Tuesday, September 28, 2010

Cash City Rockers

Last week was going so well for Arsenal fans. First, their youthful team thrashed North London neighbours, Spurs, in a glorious performance at White Hart Lane, driven forward by an inspirational display from young tyro Jack Wilshere, the poster boy for Arsenal’s strategy of developing players from their academy. Then, away from the pitch, the board announced a sparkling set of financial results that confirmed their status as the best-run club in the Premier League.

However, pride comes before a fall and the home defeat against newly promoted West Bromwich Albion brought everyone back to earth with a bang. Here we go again was the refrain, closely followed by the obvious question of why the club does not invest some of this wealth in more experienced players to provide a stronger spine to the dazzling, but fragile, youngsters.

It’s certainly not due to lack of funds when you look at Arsenal’s results for the year ended 31 May 2010. The headline figures are quite superb with revenue of £380 million (2009 £313 million) and profit before tax of £56 million (2009 £46 million) both setting new record highs for the club. The PBT was up a notable 23%, but after some long-running issues with the taxman were resolved, the profit after tax was bizarrely even higher at £61 million, an incredible 73% higher than the previous year’s profit of £35 million.

"We do want his sort"

Impressive stuff, but the “most pleasing aspect of these results” for the chairman, Peter Hill-Wood, was that the returns generated in the property business allowed the club to repay £130 million of bank loans, significantly reducing the net debt from just under £300 million to £136 million, including massive cash balances of £128 million. This means that the property business is now debt-free, so any further sales will generate surplus cash. Given the risks and uncertainty arising from the downturn in the property market, that’s a simply stunning achievement.

As chief executive Ivan Gazidis observed, with commendable understatement, these financial results are “very healthy”.

To place this into context, only five Premier League clubs (including Arsenal) were profitable last year. In the traditional Big Four, only Manchester United also reported a profit, but this was much lower at £22 million and would have been a large loss without the £80 million they made by selling Cristiano Ronaldo to Real Madrid. Chelsea and Liverpool registered thumping great losses of £47 million and £55 million respectively, but Manchester City made them look like amateurs with their £93 million deficit. Ironically, the closest club to Arsenal’s level of profits is the one closest to them geographically, as Tottenham Hotspur made a £33 million profit, though this was also boosted by £57 million profit on player sales (Berbatov and Keane). Indeed, Spurs’ more recent half-year results showed an £8 million loss.

I can already hear people complaining that this is an unfair comparison, as Arsenal have benefited from property development, which is true, but it’s not quite as meaningful as some may believe. Yes, there was an enormous increase in property revenue from £88 million to £157 million, but this was almost matched by the growth in expenses, so the profit from property “only” increased from £6 million to £11 million. Don’t get me wrong, that profit is still better than a kick in the face, but it’s a lot smaller than the £45 million football profit. In other words, it’s still football that’s driving the business (though sometimes it may feel like the other way round).

Having said that, we can now anticipate some hefty windfall gains from property sales in terms of surplus cash, so we can say with some assurance that the club’s calculated gamble on its property development strategy has paid off. Nevertheless, it would not be a good idea to become over-reliant on bricks and mortar and Gazidis duly introduced a note of caution, “the profits from property are temporary and we need to make sure that in the longer term costs remain at a level which can be paid from our football revenues.”

A very astute comment, given that operating profit for the football business actually fell by a third (£10 million) from £30 million to £20 million. Revenue slightly decreased by £2 million, as a solid increase in television money failed to compensate for lower match day income arising from fewer home games and a reduction in commercial revenue attributed to the “recessionary climate.” At the same time, expenses rose £8 million, which was almost entirely due to higher wages.


Fortunately, the football operating profit was boosted by £38 million made on player sales (up from £23 million the year before), though it was then reduced by £14 million of interest payments, giving £45 million pre-tax profit, which was £5 million higher than the previous year.

However, it is clear that the only reason that the football segment increased its profit year-on-year was that £15 million growth in profit on player sales, which is not something that you would expect (or indeed wish) to be repeated every year.

Let’s be very clear about this: even without any player sales, football would still be profitable – but only just at £7 million. Hence, the concerns about whether the football revenue will be enough to cover costs in the future, though, as we shall see later, there is one very obvious opportunity for revenue growth, namely commercial revenue.

Of course, most football chairman would give their right arm for such profits. In fact, they’ve probably been casting an envious eye on Arsenal’s ability to make money for many years, given that the last time that Arsenal reported a loss was eight years ago, way back in 2002, while total profits have been rising ever since the move to the Emirates: 2007 £6 million, 2008 £37 million, 2009 £46 million and 2010 £56 million.

Even the relatively low 2007 profit would have been much higher, if it were not for £21 million of exceptional costs incurred to refinance the stadium debt, which was actually a very good move, as it has resulted in a £12 million reduction in annual interest payments ever since. In the last three years alone, Arsenal have produced combined pre-tax profits of £138 million – an astonishing figure in the world of football, which is more accustomed to turning billionaires into millionaires.

Profits from the property business are virtually unchanged since 2005, so the club’s profit growth has been very largely driven by tremendous revenue growth on the football side. In fact, this revenue has just about doubled in the last five years from £115 million to £223 million. This is second only to Manchester United among English clubs (£279 million) and placed Arsenal fifth in last year’s Deloittes Money League (based on 2008/09 results). Given the flat revenue in 2010, they will remain in that position when the next Money League is published. However, we should acknowledge that revenue has increased this year at both Real Madrid (to £375 million) and Barcelona (to £330 million). Of course, never was the old saying that “revenue is vanity, profit is sanity” more appropriate, as Barcelona’s huge turnover did not prevent them from making a gigantic £68 million loss and Real Madrid’s £22 million profit was a lot lower than Arsenal’s £45 million.

However, as the legendary investor Warren Buffett advised, “a rising tide floats all boats”, so it might just be that all football clubs have experienced similar revenue growth. In other words, Arsenal’s revenue growth might not be down to their own genius, but just due to the extra money pouring into football. “Up to a point, Lord Copper”, as Evelyn Waugh once memorably wrote, given that the big four clubs in England have all significantly increased their revenue in this period. However, the figures do show that Arsenal have outperformed their peers. They have overtaken Chelsea’s revenue, even during a period of sustained success for West London’s nouveaux riches, widened the difference with Liverpool and slightly closed the gap with Manchester United.

Unlike the vast majority of other clubs, the principal reason for Arsenal’s revenue growth is not television, but match day income from the new stadium. This can be clearly seen in 2007, the first season at the Emirates, when there was a step change in this revenue stream from £44 million to £90 million. This doubling of gate receipts has had a massive impact on Arsenal’s total revenue and justifies the board’s courageous decision to leave Highbury.

With a capacity of just over 60,000, the Emirates can accommodate 22,000 more fans than that famous old ground, which is great for those supporters, not to mention the bean counters, who can enjoy an additional £50 million revenue per season. This is reduced to £30 million after paying the £20 million “mortgage” and clearly the costs of running a bigger operation are higher, but it’s still positive financially with each home game generating around £3.5 million. That is mighty impressive, especially when you consider that Manchester United earn only slightly more per match, even though the capacity at Old Trafford is much higher at 76,000.

Of course, that can also be a double-edged sword, as can be seen in 2010, when the match day revenue fell by £6 million from £100 million to £94 million, because five fewer home games were played. This revenue stream is partly dependent on how far the club progresses in various cup competitions, so even though the derided domestic cups might not contribute much TV revenue, they can still make a difference via good old-fashioned gate receipts.

