(Bloomberg Businessweek) -- In late August, as supporters of Chelsea Football Club assembled at Stamford Bridge stadium to watch their team beat London rival Arsenal, a group in the upper deck unfurled a 40-foot blue-and-red banner. “The Roman Empire,” it shouted, beside an image of the team’s owner, Russian billionaire Roman Abramovich. Just below, another banner trumpeted “15 Years, 15 Trophies.” Abramovich didn’t attend the game that day. In fact, he hasn’t been seen in London since the U.K. government failed to renew his visa in the spring, not long after it accused Russia of using a deadly nerve agent on British soil and relations between London and Moscow plunged into crisis.
Abramovich bought Chelsea out of near-bankruptcy in 2003 for £140 million (about $223 million at the time) and has since loaned the club more than £1.1 billion. Until he came along, Chelsea hadn’t won the top domestic trophy, the Premier League title, since 1955. His big spending changed all that and set off a kind of arms race in English football. In some ways, it was similar to the U.S. model: Buy talent, buy titles, and sell merchandise and media rights. But unlike owners of American sports teams, Abramovich didn’t seem bothered by racking up huge losses. (And he didn’t have to contend with caps on spending, until new rules came into force in 2010.) At the Arsenal game, Chelsea supporters taunted their rivals with the chant “We’ve won it all!” to which Arsenal fans sang in response, “You’ve bought it all!”
Chelsea fans still love their high-rolling owner, even as the U.K. government hits back at the Kremlin. Now Abramovich is mulling a sale of Chelsea, frustrated by his British visa problems and concerned about the potential fallout should the U.S. expand sanctions against wealthy Russians and target him. He’s already rejected bids for the club in excess of $2.3 billion—which would be a world-record price for a sports team—according to people familiar with the talks. Earlier this year, Abramovich hired Raine Group LLC, a merchant bank in New York, to advise on the possibility of a full or partial sale of the club. A person familiar with the discussions says Abramovich wants £3 billion. Abramovich’s representatives declined multiple requests for comment for this story and insisted all communication go through his lawyers, who also declined to comment.
With a $14.7 billion fortune derived from oil and metals, Abramovich holds his enormous wealth at the pleasure of Russian President Vladimir Putin, a status that’s put him in the crossfire of the Cold War 2.0 that’s been brewing. It’s not only his visa that’s been effectively stonewalled: In seeking ways to punish Putin, British officials appear to be slow-walking most Russian visa applications, according to immigration lawyers in London. At the same time, the government is scrutinizing the wealth of Russians using London as their base, and lawmakers have begun calling the influx of Russian cash a national security issue.
“We should have been asking tougher questions, and we’ve started to do that over the last 12 months,” says Ben Wallace, the U.K.’s minister of state for security and economic crime. “We always reserve the right to revoke any of these visas. We have the power to simply say, ‘No, thank you. You’re not welcome.’ ”
Arguably the most secretive Russian billionaire, Abramovich hasn’t given an interview in more than a decade. “To be exact, it’s been 12.5 years!” his spokesman, John Mann, wrote in an email. Having bought homes in Aspen, Colo., the south of France, Moscow, New York, St. Barts, and Tel Aviv, Abramovich is almost constantly on one of his jets. Nonetheless, he’s the very avatar of Londongrad, the nickname given to the British capital because of the high number of wealthy Russians there. He paid a reported £90 million for a mansion a few doors down from the Russian embassy in Kensington. In almost a caricature of over-the-top Russian spending, he won permission in 2016 to expand it to 20,000 square feet, filling in what he called a “miserable” pool and adding a new underground pool and “staff accommodation.” He’s educated five of his seven kids largely in the U.K.
Abramovich’s situation has sent a chill through the ranks of wealthy Russians in London. “It’s like a grenade has been dropped inside the government, and no one knows what the outcome will be,” says Dmitry Gololobov, a Russian lawyer living in London who worked for Yukos Oil Co. “Everyone is minimizing their U.K. risk. No one knows how they will be scrutinized.”
