Money League - Oh! You Pretty Things

A couple of weeks ago Deloitte published the 19th edition of their annual Football Money League, which ranks leading clubs by revenue, this time for the 2014/15 season. On the face of it, little has changed compared to the previous year, as Real Madrid once again top the table for the 11th year in a row with annual revenue of €577 million (£439 million), and there are no new entrants in the top 10.

However, there has been some movement with Barcelona (€561 million) overtaking both Manchester United (€520 million) and Bayern Munich (€474 million) to reclaim second place, as they became only the third club to break the €500 million revenue barrier.

In turn, United fell to third place, while Bayern dropped to fifth place, the first time in 12 years that it has slipped down the table. Paris-Saint Germain (€481 million) climbed to fourth place, the highest position ever achieved by a French club, on the back of their commercial growth.

The seemingly inexorable rise of the English clubs continued apace, as the top 20 now includes nine clubs from the Premier League. Although the Spanish giants still lead the way, there are no fewer than five English clubs in the top nine: Manchester United £395 million, Manchester City £353 million, Arsenal £331 million, Chelsea £320 million and Liverpool £298 million.

Then, a fair way back, come Tottenham Hotspur £196 million, Newcastle United £129 million, Everton £126 million and West Ham £122 million.

Total revenue for the top 20 clubs rose €470 million (8%) from €6.161 billion to €6.631 billion, split between commercial €2.7 billion (41%), broadcasting €2.6 billion (39%) and match day €1.3 billion (19%).

However, individual clubs sometimes have a very different revenue mix. Within the top 20, the highest reliance on a specific revenue stream was as follows: match day – Arsenal 30%; broadcasting – Everton 69%; commercial – Paris-Saint Germain 62%.

On the other side of the coin, the clubs with the smallest share of their total revenue from each category were: match day – Milan 11%; broadcasting – Paris-Saint Germain 22%; commercial – Everton 16%.

It is worth emphasising the role that exchange rates play in these rankings, as Sterling has strengthened by 10% against the Euro (moving from 1.1958 last year to 1.3145 this year). This has greatly benefited the English clubs relative to their continental counterparts. In fact, around half (€262 million) of the €532 million year-on-year growth for this year’s top 20 clubs is purely down to this FX movement, leaving the real growth as €270 million (4%).

This effect is perhaps best highlighted with Manchester United, whose revenue increased in Euro terms by €2 million from €518 million to €520 million. However, the exchange rate movement produce a Euro increase of €51 million, so their underlying revenue actually fell by €50 million. This is backed up by looking at their figures in Sterling, where the revenue decreased by £38 million from £433 million to £395 million.

Partly as a result of this favourable movement in exchange rates, the revenue of all English clubs grew compared to 2013/14  with Liverpool €86 million and Arsenal €76 million leading the way.

It’s a slightly different story if the FX impact is stripped out, with the most impressive real growth being reported by Barcelona €76 million, Liverpool €56 million, Roma €53 million, Juventus €45 million and Arsenal €41 million. The big losers were Milan €51 million, Manchester United €50 million and Bayern Munich €14 million.

The main drivers for the revenue growth in 2014/15 were broadcasting €207 million (up 9%) and commercial €202 million (up 8%). The match day increase lagged at €60 million, but this still represented 5% growth.

The revenue growth at the leading football clubs in the last few years is remarkable, rising from below €4 billion in 2009 to the current €6.6 billion, an increase of €2.7 billion (just under 70%). Deloitte expect the €7 billion threshold to be reached next season with new TV deals driving the total towards €8 billion in 2016/17.

Perhaps surprising to some, commercial income has been the main contributor with growth of €1.5 billion (115%) from €1.3 billion to €2.7 billion, followed by broadcasting, up €1.0 billion from €1.6 billion to €2.6 billion. In the same period, match day has risen by less than €0.3 billion (25%) from €1.0 billion to €1.3 billion.

These growth rates have obviously been reflected in the revenue share. Since 2009, commercial has significantly increased from 32% to 41%, while broadcasting has eased from 42% to 39%. Match day has slumped from 26% to just 19%, its lowest ever share.

In fact, with further increases anticipated in commercial and broadcasting revenue in the coming years, the revenue that clubs generate from match day should fall in importance even more than its current record low. This trend of corporates paying more for a club’s upkeep than the match going supporters could be considered a good thing – so long as the growth elsewhere were reflected in lower ticket prices.

Real Madrid and Barcelona have the highest broadcasting revenue with £152 million apiece, as they continue to benefit from the freedom to negotiate their own lucrative TV rights deals for La Liga. Even though this is due to change next season, the new collective deal is significantly higher than the aggregate of the previous individual arrangements – and the big two will be protected from any revenue reduction.

Juventus are in third place, partly due to receiving the highest Champions League distribution of £68 million (€89 million). This is heavily influenced by their share of the Italian market pool, due to a combination of a very good TV deal and the fact that they only had to divide this with one other Italian club, Roma, as these were the only two to qualify for the group stages.

"Play to win"

The importance of revenue from European competition is highlighted by Paris Saint-Germain, whose £43 million payout was actually higher than their domestic money £38 million. Similarly, Atletico Madrid generated half of their broadcasting money from Europe. This will be further emphasised by the higher Champions League deal starting from the 2015/16 season.

The English clubs fill all the places between fourth and tenth for broadcasting income, thanks to the size of the Premier League contract. This is even before next year’s blockbuster deal, which should increase the TV revenue of the top clubs by around £50 million a season.