Despite this drop, Arsenal’s match day revenue is still the second highest in the Money League with most matches selling out. In fact, the club advises us that there is a 40,000 waiting list for season tickets. However, it is difficult to see how they could significantly increase revenue here, as the ticket prices are already among the highest in Europe. Actually, club management has stated that they do not want to raise the cost of admission, which is backed-up by the fact that prices have only been increased once since the new stadium opened.

No, the best hope here is that Arsenal carry on filling the ground, so that current revenue levels of around £100 million can be maintained. This is partly due to what happens on the pitch, as any continued lack of success in terms of winning trophies might adversely affect demand, especially at the premium level, which contributes the most money, but is also the most fickle.

"The match day experience"

Where money has been growing for football clubs everywhere is, of course, television. Many fans could do without the weekly inanities of Messrs. Keys and Gray, but, in fairness, “he who pays the piper, calls the tune” and there is no doubt that Sky pay a pretty penny for their TV rights.

Arsenal’s television revenue increased by 15% from £73 to £85 million in 2010, which was made up of £52 million from the Premier League and £31 million from the Champions League. As a result of finishing third in the Premier League, Arsenal received a higher merit payment, while their facility fees also rose, as they were broadcast live four more times, producing an overall £5 million increase compared to 2009.

The Champions League payout was also higher, even though Arsenal only reached the quarter-finals, as opposed to the semi-finals the previous year. This was due to a number of factors: 2009/10 represented the first year of a new cycle of UEFA broadcasting contracts; additional distribution for the qualifying round; and the weakness of Sterling (Champions League revenue is distributed in Euros). Gazidis has claimed that Arsenal budget so that the club could survive missing a year of Champions league football without selling players, but these figures once again demonstrate the importance of qualification to Europe’s top clubs.

To be fair, Arsenal’s reliance on TV revenue is much less than most other clubs in the Premier League at 38%. Smaller clubs are almost entirely dependent on this revenue stream, hence their narrow ambition of surviving in the Premier League. Relegation really is unthinkable for clubs like Blackburn and Wigan, where TV money accounts for over 70% of their total turnover.

At the other end of the spectrum, the Spanish giants, Real Madrid and Barcelona, are allowed to negotiate individual television deals, so they earn around £50 million a year more than Arsenal. Of course, given the well-publicised problems with Mediapro, their TV partner, and the pressure from other clubs in Spain to move to a collective agreement (as they have just done in Italy), this may be something of a poisoned chalice, but it certainly gives them a competitive advantage for the time being.

Against that, we know that Arsenal will benefit from an increase in Premier League TV revenue next season, as 2010/11 marks the first season of the new three-year deal, which is much higher following the astonishing increase (more than doubled) in overseas rights. The club estimates that this will mean a 10% boost, which would be worth an additional £6 million, but the increase could be as high as £10 million.

Longer-term, their greatest revenue-generating opportunity may come from new media, especially broadcasting live matches over the internet. Working towards that vision, Arsenal Broadband has entered a partnership with the sports media group MP & Silva to develop broadcast and online products aimed at an international audience. There has been concern that some of this opportunity has been lost, as majority shareholder Stan Kroenke bought 50% of Arsenal Broadband, but Chief Commercial Officer Tom Fox has said that this does not include the live rights, which is where the big bucks would be made.

"Captain Fantastic"

Perhaps the greatest disappointment in the accounts was the £4 million decline in commercial revenue to £44 million, which has long been an area of weakness with revenue lagging way behind the club’s English peers. According to the Money League, Arsenal’s annual commercial revenue is much lower than the other teams in the Big Four (Manchester United £70 million, Liverpool £68 million and Chelsea £53 million). The comparisons are even worse against the continental European teams (Bayern Munich £136 million, Real Madrid £119 million and Barcelona £96 million).

Little wonder that the club said, “There is no doubt that the areas of commercial activity and sponsorship provide the greatest opportunity for the Group to generate significant incremental revenues in the medium to long term.” That’s one way of putting it.

Arsenal tied themselves into a long-term deal with Emirates worth a reported £90 million (naming rights until 2021, shirt sponsorship until 2014) in order to provide security for the stadium financing, which made a lot of sense at the time, but recent deals by other clubs highlight the growth opportunity. The amount paid for shirt sponsorship increased this season by £500,000 to £5.5 million, but this pales into insignificance compared to the £20 million Standard Chartered and Aon pay to Liverpool and Manchester United. In fact, five Premier League teams have higher sponsorship deals than Arsenal, even including Spurs, whom nobody would accuse of being the more successful half of North London.

"Ivan Gazidis - you've never had it so good"

The club’s seven-year kit deal with Nike has been extended for a further three seasons to 2014 with the supplier exercising an option in the original agreement. The accounts say that this “delivers an improvement in commercial terms”, but don’t divulge how much it is worth. Given that figures released by Nike and Adidas suggest that only three clubs (Manchester United, Real Madrid and Barcelona) sell more shirts worldwide than Arsenal, the fee paid is almost certainly not enough.

With all the focus on moving to the new stadium, it is clear that commercial opportunities have been put on the back burner, but Ivan Gazidis is well aware of the need for improvement in this area, so he has restructured and strengthened his commercial team to explore new partners and overseas markets. Certainly, they’re well versed in marketing speak: witness Tom Fox’s recent gem when talking to the BBC, “Putting the basic successful product out on the field is a huge component of our brand.” However, it’s now time for them to deliver, starting by applying pressure on Emirates to improve the terms of their deal, if they wish to retain the shirt sponsorship. Arsenal are the biggest team in London, playing in the largest city of Europe, so they have been badly under-sold to date.

The club has invested in a number of overseas developments, including opening retail outlets and soccer schools in the Middle East, Far East and the USA, in order to build its brand internationally, but Gazidis has said that there will be no lucrative pre-season tours to America or Asia until the club has a clear strategy for those regions.

Another revenue stream that is often over-looked for football clubs is the profit made on player sales, which has been very important to Arsenal’s financials in recent years. This was beautifully explained by Peter Hill-Wood, “profits were boosted by some £38 million from the sales of players who were no longer central to his future plans”, in an acidic reference to the transfer of Emmanuel Adebayor and Kolo Toure to the ever-generous Manchester City.

"How much did City pay for me?"

This is nothing new under the sun for Arsenal, as they have averaged £25 million profit on player sales every season since they moved to the Emirates, making good money from stars who were past their sell-by date (Vieira, Henry, Toure) or were disruptive influences in the dressing room (Cashley Cole, Greedybayor).

However, I would suggest that Arsenal cannot rely on Wenger producing the proverbial rabbit from the hat every year and this may not even be desirable. Worryingly, the accounts note, “There has been very limited player sale activity during the summer transfer window. As a result, in contrast to each of the previous three years, we do not have a significant profit on disposal of player registrations on the books at this stage of the new financial year. Subject to any transfer activity in the January 2011 window this may impact the final level of profits to be reported for the financial year 2010/11.” Let’s hope that this does not herald the profitable sale of Cesc Fabregas to Barcelona in a few months.

What is clear is that Arsenal, like other football clubs, will have to work harder for revenue growth in the future, as TV cannot be relied upon to continue its vertiginous growth in perpetuity. Tom Fox posed the question, “In five to ten years’ time, we are going to have to ask: where are we going to grow our business?”

On the cost side, wages have risen 6% to £111 million, which is partly “driven by the external environment in which we operate where player costs continue to go up” (according to Gazidis), but largely reflects the re-signing of many players on long-term contracts, which represents “the best means of protecting the value of one of our most important assets” (according to Hill-Wood).

