Chelsea's great escape is revealed

The last set of accounts filed by Chelsea Village, the Stock Market quoted company that owned the club before Roman Abramovich's dramatic takeover, reveal that it made a loss of more than ?26.5million in the year to the end of June, 2003. The Russian took over the club the next day.

The deficit represents an additional ?10m slump into the red from 2002, making it easily Chelsea's biggest ever loss. It is also the third biggest loss ever recorded by a British football club, exceeded only by Leeds and Fulham.

Chelsea is believed to have been just days from financial collapse and possible administration when the Russian billionaire made his ?140m cash bid for the club in July last year.

The club had one of the most expensive playing squads in the country. And Mr Bates admitted at the time of the takeover: "We had run out of money."

The accounts, filed this week at Companies-House, reveal that the club's core football activities made a loss of ?10.1m, while the travel agency and "leisure services" businesses were also in the red. There was also a huge and unexplained increase in "central costs" from ?1.4m to ?5.1m.

The accounts also show that the previous regime's desperate efforts to control the playing staff's wage bill had been partially successful. Total payroll costs - of which player salaries and bonuses make up the vast bulk - fell slightly, from ?57.3m to ?55.9m.

The club ended the year with debts of ?79.2m, including ?74.1m from an expensive Eurobond issued to pay for the redevelopment of Stamford Bridge.

Abramovich paid off much of Chelsea's debts immediately, but the bond has proved slightly more problematic because of the various interest and penalty payments that were built in.

The playing squad was valued in the balance sheet at ?87.1m. Mr Abramovich has since spent a further ?117m on an unprecedented player spending spree, the accounts reveal.

That figure would appear to be slightly at odds with the previous figure of ?111m that was publicly quoted for the club's summer spending spree when they bought Glen Johnson, Joe Cole, Juan Sebastian Veron, Adrian Mutu, Hernan Crespo, Damien Duff, Claude Makelele, Wayne Bridge and Geremi. They also signed a new goalkeeper Marco Ambrosio and later added Neil Sullivan from Spurs on a free transfer.

Despite the financial carnage, the directors' report for the year merely states that "the results for the year and the financial position at the year end are considered satisfactory taking into account the change of control."

The accounts do not disclose the pay-off to sacked chief executive Trevor Birch, who is now at Leeds, because that happened after the accounting period. Birch, who was replaced by Peter Kenyon, poached from Manchester United, is believed to have received around ?2m.