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Arsenal’s financials: the in-depth analysis and what it all means.

By Phil Gregory

Righto, so Arsenal have released their latest financial statements, so let’s have a look at them.

There’s been much ado made over record breaking profits and turnover, but it’s important to remember that this is solely attributable to the property development side of the club and so these bumper profits are largely going to be a one-off. Moreover, these profits weren’t diverted into Arsene’s kitty, we instead used them to pay off huge sums of the more expensive bank debt so as to save us money in the long run.

As it stands, our debt consists of around £240m of cheap (5.3%) bonds, which have a fixed repayment plan in place, so won’t be paid off en-masse like the bank debt was. That leaves us with roughly £20m of costs in regards to our remaining debts: £5.6m of capital repayment on the bonds, and the rest is the interest bill. It is interesting to note also how much cheaper (and longer-term) our bond debt is when  compared to Manchester United, and also how we actually have a plan in place to pay it off when the final maturity date comes.

I’m going to concentrate purely on the footballing side of the club ‘s business from here on. Any figures mentioned are excluding the property side of the club which is now generating pure cash profits with every sale.

Looking at the numbers, the numbers aren’t as good as you might expect from the recent headlines, largely thanks to the recession. Turnover actually declined slightly compared to last year, from £225m to £222.9m. That is partly because of a decline in matchday revenues from £100m to £94m due to a lower number of home games played that season. Commercial revenues are also down to £44m from £48, likely attributable to the recession causing people to think twice about that replica shirt, but also partly the lower number of home games reducing merchandising sales at the club shop. These declines were partly offset by the ever-rising TV money, with the Gunners featuring on TV four more times than the previous season and a spanking new Champion League TV deal starting up.

Given the fall in other revenue streams except TV, broadcasting revenue now contributes 38% of revenue. This is a fairly large rise compared to last year but nothing to be overly worried about, given the profitability of Sky and the lack of bad news emanating from the wider broadcasting   market (unless you’re in Spain).

Such results led to operating profits falling to £35.5m, which is hardly a cause for concern! Operating profits are a great hallmark for how secure a club’s core business is and it is clear to see that we are well in the clear in that respect.

Wages rose to £110m, up £6m from the year before. The accounts make it clear that more growth is to be expected due to contract renewals and the like, but with wages at only 49.7% of turnover (admittedly up slightly on the previous year) we can afford to absorb wage rises for some time yet. That, however is a tricky situation to manage. If wages are restrained, the club has substantial profits that can be reinvested into the team, be it in the transfer fees or wages of new signings. Once wages rise however (and bear in mind even if nobody is bought, wages will rise due to renewals, young players getting paid more as they develop etc), such profits are eliminated, and a manager has to sell in order to buy sustainably.

Freeing up money for the transfer fee and making room in the wage budget in order to keep the books balanced is never going to be easy, so the flexibility offered by solid operating profits is always welcomed.

Amortisation spending (transfer fee divided by the length of the contract) was also up slightly. This isn’t surprising, as the sales of Adebayor and Toure won’t have taken much amortisation costs off the books.  Toure joined in 2002 for £150,000 and Adebayor was signed in 2006 for £3m, so neither had anything left to be amortised.  The acquisition of Vermaelen and the subsequent amortisation would easily have outweighed the final few pounds of amortisation “saved” made by selling Kolo and Adebayor.

Overall, there’s much to be pleased about and many of the downsides can be explained as either the vagaries of sport as a business or the recession. For me, we’re in a fine situation while many of our rivals are getting worried at the new Financial Fair Play regulations. The worry for the whole game has to be the constant upward pressure on wages, especially with TV money unlikely to be far from the top of the market.

Were the Financial Fair Play regulations responsible for this summer’s quiet transfer market? It’s hard to say. Bar City, the big clubs didn’t really spend and this will have impacted on the amount of money the smaller sides had to play with. That said, many of the smaller sides are at best barely profitable, so tight lending conditions combined with a new fear of lending to football as a result of the RBS-Liverpool situation might have ended the prospect of buying players on credit supplied by the financial sector. Such a move isn’t a bad thing, and clubs may soon realise in order to buy they have to first generate profits, and the only real cost with potential to be significantly cut is wages. Maybe I’m too optimistic, but the new-found restraint may be here to stay.