Despite the increase, the wage bill is still substantially below Manchester United (£123 million) and Chelsea (£149 million), but in fairness it’s considerably more than the payrolls of the chasing pack: Liverpool £90 million, Aston Villa £61 million and Tottenham £59 million. I have excluded Manchester City, as I confidently expect their wage bill to have shot up to around £125 million in their next set of accounts.

Having said that, Arsenal have admitted that “there is strong upward pressure on player wages”, so “wage costs for 2010/11 will show a significant increase”, as the full impact of revised contracts signed in the last 18 months comes through. Of course, these are not just player salaries, as they also include the strengthening of the executive team, which must come at a price, though theoretically should also increase revenue.

After falling for three years, the wages to turnover ratio has increased (deteriorated) this year to 50%, though this is still very respectable and remains the second best in the Premier League. In fact, only five teams have a ratio below 60%, while six teams are working with a completely unsustainable ratio above 90%.

What does seem very high at Arsenal is the £55 million for “other operating costs”, i.e. excluding salaries, depreciation and amortisation, which is actually higher than the total costs at seven Premier League clubs. Unfortunately, the club does not provide much detail for these costs, but they must include items like stadium operating costs, utilities, retail expenses and travel. What we can see is that these costs represent 25% of football turnover, which seems ripe for a spot of judicious cost cutting.

On the other hand, player amortisation, namely the annual cost of writing down the cost of buying new players, is very low at £25 million, barely changed from the year before. As you would expect, it’s much higher at those clubs that have pursued success via the cheque book, in fact over twice as much: Barcelona £61 million, Real Madrid £55 million and Chelsea £49 million.

This reflects Arsenal’s policy of not venturing too often into the transfer market, even though ample funds are available, which was epitomised by the short list of names purchased this summer: Marouane Chamakh from Bordeaux, Laurent Koscielny from Lorient and Sebastien Squillaci from Sevilla.

In fact, the Gunners have consistently spent less than their rivals over the last few years in the transfer market. Since the arrival of Roman Abramovich, Arsenal is the only top club to make money from buying and selling players with a small surplus of £2 million. Although reported transfer fees are notoriously unreliable, it is beyond dispute that other clubs’ net spend is significantly higher: Manchester City £341 million, Chelsea £313 million, Liverpool £99 million and Manchester United £46 million (boosted by the amazing Ronaldo profit).

Arsene Wenger has steadfastly refused to endanger Arsenal’s financial security by splashing out large sums on over-priced, big name players. For Arsenal to spend not just less, but so much less than these clubs and still challenge for honours is testament to the incredible job that Wenger has done with the funds available.

Equally remarkable are the results from the property side of the business, which generated £157 million of revenue from the sale of 362 apartments at Highbury Square (£134 million) and social housing at Queensland Road (£23 million), leaving the property business debt-free. This represents a remarkable turnaround from a year ago, when the downturn in the property market forced the club to extend the repayment deadline on the bank loan from April to December (at higher rates of interest), to reflect delays in sales completion.

"Chamakh attack"

At the time the books were closed, 570 of the 655 apartments at Highbury Square had been sold, leaving only 85 still available. Gazidis has since informed us that the 600th sale was completed in August with the remainder expected to be sold in the next accounting year. Based on the average price of sales to date of around £400k, that would produce proceeds of £34 million. As the loans have now been paid off, all of this is surplus cash that will be available to spend.

It’s a similar story for the club’s other property developments (“in-fill” sites at Highbury Square, Hornsey Road, Holloway Road and Market housing at Queensland Road), though it’s much more difficult to estimate what these would be worth. In any case, any proceeds here are unlikely to reach completion before 2011/12. This will obviously produce some cash, but let’s hope that it’s not too much of a distraction for management before the club finally exits the property business.

Following the elimination of the property debt, the club has managed to reduce its gross debt to £263 million, leaving just the long-term bonds that represent the “mortgage” on the Emirates Stadium (£237 million) and the debentures held by supporters (£27 million). Once cash balances of £128 million are deducted, net debt is down to only £136 million, which is a significant reduction from the £298 million the previous year. The club expected the debt to peak in 2008, which it did, but it is now back down to levels last seen in 2004.

This is in stark contrast to the debt held by the other top clubs in the Premier League, which is not only much larger, but continues to rise. A year ago, Manchester United’s debt stood at £566 million (gross £716 million), but the accumulating interest on their PIK loans (now at an eye-watering 16.25%) will surely have increased that figure. Similarly, Liverpool’s net debt of £351 million has been attracting punitive penalty payments for months.

It is the huge interest payments that wreck the business model of these clubs (£69 million for Manchester United and £40 million for Liverpool), which is considerably higher than the £20 million that Arsenal pay to service their loans (£15 million interest, £5 million capital repayment).

It’s not clear whether it would be possible for Arsenal to pay off the outstanding debt early in order to reduce the interest charges, but my guess is that they are in no hurry to do so, as Gazidis has argued that not all debt is bad, “The debt that we’re left with is what I would call ‘healthy debt’ – it’s long term, low rates and very affordable for the club.” In any case, the accounts clearly state, “Further significant falls in debt are unlikely in the foreseeable future. The stadium finance bonds have a fixed repayment profile over the next 21 years and we currently expect to make repayments of debt in accordance with that profile.”

The press release did not fully analyse creditors, so we do not know how much Arsenal owe other football clubs for transfers. As an indicator, last year other creditors included £26 million for such debts. To balance that, the 2009 accounts also included £23 million outstanding payments from other clubs in other debtors, so the net position was negligible.

"Two arguments to spend"

Included within the net debt are astounding cash balances of £128 million, though the club is keen to emphasise the seasonal nature of cash flows, i.e. money taken from season ticket renewals will be used to pay operational expenses over the next few months. Furthermore, the club has to hold £38 million as reserves (£31 million as security for the bonds and £7 million for Queensland Road property development). However, that still leaves £90 million of available cash in the pot.

This begs the obvious question of why has Wenger been so reluctant to spend? There is no doubt that the move to the new stadium limited Arsenal’s transfer budget over the past few years, but the financial situation has greatly improved and it is clear that funds are available to buy the players that the team needs. However, there is still a suspicion that the manager would prefer to build rather than buy, so much of the low spending is out of choice. Indeed, Gazidis clarified the club’s stance last year, “We believe transfer spending is the last resort. That’s a sensible view to have. Re-signing players is a far more efficient system.”

Wenger is clearly singing from the same song sheet, as he has reiterated his preference for developing young players to dipping into the transfer market, “If I go out and buy players, then Jack Wilshere doesn’t come through.” He gave a further insight into his thoughts, when he argued, “The job of a manager is not to spend as much money as possible.”

That must be music to the ears of the board, whose chairman again spoke of their “commitment to a financially self-sustaining business model.” This is a tricky target at the best of times, but very difficult to maintain when you’re competing against billionaires for whom money is no object or clubs who appear to have decided that it does not matter if they don’t have any money, opting to build up substantial debt instead. In fact, Gazidis has admitted that the club can’t “compete with Manchester City in the transfer market, because those kinds of fees and salaries are unsustainable for any football business.”

"Jack the lad"

However, the football world is changing with the advent of the UEFA Financial Fair Play regulations meaning that the era of the big spender may be drawing to an end. Many top clubs, including Chelsea, have already visibly cut back on their spending, while others will need to put their house in order if they wish to compete in Europe. Arsenal will have no problem complying with the new rules, but other clubs will have to adopt a similar model to avoid making losses – unless their accountants and lawyers succeed in locating some convenient loopholes.

That’s all very well, but fans of those other clubs can bask in the reflected glory of the silverware that they’ve won, while Arsenal can only boast of the winning the league of balance sheets (which doesn’t actually exist, if you’re wondering). Gazidis has stressed that “trophies are our main objective and ambition”, but he slightly ruined this determined stance, when he added, “If we can’t win trophies, qualifying for the Champions League is the base line.”

