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A detailed insight into Roman Abramovich: his source of fortune, legal battles, and deep connections to President Vladimir Putin.
How did we get here?
In 1995, Boris Yeltsin's government had a cash problem and proposed an economic policy known as the disastrous 'loan for shares' scheme. It was proposed that a group of wealthy individuals would provide the government with a loan, and in return, they would have the right to buy shares in state industries. This also benefited the bankers who would have a role in the process. Yeltsin was effectively selling off Russia's crown jewels.
This scheme gave rise to a group of wealthy oligarchs, promoting an unstable business environment in the process. The oligarchs held excessive market power in the sectors they controlled, such as mining and manufacturing. However, not all oligarchs made their money through the loan-for-shares scheme, but instead during the ruble crisis in 1998.
Roman Abramovich amassed his riches through such a scheme. The well-connected businessman quickly emerged as one of the wealthiest newly emerged class of Russian tycoons after buying key state assets at incredibly low prices. Abramovich attributed much of his success to mentor and oil magnate Boris Berezovsky. It was with Boris Berezovsky that Roman Abramovich bought out Sibneft (now Gazprom) for only $100m, despite a market value of $600m.
Abramovich was so well-connected that in 1996 he became roommates with President Boris Yeltsin, following an invitation from the family. It was Berezovsky that introduced him to Yeltsin's inner circle. Three years later, he was elected governor of Russia's province of Chukotka. When Vladimir Putin came to power, Berezovsky was not favoured by the new anti-democratic regime and fled in 2000 to London. On the other hand, Abramovich became one of Putin's closest allies, advising the president on important decisions. After the
Berezovsky-Putin fall out, Abramovich remained in Russia and took over Berezovsky's assets.
Putin was on an oligarch crackdown. The former KGB officer had an ultimatum for Russia's oligarchs - fall in line politically and keep your wealth or face prosecution for Yeltsin's dodgy deals. While Abramovich has 'privileged access' and 'very good relations' with 'President Putin', other oligarchs were not as lucky.
In 2012, Abramovich defeated Berezovsky in a court battle dubbed the 'battle of the oligarchs' over the ownership of Sibneft. The exiled oligarch alleged Abramovich intimidated him into selling his shares in Sibneft at an underpriced value, claiming £3bn in damages.
Read the judgment here.
When one door closes another door opens
In the early 2000s Abramovich started to dispose of his assets in his homeland, signalling his departure from Russia. In 2005, Abramovich sold the prize-possession Sibneft for £7.4bn to the state-controlled gas group Gazprom, providing Putin with a tighter grip on the country's oil and gas resources.
In 2008, Abramovich resigned as governor of the far-eastern province of Chukotka after seven years in the role. According to reports, Abramovich attempted to quit a year before but Putin rejected his resignation. During his time as governor, the Chelsea owner pumped millions into the previously poor region.
Abramovich made headlines in 2003 for his takeover of Chelsea FC from Ken Bates, saving them from the brink of bankruptcy. The deal included Abramovich initially buying out 50% of the club for £30 million before completing the takeover for £140 million two days later by buying out most of the remaining 12,000 shareholders.
When the appointment was announced, former sports minister Tony Banks said he wanted more information on Mr Abramovich's business background:
"I want to know whether this individual is a fit and proper person to be taking over a club like Chelsea. Until that question is answered, then I'm afraid the jury is out, a sale has been arranged to an individual we know nothing about." BBC
Whilst the long-time chairman racked up debts for the club having acquired it in 1982 for just £1, Abramovich helped Chelsea grow financially, notably increasing total operating revenues by 62% in his first year. In Chelsea FC: The Official Biography, Chelsea's club's chairman Bruce Buck revealed concerns that the club wasn't going to make a payment for their £75m Eurobond before Abramovich came in. Buck goes on to explain that Chelsea's cause of financial troubles at the time was two-fold:
Borrowing heavily from financial institutions, primarily to fund stadium development.
A creditor demanding repayment of a significant sum that was loaned to the club.
Since taking over, Abramovich has transformed the club by clearing debts, purchasing talented (and expensive) players, as well as taking a cut-throat approach to recruitment. Under his helm, Chelsea have achieved two champions league trophies and five Premier League titles.
Spurs fans might be devastated (or relieved) to learn that Abramovich was close to acquiring the North-London club before making a final decision with the blues. The Athletic revealed the deal fell apart because Daniel Levy was only willing to sell 29.9% of Tottenham.
In 2003, Abramovich flexed his financial muscles by bringing in 13 new players in total, including Joe Cole from West Ham and Claude Makelele from Real Madrid. This one transfer window changed the entire course of football ownership, bringing in a new era of expenditure. A year later, another splurge in the summer transfer window (In: Ferreira, Cech, Robben, Drogba, Carvalho, and Tiago) helped the club achieve its first-ever Premier League title. What followed on was a spending splurge from Europe's top-flight clubs, such as Manchester United and PSG. In response, UEFA established the Financial Fair Play (FFP) rules, in an attempt to deter other wealthy owners from spending more than they earn.
Read more on the FFP rules here.
Under Abramovich's helm, the club has also experienced legal troubles, including:
Chelsea paying Conte £85,000 in compensation after losing in in the employment tribunal
A discrimination case between former Chelsea doctor Eva Carneiro and the club's former manager Jose Mourinho
Ukraine crisis
In late February, President Putin ordered a military incursion of Ukraine. Russia placed over 150,000 thousand military personnel (and equipment) around Ukraine's border and its annexed Crimea, raising significant concerns over a potential war, jeopardising Europe's entire security structure. As Russia continuously denied plans for an invasion, on February 24th Putin ordered a full-scale invasion to demilitarize the region.