The relative weakness of the Bundesliga TV deal is evidenced here with the German clubs towards the lower end of the table. Their domestic money is nowhere near the English clubs: Bayern Munich £43 million, Borussia Dortmund £37 million and Schalke £33 million.

Commercially, six clubs are well above the rest: Paris-Saint German £226 million, Bayern Munich £212 million, Manchester United £201 million, Real Madrid £188 million, Barcelona £186 million and Manchester City £174 million. There then follows a big gap to Liverpool at £116 million.

Indeed, there is much work to do for many English clubs on the commercial side with three of them filling the bottom spots: in the top 20: Everton £20 million, West Ham £24 million and Newcastle £25 million.

"The Leader"

PSG benefited from renewed deals with Emirates and Nike, but the lion’s share of their revenue comes from their innovative €200 million arrangement with the Qatar Tourism Authority. Barcelona also saw a hefty commercial increase, partly due to additional sponsorship bonuses paid in their treble winning season.

There seems little sign of a saturation point being reached commercially, at least for the elite, as Manchester United’s revenue will further increase in 2015/16 following the start of their record £750 million ten-year Adidas kit deal. Moreover, in the last few days the media has reported that even this mega deal will be eclipsed by Real Madrid signing a new 10-year contract, also with Adidas, for a staggering £106 million a season.

Arsenal have the highest match day revenue in the world with £100 million, despite the Emirates Stadium having a substantially lower capacity than the Bernabéu, home of Real Madrid, and Nou Camp, Barcelona’s famous ground. This is a reflection of Arsenal’s ticket prices and a high proportion of corporate seating.

Match day revenue has more than doubled from the £44 million Arsenal generated in their last season at Highbury, which helps explain why Tottenham and Chelsea are so keen to redevelop their grounds. Even though the construction is a significant investment, football clubs still need to assess this option or risk falling further behind their rivals.

What is particularly striking is the low match day income for Italian clubs. Juventus’ move to a club-owned stadium has helped increase their revenue to £39 million, but the others’ revenue is miles behind: Roma £23 million, Milan and Inter both £17 million. It was recently reported that the average attendance in Serie A had dropped below 22,000 in the 2015/16 season.

For the fourth time in the last seven seasons the Money League top 20 clubs is wholly populated by representatives from the “Big Five” leagues, namely England, Germany, Spain, Italy and France. The number of English clubs rose from eight to a record nine, while the other leagues were unchanged: Italy four, Germany three, Spain three and France one. The only club from outside the “Big Five” last year, Galatasaray from Turkey, dropped to 21st place.

England only had six clubs in the top 20 in 2013, but funnily enough had eight back in 2006, so the current dominance is not a completely new phenomenon. The big losers are Germany, whose representation has fallen from five clubs in 2009 to three, and France, who had three clubs in 2012, but now just the one.

Turkey had two clubs in the top 20 as recently as 2013, while the last time a Scottish club made the rankings was Celtic in 2007. Portugal’s last representative was Benfica a year earlier in 2006.

The top 30 clubs is where the English strength is really reflected with the number of representatives rising from eight in 2013 to 17 in 2015 (up 3 from 14 in 2014), including three debutants: Crystal Palace, Leicester City and West Bromwich Albion. As Deloitte observed, “This is again testament to the phenomenal broadcast success of the English Premier League and the relative equality of its distributions, giving its non-Champions League clubs particularly a considerable advantage internationally.”

This has produced some notable exclusions from the top 30, including Valencia, Seville, Hamburg, Stuttgart, Lazio, Fiorentina, Marseille, Lyon, Ajax, PSV Eindhoven, Porto, Benfica and Celtic.

If we look at the growth of the highest ranked club in each of the “Big Five” leagues since 2009, the absolute growth of Real Madrid (€176 million), Manchester United (€193 million) and Bayern Munich (£184 million) is broadly similar, though the percentage growth is much smaller at Madrid (44%), compared to United (59%) and Bayern (63%).

The outlier is Paris Saint-Germain, whose revenue has shot up by €380 million from €101 million to €481 million since the Qatari takeover. Juve have recorded impressive growth of 60%, but in absolute terms the increase was “only” €121 million, which means that the gap to the other four clubs has widened.

Despite a sizeable reduction in revenue following their failure to qualify for Europe in 2014/15, Manchester United still managed to remain in the top three of the Money League, thus demonstrating the underlying strength of the club’s business model.

In England, the two Manchester clubs (United and City) continued to lead the way, but Arsenal overtook Chelsea, due to the commencement of the new kit supplier deal with Puma. Liverpool’s healthy growth was due to the Reds’ return to the Champions League, which boosted both broadcasting and match day revenue.

Since 2009 Manchester City have registered the stand-out growth of £362 million, which is around twice as much as their peers, mainly due to their commercial success, including the celebrated Etihad deal.

Despite their revenue fall in 2015 (in Sterling terms), United are still well ahead of City, while there is a bunching of the pursuers (Arsenal, Chelsea and Liverpool), whose relative positions basically depend on the timing of their principal sponsorship agreements, e.g. Chelsea’s Yokohama Rubber deal will only be included in the next set of figures.

In a similar way, the revenue at the mid-tier clubs (Newcastle United, Everton and West Ham) is also converging, albeit at a much lower level. The interesting one is Tottenham, who are stuck in the middle between the top five clubs and the rest. “Neither Fish Nor Flesh”, as Terence Trent D’Arby once put it.

In Spain, it’s essentially a case of the rich get richer, though Barcelona’s growth last year (€76 million) was much better than Real Madrid (€28 million). Nevertheless, Madrid kept their noses in front and their figures will soon be enhanced by the barely credible new kit supplier deal with Adidas.