In fairness, it is an incredible achievement for any team to gain qualification for the Champions League 13 years in a row, as Arsenal have done, especially when battling against the financial constraints imposed when building a new, state-of-the-art stadium. Arsene Wenger deserves many plaudits for the minor miracle he has performed over the last few years: guiding the club through the substantial upheaval of leaving its spiritual home of Highbury for the Emirates; developing a squad of exciting young players; and yet still keeping the team competitive, all the while playing the most attractive football in the country.

"What more can I do?"

However, his reign has been a little like the proverbial “game of two halves”, winning three Premier League titles and four FA Cups in his first nine years, followed by no trophies at all in the last five years, which has provoked impatience among some supporters and a growing lack of understanding over the unwillingness to buy world-class players. There is no doubt that he is an outstanding manager, though there is a feeling that he might need to modify his transfer policy and loosen the purse strings to ensure that his legacy is not tarnished.

Swedish legends ABBA managed to capture the fans’ feelings quite well in one of their classic hits, “Money, money, money/Must be funny/In the rich man’s world”, Yes, indeed. Have you heard the one about the football club that made over £60 million profits, but couldn’t afford a decent goalkeeper?


  1. Good stuff. one question - raised by terence McGovern in the comments section on untold Arsenal (http://blog.emiratesstadium.info/archives/8076) - and with you specifically mentioned as perhaps being able to enlighten us - what about the "Debtors - due within 1 year - £62million"?
    Is this balance of players transfers owed to us and hence has been accounted for in previous years accounts? Or is this "bonus" money that will be available to spend freely?

  2. Sorry, should specify. That "debtors - due within 1 year - £62 million" line is on p23 of the published financial results. (On the consolidated balance sheet page, under Current assets category.)

  3. @Jimmy,

    I touched on this briefly in the article, when discussing transfer fees from other clubs.

    Unfortunately, the press release does not provide an analysis for the £62m in Other Debtors, but we do have a break-down from the 2009 annual accounts and 2010 interim accounts, which confirmed that much of last year's figure was down to outstanding transfer fee payments from other clubs (£23m). It's therefore a reasonable assumption that this year's balance will also include a large amount for transfer fees, especially given the high player sales.

    These transactions will already have been booked as profit, but the payments will further improve the cash balances.

    The remaining balance is just normal Trade Debtors, Prepayments and Accrued Income.

  4. Very very well written. Thanks for a great read!

  5. It would be interesting to know just how much money Wenger really does have at his disposal to spend on new players.

    The club keeps claiming to have a significant transfer budget yet Wenger seems surprisingly reluctant to use it.

    Does he feel signing an expensive world class player would somehow be a breach of Arsenal etiquette?

    Or is the money to do so simply not available?

  6. Very educative and detailed. This to me still shows the organizational acumen of the EPL. This league's club revenue streams make financial competitiveness more than in others, with La Liga, SPL, Bundesliga and Serie A coming to mind.

    All PL teams need to do is tweak their business models a bit more, secure strategic partnerships and work to keep their overheads down. If revenue generated can be reploughed back, it will help keep ticket prices down, a la Bundesliga, and help the game keep growing.

    Quality piece.

  7. This is an insanely good article.

    Mucho Erecto,

  8. Great article as always, I have one question though.

    Regarding the commercial revenues, we seem extremely poor in this area, and i am wondering, is it solely due to the shirt and stadium naming rights? I understand MUFC, Real, Barca, and bayern being above us commercially, but chelsea too?

    We have a much bigger following, and i would therefore assume, that shirt sales and the like would be bigger for Arsenal, however, Chelsea signed new deals with Adidas and Samsung a few years back, is that what is making all the difference?

  9. brilliant article!! Your last line sums it all up!! I'm one of those Arsenal fans who has faith in Mr.Wenger and trusts his judgement but still can't quite fathom why would he not spend a small sum on a quality goalkeeper well knowing that the 10-15pts a season that a goalkeeper earns is generally the difference between being mere Champions League qualifiers and Premier League champions.. Ofcourse, in one's own house, one would like to use every possible object for which we've spent money. But if something is of no use, doesnt it make sense to get rid of it and buy a replacement from within one's own means?? I guess that's the hard part for most arsenal supporters to comprehend.. Thanks again for a brilliant article!!

    Uday @ Mumbai, India.

  10. Excellent blog. Appreciate the effort that goes into maintaining the comparasions and interpreting the accounts.

    Thanks and keep up the good work!

  11. Thank you for answering my £62 million question.
    Superb article as always.

    whilst reading the financial reports themselves, I didn't quite register the quote “the best means of protecting the value of one of our most important assets”, from PHW and it does seem to me that the turn of phrase would suggest that he is referring if unconsciously, to Fabregas, rather than the playing staff in general, although the same principle applies.

    No doubt, the potential sale of Cesc is a much debated issue amongst the support, but realistically, a realisation of £50 million or more him could buy an able replacement, (Gourcuff at an arbitrary £20 mil). Then a defensive midfielder and for those with an eye for a keeper say Stekelenburg for the remaining £30 million. Indeed it is possible, that there would be excess to bank from the deal which would be Arsenal's style.

    I am not trying to play "championship manager" here, but I believe that there are extremely compelling arguments both in terms of finance and development of the team, that the sale of Fabregas next year, would be of a long term benefit to the club on all fronts, assuming the replacements are indeed of the high calibre as the examples given.
    This is also of course, assuming that Barceloanus could pull the cash rabbit out of the hat.

    Equally it could be said of course, that at under the £50 million realisation mark, it would represent a bad deal for the club.

    This will probably be "The Great debate" that will occupy our club and its support over the next year, eclipsing even the goal-keeper issue. In light of our cash-rich situation a large sector of the support would be opposed to the idea (ignoring the DNA/homeclub draw issue).

    Profit-making however, can be an addictive habit and whilst Ivan said that there would be no futher significant reductions in debt......he didn't exactly give anybody the impression that we would allow it increase even a little bit by the purchase of players that were not funded through sales.

    Watch this space methinks.

    Again great article.

  12. Terence, if new contracts were not offered to the players they could leave us on a free, and as such their value is best protected by offering new contracts which a: keeps them with us, and/or B: gives us a transfer fee instead of loosing them. thats what PHW means.

  13. Clear and informative analysis, as always. You make the numbers almost as beautiful as the game itself. Arsenal's property and player sales are the swing items when it comes to profits and they are unsustainable and too volatile respectively, so the need for a higher base of commercial revenue is unarguable. That will mean expanding Arsenal's international market, which in turn will require some silverware to help the brand marketing effort.

    Also, I don't think Wenger's failure to buy a new goalkeeper is for lack of trying any more than it is for lack of funds. After all, he moved to fix the problems he saw at the heart of the defence by buying two centre backs, paying decent transfer fees by Arsenal's standards (and we don't know the wages, but I'd guess neither player is on bargain pay.) I just think he couldn't land a new keeper that he thought would strengthen the team while not standing in the long-term path of his three youngsters. Goalkeeper is also a particular challenge to his build vs buy philosophy. You can't blood a young keeper gradually -- 20 mins in a game as a sub here, a couple of matches to cover for injury or suspension there -- in the same way you can an outfield player. We are seeing that dilemma play out now.

  14. Brilliant as always, TSR!

  15. Probably a semantic issue, but interest payable (at least to an American reader) is a balance sheet item...I assume this is the equivalent of interest expense in American terms?

