Statement by Ken Bates
As I write this report Chelsea Village approaches the completion of a dream and vision which started over 18 years ago when I walked into Stamford Bridge in 1982 and became Chairman. It has been a long hard slog with setbacks along the way but we are nearly there.
During that time there has been a number of significant steps – smashing Cabra Estates as they lost the fight to evict Chelsea Football Club from their ancestral home, thereby obtaining security of tenure in 1992. Commencing the North Stand in 1993, the Matthew Harding saga which started so brightly, degenerated into a forlorn power struggle and ended in tragedy. The flotation in 1996 and subsequent raising of £38.2m of new capital, the 10 year £75m Eurobond issue in 1997, (the first of any sporting club in the world) but probably the most significant of all was the Strategic Alliance signed with BSkyB in March and completed in July of this year. That increased our share capital to nearly £72m and net assets in excess of £100m (including preference shares) with cash balances in excess of £46m. However, the effect of the BSkyB deal is of much more significance than mere money and I will deal with implications of our 80/20 joint venture with them in more detail later.
The implications of our financial strength are such that if in the end the EC abolish the transfer system and we have to take a one off hit by writing off our intangible (player) assets we will have sufficient financial strength to withstand that whereas some other clubs could be plunged into insolvency. Chelsea would still have a strong balance sheet and a substantial tax loss to be set against future profits. Again, I will deal with the EEC situation in more detail later.
The Chelsea game plan has been consistent throughout. Dash for growth, complete the development as quickly as possible in parallel with strengthening the football team to enable us to compete at the highest level, sacrificing profits in the short term for the long term benefit of shareholders when all is complete. In the year under review we have made great progress. The current year will virtually see the task completed save for the North East corner infill of the Stadium (scheduled for August 2001) and the opening of the Health Club and Visitors Attraction (scheduled September 2001). With the work finished we will then be able to exploit to the full the various services and facilities we have to offer, with considerable benefits in cross-selling and synergy, which should result in a substantial contribution to the bottom line.
BSkyB
As I said earlier, this was the most significant financial event of the year under review. In February Chelsea signed a Strategic Alliance Agreement with BSkyB the major points of which were as follows: 1. BSkyB purchased 9.9% shareholding in Chelsea Village plc. 2. BSkyB purchased £15 million non-voting preference shares in CFC. 3. BSkyB signed a 10 year lease on a Millennium Suite and paid the rent up front. 4. BSkyB was appointed as our sole commercial agent for 5 years to exploit our non matchday opportunities in return for 30% of any additional income generated above current levels. However, central FA Premier League contracts including TV revenue are excluded. 5. CV, CFC and BSkyB agreed to establish a joint venture company with CV owning 80%, Sky 20%.
Chelsea Village and BSky B are forming a joint venture to exploit all new media and create an internet portal in which the sky is literally the limit. Live daily broadcasting and major television production is a reality with the company becoming a major force in all aspects of television production. The joint venture will be totally financed by BSkyB who will also provide all the technical skills required to exploit all of Chelsea’s media interests including TV, our internet website, and the delayed transmission rights which revert to Chelsea under the new TV agreement which commences in the 2001/2 season.
Other developments with BSkyB include the launch of Chelsea’s own WAP Portal offering special offers to our supporters to not only receive a free Chelsea mobile phone at special air time rates but also receive exclusive, up-to-date information on the Team, Club and Village, via their mobile phones where ever they may be. One of the possible courses open to the joint venture is to float on the Stock Exchange in which case Chelsea Village’s stake would decline to 71 ½ % and BSkyB’s equity would increase to 28 ½ %. It is proving to be an increasingly wise move on our part as new developments in the media emerge almost weekly. The Village and BSkyB will collectively exploit their commercial properties within a highly competitive market place. The joint venture with BSkyB to create an independent Chelsea Village Dot Com business is well advanced and progressing well.
Chelsea Village Television (CVT)
Chelsea Village Television goes from strength to strength. In June it moved into a purpose built fully air-conditioned studio of over 2000 square foot. It consists of an acoustically damped studio with full lighting rigs; a control gallery equipped with the latest digital technology; a sound booth for voice-overs and post-sync commentary.
The main production work continues to be the product of Channel Chelsea – a live six hour matchday programme which is reputed to be the best example of its type within Europe.