Russia argues that its main concern is its own security, particularly about the possibility of Ukraine joining NATO, a military alliance of 30 countries. Russia has long resisted Ukraine's integration with the European (and western) community. To punish Russia, western countries such as the UK are imposing sanctions on Russia.
Is Abramovich facing sanctions?
On 22nd February, Boris Johnson announced a list of targeted sanctions against five Russian banks and three wealthy individuals in response to Vladimir Putin’s military incursion into Ukraine. Those targeted will have their UK assets frozen and be subjected to a travel ban. UK individuals and entities are also barred from having dealings with them.
Despite links to the Putin regime, Roman Abramovich was not one of the listed individuals subjected to UK sanctions.
Labour MP Margaret Hodge challenged Boris Johnson on why the Chelsea owner had not been targeted. Mr Johnson replied, “Abramovich is already facing sanctions” – raising concerns he had misled the House of Commons. A vocal critic of Russia's oligarchs, Labour MP Chris Bryant quickly asserted Boris Johnson's statement was “untrue” and requested that he “correct the record” to clear up any confusion. While Boris Johnson appeared to have misled parliament, he has since admitted that he "misspoke".
"The Prime Minister said that Roman Abramovich has been sanctioned. As I understand it, that is not true. I am sure that the Prime Minister was completely inadvertent in giving a false indication, but it would be helpful if he were able to correct the record. I wonder, Mr Speaker, whether you can make sure that he either does so or puts a letter in the Library to correct the record. These are important moments of fact." (Hansard)
Lawyers for Abramovich disputed that he fitted the criteria for potential designation for sanctions. "It would be ludicrous to suggest that our client has any responsibility or influence over the behaviour of the Russian state." (The Guardian)
Escalation
Labour MP Chris Bryant along with several other MPs continued their calls for targeted sanctions against Roman Abramovich. Bryant told MPs that details from a leaked 2019 Home Office document revealed Abramovich as having links to the Russian state as well as to "corrupt activity and practices".
“An example of this is Abramovich admitting in court proceedings that he paid for political influence. Therefore HMG is focused on ensuring individuals linked to illicit finance and malign activity are unable to base themselves in the UK and will use the relevant tools at its disposal, including immigration powers, to prevent this. That’s nearly three years ago. And yet remarkably little has been done. Surely Mr Abramovich should no longer be able to own a football club in this country? Surely we should be looking at seizing some of his assets, including his £150m home, and making sure that other people who have had tier 1 visas like this are not engaged in malign activity in the UK?” Hansard
Earlier this week, the Labour MP and head of the parliamentary standards committee claimed that Abramovich is hastily selling UK properties to avoid potential sanctions. Speaking to the House of Commons, he said “I think he [Abramovich] is terrified of being sanctioned, which is why he’s already going to sell his home tomorrow, and sell another flat as well. My anxiety is that we’re taking too long about these things.”
In an attempt to distance himself and the club from Putin and the invasion, Abramovich announced that he will hand over the "stewardship and care" of Chelsea to their charitable foundation. The shock announcement was not well received by the trustees who had 'conflict of interest' concerns with Abramovich's plan. This is now dead in the water.
On 2nd March, Abramovich announced in a club statement that Chelsea FC is up for sale. He is also said to be disposing of his property assets in London, worth £200 million. Although Abramovich may not be on the list of sanctions yet, the potential risk in having the UK government seize his assets is certainly a convincing reason for the businessman to sell the West London Premier League club. It would be incredibly difficult for Abramovich to sell Chelsea if his assets are frozen. Speaking to iNews, Football finance expert Professor Tom Cannon described the sale as a "firesale" and argued that Abramovich is "turning an asset which he can't make any cash benefit from [if the club becomes a frozen asset] into cash."
"I think the situation has escalated incredibly quickly over the last seven days and he's [Abramovich] come to the right conclusion. It's unsustainable in the current environment." Speaking at the Financial Times' business of football summit, Richard Masters, Premier League chief executive
Finances
Roman Abramovich is currently demanding a £3bn price tag on the football club. His advisers have already turned down a £2.5bn offer. Prospective bidders will have until mid-March to submit their indicative bid.
According to the KPMG European Elite Report 202, Chelsea has a maximum value of £1.6BN. It's believed that Abramovich will not be able to find a buyer unless he drops the price tag. Furthermore, the Premier League club requires significant investment in their stadium. Stamford Bridge is far-behind its rivals with its low stadium capacity holding only 40,000 fans, therefore limiting various revenue streams such as gate-receipts and hospitality. These concerns formed part of the reason why talks between Chelsea and US private equity firms Silverlake and Ratcliffe broke down in 2018 over a possible sale.
In his statement, Abramovich clarified that he will not ask for loans to be repaid, writing off a loan at around £1.5 billion. There is a possibility that this is a PR spin as he could recoup the cost of his loan through the overall sale price. He also added that any net proceeds from the sale will be used to help victims of the war in Ukraine. Although this may be seen as a gesture of goodwill, one may also see it as an early attempt to reshape the post-war narrative. While this may be a sceptical perspective, Abramovich's close relationship with Putin and history with the Kremlin serve as a reminder as to his interests.
Will the UK sanction Abramovich?
According to The Times, the UK will not be able to sanction Abramovich for "weeks and months" because the Foreign Office and National Crime Agency are struggling to build a case.
Abramovich will likely aim to sell the club as quickly as he can before the UK can link his finances to Putin's regime and sanction him.
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