  16. The article is well written, insightful, and greatly appreciated. Thank you!

  17. Thanks Swiss, I'm an avid reader of your blogs and fellow gooner ;o) I have been eagerly awaiting your blog since I saw the accounts published!

    What impact do you think the fan share scheme will have, in terms of power shares in the club hierarchy and financial revenues generated? Has there been any indication yet as to how many sales there has been?

    The reason I ask is it’s the common view amongst every gooner I talk to that we need to invest in certain areas of the team, and there is certainly the capital available to do so. The fan share scheme could be a route into the AGMs to pose Mr Wenger said question, and a group with enough fan shares between them could they be able to exert a small amount of pressure on the board to at least realise how strongly we feel? We as the fans, who contribute so greatly to these revenue streams through buying merchandise and tickets, should be at least in the back of the manager’s mind that we are not happy with his choice in goalkeepers, and that we would happily sacrifice a small amount of profit, plus the sales of the 2 keepers who appear not to be up to the job, to employ a more capable stopper .

    Thanks again for your fascinating insight into the Arsenal!

  18. Ole Kristian: It is not often that somebody can make me smile after a weekend defeat but.....Credit where credit is due!

  19. 1) Is profit on player sales (38m 2010, 23m 2009) in the first exhibit a net number [(sales price - carrying cost on the books) - player purchases]? If not I don't see a line item for player purchases under expenses in the first exhibit.
    2) If it is a net number, then how do I reconcile it with the exhibit further into the article showing transfer spending since foreign ownership, which shows net sales of 31m in 2010 and 0 in 2009.
    Thanks for the article, great read.

  20. @James Goyder,

    The money is definitely available.

    In fact, the terms of the stadium financing deal state that 70% of all net sale proceeds must be used on buying players or placed into a ring-fenced Transfer Proceeds Account (TPA). This protects lenders by ensuring that the club continues to invest in its core asset, i.e. the playing squad.

    However, this fund can also be used to improve players’ contracts and this has become key to Wenger’s approach to investing in the squad.

  21. @Anonymous (12:23),

    Yes, for example, Samsung's shirt sponsorship deal with Chelsea is worth £13.8m a season, compared to Arsenal's £5.5m.

  22. @James B,

    Yes, when I refer to interest payable, I mean interest expense.

    Arsenal's accounts use the capitalisation an amortisation method when accounting for player purchases, as do all other clubs following IFRS. This means that when they buy a player, the cost is capitalised and amortised over the length of his contract, so the only cost you see in the profit and loss account is the annual amortisation. When that player is sold, the profit on sale represents the sales proceeds less the net book value in the accounts.

    For example, if John Smith is bought for £10m on a 5 year contract, the annual amortisation is £2m (£10m divided by 5 years). After 2 years, his value in the accounts is £6m (£10m less 2 years anortisation @ £2m). If he is sold for £9m, the profit on sale would be £3m (£9m less £6m).

    So, you won't be able to directly reconcile the profit on sale with the sales figures from player trading. Of course, you could if you had details of the players involved, length of contracts, purchase date, etc.

    Hope that clarifies the accounting.

  23. @Anonymous (5:32),

    I am supportive of the fanshare scheme, but I'm not sure that it will make a great deal of difference on the Board's approach. We shall know more at the next AGM.

  24. Dear Swiss,

    The balance sheet presented in the accounts shows long term liabilities as £283M.

    There is 127M of cash in current assets. However this is included in the net current assets position of £85M ie Current assets minus current liabilities .
    There is also a provision for further liabilities of 45M.

    By my calculation that would leave £85M minus £45M = £40M over and above current liabilities.

    The net debt position of £135M is a red herring as it is of little meaning. ie most of that £127M cash is needed to pay existing liabilities.

    The big mortgage is still there !

    The mortgage requires interest payment of around £18M a year. Therefore Profit before interest must be at least this to break even.

    I would say Wenger doesnt have much cash to spend. Perhaps 20M as a wild guess.

    Also the flats are sitting on the balance sheet as stock of £45M. If they sell for more than this, only then will there be extra money in the business ie whatever they sell for which is more than the £45M. If they sell for less than £45M then Wenger has less to spend!

    I think it is a bit meaningless that the property debt has been paid off.

    I am off to watch the match now


  25. @Anonymous (8:55),

    Sorry, but you're talking complete nonsense.

    You don't have to calculate things like net assets or net current assets, as they're already listed on the balance sheet. For the record, Arsenal's net assets of £255m and net current assets of £86m are good by the standards of any football club.

    In one breath, you emphasise the importance of the mortgage still being there; in the next, you dismiss as meaningless the property debt being paid off. Make your mind up - is debt important or not?

    You also appear to have misunderstood how the accounting for stock works. The flats have been paid for, hence the numerous comments in the accounts about the property being debt-free, so any money received for these flats is surplus cash, regardless of whether it is above or below £45m.

    Your "wild guess" of how much Wenger has to spend is exactly that - a wild guess.

  26. Dear Swiss,

    I am not saying your analysis is incorrect. I am just offering an opinion on what the overall balance sheet is saying to me. Please forgive my writing style !

    I agree the net assets of £255m and net current assets £85M are good. My point is that net current assets should be offset by the provision for charges of £42M, to give a real position of how much cash is available over and above current liabilities that need to be discharged.

    The point about the stock of £45M is that when the flats are sold. The sales value and the stock figure will both go to P and L and the difference will hopefully be a profit. I have no idea what they will sell for. So that is my concern ie what the P and L effect will be once the stock is sold.

    The property debt is meaningless to me only in the sense that if it were not paid back to the bank it would be sitting in the bank account as extra cash ! Therefore there would be no difference to net assets.

    However by paying it back they will probably be saving interest charges so on reflection that is a good thing and does have a P and L effect obviously !

    My main concern with the accounts is that the mortgage is still there despite the headline announcement that the net debt position is only £136M. I think this is a bit of a disingenuous debt position statement, although no doubt technically correct !

    Looking at the split of finance charge I see that about 12M is for mortgage and 4M is for property development. That is good as long term it is the 12M that is important. I assume the property business is not long term.

    The accounts look pretty healthy to me for a top football club. If I was a Liverpool or Man U fan I would be very worried.

    I get the feeling that Wenger doesnt have as much to spend as a lot of people think. He is running a tight ship and doing a good job. He could borrow money to buy players in addition to the cash he has available, so there really is no way of knowing how much he has to spend. But I cannot imagine he will be spending more than a net £20m per year. Of course that is just a pure guess !


  27. I'm not understanding how the first exhibit can show 61m profit on player sales for 2009-10 (which as you say is measured as sales price - net book value) while the transfer spending since foreign ownership exhibit shows 57m in sales for the same (?) period. Wenger's good, but a profit margin above 100% is beyond even him n'est pas?

  28. @James B,

    The first exhibit does not show £61m profit on player sales. The £61m is the total profit after tax for 2009/10. Profit on player sales is £38m.

    Also not sure where you get your figure of £57m.

    It is actually possible to make a huge percentage profit on a player sale. For example, if you buy a player very young for £1m, then sell him 5 years later for £10m, the profit is £9m, which is 900% of the original purchase price. Of course, I've ignored salary costs over that period, but you get the point.

  29. @Anonymous (1:01),

    You have to be very careful about bringing provisions into a discussion about available cash. Quite often provisions are not paid at all, e.g. some of this will be based on potential transfer fees depending on number of appearances, which may not happen. Also, much of this is deferred tax, which might not be paid (see this year's tax credit) or will be paid over a number of years. In the latter case, you need to look at not just the current cash balance, but also future cash flows.

    This is one reason why balance sheets are split into current and long-term assets and liabilities.