The other Spanish clubs are so far behind that they are almost out of sight with the nearest challenger being Atletico Madrid at €187 million – exactly one third of Barca’s revenue. Valencia did not even reach the top 30 clubs, which is unsurprising given that their 2014 revenue was less than €100 million.

There will be a boost in broadcast revenue for Spanish clubs with the new collective selling regime in La Liga, but the gap will remain massive.

In Germany, the situation is even worse, as Bayern Munich are in a league of their own. Despite a dip in revenue in 2015, due to a decrease in commercial income, Bayern’s €474 million is nearly €200 million more than Borussia Dortmund’s €281 million with Schalke 04 another €61 million behind. Incredibly, there is then a further €100 million difference to the closest German clubs, namely Hamburg and Stuttgart.

Since 2009 only Dortmund have managed to keep pace with Bayern, at least in terms of growth: €175 million vs. €184 million. In the same period, Schalke only grew by €95 million, while Stuttgart’s revenue was flat and Hamburg’s actually fell.

How do you say, “mind the gap”, in German?

In Italy, it’s a similar story, as Juventus’ revenue of €324 million is €125 million more than Milan’s €199 million. The bianconeri also led the way in Italy in 2009, but since then they have increased their revenue by €121 million, while it has been a tale of woe for their rivals from Milan: in the same period, Milan’s revenue has barely moved, while Inter’s revenue has actually fallen by €32 million to €165 million.

There has been encouraging growth at Roma, largely thanks to their return to the Champions League in 2014/15 for the first time since 2010/11. Napoli suffered from the opposite effect, as they participated in Europe’s premier competition the previous season, though they have still grown revenue by €38 million since 2009 to €126 million to creep into the top 30 clubs.

These are worrying time for Italian clubs, as they struggle to match the growth of their foreign peers, largely due to the continuing lack of stadium development, which is reflected in feeble match day income.

In 2006, it was a very different story with three Italian clubs in the top seven: Juventus 3rd, Milan 5th and Inter 7th. The nerazzurri are now perilously close to falling out of the top 20. As a man who lived three years in Milan at a time when Arrigo Sacchi’s team bestrode Europe like a colossus, it gives me absolutely no pleasure to say this, but how the mighty have fallen.

Paris Saint-Germain remain the only French club in the Money League this year and have moved up a position to fourth. Marseille and Lyon have been regular representatives in the top 20 (16th and 17th respectively in 2012), but their lack of revenue growth has seen them disappear from the rankings.

A combination of PSG’s “friendly” commercial deals and healthy Champions League income means that the financial difference between them and other French clubs is not so much a gap as an abyss. Little wonder that Ligue 1 is pretty much a cakewalk for the Parisians.

After a few years when the gap between the 10th place club and 11th place club seemed to be closing, it has widened this year from €18 million to €43 million, being the difference between Juventus €324 million and Borussia Dortmund €281 million.

The gap between top and bottom, defined as 1st place to 20th place, has been constantly growing. In fact, it has more than doubled since €207 million in 2006 to €416 million in 2015, representing the difference between Real Madrid €577 million and West Ham €161 million.

That said, the financial threshold for membership of the Money League club is becoming increasingly challenging with the requirement for a place in the top 20 rising 12% from €144 million to €161 million. This has nearly doubled in the last 10 years from €85 million.

As Deloitte noted, Napoli, down in 30th position this year with revenue of €125 million, would have had a position in the top 20 as recently as two seasons ago with the same revenue.

Although Deloitte have done a fine job in adjusting the clubs’ reported revenue figures in order to enable a meaningful, like-for-like comparison, it is still worth exploring some of these adjustments, as the supporters of individual clubs might be a little puzzled over differences with the figures they might expect to see.

I have taken an example of each of the following adjustments to demonstrate that reported revenue figures are not always black and white and there is often room for interpretation, even with something as theoretically rigorous as a football club’s accounts:

• Profit on player sales
• Different classification of revenue types
• Holding company vs. football club
• Operating income
• Change in accounting year
• Restatement of prior year revenue
• Calendar year 

Continental clubs often include profit on player sales in their revenue figures, as seen by Bayern Munich boasting of €524 million revenue in their 2014/15 press release. The difference between this number and the €474 million in the Money League is the €50 million they earned from selling players.

This is further complicated with Italian clubs who include profit on player sales in revenue, but any losses made on player sales are booked in expenses.

The classification between different revenue categories can be different, as seen with Everton. Commercial revenue in the club accounts rose 37% from £19 million to £26 million, comprising sponsorship, advertising and merchandising £10.4 million plus other commercial activities £15.6 million.

This always seemed a bit high with the suspicion that Everton had included the commercial element of the Premier League TV deal within commercial income, even though most other clubs classify it as broadcasting income, and Deloitte have duly reduced commercial and increased broadcasting (though the total revenue is the same).

Football’s a simple game, but clubs increasingly operate within a more complex corporate structure. In particular, sometimes there is a holding club that owns the football club with different revenue figures (usually higher).

A good example is Chelsea, where the football club (Chelsea FC plc) had revenue of £314.3 million in 2014/15, which is around £5 million lower than the £319.5 million shown in the Money League. This is almost certainly because Deloitte have used the figures from the holding company (Fordstam Limited). Although this company has not yet published its 2015 accounts, the £324.4 million reported in 2014 is exactly the same as the figure in last year’s Money League.

