A Sliding Doors Moment: The Abramovic Acquisition of Chelsea in 2003

Unsplash free image library. Credit: Virginia Marinova

As part of my PhD research into football club ownership and how it has developed over the past 150 years or so, I have spent some time in National Archives looking through a variety of documents relating to football club ownership. These include judicial records, reports from investigations conducted by government departments, and sometimes correspondence by government officials and ministers. Much of this is fairly anodyne in nature, but sometimes this throws up something juicy and of great significance.

One such example of this is from an assortment of emails between officials at the Department of Culture, Media and Sport (DCMS) in 2003 discussing the proposed acquisition of Chelsea FC by Roman Abramovich. At the time, little was publicly known about Abramovich, other than that he was (and still is) a Russian billionaire who made his money through mining and natural gas companies. Much has been made of how he bought the club back in 2003 after a helicopter ride over London when it is alleged that he was originally interested in buying Tottenham Hotspur, only to be put off by area in and around White Hart Lane, and then was attracted to buying a club in a more affluent area of London. How true this is, we will never truly know, but it makes for a nice story nonetheless.

Chelsea at the time of the acquisition was owned by Ken Bates, a controversial figure in football circles and rather outspoken. For instance, he once proposed installing electric perimeter fences in the stands to stop fans encroaching onto the pitch only to be told that this might constitute a breach of health and safety law so thought better of it. In 2003, Chelsea were heavily indebted to a variety of lenders, and were around £80m or so in debt, and some reports claim that they were on the verge of administration. Much of this debt was due to extensive investments in the playing squad and stadium infrastructure, and due to a last minute winner from Jesper Gronkjaer against Liverpool on the last day of the 2002/03 season, qualified for the Champions League in 4^th place instead of Liverpool. Some have since argued that Gronkjaer’s goal was the most important goal in the clubs history. All of these circumstances combined to make Chelsea an almost perfect target for acquisition. Following his purchase of the club in 2003, Chelsea went on to spend huge sums of money in the transfer market, and is widely credited as being the spark which ignited the huge increases in transfer fees and player wages as other clubs fought to compete.

What is less known is, that there were discussions among the top officials of DCMS about the deal due to concerns raised in Parliament about Abramovich and his links to the Russian state, and the source of his wealth. Many of these discussions relate to the government actively trying to avoid any regulatory involvement in the deal. Another important point to note here, is that there were owners and directors tests in place which may have assessed the deal.

A further important point to this as well, is about significant statutory changes enacted at the time to the competition law framework. In 2002, the Fair Trading Act 1973 (FTA) was replaced by the Enterprise Act 2002 (EA). The FTA created the office of the Director General of Fair Trading, who had the power to investigate mergers and acquisitions which had the potential to create monopolies pr which may have an adverse effect on competition in a particular market. It also gave them a broad scope to consider a broad range of factors like industrial strategy and effects on employment amongst others.

As stated above, this was replaced by the EA in 2002, which removed the public interest test, and narrowed the scope of the Office of Fair Trading’s ability to investigate mergers and acquisitions to only on competition law grounds only, except where a potential deal may have national security implications such as in the defence sector, or in the broadcast or news media sectors. Furthermore, it required that any merger or acquisition must involve an entity with a turnover exceeding £70 million.

As can be seen from the email exchange above (names have been redacted by me to respect the privacy of those individuals), the position taken by government at the time was that they had no ability to investigate Abramovich prior to the acquisition of Chelsea being finalised, and that the company law provisions available at the time should govern the acquisition. The primary statutory regulation on fitness and propriety of company directors at the time was the Company Directors Disqualification Act 1986, which excluded individuals from becoming directors of a company who were bankrupt, or had committed a breach of company law such as wrongful trading, or had committed some other breach of a director’s fiduciary duty to the company. On this basis alone, it is extremely unlikely that this would have had sufficient teeth to regulate the proposed acquisition of Chelsea.

What is also important to note is that geopolitical relations between the UK and Russia at the time were considerably warmer than they are now, and the encouragement of inward investment by Russian oligarchs was welcomed by the UK government which is another separate issue regarding money laundering and tax evasion, of which the excellent book by Oliver Bullough, Butler to the World, explains in great and worrying detail.

However, the evidence suggests that there were potentially reasonable grounds, even from the publicly available information from the time for the government to have undertaken an assessment of the Abramovich deal on national security grounds. At the time of the deal, Abramovich was not just a businessman, but also the Governor of the Chukotka region of Russia and had close ties to Vladimir Putin and the Russian state, which should have marked him as politically exposed person. The Bureau for Investigative Journalism has undertaken a thorough investigation of his early business dealings and found extensive corruption in the acquisition of Sibneft. This alone should have been grounds to investigate further as to whether Abramovich was a fit and proper person.

Another important point to note is that the acquisition of Chelsea would have satisfied the turnover test aspect of the EA national security test, as Chelsea’s turnover at the end of the 2002/03 season, as reported in their annual accounts was £75.1 million. So, it would have possible for the OFT to look into the acquisition if it had been inclined to do so.

Now I appreciate that there is an element of hindsight analysis here, but it is an interesting period of football history, and a particularly important point in the history of the modern game which has had a fundamental influence in the trends of ownership, and how football clubs act in the transfer market. Abramovich was the first foreign owner of an English football club, and was the forerunner for the influx of overseas investors into the game, which helped to exponentially expand the finances of the Premier League into the behemoth that it is today.  

This is undoubtedly a sliding doors moment, not just for Chelsea, but the game as a whole.