    On the stock of flats, the P&L effect is one thing, but the reality is that the flats have been paid off so ANY money received from these sales is surplus cash and therefore available to spend. In this case, you have to look at the cash impact of the transaction (and not the P&L).

    Your assumptions on the finance charge are incorrect. What you see in the P&L are the net finance charges of £18.2m, comprising interest receivable of £2.0m less interest payable of £20.2m. That is made up of £14.6m charge for the stadium financing plus a capital repayment of £5.6m.

    Obviously, as you suggest, the profits would be higher if this interest did not have to be paid, but the quid pro quo would be finding the cash to repay the mortgage - even if this were permitted under the terms of the agreement.

  30. Dear Swiss,

    Re your 9:22AM response.

    I agree provisions are not the same as current liabilities as they are by definition liabilities of unknown timing or amount but they must be a reliable estimate of the liability.

    So I am guessing £45M is is a reasonably good figure also.

    I can assure you that the £18.1M net finance charge is made up of £14.2M mortgage and £3.9M Property development. The £5.6M included in the mortgage payment of £20.2M is repayment of capital and is not included in the P and L item of £18.1M.

    If you look at football profit before interest not including property and player trading then it is only £20m. The mortgage interest charge is fixed at around £14m, therefore there is not much leeway at the moment in my opinion in the core business. Profits are being boosted mainly by player sales and some property profit

    Wenger got lucky with Man City splashing the cash but even Barcelona did not have the cash for Cesc last summer it seems, so profits from player sales cannot be relied upon and hopefully will not happen much in the future. Especially in the case of Cesc !

    I do agree with you that Wenger has cash to spend but he knows that big fees have to be written off in the accounts and usually involve bigger wages. Therefore I do not expect him to spend massively any time soon.

    I enjoyed reading your analysis as I do not do much myself other than the headline figures ! But it does seem the club is in good shape and there is much room to grow as you have said. Very interesting that only 3 other clubs sell more shirts !


  31. Thoroughly informative and engagingly written.

    Terence had raised the issue of selling Cesc and using the proceeds to strengthen the squad. But I don't think there is even a debate here. Why sell your best player if you do not need the money? We have the money to strengthen the squad in the ways Terence described--a defensive midfielder and a goalkeeper. Arsene Wenger has decided to promote Wilshere and his efforts to find a goalkeeper weren't successful this summer. We didn't need to sell any players to afford Stekelenburg--Ajax became less interested in selling him when they qualified for the group stages of the CL.

    The problem for so many Arsenal fans is that while we can be justly proud of our club's sound and stable fiscal management(all though the 55 million in other administrative expenses is a very big mystery and sounds enormously inflated), the purpose of a football club is in fact to have success on the pitch. Sometimes it seems as if we are forgetting that (not you Swiss Rambler).

    A case in point of how excessive fiscal caution can become an obstacle might be the case of Marouane Chamakh. Wenger identified him as a replacement for Adebayor. Instead of paying more than he believed the appropriate valuation to Bourdeaux to secure his services, which turned out to be desperately needed when RvP and Bendtner were both injured, he was signed ths summer on a free (probably with higher wages and a signing on bonus). If the gap between our ceiling for his value and Bourdeaux's final asking price was only a few million, was it worth it to wait? I'd say no. We can see this year that he is a very valuable player for the way Arsenal play. We might have won more games in the various cup competitions (increasing our revenue) and perhaps won the league (bringing greater revenue along with glory to the club).

    This year it is a goalkeeper that the manager clearly wanted to bring in. For a few million, he chose not to. There are no guarantees of increased competitive success, but footballing decisions are being overly constrained perhaps by the policies of financial restraint. Such discipline may indeed have been needed over 2005-2008, but since then we have been recording good profits while property debt has fallen dramatically. In such circumstances we ought to at least be able to replace players (like Adebayor) and meet needs that our development scheme has not yet met (goal keeper).

  32. We all know of the almost perfect correlation between position in the wage table and position in the league table. I hate to say it, but on these terms Tottenham have really outperformed us.

    The MINIMUM we should expect is 4th place (now Man City have moved up the table). I feel that to speak of maintaining 4th place as a great achievement for Arsenal is bogus.

    Boy would I love to see an itemised wage bill.

  33. @Lady Arsenal,

    There's no doubt that there is a strong correlation between wage levels and success on the pitch. Indeed, I've often written of this myself.

    However, the other side of the coin is transfer spend. I know that this has been effectively dismissed by "Soccernomics", but I'm not sure that I completely agree.

    Indeed, I have just written a contribution to a book whose premise is that there is also a correlation between transfer outlay and success.

    This is based on analysing every single Premier League transfer since 199 with the book providing a level playing field by applying "football inflation" to each transfer.

    Amongst other things, this clearly shows that since 2004 Arsenal's XI has been incredibly cheap for the position attained.

  34. Cesc is becoming increasingly injury prone; this is something many Arsenal fans seem to have failed to notice. And I am increasingly frustrated by seeing him not on the field. I think keeping him this season is a good move, but next season it could very well be a viable idea to sell Cesc; between Nasri, Rosicky, Wilshere and Ramsey I think we have more than what we need to replace him.

  35. When Wilshere starts popping balls over the defense into the path of strikers, then I'll start to consider whether we can replace Cesc with what we've got. Right now, his capacity for the timely assist is vastly superior to Jack's, although I can't remember how good it was when he was only 20.

  36. Great post. I think the unwillingness to go an purchase a better keeper during this past transfer window is even more head scratching when you look at the financial figures. Penny wise pound foolish...http://thebeantownfrog.blogspot.com/2010/09/arsenal-are-profitablebut-does-that.html

  37. I would point out that "Selling of Cesc issue" is really a nettle that few fans wish to grasp. A pragmatic view would be that unless Barca fail to come up with the money, it is unlikely that we will keep him.
    It is from this viewpoint that I considered the sale, but bear in mind that I was very specific as to how I would wish the proceeds to be allocated. It is my very firm belief that unless he was replaced by 2 solid midfielders specifically for attack/creativity and specifically for defensive duties with the excess spent on a tiptop keeper, not some burnout like Schwartzer, his sale would be detrimental rather than beneficial.

    I believe that it will be very hard for the club to resist if the price is right. The profit figures will be maintained and future acquisitions will be funded. The player is hardly going to object himself and if the money is allocated to a genuine strengthening of the team, neither should we.
    However, if we do sell and do not strengthen these 3 key areas from the money, it will be a weakening of the team. I dont care how good Wilshere is, he cannot play every game. TR7 is not getting any younger and Nasri although formidable is no Cesc.
    I am not advocating a sale here just highlighting how it could benefit the team if handled correctly or damage it if not.

    On the £55 mil general expence issue, it would not be a stretch to see a chunk of that allocated to our global scouting network which cannot be cheap.

    I have also noticed that there are several anonymous comments that for some reason seek to argue certain parts of this article and its conclusions. I don't get this. I myself write the odd article or two but mine are off the cuff easy philosophical pieces.
    The above is a detailed, logical and painstaking analysis that no doubt required considerable work, thought and attention to detail.
    my point is that, if there is a particular meal that you favour and a 2 star michelin chef takes the time to break down the ingedients, preparation and cooking methods for you, would you turn to him afterwards and attempt to pick holes in his receipe?

  38. @Terence,

    Many thanks for your very kind words.

    Actually, I don't mind any comments, so long as they are not abusive. In fact, I've often been given food for thought (continuing your analogy) and I've taken some arguments as the basis for future articles.

  39. Arsenal's model is low tranfer fee and high total wages.

    Could you SwissR make an article on Man City's progess to fulfilling the Uefa licensing rules based on new annual report.

