelsea FC has been paused and the club is now subject to a special government license which strictly regulates what it can and cannot do.

Currently, the club can continue to play matches as it did Thursday evening and undertake “reasonable travel costs” up to a maximum of £20,000. However, only season-ticket holders and those who have already bought tickets will be allowed to attend.

In the meantime, the club will no longer be allowed to transfer or loan players; broadcast and prize money has also been frozen. The official Chelsea club shop closed Thursday and some staff were partially laid off.

As for the ownership of the club, the government has said it will consider providing additional special dispensation to allow a sale to go through as long as it does not benefit Abramovich.

It is unclear where the benefits of the sale, which could be more than £1 billion, would go, though observers suggest they could be donated to the humanitarian crisis in Ukraine.

The alternative that Abramovich attempts to hold onto the club, likely resulting in a long, costly battle and potential further sanctions appears unlikely given that he previously agreed to write off £1.5 billion in debts owed to him by the club and donate proceeds of the sale to the victims of the war in Ukraine.

Partners and sponsors walk away

The upheaval surrounding the club doesn’t appear to have dampened interest from prospective buyers, with reported bidders including British property tycoon Nick Candy.

However, it has seen sponsors and commercial partners distance themselves from the previously esteemed club.

Nike on Friday was reportedly considering walking away from a £900 million, 15-year deal agreed with Chelsea in 2016. Such a move could see the Stamford Bridge club miss out on £540 million.

British telecoms network Three, the club’s principal shirt sponsor, confirmed Thursday that it was suspending its partnership worth an estimated £40 million a year.

The moves mark a major blow for the club whose revenues rely largely on broadcasts and commercial deals.

In the meantime, the sudden shock has raised questions from those who say greater due diligence is needed on foreign owners and sponsors of British Premier League clubs.

“The situation at Chelsea does demonstrate, yet again, why we need an independent regulator with really tough owners’ tests,” said British MP Tracey Crouch, who chaired a recent fan-led review into football governance.

Last week, Everton suspended all sponsorship deals with the Uzbek oligarch Alisher Usmanov, another of Putin’s allies struck by sanctions.