Football clubs usually separate non-trading income from turnover and classify this as Other Operating Income. As an example, West Ham reported revenue (turnover) of £120.7 million, but Deloitte have also included £1.7 million of Other Operating Income to give their revenue figure of £122.4 million.

Clubs sometimes change their accounting date, i.e. when they close their accounts, which means that the length of that accounting period is not the usual 12 months. For example, Swansea City changed their close from May to July in 2014/15 in order to be more aligned to the football season, so their latest accounts cover 14 months.

Their revenue was only slightly higher, as there is no additional match day or broadcasting income in June and July, but commercial agreements are evenly accrued. Thus, Deloitte have reduced the 2014/15 revenue from the £103.9 million reported by the club to £101.0 million.

The Money League occasionally restates the revenue figures used in its own report the previous year. One example of this is Paris Saint-Germain, where Deloitte reported €474.2 million last year, but have included €471.3 million as a 2014 comparative this year. This does not impact this year’s rankings, but does affect the stated year-on-year growth.

Most clubs now use the football season for their accounting period, but some use the calendar year, especially in Italy. As an example, Milan’s most recently published accounts cover the 12 months up to 31 December 2014 and the adjusted revenue is around €215 million, which is higher than the €199 million reported by Deloitte.

The main reason for the difference is that Milan’s 2014 accounts include a part of the Champions League money they earned in the 2013/14 season.

"Paint me down"

Next year’s Money League may well see Manchester United topple Real Madrid, as the English giants are projecting revenue of £500-510 million for the 2015/16 season, following their return to the Champions League and the start of the record Adidas kit deal, which would make them the first English club to break through the half-billion pounds barrier.

Beyond that, Real Madrid might well bounce back if reports of their huge new sponsorship deal with Adidas are not exaggerated.

Obviously a club’s financial performance does not begin and end with its revenue, as explained by no less an authority than the famous German actress, Marlene Dietrich, “There is a gigantic difference between earning a great deal of money and being rich.”

"Points of authority"

In the past, clubs suffered from what Alan Sugar’s described as the “prune juice effect”, whereby any increases in revenue simply fed through to higher player wages, transfer fees and agents’ commission.

This is no longer automatically the case, largely due to the implementation of various Financial Fair Play regulations, which has increased profitability, especially in England, thus making it more likely that overseas investors will explore the purchase of football clubs.

In “All The President’s Men” the whistle blower Deep Throat advised the investigative journalists to “Follow the money. Always follow the money.” The circumstances were clearly somewhat different in the movie, ultimately leading to the resignation of the President of the United States, but that is still sound advice that is more true than ever in the world of football.

In other words, money talks and is almost invariably reflected in success on the pitch. There might be the occasional exception to the rule, as we have seen with Leicester City's rise this season, but after all is said and done those clubs at the top of the Money League will usually be the ones competing for trophies.

Arsenal - Searching For The Hows And Whys

What to make of Arsenal? On the one hand, they are once again adding to their trophy cabinet, winning the FA Cup for the past two seasons, and continue to qualify for the Champions League, a feat that most clubs can only dream about. On the other hand, the feeling remains that Arsenal are not making the most of their (abundant) financial resources.

2015 was meant to be different, but the lack of signings this summer has once again sent many fans into a tailspin, as the same old failings continue to be exposed. This is particularly disappointing, as manager Arsene Wenger himself believes that Arsenal should now genuinely be able to compete for the Premier League title, as the club no longer has to sell its best players.

Although Arsenal have not matched the fabulous success of the early period of Wenger’s reign, they have performed in line with their budget (slightly better some years), as the only clubs that have finished ahead of them in the league have enjoyed significantly higher spending power.

"Stuck in the middle, Giroud"

However, Arsenal are now swimming in cash, as demonstrated by director Lord Harris’ view that the club could buy any player it wanted with the exception of Lionel Messi or Cristiano Ronaldo.

Arsenal could certainly do with some new players, if you believe club legend Thierry Henry: “Arsenal need to buy four players, they need that spine. They need a goalkeeper, they still need a centre-back, they still need a holding midfielder and, I'm afraid, they need a top, top-quality striker in order to win this league again.” Since those remarks the only arrival has been goalkeeper Petr Cech from Chelsea, but, importantly, no outfield players were recruited (apart from a couple of promising youngsters).

The limited recruitment is all the more puzzling, as Arsenal’s activity in the transfer market had been on an upward trajectory. In the last five years Arsenal had a gross spend of £253 million, compared to just £85 million in the preceding five years. On a net basis, in the same periods they moved from sales of £31 million to £97 million expenditure.

In particular, the club had “a record level of expenditure on players” in the last two transfer windows making six major signings: Alexis Sanchez, Danny Welbeck, Gabriel, Mathieu Debuchy, Calum Chambers and David Ospina.

In fact, over the last two seasons Arsenal have the third highest net spend in the Premier League of £74 million. This was only surpassed by the two Manchester clubs (City £151 million and United £145 million), but to place this into perspective they did spend almost twice as much as the Gunners.

Wenger explained this summer’s low spending as follows: “The solutions we had were not convincing at all. In the end you do not buy to give one hope, you want to buy because the players who come in can help your squad to be stronger. Buying and selling is one way to strengthen your team, but that’s not the only way.”

He also pointed out that the prices quoted to Arsenal and other leading English clubs tend to be higher than those for continental clubs, as sellers are clearly aware of the wealth coming from the Premier League TV deals. However, that’s the reality of the football market today, so clubs like Arsenal need to blow the other clubs out of the water – or there’s simply no point having more money.