Faced with delays, Abramovich withdrew his visa application. On May 28, his Gulfstream G650 touched down in Tel Aviv, where he owns a home in the exclusive Neve Tzedek neighborhood. A major donor to Jewish causes in Russia and a funder of more than a dozen Israeli tech startups and venture capital companies, Abramovich left two days later with an Israeli passport in hand, allowing him to travel to the U.K. for up to six months visa-free. (It’s unclear when he applied for citizenship.) The move immediately made him Israel’s richest man. The day after he left Israel, Chelsea announced it had put on hold a £1 billion plan to expand the club’s stadium, citing the “current unfavorable investment climate.”
“Abramovich spent money to buy himself a certain entree or cachet into British society, but some of the social expectations about being big in British football have not quite played out,” says Mark Galeotti, a Russia expert and senior fellow at the Institute of International Relations in Prague. “He’s high-profile and Kremlin-connected enough to be a useful poster child for this new campaign against Putin. He may decide it’s not worth it to stay.”
London’s status as the financial capital of Europe—and its light-touch regulation—has long lured international investors looking for a hedge against upheaval back home, but it possessed a special allure for Russians. Just a four-hour flight from Moscow, London offered lower taxes than Paris and a stable of world-famous private schools where status-seeking Russians could educate their kids. Officially, there was £22 billion of Russian-owned assets in the U.K. at the end of 2017, but that doesn’t account for money from offshore entities. Anticorruption campaigners say £100 billion of Russian money has come to the U.K. over the past 20 years, according to estimates cited in a U.K. parliamentary report in May called Moscow’s Gold. Census figures put the number of Russians in the U.K. at 66,000, but other estimates say there are as many as 150,000. They’ve held Russian debutante balls at the five-star Grosvenor House Hotel (though the 2018 edition was just canceled; too many attendees were having visa troubles), opened restaurants serving high-end borscht, and generated a steady flow of TV shows and documentaries, including the BBC’s 2015 Rich, Russian and Living in London. Eaton Square has attracted so many Russians that locals have taken to calling it Red Square.
Until recently, London was also the go-to destination for Russian bond and stock sales. At the end of last year, there were more than 100 companies, worth some $550 billion, from Russia and the former Soviet Union listed on the London market. That includes Evraz Plc, the Russian steel behemoth in which Abramovich holds a 30 percent stake. The British government handed out almost 700 investor visas between 2008 and 2014 to Russians willing to bring at least £1 million into the U.K. To qualify for an investor visa at the time, all they had to do was show that the funds had been in their name for the previous three months. They could qualify by getting the money as a gift or through a loan from a U.K.-regulated financial institution. The scheme proved so popular that at the end of 2014, the government raised the threshold to £2 million and banned loans.
Abramovich clawed his way up to billionaire status during Russia’s tumultuous 1990s. He was orphaned by the age of 2 and raised by his uncle in the northern Russian city of Ukhta before moving to Moscow to live with his grandmother, according to a 2004 biography titled Abramovich: The Billionaire From Nowhere. He left university before the collapse of the Soviet Union and made his first money by selling dolls from a market stall.
By the 1990s he had become an ambitious young oil trader, and in 1995 he teamed up with Boris Berezovsky to start buying the oil company Sibneft during the country’s privatization of state assets. At the time, Berezovsky was a prominent oligarch who exerted huge influence over President Boris Yeltsin as part of his political inner circle, known as the Family. The group also included Yeltsin’s daughter Tatyana, economic adviser Alexander Voloshin, and eventually Abramovich. In October 1999, when Yeltsin was weighing whom to choose as his successor, Berezovsky dispatched Abramovich to St. Petersburg to attend a birthday party for Putin, who’d recently become prime minister, says Alex Goldfarb, a Russian-American who was a close confidant of Berezovsky. The idea was to see what kind of people Putin surrounded himself with.
