Arsenal Finances

(Getty)

The Swiss Ramble – a blog that usually writes about the business side of football has done a very through research of Arsenal’s finances. TKTG encourages a full read of his article as they are usually very detailed and thoroughly researched. However we have taken the most important points for readers who just want a quick read. Again we encourage you to read the whole blog to get the true picture.

It has been a mixed start to the season for Arsenal…..However, there is an air of quiet optimism among the fans that Arsène Wenger’s new-look side will be able to mount a challenge once the new players have fully gelled.

 ..many fans remain baffled that a club of Arsenal’s immense financial resources did not aim higher in the transfer market, (this year) such as buying a striker of the calibre of Napoli’s Edinson Cavani or Atlético Madrid’s Radamel Falcao. Of course, either of these would have broken Arsenal’s transfer record by some distance, but the money is clearly available to fund a purchase of this magnitude.

 To the outside world, it appears that Arsenal have paid rather more attention to strengthening their balance sheet, as opposed to the squad, an impression that was reinforced by last week’s announcement of a hefty profit for the 2011/12 season.

 Nevertheless, the bottom line is that Arsenal once again made another sizeable profit, even if it was largely on the back of player sales…..The last five years have been particularly impressive, at least financially, with Arsenal accumulating staggering profits of £190 million, an average of £38 million a year.

 No other leading club has been so dependent on player sales as part of its business model. In fact, over the last six years, selling the club’s stars has been responsible for £178 million (or over 90%) of the £195 million total profit. That’s great business, but it makes it very difficult to build a winning team, as Arsenal seem to be perpetually two pieces short of the complete jigsaw.

 Assuming no change in overall strategy, this means that Arsenal will continue to sell players unless/until they grow revenue or cut their wage bill.


Revenue

–       Looking at the club’s revenue of £235 million, which is the fifth highest in Europe, it is difficult to imagine that this could be an issue. However, there are three problems here: (a) the gap to the top four clubs is vast; (b) Arsenal’s revenue has hardly grown at all in the last few years; (c) other clubs have continued to grow their revenue.

 –       Arsenal’s Achilles’ heel from a revenue perspective has been commercial income, which is extremely low for a club of Arsenal’s stature.

–       Arsenal’s weakness in this area arises from the fact they had to tie themselves into long-term deals to provide security for the stadium financing, which arguably made sense at the time, but recent deals by other clubs have highlighted how much money Arsenal leave on the table every season.

–       In fact, no fewer than eight Premier League clubs now have a more lucrative shirt sponsorship than Arsenal.

 –       This (Arsenal kit supplier) now delivers £8 million a season, compared to the £25 million deal recently announced by Liverpool with Warrior Sports and the £25.4 million paid to Manchester United by Nike.

 –       However, this (stadium attendance) revenue stream seems to have reached saturation point, as Arsenal continue to register capacity crowds of 60,000 and their ticket prices are among the highest in the world.

 –       The majority of Arsenal’s television revenue comes from the Premier League central distribution.

 –       Financially, the Champions league is the only game in town, especially now that the prize money for the 2012 to 2015 three-year cycle has increased by 22%.

 

Expenses

–       In particular, the wage bill shot up 15% from £124 million to £143 million, despite the sale of Fàbregas and Nasri, two of the highest earners. Part of the increase was presumably due to rushing in the likes of Per Mertesacker, André Santos and Park-Chu Young last summer without enough time for meaningful salary negotiations.

 –       In fact, since 2009 wages have gone up £39 million (38%), while revenue has only grown by £10 million (5%), leading to a significant worsening in the wages to turnover ratio from 46% to 61%. This is by no means terrible (most Premier League teams have a ratio above 70%, while Manchester City notched up 114% in 2010/11), but is of concern, especially as Manchester United have managed to maintain their ratio around 50%. Though not the only reason, this helps to explain why so little has been spent in the transfer market.

 –       One issue at Arsenal is the equitable wage structure, which means that the top salaries are not enough to attract the world’s best, while fringe players like Sébastien Squillaci and Marouane Chamakh are handsomely rewarded for sitting in the stands.

 –       The difficulty is in getting the unwanted players off the payroll at their high wages, hence loans for Nicklas Bendtner, Denilson and Park when the club would have preferred to sell them.

 

Money Spent ?

–       …but the reality is that very little has been spent on bringing in new players with net player registrations of just £4 million in the last six years. Instead, the vast majority has been gone on the new stadium, property and other infrastructure  with more planned for development at the Hale End youth academy.

 Astonishingly, only 1% (one per cent) of the available cash flow has been spent in the transfer market.

–       Although Arsenal have laid out a fair bit of cash on buying players in the last two seasons (nearly £90 million), this has been more than compensated by big money sales, so their net spend has still been negative. In fact, since they moved to the Emirates stadium, they have made £49 million in the transfer market, where they are the only leading English club to be a net seller.

–       Once cash balances of £154 million are deducted, net debt is now only £99 million, which is a significant reduction from the £318 million peak in 2008.

 Is Money Available?

Nevertheless, I estimate that Arsenal could safely spend £50-60 million from cash resources.

 The other point that people often raise when discussing the transfer fund is that it would also have to fund a new signing’s wages, so if the club bought a player for £25 million on a five-year contract at £100,000 a week, that would represent a commitment of £50 million. That is undoubtedly true, but it is a little disingenuous, as it ignores the fact that this would be at least partially offset by the departure of an existing player, not least because of the limitations imposed by the 25-man squad rule, as highlighted by Wenger himself.

Will Financial Fair Play help Arsenal?

 –       However, although there are some signs of clubs modifying their behaviour, Arsenal’s faith in the new system may not work out as planned.

 –       Furthermore, there is a sliding scale of sanctions for offenders, so it is far from certain that clubs will be excluded from UEFA competitions. This is without considering the threat of a legal challenge from a leading club.

 –       With the new commercial deals in 2014 plus more money from better central TV deals for the Premier League and Champions League, Arsenal should surpass £300 million revenue in two years, but Real Madrid and Barcelona are already around £400 million, while Manchester United are projecting £350-360 million next year.

 –       That said, Arsenal’s revenue will place them in the revenue elite (“the top five clubs in the world with separation from the rest”, said Gazidis), so they will be very handily placed to benefit from FFP, though it is unlikely to act as some kind of magic potion to solve all of their financial issues.

In many ways, Arsenal’s self-sustaining approach has been admirable, though it has often felt like the club has been overly cautious. The price of Arsenal’s self-sustaining model has been to regularly sell the club’s best players, while charging the highest ticket prices in the country, so this is not quite the financial Utopia that has often been portrayed in the media.

 Arsenal’s financial results are undoubtedly impressive and they have done well to consistently finish in the top four, but whether the current strategy is enough to bridge the gap to the leaders and actually win an important trophy is debatable.

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  1. Chelsea back in the black in time for FFP | TOKNOWTHEGAME.COM - November 11, 2012

    […] of UEFA’s new financial regulations? Have “self-sustainable” clubs such as Arsenal put all their eggs in the FFP basket and as a result will their relative financial prudence go to waste when it comes to competing with […]

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