In fairness, another aspect of the market is supply and demand and Wenger was keen to stress that the issue was more about the availability of players rather than lack of funds: “It is not a shortage of money, just a shortage of players.” Leaving aside the observation that there must surely be one or two available players in world football that could improve the squad, he is spot on about the financial situation at Arsenal.

Specifically, Arsenal’s huge cash balance is still the talk of the town and has gone up yet again, rising another £20 million in the last 12 months from £208 million to £228 million. Let’s pause to absorb that number: that’s nearly a quarter of a billion.

To place that into context, the next highest cash balances in the Premier League in the 2013/14 season were Manchester United £66 million, Tottenham Hotspur £39 million and Newcastle United £34 million. In fact, Arsenal held 40% of the total cash in the Premier League that season: £208 million against £311 million for all 19 other clubs combined. Manchester United’s 2014/15 balance has increased to £156 million, but this is still £72 million less than Arsenal.

Lord Harris was quick to boast about the club’s financial capacity: “Money was tight when we moved to the Emirates, but it’s a lot freer now. In the accounts, there’s over £200 million in the bank.”

"Speed your love to me"

However, he had obviously not received the memo from chief executive Ivan Gazidis, who had previously explained why not all of this cash balance is available to spend on transfers: “It is quite untrue that we are sitting on a huge cash pile for some unspecified reason. The vast majority of that cash is accounted for in various ways.”

In fact, the club is so sensitive on this point that the accounts note that “proper consideration” of the cash balance should make deductions for the £35 million debt service reserve and the net £66 million owed on previous player purchases, which would leave “only” £128 million.

The annoying debt service reserve has been required since the 2006 bond agreements, though it does raise the question of whether these arrangements could be renegotiated given Arsenal’s significantly better financial position today, thus freeing up this £35 million.

It is also true  that most season ticket renewals are paid in April and May, so Arsenal’s cash balance will always be at its highest when its annual accounts are prepared, namely 31st May. The club has to pay a good proportion of its annual running expenses out of this cash, though it is equally true that other money will flow into the club during the course of the season, such as TV distributions and merchandise sales.

Despite all of these factors, the truth is that year after year Arsenal’s cash balance has steadily risen: May 2007 £74 million, May 2008 £93 million, May 2009 £100 million, May 2010 £128 million, May 2011 £160 million, May 2012 £154 million, May 2013 £153 million, May 2014 £208 million and May 2015 £228 million.

In other words, there is substantial money available to spend. It’s clearly not as much as the £228 million in the books, but we can say with some conviction that there would be enough available in the January transfer window to safely cover some of the glaring weaknesses in the squad: let’s say £70-80 million (with the usual caveats).

Looking at Arsenal’s cash flow statement, we can see signs of a change in approach: in the six seasons between 2007 and 2012 Arsenal spent just a net £4 million on player purchases, while they have spent a net £83 million in the last three seasons. That said, more than half of the money still goes elsewhere.

In 2014/15 Arsenal generated an impressive £102 million from operating activities, spending a net £46 million on transfers and £56 million on other things:  £19 million on financing the Emirates Stadium (£12 million interest plus £7 million on debt repayments), £14 million on capital expenditure (e.g. refurbishment of Hale End Academy and some initial work on London Colney) and £2 million on tax. What happened to the remaining £20 million? Nothing really, as it just went towards increasing the cash balance.

This is nothing new. Since 2007 Arsenal have produced a very healthy £628 million operating cash flow, though £231 million has had to be used on the stadium financing (£147 million on loan interest and £85 million on debt repayments) with a further £103 million on infrastructure investments (“this may not attract headlines in the same way as player transfers, but will provide benefit over a longer term” per Sir Chips Keswick) and £14 million on tax.

Only 14% (£87 million) of the available cash flow has been spent in the transfer market, though almost all of that has been in the last three seasons. The other notable “use” of cash in that period is to increase the cash balance, which has risen by a cool £193 million.

Major shareholder Alisher Usmanov noted that Wenger had been put in a very difficult position, as the shareholders did not put money in to finance the new stadium, which meant that the near quarter of a billion incurred to date on stadium was not available to improve the squad. That’s evidently correct, but it is equally true that Arsenal have left a lot of available money in the bank to attract one of the lowest interest rates in history, while transfer inflation is running amok.

Although Sir Chips stated, “we remain committed to spending only the money we earn”, the reality is that the club comes nowhere near doing that. They have “a pocket full of pretty green” (to quote The Jam), but they don’t seem to know what to do with it.

Arsenal’s 2014/15 financial results underlined how well run the club is from a business perspective with the chairman commenting, “The club has had a successful year both on an off the pitch. We are in a robust position across all the key areas of our activities.” Indeed they are, with profit before tax rising by £20 million from £4.7 million to £24.7 million. The increase was smaller after tax, as the previous year’s figures were boosted by a tax credit, but this still rose by £12.8 million to £20.0 million.

Revenue surged by £31 million to £329 million (excluding £15 million from property development that brought total revenue to £344 million), mainly due to an increase in commercial income from the PUMA kit deal, while profit on player sales was £22 million higher at £29 million and a once-off profit-share bonus from a previous sale meant that property was up £13 million.

Against that, the increased investment in the squad resulted in the wage bill climbing £26 million to £192 million and player amortisation rising by £14 million to £54 million. Depreciation and other expenses were also £4 million higher.

