Chelsea’s Loan System: A Network of Mutual Benefits

Updated: September 10, 2014

At some point during this most recent international break, a combination of a lack of meaningful games to write about and the discovery of the “shocking” statistic that Chelsea have 26 players on loan created a perfected storm of pundits and football “writers” all over the internet getting in an uproar that something is horribly wrong in the EPL. Fans of other clubs on twitter joined in, with the popular opinion being how Chelsea’s loan system for youth development is anywhere from inefficient to morally reprehensible. Pieces like the recent one by The Guardian’s Owen Gibson (which I won’t link to because I only like to link to quality writing, along with YouTube clips of gangsta rap) are even using the buzz around the topic as a call to action for sweeping changes in the rules regulating players loans in European football, as well demanding improvements in the way in which youth players are developed by European clubs. Now, I had been planning on relaxing over this international break, using the lack of meaningful football as a chance to catch up on some last-minute FIFA 14 before the new installment comes out in a few weeks. The recent wave of outrage has stirred me from my slumber, however, and I feel the need to write an article explaining why Chelsea’s loan system is actually fantastic for basically everyone involved. Pointing to a few examples of players who came through the Chelsea system and failed to make it is not an analysis; it’s just a collection of anecdotes (at best) or lazy writing (at worst). There is an equally wide array of players who failed to make it that had no interaction with Chelsea FC whatsoever, and that equally proves nothing. If we want to analyze whether Chelsea’s loan system is good or bad, let’s at least try to do it in an intelligent way.

Now, as I’ve mentioned in previous articles, when I’m not writing about Chelsea FC or playing FIFA on my PS4, I’m an economist, and so I tend to think about things like this a lot. At its core, economics is about the study of rational decision making, and understanding why choice A (either from the point of view of an individual or from that of an organization, like a government or a company or a football club) is better than choice B, and how we might go about weighing those options against each other in an objective way. As such, we can use basic economic modeling to talk about Chelsea’s loan system from the point of view of all the people involved and see how it might be good or it might be bad.

From the Player’s Perspective

The first entity to consider in this whole thing is the player. After all, the general sense of indignation mostly rises from people arguing that these young players are getting taken advantage of by Chelsea Football Club, and are not getting a fair chance at making it big. Let’s try to analyze just how true this might be.

The best way to consider whether a decision or outcome is good is to weigh it against the realistic alternative options. In economic terms, this is the basic idea of opportunity cost, which is the value of the next best option that you are giving up. For a very basic example, I would love to make 20 million dollars winning the lottery next year. But that is not a realistic option, so when I’m deciding if I should take job X or job Y, it would be silly to take into account the lottery, because it is not a realistic option. I should only take into account what is feasible. Bringing it back to football, from a hypothetical young player’s perspective, the basic choice comes down to signing with Chelsea (and entering into the youth team / loan system of development), or signing with another club and going through their youth system.

Now, if you are a really elite young talent, then going somewhere like Barcelona or Arsenal (who have a very good track record with youth players) might be your best option, and so coming to Chelsea might be seen as a lesser choice. However, for those truly elite talents (who are very likely to succeed no matter what they choose), coming to Chelsea offers an equal opportunity to make it into the first team as anywhere else. People often claim that Chelsea don’t play young players, but that is an outright misrepresentation of the facts. Looking at average age of squad, Chelsea currently rank ninth in the EPL with an average squad age of 26.6 years, and that number improves when looking only at the starting XI. Young truly elite talent like Courtois, Hazard, and Oscar have had no problems breaking into the Chelsea starting eleven, as long as they’ve actually earned their spot by performing to an elite level. For players such as this, the choice between Chelsea or another club has less to do with playing time, which they will get basically anywhere since they are already some of the best players in the world (regardless of age), and more to do with some combination of wages and club ambition. It is well documented that Chelsea pay higher than average wages, and Chelsea also have one of the best trophy-winning records over the last decade. As such, and as we’ve seen repeatedly over the last few windows, truly elite young talent have good reason to choose Chelsea FC over other clubs.