Abramovich vouched for Putin, according to Goldfarb. “Abramovich was instrumental in bringing Putin to power,” he says. “He is much closer to Putin than other oligarchs who are just enriching themselves and remain loyal.”
Berezovsky later fell out with the Kremlin and fled to the U.K. He sued Abramovich for $5 billion in London in 2011, claiming Abramovich had cheated him out of his stakes in Sibneft and the aluminum giant Rusal. In court testimony, Berezovsky painted a picture of Abramovich as a behind-the-scenes Kremlin player. He claimed Abramovich had promised to buy Putin a $50 million yacht shortly before he became president in 2000 and then helped select members of Putin’s cabinet. Berezovsky lost the suit, but the presiding judge concluded that Abramovich had “privileged access” to Putin.
In a rare interview in 2003, on a helicopter over Chukotka, the remote Russian region where he served as governor, Abramovich told Bloomberg, “I just have friends who are or used to be in the Kremlin.” In 2005 the Kremlin allowed Abramovich to cash out by selling Sibneft to state-run Gazprom for $13 billion. By that time, Abramovich had already bought Chelsea, which many Russia watchers perceived as an insurance policy in case Putin ever turned on Abramovich the way he had on other Russian oligarchs.
The British mood toward Russia darkened dramatically on March 4, after police were called to help 67-year-old Sergei Skripal and his daughter, Yulia, who were found frothing at the mouth and slumped on a bench in Salisbury, a small town southwest of London. Skripal, a former Russian military intelligence officer who’d worked as a double agent for Britain’s MI6, had been living quietly in the U.K. since 2010. “Red Spy in UK Poison Terror,” screamed the headline in the Sun as counterterrorism police took over the investigation. The Skripals survived and are in hiding. A British woman later died after being exposed to the poison, a military-grade nerve agent known as Novichok. Authorities concluded that thousands of people had been at risk of exposure.
Eight days after the Skripals fell ill, another Russian businessman, Nikolai Glushkov, was found dead at his London home with strangulation marks on his neck. Counterterrorism police are investigating the death as a murder. The government is reviewing the deaths of 14 other people in the U.K. for links to Russia. Among the deceased: Berezovsky, who died in an apparent suicide in his home outside London in 2013.
U.K. Prime Minister Theresa May moved quickly to punish Russia for the Skripal attack, announcing increased security checks on flights, a boycott of the World Cup in Russia by ministers and the royal family, and the expulsion of 23 Russian diplomats. In September, British prosecutors charged two Russians, Alexander Petrov and Ruslan Boshirov, with carrying out the attack on the Skripals. When May announced in Parliament that the two men were Russian military intelligence officers, gasps were heard in the House of Commons. The Kremlin has denied any involvement. In September the two men, who’d gone back to Russia, appeared on the Kremlin-backed network RT claiming they were merely visiting Salisbury as tourists.
As May came under pressure to retaliate in the weeks after the poisoning, the government announced it was reviewing the investor visa program. That’s when visa processing for Russians almost ground to a halt.
Wallace, the security minister, says Britain welcomes “legitimate” Russian investors, but he’s urging Western allies to step up efforts to stop the Kremlin’s malign actions around the world. “The question for the international community is, how many more times?” he says, rattling off a long list of Russia’s hostile actions, including the Novichok attack, the invasion of Crimea, and Russia’s downing of Malaysia Airlines Flight 17 over eastern Ukraine. “I addressed the diplomatic corps, and I said, ‘You know, there’s a lesson here, which is, if they can do it to us, they can do it to you, too.’ ”
The U.S. has hit Russia harder than the U.K. has and appears to have done so strategically. In April, the U.S. announced sanctions on seven oligarchs, prohibiting Americans from doing business with them. Names were left off “so they could leave room to add more later,” says David Kramer, who worked in the U.S. Department of State on Russia under President George W. Bush. Additional sanctions against Russian targets are likely still under consideration, says John Smith, who stepped down in May as the head of the Office of Foreign Assets Control, the U.S. agency that draws up sanctions policy.