Traditionally Arsenal have been one of the few football clubs able to make a profit, but the impact of  the last TV deal has helped change this with only five Premier League clubs reporting a loss in the 2013/14 season. In fact, Arsenal’s £4.7 million profit was only the 12th highest that season, far behind clubs like Tottenham Hotspur £80 million, Manchester United £41 million, Southampton £29 million and Everton £28 million.

The importance of player sales to these figures is clear. While Arsenal had “a quiet year in terms of outbound player transfers” in 2013/14, making only £7 million from selling Gervinho and Vito Mannone, other clubs generated sizeable profits from this activity: Tottenham £104 million (largely Gareth Bale to Real Madrid), Chelsea £65 million (David Luiz to PSG), Southampton £32 million (Adam Lallana to Liverpool) and Everton £28 million (Marouane Fellaini to Manchester United).

As we have seen, Arsenal’s 2014/15 accounts included much higher profits on player sales of £29 million, including the transfer of Thomas Vermaelen to Barcelona and the proceeds of an agreement with Real Sociedad to cancel the club’s option to reacquire the registration of former player Carlos Vela.

Despite the improving profits at other clubs, Arsenal are still very much the financial poster child of the Premier League. You have to go back as far as 2002 to find the last time that they made a loss. In fact, they have made total combined profits of £226 million in the eight years since 2008.

This is an astonishing achievement in the cutthroat world of football where success is very largely bought. In the last four years up to 2013/14 (the last season where every club has published its accounts), only Tottenham had higher total profits than Arsenal and that was entirely due to the Bale sale. In contrast, Arsenal have been very consistent and are one of only three clubs that made money in each of the four years, along with Newcastle United and WBA.

However, it is worth noting that Arsenal only managed to post a profit in 2014/15 thanks to £29 million of player sales and £13 million from property development. Over the years, much of the club’s excellent financial performance has been down to profits from player sales (e.g. £65 million in 2011/12, £47 million in 2012/13) and property development (e.g. £13 million in 2010/11, £11 million in 2009/10).

These should be lower in future, as Arsenal no longer have to make “forced” player sales, while the property development is largely coming to an end, which means that Arsenal will be more reliant on their core business.

Arsenal’s property development segment generated revenue of £15 million and operating profit of £13 million in 2014/15, almost entirely due to a once-off bonus in relation to the revenue achieved for the sale of residential units on a previously sold site. Apart from this, there was “minimal activity” on the property side, but there should be money coming from the sale of the Holloway Road and Hornsey Road sites once planning consents are resolved, though this is proving to be more complex than anticipated.

The other side of player trading accounting is player purchases, where the recent increase in spending has been reflected in Arsenal’s profit and loss account via player amortisation, which leapt from £40 million to £54 million in 2014/15. In fact, this expense has increased by £32 million from £22 million four years ago. For the same reason, player asset values on the balance sheet have risen to £172 million.

However, Arsenal's player amortisation is still by no means the largest in the Premier League. Those clubs that are regarded as big spenders logically have the highest amortisation charges, e.g. Manchester City £76 million and Chelsea £72 million in 2013/14, while Manchester United’s cheque-book strategy since Sir Alex left has driven their annual amortisation up to an incredible £100 million in 2014/15.

Although this is fairly technical, it is important to understand that transfer fees are not fully expensed in the year a player is purchased, but the cost is spread evenly over the length of the player’s contract – even if the entire fee is paid upfront. As an example, Mesut Ozil was reportedly bought for £42 million on a five-year deal, so the annual amortisation in the accounts for him is £8.4 million.

The fundamental point is that when a club purchases a player the costs are spread over a few years, but any profit made from selling players is immediately booked to the accounts, which helps explain why clubs like Manchester City can spend so much and still meet UEFA’s Financial Fair Play targets.

As a result of these accounting complications, clubs often look at EBITDA (Earnings Before Interest, Depreciation and Amortisation) for a better idea of underlying profitability. On this basis, Arsenal’s profitability has improved considerably in the last two seasons after many years of decline, with EBITDA rising from £25 million in 2013 to £64 million in 2015.

That’s very good, but is still only around half of Manchester United’s £120 million (down from £130 million the previous year), which goes to show what an amazing cash machine they are.

Football revenue increased by 10% (£31 million) from £299 million to £329 million in 2014/15, largely thanks to commercial income, which was up 34% (£26 million) from £77 million to £103 million. Broadcasting revenue was 3% (£4 million) higher at £125 million, while match day revenue was flat at £100 million.

Arsenal’s revenue hardly moved at all between 2009 and 2011, but since then has grown by 46% (£104 million) from £225 million to £329 million. Most of the growth (£57 million) has come from the previously under-performing commercial division, while improved TV deals have driven a £40 million increase in broadcasting revenue. Match day income has also risen by £7 million in that period. The advances made in the last two years alone are quite striking, amounting to £87 million.

Arsenal’s £329 million is still some £66 million below Manchester United, even though their revenue dropped from £433 million to £395 million in 2014/15 following their failure to qualify for the Champions League. Moreover the Red Devils are projecting revenue of £500-510 million in 2015/16. Arsenal are now quite close to the 2013/14 figures of Manchester City (£347 million) and Chelsea (£320 million), though they may well increase in 2014/15.

This is important, as budget is closely correlated with success in the pitch. As Wenger put it, “The clubs who have better financial resources have the better teams.” Arsenal already have the 8th highest revenue in the world (per the Deloitte 2014 Money League), but the problem is that three of the clubs above them are English. In fact, 14 Premier League clubs are now in the top 30 (with all 20 in the top 40).

