Could Chelsea FC be run by a charity?

It was announced last week that Chelsea FC owner Roman Abramovich would be passing stewardship and care of the Football Club to the Trustees of Chelsea FC’s charitable Foundation – a move that has drawn an enquiry from the Charity Commission for clarification. On the eve of a Carabao Cup final in which Chelsea faced Liverpool, it was a vague and puzzling statement and one which had not been seen at the Premiership level in the past. Whilst it has now been announced that Mr. Abramovich has put the Club up for sale, it begs the question, was the proposal a plausible one which would have seen a multimillion-pound, commercially run football club be run by a charity?

In this article, our Charity law partner Robert Meakin and Sports law partner Jamie Horner discuss whether it is possible for a football club to be run by a charity and consider some of the legal and regulatory issues of the proposed arrangement.

The Foundation’s purposes are a mixture of sporting, community and educational charitable objects. It is run on a not-for-profit basis with the intention of fulfilling its purposes, whereas Chelsea FC is run as a commercial business for profit. It is open for Chelsea FC to make donations to the Foundation and for the Foundation to make grants to the Club for charitable purposes, but both the Club and the Foundation need to be careful as there are complex rules around how this can happen.

Broadly speaking, any donations to a charity attracting tax reliefs with the purpose of conferring a financial advantage on the donor or someone connected to the donor, could be challenged by HMRC. Any grants by the Foundation to the Club would also have to be for exclusively charitable purposes and any conflicts of interest avoided or managed. Given the close relations between the Club and the Foundation, these are issues that would need careful consideration.

It is interesting to note that the Foundation’s accounts list Chelsea FC as being involved in related party transactions due to the number of its trustees also being directors of Chelsea FC group companies. It indicates that there would be conflicts of interest between some of the trustees and the Club if “stewardship” did mean the Foundation running the Club and continuing to enter into related party transactions with it. These would need to be addressed before any stewardship arrangement could be agreed.

Charities can and do own and run businesses. Look down any high street at all the charity shops and you will see this is not uncommon. But there are very strict charity and tax rules as to how this can happen, particularly in respect of any investment by a charity. Relations between the two, where there is such investment, need to be at arm’s length and conflicts of interest avoided or managed. Any investment by a charity in a business must be on a commercial basis – generally for a commercial rate of interest, repayable and secured through a charge. If these rules are not followed, HMRC can disqualify the investment for tax purposes and reclaim tax, potentially leaving the trustees answerable to the Charity Commission for the loss of tax reliefs.

It is possible that the statement by Mr. Abramovich merely suggested that the trustees of the Foundation would take over the running of the Club in their personal capacity. The motives for such a move remain unclear; however, it has been suggested that it was a response to the increased focus on him and the possible threat of sanctions in light of the Russian invasion of Ukraine.

There are many unanswered questions over the proposal, but perhaps it was the complexity of legal and tax issues that led to the subsequent announcement to sell the Club, with the net proceeds of the sale going to a newly established charity with purposes to support the victims of the conflict in Ukraine.