People close to Abramovich say he’s begun restructuring his holdings to try to shield his assets in case the U.S. sanctions him. For a dozen years he held his stake in Evraz jointly with two partners, Alexander Abramov and Alexander Frolov, but in September he split his shares into a separate company. At the same time, he sold 0.05 percent of his stake in Crispian Investments Ltd., an entity that owns a piece of MMC Norilsk Nickel PJSC, to his longtime partner David Davidovich, reducing his ownership to 49.95 percent. If he were sanctioned, owning less than 50 percent of a company would prevent it from automatically being included, and simplifying the shareholding structure could lessen the risk of repercussions on his partners.
If Abramovich’s overhaul of Chelsea marked the beginning of Londongrad, McMafia might someday be seen as the beginning of the end. Based on the nonfiction book of the same title by Misha Glenny, McMafia is a TV series dramatizing how a Russian-born, British-educated financier gets sucked into Russian organized crime operating out of London. The show, which aired in January and February (Season 2 is scheduled for later this year), became the talk of the town, adding to calls for the British government to crack down on dirty money in the capital.
On paper, the U.K. appears to be doing that. In January new legislation gave the National Crime Agency a tool called the unexplained wealth order, or UWO. It allows the agency to seize assets believed to be acquired with illicit funds; if targeted, owners of a property will be required to explain how they could afford to buy it. The National Crime Agency has used a UWO in only one case so far but says it’s investigating more than 100 individuals and properties and expects to issue two more UWOs later this year. It’s likely that Russians are on the list.
“The two biggest illicit money flows from abroad coming into this country, into the city, come from Russia and China,” says Wallace. “We’ve got to deny these people the playground.”
In May, Parliament passed sanctions legislation named after Russian lawyer Sergei Magnitsky, who worked in Russia for fund manager Bill Browder and died in a Moscow prison in 2009 after uncovering a vast tax fraud involving government officials. Similar to the U.S. Magnitsky Act, the legislation allows the U.K. to freeze assets and impose visa bans on individuals accused of human-rights abuses. Browder says British politicians are under huge pressure to take action after the Skripal incident: “If you’re a politician overseeing the work of the government, you won’t allow total inaction from here.”
People who know Abramovich say that if all these factors cause him to give up Chelsea, he won’t do it happily. The team has become an obsession. When he’s in New York, he’s been known to watch Chelsea matches at Legends, a Midtown sports bar, with other fans (and his bodyguards, who lurk discreetly). “If you go into his houses or yacht, there’s a screen in virtually every room, almost always with football on it,” one of his close associates has said.
Abramovich’s big spending has been accompanied by an unconventional style. Most football owners watch, suited and booted, from a directors’ box, but the Chelsea owner usually sits in jeans in a private box of his own with friends. He’s visited the stadium less over the past four years than when he first bought the club, but, unusually for an owner, he sporadically shows up on the pitch to watch training sessions.
Abramovich has aggressively managed the club. He weighs in on transfer choices and interviews prospective coaches, sometimes even smuggling them into his home in Kensington through an underground entrance to shield them from the press, according to a person who’s attended one of these meetings. His churn through managers is legendary. When he replaced Antonio Conte with Maurizio Sarri in July, Sarri became Chelsea’s 11th manager in 15 years.
One thing Abramovich hasn’t been able to do with Chelsea is make money—the club has shown a pretax profit only once, in 2014. But turning a profit was probably never the point, though he may pocket a decent return if he sells. Associates say Abramovich saw the club as a chance to build a legacy. It appears that prize will elude him. —With Scott Soshnick and Yuliya Fedorinova
To contact the authors of this story: Stephanie Baker in London at stebaker@bloomberg.netDavid Hellier in London at dhellier@bloomberg.netIrina Reznik in Moscow at ireznik@bloomberg.net
To contact the editor responsible for this story: Daniel Ferrara at dferrara5@bloomberg.net, Bret Begun
©2018 Bloomberg L.P.