  40. Swiss,

    What are your thoughts on doing a financial piece on the Celtic Manor Resort.

    Sir Terry Matthews has sunk $50m in total in order to realise his dream of bringing the Ryder Cup to his course.

    Dublin, Ire

  41. Top-notch post again!

    Sorry I haven't had the time to write the comment your excellent post warrants, in the meantime you should find this post interesting: http://thegoonblog.com/2010/09/exclusive-new-exec-signing-signals-new-era-at-arsenal/
    If it's true it's indeed an excellent news, our commercial revenue should improve sooner than expected.

  42. Matt,
    I saw that same article and immediately thought of the Swiss Rambler, since we discussed in the comments the strange under performance commercially of Arsenal earlier this summer. Glad you posted the link. I don't think however it was as informative as I would have liked about the commercial strategy.

    You didn't really engage my argument on the issue. It isn't pragmatic if you don't need the money and could already afford to improve the team in the positions you mentioned. Arsenal can afford to buy the players you suggested without selling Cesc right now.

    Why haven't we?

    This leads down a different line of inquiry. The real issue is whether Wenger will do it and spend over what he determines a player's value to be even when he has sufficient funds. I gave two examples that show that he would prefer to sign on a free a year later than pay more than he decides is acceptable value or to develop a player and promote from within. (Chamakh and promoting Fabianski rather than paying over market for a GK). (I see a couple recent exceptions--purchase of Arshavin and Koscielny that we could discuss).

    The more likely scenario of Fabregas' sale given all this is: Wenger will say that Wilshere and Ramsey add the creativity and give us the depth to replace Fabregas. He'll tout Nasri and Diaby and say where do you want me to fit in another midfielder? Denilson, Wilshere, Song, and Ramsey are all so young--do you want me to stunt their development? And so on.

    So why suggest selling Fabregas when we don't need the money to improve the squad because we have the money but Wenger thinks we also already have the young players and bargain free transfers to replace. I think he hung on to Fabregas because he didn't expect Wilshere to progress so quickly and would like him to learn from Fabregas and because Ramsey's development dramatically interrupted with is injury.

    The only reason I can see for selling Fabregas in this environment is for injury, as suggested above. If he is developing chronic hamstring problems, his value to us plummets and the team needs to learn how to play without him or in a somewhat different way, because we don't play terribly well without him currently.

    If you want to call for the strengthening of the squad, then you could simply call instead for an adjustment in the current policy and ask Wenger to use the money the club has already to surround our best player with better players.

    If the Swiss Rambler believes that transfer funds and not just wages needs to be factored into analysis of football performance and expectations, that would lead us to suggest that if the money is available, Wenger should perhaps spend more to strengthen the team. He clearly buys very well. I think he ought to seize a chance for trophies while he has a player like Fabregas, who makes other players even better around him.
    (I'd like to have the reference for the forthcoming book so I can read the article, please!).

  43. This is an astounding article and thoroughly deserving of praise.

    Many thanks for this intriguing read.

    My quibble with Wenger is his stubbornness in conceding defeat - he will not admit his experiment is not working on the pitch and refuses to supplement the core with necessary additions.

    We're not asking for £90 million quid to spent on 3 players - just for him to accept certain positions like the goalkeeper are fundamentally fucked and he just needs to buy a player, NOT stick with a recipe for disaster.

  44. @Limestonegunner,

    The book is called "Pay As You Play: The True Price of Success in the Premier League Era", written by Paul Tomkins.

    My piece is only a page about Arsenal, but there are some might fine other contributors, including Jonathan Wilson, Gabriele Marcotti, Daniel Taylor and Oliver Kay, commenting on their clubs.

  45. Another good article.

    Slightly off topic but am interested in the details about the 'property' side of the business and it's contribution to profits/turnover at Arsenal.
    Is this allowed under the new UEFA rules?
    Can clubs have other 'non football' parts to the club business that can contribute to the profits and possibly cover football expenses?

    Is it allowed in Arsenal's case as it's part of the move to the new stadium etc and another club couldn't just fold a property company or metals company into the football club to cover costs?


  46. I have a quick question with regard the new financial rules. Arsenal's balance sheet has grown by nearly a couple of 100 million since 2000 and we have circa 130m of cash which will no doubt grow even more when properties (that have no loans against them) are sold.

    So what I'm wondering is this: When will we see the benefit of all that P&L? When will we be able to spend it? Presumably we won't. I mean for a start no doubt all things being equal we will make even more profit going forward and they'll NEVER be a chance of us spending what we have already made in future years. So my next thought is why haven't we used it seeing that in effect we are going to lose it? I mean fair enough it's still there (for now) but I'm cynically perhaps seeing that the shareholders have one eye on this pot of gold. & in contrast perhaps had we already spent some of this (instead of making another 60 odd million again this year we may well have won something over the previous few years.

    Something is not quite right with our financial business model in my mind and I'm not talking about the seemingly magnificent profit we make each season.

  47. @mc5mu1,

    No, the property profits are excluded from UEFA's break-even calculation, as they are not football related.

    On the assumption that you are a Man City fan (from your nickname), you may be interested to know that I believe that the Sportcity development will however be included, as this is an exception to this rule.

    I explain this in greater detail in an article I wrote today.

  48. thanks Swiss - it did seem a large loophool!
    Will be reading your City article later.


  49. Always fascinating reading your analysis. I have turned a few of my friends onto this blog and they are equally avid followers now.

    Re the property side, I did a bit of digging last year and came to the conclusion, Highbury cost something like #220-230m to develop inc. interest rolled up on the dev. loan, so whilst they will turn a profit as you say, the key is how does that compare to the cash they could have received upfront in 2006 from a developer. That is really the benchmark against which any "success" needs to be viewed.

    I recall reading an article Keith Edelman did for some management periodical a few years back and he gave an idea of the offers, but for the life of me I can't recall what they were, but definitely below #50m I believe, which he felt was insufficient. Why he felt he was a better judge than experienced property developers I don't know, but there you go. Do you have any idea on what these figures might have been?

    Bear in mind had Arsenal gone done that route, it would have been cash in hand available to either reduce the stadium debt (the smaller shorter term bond for instance)or buy a couple of centrebacks and or a GK! They also would not have needed to find the additional max. #70m(I assume they got #25-30m in upfront buyer deposits) to finance the build out, which clearly drained the clubs resources and importantly diverted attention away from the other elements of the property portfolio such as Queensland Road which is at least two years behind schedule.

    Regards, and I look forward to your views on the latest trials and tribulations at LFC s well!

  50. Excellent article as usual. One point, though, that's more political than financial. When you mentioned FFP, you said "Arsenal will have no problem complying with the new rules," I find it a little naive. Certainly, Arsenal *shouldn't* have any problems, but whether they actually find their path clear will largely depend on Platini's political manoeuvres and how closely Arsenal toe his line.

    Ultimately, whether a club is found to be complying with the FFP regulations will be entirely arbitrary, decided by accountants entirely controlled by Platini, because the fair value provisions are effectively unlimited in their scope. Any transaction may be up- or down-rated, with no formal structure, and no appeal. It raises the admittedly implausible prospect of a profit making club, with money in the bank, being excluded from European competition because Platini's accountants have decided that, say, their amortisation costs don't reflect a fair value, and should be increased.

    I find it hard to see FFP as anything other than a grab for control of the game by UEFA. The 'fair play' aspect is just an excuse.