Blue Tomorrow, a half hour programme produced by CVT has a large following due to being broadcast weekly throughout London and the South West via cable networks and its availability world-wide via Chelsea’s own web site. BSkyB will shortly be showing the programme on one of its sports channels.
CVT also produces bespoke promotional and training videos for a growing number of external clients. The studio environment and the technical facilities are such that all their requirements can be catered for.
Our Internet Website
The past 12 months have seen further growth on the web site both in terms of number of visitors and number of pages. The site now gets around 4.5 million page impressions a month making it one of the most visited sports sites in the UK. The site, and primarily the merchandising section, was voted the best football club website in the UK by the consumers association Which? who paid it glowing praise.
A few examples of recent additions include an expanded Megastore section to include over 3000 product lines which has shown good growth in turnover. The e-commerce operation was expanded to sell match tickets on-line, which since October 1999 has seen over £1 million worth of match tickets sales over the Internet. Two state of the art webcams have been installed on site, one inside the stadium giving fans a live view of the construction of the West Stand and another at the entrance to the Village complex.
The future is particularly exciting in terms of what the club can offer fans throughout the Internet and the revenue that can be generated. Detailed plans are being made to expand the website into new and exciting territories and promote both the football club and Village to a world wide audience. Within a year we could be at the stage of a subscription section showing delayed video coverage of Chelsea’s games over the Internet using Sky’s media and journalistic resources together with its financial clout.
Chelsea Football Club (CFC)
In September Gianluca Vialli relinquished his responsibilities as our first team coach. Whilst acknowledging a considerable debt of gratitude to him for establishing our team in the top flight in Europe including collecting five trophies in his three and a half year reign. However, following our indifferent start to the season it was felt that the team needed a change of direction and decisive action was required. In consequence Gianluca left. His successor is Claudio Ranieri. He comes with a pedigree of building successful teams and we look forward to him putting us back on course, despite that disappointingly early exit from the UEFA Cup.
It is a measure of our progress that last season, finishing fifth in the FA Premiership, reaching the quarter finals of the European Champions League, in company with Manchester United and winning the last FA Cup final to be held at Wembley was considered by some pundits to be disappointing. Even five years ago it would have been considered outstanding. However, success is like a drug, the more you get the more you want and Chelsea continues to adjust its sights upwards and invest in the squad commensurate with its financial ability to do so.
Much has been said and written about our investment in foreign players. Our attitude has been and will continue to be, to acquire the best we can within our budget. If this means we get better value abroad, then so be it. However taken in conjunction with our acquisition policy is the recognition that a sound youth policy ultimately pays handsome dividends. While continuing to invest in top class international players in the short term, the youth coaching and scouting activities continue apace. Since Chelsea is perceived as a team of ageing stars it should be pointed out that the current first team squad include Harley (21) Terry(20) Dalla Bona(19) Forrsell (19 ) Gudjohnsen (22) Aleksidze (22) Morris (22), Babayaro (22), and Melchiot (24), and in addition there are a number of other players who are beginning to make their presence felt in the reserves. At the time of writing the Reserve team are top of their league, leading by seven points after 6 games. Whichever way players arrive in the first team, it is the management and staff at all playing levels that bring in or bring on players whose desire it is to play for Chelsea.
The permanent loss through injury of Casaraghi had a negative impact on our final results and with Roberto di Matteo unlikely to play again this season following his horrific accident in Zurich last month it means that we have had to spend again to replace him. We have signed Slavisa Jokanovic from Deportivo La Corvna, (Spain) for US$2.5m. We plan to enhance our backroom facilities during the year by establishing our own training centre and academy with the quality of facilities required of a top flight club. We have endured our current arrangement for many years now but our ability to get the best out of our players, at all levels, will not be fully accomplished until we have a dedicated facility where we can coach and accommodate all levels and ages. However, to locate and acquire a site convenient to Stamford Bridge and the players’ homes is far from easy. A number of options have emerged from which we should, for the season 2002/3 have such a facility.
At the time of writing the position going forward on the future of transfer system within the European Community is still debatable. We believe that the existing system is fair and equitable to both parties ie club and player. However in the event that the current transfer system is abolished and not replaced by some alternative fudge to please the bureaucrats in Brussels, we will have to consider our Youth policies and academies. There is little point in spending huge sums of money in developing youth talent if they can walk out at any time, without any form of compensation.