Except for Arsenal of course, who will have the ability to spend ludicrous amounts of money sustainably next summer, with the only restraint being the 25 man squad limit and the coming of age of various of our Young Guns.

14 comments to Arsenal’s financials: the in-depth analysis and what it all means.

  • Dark Prince

    I think the 25 man squad rule will be a handicap for us when we go out to buy players. We do have space but our youngsters are growing and eventually need to be accomodated in the squad. I think its high time from next summer transfer windown that we start replacing our consistently under performing players.

    But all in all its happy to see that Arsenal are financially well placed. Nice article Phil!! 🙂

  • walter

    Thanks for this article Phil.

    I think this season again we are a bit inlucky with our cup games. Two away games in the CC will have as a result less games in the Emirates.
    And the more people you get in the Emirates the more monye you generate. Or the more chance you have that people will buy that replica shirt or something else in the Armoury.

    So I think even to have a good financial result you need some luck with the draws of cup games.

  • walter

    And a question I have asked myself a few times about the debt on the Emirates.
    I know there is a penalyt to be paid when you pay the debt off early. But is this penalty a bad thing if you could pay off the debts in let us say 5 or 6 years time? If we continue like we are doing now it could mean that in 5 or 6 years we have enough cash to pay the debt and to be debt free.

    It would mean that from that moment on we would have some 20-25 million extra each year to spend. So it would mean higher profits, no more debts, more money available for new players. The way AW is buying good players for around 10-15M would mean that he could be buying some 5or 6 players without having to sell one (apart from the 25 rule that is). It would mean that our profit would have been around 60M this season. And this could be the case every season from them on. With or without property profits.

  • Phil

    Absolutely right Walter. Though I don’t think it’ll make too much difference overall, a few extra home games would certainly help a club out, but it wouldn’t fix a Liverpool or Portsmouth.

    C’est la vie. As long as any downturns in revenue are as a result of the ebbs and flows of the draw then we shouldn’t be too concerned.

    It is great to see us finally rid of the debt though, we’re in an incredible position whereby we can’t be dictated to by any club (there aren’t many larger than us financially, and I certainly don’t consider Barcelona as being so) and we can buy without damaging ourselves in regards to the Financial Fair Play criteria.

  • John

    Thanks for the update Phil and this site is excellent.

    Two questions

    1) I know you were talking about the property side but does anyone know how many units are left to be sold in Highbury Square and two the other sites we have what kind of value they could fetch (I know thats diffcult).

    2) The amorisation charge…. if alot of players were re signed on long term deals does the charge reflect the new deal or original one? I most likley answering my own question in that many of the players re signed didnt have large transfer fees we the contribution to the amorisation charge was little to begin with?

    John

  • Rhys Jaggar

    Walter

    The biggest difference in profitability comes with going deep in the Champions League. You’re guaranteed a home game for each knockout round and the prize money goes up significantly too. The differential profitability is higher than for any other games………particularly as in the CC, ticket pricing was generous to get a full ground and to allow kids a treat with their parents if the game was in half-term……….

    So no matches in CC will be more than compensated by a semi-final run to the Champions League. Sadly, last season we neither had CC home games nor a semi-final fixture…..

    The really healthy thing about Arsenal’s figures is that pretty much most of the Emirates cash was upfront to build the stadium. So actually Arsenal are profitable without getting £20m a year for shirt sponsorship like LFC now get from Standard Chartered. So just think, long-term, what that means when the sponsorship deal is up for renewal…………

  • TommieGun

    Thanks for the detaild post Phil. It would be really interesting to see how other clubs will cope with the new FFP regulations, and equally important, how diligently will they be enforced.

    I wonder whether, as in many areas of the law, an interested party could file a petition in order to force UEFA to take an action against another club. We know that today clubs can file complaints regarding tapping-up – but that is more of a tortious complaint; whereas I’m talking about some sort of administrative action.

