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Arsenal in clear as UEFA start to define its approach to debt

The Daily Telegraph has reported that UEFA has held a committee meeting too look at the issue of the bankruptcy of this year’s two Euro Cup Finalisits. 

Unfortunately there is no mention of the committee meeting on the UEFA web site (although it might well go up in due course) but there is no doubt that the headline about the finalists being £1.5 billion in debt was not welcomed by UEFA.

However this has also raised the issue of Arsenal’s position, and it looks from the quotes of Platini given in the Telegraph that he recognises Arsenal’s position as being quite different from the bankrupt accounts of Manchester Utd., Chelsea and Liverpool.

What links those three together is the fact that they each have debts which cannot possibly be repaid.   Manchester Bankrupts are no longer making full payment on their debts as the debt interest exceeded the “profit” that they declared last year (the “profit” being the money made prior to paying interest.)   

As we all know, it is possible to survive just paying interest, in the hope of a windfall in the future, but Man Ban fail on two fronts – they aren’t paying even the interest (let alone the debts) and there will be no windfall.   Manchester operate on sell-out tickets, they have tried every trick to get more money (remember that season ticket holders have to buy tickets for league cup games even if they don’t want to go), they are regularly in finals, and they tour as much as they can overseas.  They have world-wide marketing.  There’s no more to do.

There simply is no source of money that remains untapped, but “sir” Alex Ferguson demands 40 million pounds a year to buy players.

Chelsea hid their real financial situation until this month when they finally revealed that their owner had not “given” them the billions to spend on players and salaries, but had just loaned the club the money.  The loan says that the money must be repaid within 18 months of request – and since that is clearly impossible, the club is in trouble.

Part of Chelsea’s way out was to make the club self-financing by 2010, but this is laughable, and there is no progress towards that.   Sacking managers isn’t going to help, and the chances are that one more manager who doesn’t win everything every year will result in the owner walking away and asking for his money back.

Liverpool’s debts are a bit smaller and they too have maximised their income with sell-outs and regular Euro jaunts.  But they too are based on the notion of spending 40 million or so a year, and they are still trying to find someone crazy enough to lend them 350 million to build a stadium.   Certainly if they took on that debt the rate of interest would be very high since the chance of failure to repay (given the other debts) would be very high also.

Which leaves Arsenal.  The debts are based entirely on the stadium, and the club is thus like a house-owner with a mortgage based around the value of the building.  This is a totally different type of debt from that seen elsewhere, and is made better by the fact that around one third of that debt will be repaid from the income from Highbury and other properties Arsenal purchased in order to build the new stadium.

Additionally Arsenal often make a profit on player buying and selling, and they still have some way to go to maxmise their income.  The new income strands include

The tie-up with Colorado and the establishment of the Arsenal brand in the US.

Growing audiences for league cup games (which at one time played to half empty stadia, and for Youth and Women’s games, both of which have drawn ever larger crowds recently.

Expansion of pre-season activity (the Emirates Cup looks like selling out for example)

Further marketing of the brand into France (where it is very strong) and perhaps north Africa.

Above all Arsenal is a club that uniquely has no debts which can be called in quickly, and is meeting all its debt repayments.

It therefore seems more than likely that UEFA wll draw up debt regulations based on the security of the debts and the ability of the club to repay the debts.  Anything in fact that will stop other clubs following the lead of the Big Three Bankrupts of Man U, Chelsea and Liverpool.

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