Community Relations And Initiatives
We have substantially increased our commitment to the local community and are participating in joint initiatives with Hammersmith & Fulham Council. We actively seek to recruit staff locally and so help reduce local unemployment and continue in our efforts to improve the environment approaching East Fulham. The reason for these initiatives are twofold; firstly to improve the ambience around the Village and secondly we recognised that as a major employer we have a responsibility to help in the development of the Borough. We support Hammersmith and Fulham Council whenever we can in the quest to make Fulham a better place to live and work.
We are pleased to maintain our support of the Chelsea Children’s Trust which has been responsible for bringing some 500 underprivileged children plus helpers to the Club’s home games last season. We were the first Club in the country to form a Disabled team, which have been consistently successful. Our Ladies section goes from strength to strength, such that there are now five teams playing under the Chelsea banner. The Chelsea Football in the Community Scheme was formed as a one man operation in October 1992. Today it has six full time officers covering London, Kent and Surrey. In the current calendar year 5,000 children will receive in-school coaching; a further 2,500 children out of hours tuition; holiday coaching camps for 5,000 and residential coaching courses for 600 children. In the year 2000 over 13,000 children will have benefited from the Chelsea Community Initiative.
Our relations with our neighbours continue to improve with a number of liaison committees established such that a genuine two way dialogue ensures we can live and work together satisfactorily.
Hotels and Banqueting
This division continued to grow with both occupancy and room rates continuing to improve at the Chelsea Village hotel. However the overall performance was impaired by the opening costs of our second Hotel the Village Court, which opened in January. The increased total capacity of 291 rooms enables us to compete in the profitable residential conference market, with the knock on effect of increased trade in the restaurants and bars. However, this type of conference business tends to have a longer lead time and consequently the benefits should be enjoyed in the longer rather than the short term.
Conference and Banqueting had another successful year when turnover rose by 30%. However the sales team now have tougher targets. As the West Stand comes on stream next April there will be another six function rooms available, bringing the total at the Village to fifteen. With the existing five business suites we can now cater for anything from a board meeting of six to a product launch involving 5,000 people. Chelsea Village is destined to be a pre-eminent London venue with a variety of function rooms, restaurants and clubs unrivalled anywhere in London with that rare commodity, secure and safe car parking.
In the current season Chelsea matchday executive area tickets are now sold inclusive of hospitality and we are currently providing approximately 2,150 silver service covers on a matchday. On completion of the West Stand this will rise to 5,000, by far the highest number in the country. The benefit of selling the executive seats as a combined package is that it simplifies administration, enabling us to give a better service and extra sales of beverages.
Merchandising
In common with other Clubs, replica kit sales have been flat this year, consequently as with many retailers this past year has not been easy. We believe the future lies in extending our range of Chelsea products under the Blue Flag label where there are higher margins and to concentrate on exploiting the brand name of both Chelsea Football Club and Chelsea Village. The percentage of sales via mail order continues to grow and our internet site is playing a bigger part of the selling process, with our overseas sales becoming more significant. In addition merchandising now organises stadium tours and birthday parties for younger fans.
So far over 30,000 people have taken the stadium tour and incredibly, less than 25% of them are Chelsea supporters which is evidence of a growing and healthy tourist market. This operation will be greatly expanded as we open the Visitors Attraction of which more later.
Chelsea parties continue to grow as the pro-active activities prove increasingly popular. Last year over 180 parties were booked with just under 4,000 young guests.
Chelsea Village Travel (CVT)
I reported last year that our management controls in Chelsea Village Travel (formerly EDT) were being improved. This has been implemented and running costs reduced. Despite this it has been a difficult year generally within the trade as customers trade down to save costs and delay decisions on review or tender processes following British Airways postponement of its new agency scheme until April 2001. As a result turnover was down on the previous year, a trend which is continuing through the current year with new sales opportunities scarce.
We are of the strong opinion, that the business we thought we were acquiring is not the business we actually acquired. In consequence and accordingly we have issued a writ against Gary Pinchen the former proprietor alleging misrepresentation, false accounting and fraud, seeking substantial damages plus costs.