Gazidis has been quoted as saying, “Our revenues will grow to put us into the top five revenue clubs in the world”, but that is far from a fait accompli given the continuing progress made by the leading clubs. For example, both Spanish giants have announced good revenue growth in 2014/15: Real Madrid up 5% to €578 million, Barcelona up 16% to €561 million. Against that, their revenue in Sterling terms will be impacted by the weakness of the Euro.

If we compare the revenue of the other nine clubs in the Money League top ten, we can immediately see where Arsenal’s largest problem lies, namely commercial income. OK, the £197 million shortfall against PSG is largely due to the French club’s “friendly” agreement with the Qatar Tourist Authority, but there are still major gaps to other clubs in commercial terms: Bayern Munich £167 million, Real Madrid £116 million, Manchester United £112 million, Manchester City £89 million and Barcelona £78 million.

On the plus side, Arsenal are well ahead of most of their rivals on match day income, while they are competitive on broadcasting revenue, only really losing out compared to the individual deals negotiated by Real Madrid and Barcelona.

Arsenal’s revenue mix is remarkably even with broadcasting the most important at 38%, followed by commercial and match day at 31% apiece. Gazidis noted, “Whilst our match day revenue is now ranked behind both broadcasting and commercial as a source of income, it remains vitally important to the club and is a key differentiator to competitor clubs with smaller, less modern venues.”

This can be seen by looking at the importance of match day revenue to Premier League clubs in the 2013/14 season, where Arsenal were the only one above 30%.

Arsenal’s share of the Premier League television money was £97 million in 2014/15, up £4 million from £93 million the previous season, primarily due to finishing one place higher in the league.

Gazidis made a good point, when he observed: “Most of this new revenue is shared very, very equally around the league. We are going to have teams who will to be able to sign top class players. There will be teams that do it very, very well and they are going to be challenging for those top four places.” That may well lead to a rise of the “middle class” clubs and make the Premier league more competitive.

This is even before the increases from the blockbuster Premier League TV deal in 2016/17. My estimates suggest that Arsenal’s  third place would be worth an additional £47 million under the new contract, increasing the total received to £144 million. This is based on the contracted 70% increase in the domestic deal and an assumed 30% increase in the overseas deals.

Arsenal did not announce how much they received from the Champions League, but I have estimated €32 million, up from the €27 million in 2013/14, largely due to more money from the UK market pool, as this did not have to be shared with a Scottish club in 2014/15 (as was the case in 2013/14 with Celtic). However, this would have been adversely affected in Sterling terms by the weaker Euro.

Nevertheless, the value of Champions League qualification is clear, especially if it is compared to the Europa League, where the most earned by an English club in 2013/14 was Tottenham’s €6 million. This underlines the value of Arsenal qualifying for the Champions league 18 times in a row, described by Sir Chips Keswick as “a remarkable record of consistency unmatched by anyone else in England.”

The financial significance of a top four placing is even more pronounced from the 2015/16 season with the new Champions League TV deal worth an additional 40-50% for participation bonuses and prize money and further significant growth in the TV (market) pool thanks to BT Sports paying more than Sky/ITV for live games.

Arsenal’s 2015/16 payment will partly depend on how far they progress in this season’s Champions League, but is also dependent on where they finished in the previous season’s Premier League (3rd in 2014/15, compared to 4th the year before). If they reach the same stage in the Champions League in the 2015/16 season, this could be worth an additional €20 million under the new BT deal.

Match day revenue was flat at £100 million, despite two fewer home games (in the FA Cup), as this was compensated by the 3% ticket price rise. Manchester United’s income dropped by £17 million to £91 million following their lack of European games, so Arsenal will earn most from this revenue stream in 2014/15.

This is partly due to having the second highest attendances in the Premier League, up from 59,790 to 59,930 in 2014/15, but also very high ticket prices. The club is keen to emphasise that ticket prices have only been raised three times in the last ten seasons (frozen for 2015/16) and that the increases are significantly below inflation, but there is no doubt that Arsenal fans are not happy contributing so much money to effectively grow the club’s bank balance.

Gazidis said that the board wished to “strike a balance between the expense of coming to games for our supporters and the club’s ever-increasing costs and expenditure as it develops on and off the pitch”, but he slightly ruined the effect by adding, “demand for tickets continues to far exceed supply”, reducing it to an issue of basic economics.

Commercial revenue passed £100 million for the first time, as it shot up £26 million (34%) from £77 million to £103 million, comprising £78 million from commercial deals and £25 million from retail and licensing. This was largely due to the new PUMA kit deal, which started in July 2014.

The club stated that this contract “signals the end of a period where our commercial revenues lagged behind a number of our competitors as a consequence of the long-term deals that were in place as part of the funding of the Emirates move”, which is right, but the reality is that Arsenal are still a fair way below the Manchester clubs: United’s 2014/15 revenue was up to £197 million (nearly twice as much), while City’s 2013/14 revenue was £166 million (and is expected to rise).

Similarly, Arsenal are still behind Chelsea (£109 million) and Liverpool (£104 million) before any 2015 growth, though they are miles above other Premier League clubs, e.g. Tottenham £42 million, Aston Villa £26 million.

Despite an increase in the number of partnerships, the concern is that Arsenal’s commercial performance will continue to place them at a competitive disadvantage relative to other leading clubs. Indeed, in the interim accounts the chairman warned, “Inevitably, this growth rate will now slow as we have our key partnerships with Emirates and PUMA in place for the medium term.” Further substantial increases are only likely to come as a result of success on the pitch, which again makes you wonder why the available cash has not been spent on strengthening the squad.