What about the prospects that are a level below “elite”?  Players like Romelu Lukaku or Josh McEachran are clear examples of the loan policy failing, right? Well, actually, not necessarily. Let’s say I’m a teenage prospect playing in the (fill in random European / African / South American country) league’s top division. Chelsea FC’s scouts approach me and say they’d like me to sign for them. If I choose to sign with Chelsea, then I will presumably move to London and play for the youth squad for a while, or if I am slightly older and more developed, I will immediately be sent out on loan. If I’m a younger player, signing for Chelsea will give me access to one of the most advanced, state-of-the-art youth facilities in the world, along with a network of coaches and staff that are well beyond the level of what I could probably see in my native country. A few years down the line (or if I’m coming in at that older stage), I will get sent out on loan to the Dutch league or the Championship to continue my development until I am either ready to play for Chelsea or get sold for a profit. If I choose not to sign with Chelsea and take the more traditional route, I will continue to play in my native country for a few years and hope that scouts from another team take notice. Eventually, if I’m a bit lucky and a lot talented, I might sign for some mid-level club in England or maybe even that same team that I would’ve gotten loaned to in the Dutch league. If I am unlucky or don’t ever achieve my full potential, I won’t get past this level, and may even flame out at an early age. If the stars align and I work very hard and show my true abilities, I will make it a big club in a top league, like Chelsea or Bayern Munich or whoever.

The important thing to notice in the above scenario is that there are some things that don’t change between the two choices. First of all, if everything goes perfectly, no matter the choice, the player will end up at a top club. As such, this is not something that we should take into consideration because it is equal across the choices. Let’s say things don’t go so well, however. In either case, I won’t make it to a top team like Chelsea. That is equally not dependent on my signing or not signing with Chelsea and entering their youth system. No matter what, if I’m the kind of player who did not succeed in loans to Championship or Dutch teams, then I am not the kind of player who would’ve succeeded on my own enough to make it big. Now, I’m not pretending that Chelsea doesn’t make some mistakes in their loan selections (McEachran’s time at Swansea comes to mind). But what I am saying is that the players themselves have to agree to any loans, and that those same mistakes could be made in the alternate version of reality (there is some universe where a non-Chelsea affiliated McEachran signed permanently for Swansea, hoping to make it big, but still couldn’t break through). It is on them to make the most of their loans, and if they feel they are getting sent somewhere that they are not ready to go, it is equally on them to reject that loan and go somewhere safer.

Furthermore, these players benefit from being owned by Chelsea FC in two key ways .The first is that, for these players, being affiliated with Chelsea FC means that the Chelsea scouts saw some potential in them, enough so that they warranted a youth contract. Since Chelsea in general have a good scouting network, this is a signal to other clubs that these players have value. Having the “Chelsea youth system stamp of approval” makes these young players more visible and more desirable in the market. And this stamp of approval is not something that fades quickly, even if a player generally fails at the original club. Take Bojan for example, who had a brief moment in the sun with Barcelona and then some very poor seasons after that. In most cases, an EPL club would not be willing to take a chance on a young player who has not been particularly good in years, but the fact that Barcelona saw something in him (combined with a small sample of good play a few years ago) makes it so that Bojan can still get a contract from an EPL team. Likewise, a player like Gael Kakuta is playing in one of the best leagues in the world, La Liga, despite not really having performed well in a few years. I would argue that the fact that he is a Chelsea loan player makes that possible, whereas if he was not affiliated with Chelsea FC, he’d be playing for a much worse team in a much worse league given his performance in recent years.

The second way in which the players benefit is that these are season-long loan deals as opposed to permanent transfers, which would be the most likely scenario if they were not Chelsea youth players. As such, this allows for greater mobility and allows other teams to take a greater risk than they would otherwise be comfortable with, both of which make for better placements for the youth player. As we have seen with Falcao and Manchester United, clubs are more willing to take a risky player on loan than they are to committing to long-term contracts with them. As such, a better team might be willing to take a young Chelsea talent on loan for a season whereas they would not be willing to take them on a permanent basis. Lukaku is a good example of this; it is unlikely that a top eight EPL team like Everton would’ve been willing to spend a substantial amount of money on him without seeing how he would fit into their system first. He represents some level of risk to them, but after having seen him on loan for a year, they were able to make a more informed decision when the time came to make a permanent offer. Likewise, someone like Lukaku was only able to get a loan deal at Everton in the first place because he did so well in his previous loan at West Brom. In the hypothetical world where he was not a Chelsea player being loaned from year to year, it is less likely (although obviously not impossible) that he would be getting transferred to bigger and bigger clubs in consecutive summers. There are many examples of this in the Chelsea loan system, where players succeed in their loan spells and this obtain a loan to a better club the following season, and that is partially down to the decreased cost associated with loans as opposed to transfers.