Millennium Suites
There are just seventeen of these remarkable suites being built in the West Stand. Marketed as a 365 day a year fully serviced London office/meeting room, they are fully self contained with their own bathroom and kitchen. On a matchday a company can entertain up to 24 people with a comfortable silver service meal and outside seating. We have already sold two suites and we are in active discussion for another three. The suites will be a commercial alliance which will embrace international companies of the highest repute.
The provision of a dedicated receptionist, secretarial services, catering and up to date technology such as plasma screens and internet/email access will ensure these suites offer a unique office facility in London.
The Health Club
‘Create and design the best Health Club in London. We want a 25M pool, state of the art fitness equipment, an outside running track and an environment and service that Chelsea residents can’t already get and will want to join. We want the best’. Again – this was the brief.
The Health Club will be operated internally and the infrastructure is being put in place to do so. The club will be recognised in the market as being innovative with high levels of customer service and refreshing in its management style. The Chelsea Club must set standards within all aspects of its business that will dilute all competitive offers and attract the attention of potential members.
The club will offer an array of state of the art fitness equipment, studio programmes to match the best personal training of the highest standards, aqua facilities to be unrivalled and relaxation areas that will be inviting. There will also be a first rate sports injury and rehabilitation clinic with the specialists necessary to ensure that customers receive excellent advice and treatment. Therapy and beauty treatments will complete the offer.
The marketing of the club will begin in January 2001. It is anticipated that the membership to the club will be fully subscribed by the year 2003/4.
The Visitor Attraction
‘Something that will appeal to anyone interested in sport and football in particular, will become a major London Tourist Attraction and will promote Chelsea Village as the best Sports and Leisure Complex in the UK’ – That was my brief.
The year 2001 will herald the launch of that major tourist attraction, situated above the Health Club behind the North Stand. Chelsea Village has joined forces with the Science Museum to create an exhibition comprising both a history of Chelsea and the Football Club together with a derivative of the successful Science of Sport Exhibition which was previously located at the Science Museum in London. The Village will host this on a permanent basis and will be exclusive within the UK.
The attraction will be high tech, very interactive, educational, but above all else, entertaining and is planned to open next August.
Looking Forward
Looking forward the future is bright. Within the current year the Chelsea Village development will be complete with the opening of the West Stand, Health Club and Visitor Attraction providing substantial new income streams. The opening of the nightclub in November (Bluebells on matchdays, Purple on non matchdays) will be a contributor in its own right.
Whilst we will not enjoy any financial benefit in the 2000/01 year from the West Stand completion, revenue service for all the businesses from 2001/2 onwards should be material as an extra 7000 fans per game will be able to attend Stamford Bridge. To date we have leased two millennium suites at the rate sought and the executive boxes have a substantial waiting list.
The advent of the new FAPL TV deal will increase our TV income from £8m to between £25-30m a year until 2004. Our shirt sponsorship is up for renegotiation at the end of this season and discussions with possible commercial partners are in progress which should result in a substantial increase in revenue.
In September our Chief Executive, Peter Bewsey, left to pursue his personal interests. Our Finance Director, Michael Russell has assumed that responsibility in his stead. Michael has been with us for five and a half years and that experience will be to our benefit for the future. We are confident that he will play a significant part in taking the Group forward.
The current year will be a difficult one as we try to strike a balance between our current playing demands and investing in our commercial future, but the seed corn investment is starting to grow and should yield a rich harvest in the future. As the development plan draws to a close, our focus has shifted towards developing the group into a lean ambitious and profitable organisation.
Having completed the transaction with BSkyB which drew upon the remaining unauthorised share capital, your directors recognised the need to increase the Authorised Share Capital to accommodate the share option scheme for staff approved by share holders in 1997. Whilst at this stage we have no current plans to utilise the additional authorised capital for other than the Share Option Scheme, your board think it prudent to increase the Authorised Share Capital from 170 million to 200 million ordinary shares of 1p each. A resolution to this effect is put before you at the Annual General Meeting, hopefully you will see your way to support this.
Developing a business on a site which itself is being redeveloped has placed a great strain on the Board the management and staff and it is right that I recognise this above the call of duty contribution to our progress during the past year which is still ongoing. Without their effort we would not be where we are today and I am personally very grateful for all the support and encouragement that they have given me.
Click here to view Chelsea’s financial results in Excel file.