The PUMA agreement is worth £150 million over 5 years, so £30 million a year, which represents a £22 million increase over the former Nike deal. This is one of the best kit deals around, but is still dwarfed by Manchester United’s extraordinary £750 million 10-year deal with Adidas that starts from the 2015/16 season.

Similarly, Arsenal’s Emirates deal is also among the highest in the world. The £150 million contract covers a 5-year extension in shirt sponsorship from 2014 to 2019 plus a 7-year extension in stadium naming rights from 2021 to 2028. The club has not divulged how much of the deal is for naming rights, so I have used the straightforward £30 million annual figure, though my own estimate would put the pure shirt sponsorship at around £26 million, which would still be pretty good.

That said, it has since been overtaken by new sponsorship deals at Manchester United with Chevrolet (around £43 million a year) and Chelsea with Yokohama Rubber (£40 million).

There’s an old saying that “it’s an ill wind that blows no good” which applies to Arsenal’s relatively poor commercial performance to date. The new Premier League Financial Fair Play regulations restrict the amount of money clubs can spend from the new TV deal on wages, but this restriction only applies to the income from TV money, so Arsenal’s additional money from the new sponsorship deals can still be spent on wages.

Arsenal’s wage bill actually increased by 16% (£26 million) from £166 million to £192 million, primarily as a consequence of player purchases/upgrades and contract extensions for several players. Even with the revenue growth, the wages to turnover ratio has risen from 56% to 58%.

This is higher than the 46-50% achieved between 2008 and 2010, but is still very reasonable and is in line with most clubs in the Premier League.

However, it is striking how close Arsenal’s wage bill is to other leading clubs now. For example, Manchester United’s 2014/15 wage bill fell to £203 million, just £11 million more than Arsenal, compared to a £48 million differential the previous season. It is also within striking distance of Manchester City (£205 million) and Chelsea £193 million, though those are the 2013/14 figures.

Of course, Arsenal’s wages are way ahead of most other Premier League clubs with the nearest challengers (in 2013/14) being Liverpool £144 million, Tottenham £100 million and Newcastle £78 million.

One other point worth noting is that Arsenal’s wage bill was inflated by bonus payments for Champions League qualification, which, depending on your view, is either a sensible performance plan or demonstrates a palpable lack of ambition.

Although there is a natural focus on wages, other expenses also account for a sizeable part of the budget at leading clubs with Arsenal’s increasing by £2 million to £72 million in 2014/15, which is exactly the same as Manchester United. These cover the costs of running the stadium, staging home games, supporting the commercial partnerships, travel, medical expenses, insurance, retail costs, etc.

Last year they also included a £3 million fee paid to majority owner Stan Kroenke’s holding company for “advisory services”, but we will have to wait until the full accounts are published to see if a similar fee has been paid this year. If so, it would be helpful if the club provided a meaningful explanation for this apparently ridiculous payment – even if they were to say that it was effectively a dividend in all but name.

There have been a few misguided reports in the media that Arsenal have paid off their stadium debt, but the reality is that the debt incurred for the Emirates development continues to have an influence over Arsenal’s strategy. Although this has come down significantly from the £411 million peak in 2008 to £234 million, it is still a heavy burden, requiring an annual payment of around £19 million, covering interest and repayment of the principal.

The interest payable of £13 million is a lot more than any other Premier League club (£5 million at Manchester City, Everton, West Ham and Liverpool) with the exception of Manchester United, who leapt to £35 million in 2014/15.

Although the net debt stands at only £6 million, thanks to those large cash balances, the gross debt of £234 million remains the second highest in the Premier League, only behind Manchester United, who still have £411 million of debt even after all the Glazers’ various re-financings. Arsenal’s debt comprises long-term bonds that represent the “mortgage” on the stadium (£206 million) and the debentures held by supporters (£28 million).

Apart from financial debt, it is worth noting that the money owed to other football clubs for transfers, including stage payments, has gone up from £38 million to £81 million in 2014/15.

For the past few years Arsenal’s business plan has seemingly been based on the belief that Financial Fair Play (FFP) would level the financial playing field, but a series of legal challenges, allied with other clubs’ ability to meet the targets, has severely compromised this strategy. Even Wenger acknowledged this: “It has gone. I have seen the signs coming from UEFA for a while now. I thought for a while FFP would happen, but now it is not possible.”

"Young at heart"

Although the basic FFP rules remain in place, the subtle difference is that new owners will now be allowed to make larger losses, as long as they can produce a business plan that will show how they will reach break-even. Hence, clubs like Milan and Inter will be allowed to spend more after being bought by new owners.

Essentially, UEFA are now arguing that the modified stance is a move from “austerity to sustainable growth” in an effort to encourage investment into European football, though Wenger pointed to the revenue growth in the Premier League as another factor: “I believe the television contract in England has pushed some other clubs in Europe to want this to be a bit more flexible for them, so they can compete better with investors investing in their clubs.”

"Red Hot Chile Pepper"

Even if some other clubs are still well ahead financially, Arsenal are still better placed than most. If they continue to qualify for the Champions League, their revenue should be up to £400 million in two years, but the question is how much of this will be seen on the pitch.

The board should surely follow its own virtuous circle, which describes how “funds generated by the business are available for further investment into the club with the aim of achieving an increased level of on-field success, which ultimately translates into the winning of trophies.”

Arsenal have a fine squad that is eminently capable of gaining silverware, but the latest financial figures clearly demonstrate that the club has not used all of its resources to give itself the best chance of success – which is all that most fans are asking for. They will hope that this summer does not come to be regarded as another missed opportunity.