Arsenal not in final as they don’t have enough debt

The two teams in tonights cup game owe 1.5 billion pounds between them.  They are the most debt laden clubs in the world – and the fact that they have made it to the final says something utterly awful about football.
This is Match 39: the great dream of the English Premier League.   A game played between two EPL teams on foreign soil.

So here it is Manchester Megadebt vs Chelsea Megadebt.    And you don’t get much more debt than that.

Starting with Chelsea who owe an amazing £736 million.  £578m of that is owed to one man Mr Abramovich.  It was often said that he had “given” the club the money – but no, not really.  As the figures finally reveal what we have been saying all along – he has only loaned it.  If the gets bored, or suddenly loses his money in a court case over oil rights (and we are not suggesting either is likely) or tragically gets injured or taken ill (and it happens to all of us in the end), then the club has 18 months to repay the money.

Then there’s Man U – they owe £764m, which is mostly made up of the debt run up by the Glazier family.   They are unable to make repayments on all that debt (the club made £40m profit last year so all that went into paying the debts, but this was nowhere near enough) and so the debt is rising.  There is nothing illegal or wrong in this – it is a statement of fact – as long as the profits aren’t big enough, the debt just gets bigger and bigger.

So is there something special about Euro Cup clubs and imbecile levels of debt?  Well, yes if you also include Liverpool – there, the owners claimed they would put no debt into Liverpool (2006) and then they put all their debt into Liverpool (2007).   They are paying interest at around half the rate of Man U – so only half the problem, but the Liverpool income is nothing like the Man U income, so there are big problems ahead.

But what of Arsenal?  The debt here is around £360m, which makes it look as if they are in the same boat as the other clubs.   But here’s the twist.

First, Arsenal are about to get in the money on their old ground at Highbury – so far the accounts have only shown the expenses of demolishing and rebuilding Highbury, not of any income (about £140m).   Then there are all the properties that Arsenal bought around the new Emirates Stadium.  They have in many regards been re-furbished or demolished, and again there is no income yet on the sale of the land or the properties.

Second, Arsenal’s debt is not just a debt to buy a club (a debt which has no guarantee other than the club itself).  Arsenal’s debt is a mortgage just like the mortgage on your house.   As such the rates of interest are about half those paid by other clubs – because the debt is secured.

What’s more, Arsenal’s income shot up dramatically when the club moved from Highbury.  Even after the mortgage repayments Arsenal earn far more month by month than they did before – so Arsenal are better off than 5 years back, whereas all the other clubs are infinitely worse off.

Does it matter?  Well ultimately it must do, because one of Man U, Chelsea and Liverpool, will ultimately fail because their debts long term are unsustainable.  And when that happens the whole EPL edifice will crumble.    Arsenal will survive because its debt is a mortgage rather than a speculative loan based on nothing but the club’s ability to earn more money in some unspecified way in the future.   But they should start planning for life after the EPL – presumably in a Euro league with clubs like Inter, Milan, Real M and Barca.