In the end, greater levels visibility, greater amounts of mobility, and a higher willingness of the part of other clubs to take a risk on them allows a lot of these players to progress more quickly than they would be able to on their own. So that’s what’s in it for them. But what about the clubs?

From Chelsea’s Perspective

Others have written beautifully about this topic in greater detail (see Jake Cohen and our own msreya), but it’s not hard to see how the loan policies in the Chelsea system of youth development are beneficial to Chelsea FC. The basic principle at play here is the idea of basic portfolio management and risk-diversification. If you’ve ever heard the phrase “don’t put all your eggs in one basket” then you have a sense of what I mean. From Chelsea’s perspective, it makes a lot more sense to aggressively scout and sign an army of youth prospects with differing potential levels than to only sign a few young players. For every youth development success story like Cesc Fabregas or Santi Munez, there are countless examples of “next big things” that never quite made it (like Freddy Adu or Juan Agudelo, as my fellow American soccer fans would know all-too-well). Every youth player, no matter how talented, represents a level of risk to a club. They could get injured over and over and never fully reach their potential that way, or they could simply not apply themselves hard enough and get photographed smoking outside a nightclub repeatedly and never really reach that elite status. There’s any of a number of ways that young players can fail to succeed, and so for a club to invest in their development is always a risk. By having a lot of players that they signed for relatively cheap, Chelsea FC makes it so that only a few of them have to hit it big (whom they can then sell off at a huge profit or integrate an elite player into the first eleven for a fraction of the cost that they would’ve been worth in the free market) and the rest can afford to fail without huge impact to the club.

Further, as the articles above have pointed out, profits from the few that do succeed allow the club to invest further in more and more prospects, until ten years down the line, basically every good young player in the world is affiliated with Chelsea FC in some way. Simply put, it’s an ingenious and efficient way to run your club, and makes Chelsea look lightyears ahead of their competition in terms of making intelligent and rational decisions when it comes to player development. The loan development system, as it stands, is a huge money-maker for Chelsea, and allows them to splash the cash on big name signings like Diego Costa and Cesc Fabregas while still turning a net profit on transfers in the summer window. As a fan of the club, I’m proud to support a team that is playing the market so well. Long may it continue!

From the Borrowing Club’s Perspective

One final entity that I thought it would do well to touch on is the other clubs. Now, as a fan of exclusively Chelsea FC, you might argue that doing anything that benefits other clubs at all is not in Chelsea’s best interest, but I disagree. I mentioned this briefly earlier, but I’ll make the point more explicitly now: Chelsea’s loan system allows other clubs to sign better players than they would otherwise be able to afford, even if only for a brief time. Lukaku is a perfect example of this. He played an entire season for West Brom, who, no disrespect to the midlands club, stand a snowball’s chance in hell of being able to afford a player as good as Big Rom in the free market. Likewise, a team like Everton would almost certainly not be able to afford Christian Atsu coming off of a stellar World Cup on any sort of permanent transfer, and yet he will be lining up for them this season. As I briefly explained above, loans allow smaller clubs to take risks on players that they otherwise would not be able or willing to afford, since the contracts are short term and the only thing they have to worry about is wages. That’s why a mid-table team like Manchester United can afford someone like Falcao hehehe. A nice added bonus to this is that borrowing clubs then develop a healthy working relationship with Chelsea, and are more likely to cut them a break down the line. Take Chelsea’s relationship with Atletico Madrid, for example. It is likely that our having loaned them an elite goalkeeper on the cheap for three seasons played a factor in their willingness to let us sign Costa and Luis from them this summer.

Ultimately, the youth development system of signing a lot of prospects and aggressively using loans is beneficial to the players, to Chelsea, and the borrowing clubs. And it even gives the talking heads something to complain about. Otherwise they’d have to actually talk about football and try to come up with something insightful to say, and then they’d really be in trouble. Chelsea’s loan system: good for everyone!

This piece has been contributed by Oscar Puente, a Chelsea fan since Michael Ballack joined the club in 2006. Oscar hails from New York City, and is a mathematician and economist in his regular life. You can find him on Twitter @footiefromafar.

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