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Amazing figures from Stamford Bridge today as Chelsea announce a massive £66 million loss for the year to the end of June 2008. Included in those numbers is an incredible £23 million in compensation last season after parting company with managers Jose Mourinho and Avram Grant. That figure does not include the £7.5 million it is thought that Luiz Felipe Scolari will receive after being sacked this week.

Chelsea announced that shareholder loans have been reduced to £339.8m, while shareholder capital/equity has increased to £369.9m. Basically Abramovich changed part of that investment from an interest-free loan into shares in the club. With the equity swap, Abramovich has now poured £710 million into Chelsea.

The equity swap appears to be purely an accounting move as Abramovich owns 100% of Chelsea even though Chelsea position it as they have reduced their debt and they should not be classified as a heavily indebted business.

While the £66 million loss is a huge one it is still lower than last year’s figure of £74.8 million, which was in turn an improvement on the £80.2 million loss announced the previous year. The club announced record losses of £140 million in 2004-2005. Peter Kenyon tried to spin the massive losses by insisting that Chelsea will break even even next year:

‘We have set ourselves ambitious targets to be EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) neutral on June 30, 2010 and to require zero cash funding from the owner at the beginning of the financial year 2009/2010. We have consistently advocated the aim of self-sufficiency which has always been supported by the owner. We are hopeful of being close to these targets in the timeframes we have set given the underlying strengths of the business. Success on the field is a key part of this. But in line with our long stated business aims, any squad restructuring in the summer will be funded predominantly by sales as we have consistently reduced our net transfer spend over the last five years and will attempt to continue this trend. This is the fifth set of financial accounts since the takeover and Chelsea has made huge progress during that period as a football club and a business”

For Kenyon to insist that Chelsea will break-even next year is laughable. Chelsea have managed to decrease their loses by £14 million in three years. What makes Kenyon think he can suddenly make up £66 million in one year?

To break even next year Chelsea will have to be net sellers in the transfer market this summer. With an aging squad that it is need of some new blood, that will be difficult. Yes players like Drogba, Anelka, and Malouda could be sold, but they will have to be replaced. Chelsea does not have a strong youth system in place like Arsenal or Manchester United so they don’t get an influx of younger (and cheaper) players. Instead they have to keep going out into the transfer market to buy experienced players.

The other way to reduce costs is to cut player wages. Chelsea’s wage bill remains comfortably the biggest in the Premier League at £148.5 million 70.6% of their turnover. Manchester United’ by contrast was £106 million in 2006/7, 43.6% of turnover. So for Chelsea to get its wages down to Man United’s level, they would have to slash wages by around £56 million.