    @ Walter – as far as I know, paying a penalty when paying up a loan earlier than agreed, depends solely on the terms of that specific loan.

  • Phil

    John, I can’t answer the property question, but I do know that anything sold = cash into our account to be spent on what we like. No debts to pay off anymore so now it’s all going straight into the squad budget.

    On the amort question, it’s probably easier if I explain via an example. A player signs for £10m, on a four year contract. 10m/4 = 2.5 amort charge per year. Now, if after two years (players book value = 5m) he extends his contract by a further two years, we take his current value of 5m and divide it by the remaining contract length. Hence a new amort charge of 1.25m.

    So with us not paying big transfer fees (or indeed signing many players at all) we have much, much lower amortisation than rival teams. If you want to get a feel for the finances of other Premier League teams, I had a look at quite a few over the summer here: http://blog.emiratesstadium.info/the-economics (my analysis articles start above where it says background reports going up).

    Tommie: I touched on the FFP generally here: http://blog.emiratesstadium.info/archives/6893 Some teams are going to struggle hilariously to meet them. Inter lost around half a billion over the last 3 years, Barca recently announced a 60m loss etc.

  • A Casual Observer

    With regards to the loan – it will all depend on the interest rates at the time – if they are favourable to the bank [and looked like remaining so] then they would probably impose a penalty – otherwise they may be up for negotiation… although – in that case it may be better for us to keep the money, invest it in something AAA (no I don’t mean them) and continue to pay it off at the low fixed rate.

    So you get nothing for nothing really – but it would be ‘nice’ to know it all paid and we are 100% debt free – I agree.

  • Phil

    At 5.3% + 5m capital repayment, we’re not burdened by the debt. We’ll surely find a use for our capital as it is useless sitting in the account as rates are so low (the real interest rate is probably negative!)

  • ondgooner

    Stop being a nuisance Phil! We are more concerned about our plight on the pitch and not with our stupid bank balances and what that means.

    We were appauling from the 1st kick and as I left the stadium after we were 2-0 down I said to a fellow gooner next to me that I had not seen a more pitiful sight in all my years of watching Arsenal play. Itwas diabolical and instead of giving a more in depth analysis of what went wrong you are here again as usual blindly supporting a manager that has ultimately lost the plot. When Cesc and the likes of him go for the exit door come the end of another trophiless season what bank balance would you be writing on then? On the basis of what I saw on Saturday that ruined my whole weekend I would be foolish to want to suffer more agony by renewing my season ticket to follow a team that has lost its bearing! Talk football and not property and bank balances.

  • T2T

    1. Next season, we’ll have 6 young players “coming of age” and therefore, we will end up with 26 players older than 21 before buying any new “+21-player”. It is possible to have different lists between PL and CL and accommodate more than 25 “+21-players”.
    2. How many home games did we have during that reporting period?
    3. What was the average matchday revenue (down from £100m to £94m)?
    4. Does commercial revenue include sales of merchandise on matchdays or can we use the same number to find the commercial revenue per matchday?

  • A Casual Observer

    @ondgooner

    One bad game and doth not make a “plight”.

    Out of the 3 games we play in the space of 8 days – which one would you say was the least important (considering Chelsea lost before we kicked off on Saturday)?

    ‘Lost the plot’ you say? Let’s see how we get on tonight eh – then we can discuss this plot of yours and the protagonists therein.

    Oh – and let’s see how Liverpool (the team that you and your ilk think we should model ourselves on) get on in around 8 days time.

    A lot can happen in 8 days in this game – mark my words…

  • goonergerry

    Why do we think that any surplus will be spent on the squad- on transfers? Is there any evidence of this? If anything Arsene trimmed the squad in the close season and reduced salaries. Is anyone complaining about the 3 players who AW brought in for minimum cost?
    Although I am not sure what can be done- reducing the impact of injuries would justify significant investment- its the biggest single issue impacting on the team.
    Are shareholders going to receive a dividend this year?
    Personally it would not surprise me if there were not plans to extend the Ems- given the waiting list for season tickets. Take advantage of low interest rates?