  51. Informative read. Few queries here.
    Will spurs and Liverpool face the same financial stress as we are in when they build their new stadiums?
    Regarding the t-Shirt sales, here in India, many people go for counterfeit merchandise made available by our gracious gulf neighbours. The reason is not thier cheap prices, but believe me or not, due to the lack of availability of the original jersey's. if you go to any Nike showroom, you would find plenty of ManUtd jerseys, personalised accessories,etc. But Arsenal jersey's are very rare to find. And if you manage to find one, you would get Walcott's 32 jersey or some old ones. If online shopping is the solution, then the currency conversion from Euro to Rupee makes them unaffordable. United have concentrated aggresively in the commercial oppurtunities available in Asia. They have sports bars, exclusive shops, and many more. Even Barca is following the same suite now.
    Coming to Arsenal TV, I don't understand why Arsenal is not going for a live 24*7 channel like its fellow competetors.

  52. @Jason,


    I've not seen any official figures, but some people even talk about offers as high as £100m for the property.

    I'm with you. I always felt that it would have been preferable to sell to a property developer immediately, especially as the market was booming, so the club could have secured a good price. As you rightly say, this has been a huge drag on management resources and represented a major gamble.

    It has worked out well in the end, but 18 months ago the club was clearly very concerned that it could end in tears. Although the property development has significantly boosted revenue, the actual profits to date have been relatively small. Of course, there are still some gains to come, so we don't yet know the overall picture.

  53. @Anonymous (2:11),

    I'm not overly concerned about accounting trickery (from either the clubs or indeed UEFA). Compared to most businesses, football is relatively simple, so it should be fairly straightforward to review clubs' accounts.

    For example, I would not expect Platini's accountants to spend ages reviewing player valuations and associated amortisation, as these will be performed by the club's auditors. However, if a club did something blatant like re-assessing players' values or changing the amortisation policy, then that would be reviewed.

  54. @Badgooner,

    Unless Spurs and Liverpool are given interest-free loans by a wealthy benefactor, new stadiums must impact them from a financial perspective.

    I think you're absolutely right that there is a lot of room for growth in Arsenal's commercial operations. They have invested a lot in putting together a new structure, recruiting high calibre executives, but now it's time for them to start to deliver.

  55. Cash City Rockers was a fantastic article.

  56. Brilliant article Swiss Ramble! I just found your blog and as financial side of football interest me a lot I find your pieces excellent. As, in my opinion, football club should not be any different from any other business, FFP is very welcome improvement because it should even out the maladjustments in ownerships of clubs and rationalize clubs’ activities so that they are more self-sufficient (or very close to it).

    Arsenal has for a long time been a village club, when it comes to commercial income. Like you’ve said, the commercial revenue for Arsenal is significantly lower compared to its main peers in English and European football, and this is due to financing the new stadium. I feel that in few years of time Arsenal is going, or at least should, renegotiate or resign themselves from the old and dragging commercial revenues, as shirt sponsor deal is. Although, it might hurt for a year or so, it would still be much more beneficial to the club for a medium to long term. If I remember right, Chelsea did this a while back and has not regretted it.

    Another commercial boost what Arsenal might introduce in near future is the introduction of pre-season tours. Like you put it “he who pays the piper, calls the tune”, unfortunately/luckily so far the guy who calls the tune is a stubborn idealist with no recent history of real success (Don’t get me wrong here, I appreciate Wenger a lot for what he has done and he has been the right person for Arsenal during the years of big changes). But I would expect that the board/owners/sponsors/anyone would put more pressure to Wenger, in order to win trophies or achieve better sponsorship deals. As, it is highly unlikely, in the light of transfer history, that Arsenal would spend big bucks in players and that way increase their population and receive better sponsor deals. Therefore Arsenal should do better CRM to negotiate better deals to strengthen their position in the important markets for the future but also to receive an immediate effect of commercial income. One can not expect that sponsor money just runs in without showing your face to the people where the money comes from (or to wins trophies), therefore introducing pre-season tours are almost essential in my opinion.

    Although, being profitable via player sales is possible, as Wenger has shown, it cannot be healthy for a club like Arsenal in the long run. It hurts the brand and therefore damages the club’s future. Selling players, whether they are past their peek or disruptive in dressing room, does not send a strong/right signal to partner’s of Arsenal, meaning sponsors (no wonder sponsor deals are abysmal). A feeder club status is not something to strive for. As Arsenal’s objective is to be one of the top-8 clubs in Europe, which it already is when measured by almost every indicator, it should act like one. I am definitely not crying after big name signings or that Arsenal has let a big names go to another club but certain self-respect Arsenal should have, even more as the hunger years should be in the past.

    Also, adventures in property business should be put away after the completion of the remaining project despite how lucrative they are. That is because, property business is not the core business of a football club, and it consumes time from the management to do their main tasks, or increases operational costs of non-football side.

    Is there a site what collects yearly reports so comparison is possible or do you collect and read all the reports from every club? Meaning, where you get the information how well each club has done during their fiscal year? Does such site exist for continental clubs, as you refer to other big European clubs?

    VV - Finland

    Ps. Chamakh was not purchased during this summer, he was a free signing.

    pps. Now of to you ManC article.

  57. It's crazy to look at the amount these clubs are spending on wages and then expecting the ones near the bottom to put up a fight in the league. the difference is astronomical. kudos to birmingham for fighting up to become a top half team with such limited resources (relatively - don't get angry non-league fans!)

    Jude Ellery
    editor, www.footballfarrago.com

  58. Great article again. Wonder if you will write a similar thing about manchester united's figures released two days ago. They are the most complicated figures i think and you are probably the only one who simplifies things and writes neutrally on football finances which are complex. Have igh hopes from you on an article on the united figures.

  59. @Anonymous (5:23),

    Yes, I hope to publish something soon on United's results, as there are some interesting (not to mention complicated) aspects, which I know have left many fans confused.

  60. swiss-you really do have too much free time! This analysis is almost wisden like now in its completeness. Anyway, to business. as others have said you must look at combined wages plus net player spend to see how team's should perform. spurs whilst being misers with the pay checks are super net spenders whilst arsene prefers to pay big wages and spread his risks. Still £130m invested in the team last year is not to be sneezed at even if he did then get £40m odd back.
    what i think is interesting is gazadis has gone on the record as saying they will use some of the surplus cash from property and past player sales to fund the commercial income shortfall for the next 4 years until the emirates/nike deals can again be renewed. with somewhere between £20-40m of spare dough last year and tax refunds of £13m to come plus what £34m minimum from property this year and more to follow in 2012/3 its clear there's plenty of extra spending power coming wenger's way.

  61. Great article, thanx

  62. Good article. Since the time this has been written, looks like player sales will resume this summer, with either Bendtner or Van Persie auctioned off as this summer's cash cow, probably the former.

  63. i've come across articles which states the arsenal encourages giving higher wages to youth players than other clubs and presently they have about 20 academy players out on loan.....most of the deals have clauses for the receiving clubs to pay wages...what do you make of the present situation..is this loan strategy provided to improve players or is it to reduce costs???

  64. @maddashr,

    My guess is that it's a combination of trying to improve players, but also putting young players in the shop window, if the club decides to sell them. I write about Arsenal's policy in more detail here:


  65. Great posts - like the in-depth financial reviews.

    Would like to find out if the article in The Goon Blog that Arsenal have outsourced all the retail operations and they only collect a small percentage of the profit, is accurate.


    If it is then it would be interesting to find out the percentage of the retail profit that Arsenal actually receive and the expiry date.

    If correct it would explain why the purely retail element is so low compared to other top 4 clubs. Would also explain why Arsenal have not aggressively opened retail stores world-wide. It would also mean that from 2012/3 the Arsenal revenue stream would rise dramatically and should be on par with other top clubs.

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