Arsenal’s Finances: The Plain Truth

Arsenal's Finances: The Plain Truth

I've noticed there's a lot of rubbish on Twitter about Arsenal's finances. If you're too busy to sort the wheat from the chaff yourself and you don't know which tweet is fact and which is fiction, here's a simple bullet point summary.
A quick edit on 22 Jan: this post was read by over 18,000 people in the first 48 hours after posting, so it's clearly a subject that interests many fans. For more detailed Arsenal financial info and to back the idea of supporter ownership and accountability at Arsenal, join the Arsenal Supporters' Trust.
The overall picture

• Arsenal have some cash, but cash balances and cash to spend aren't the same thing
• Balances are different depending on time of year and when money comes in – season ticket monies come in at a set time, and always artificially inflate cash balances
• We only get to see cash balances reported on two specific dates namely 31 May and 30 Nov – these are accounting reference dates
• Money going out is more constant – players are paid each month, bills maximum quarterly, interest on debts six monthly, etc
• Property profits are much lower than originally projected
• There are separate companies set up under Arsenal Holdings PLC, for the football club itself, the stadium development, etc – 12 in all – but what gets reported on is the overall picture.
• The stadium costs were said to be ring-fenced; this was never more than half a truth.
  • What was known was the overall cost of a new stadium (£440m), as long as it was on budget, which it was.
  • So the new stadium was built and paid for out of loans of £260m, ITV share money (£80m) and £100m of up front sponsorship cash from Nike and Emirates
  • There is still interest to repay on loans taken out to finance the stadium build, BUT this is covered by the additional income from much larger gate receipts, so in that sense the stadium debt IS ring-fenced.
• Alongside the building of a new stadium there was property development, mainly at Highbury.
  • What was also expected was a fat profit on the sale of Highbury flats, which would have removed any worry about ring-fencing anything
  • What happened was that property prices and demand plummeted, so that it took much longer than expected to reach the break even point on this property (not inc. new stadium) development
  • The non-stadium property development is now making profit that drip feeds in to the football pot.
  • This was always seen as a bonus – but the bonus turned out to be a lot smaller post-banking meltdown than was originally expected.
• The surplus gate receipts, over and above what was received at Highbury plus debt interest, goes into general available funds, so the new stadium is therefore a net contributor
• So are we better off than had we stayed at Highbury? Clearly we are.
• The wage bill gets bigger and bigger every year.

Transfer spending

• People point to Arsenal's net transfer profit in recent seasons, saying it's bad that we make a profit while all our rivals make a transfer loss. This is both stupid and irrelevant – there's a pot of money to spend on wages AND transfers, and our wage bill is huge, fourth largest in the Premier League. Tottenham have spent much more on transfers and much less on wages – why is their way held up as being better, when the results don't back it up?
• A good manager doesn't need to spend a fortune in the transfer market. Brian Clough won two European Cups with a small provincial team and a tiny turnover compared to the likes of Liverpool and Man Utd at the time. Looking at transfer spend only is pointless. He did buy the first million-pound player though, who scored the winner in that second European final. There's probably a lesson here on speculating to accumulate.
• People forget we do actually buy players: Gervinho, Arteta and Oxlade-Chamberlain added together in transfer fees equals Fabregas; their wages added together equal more than Fabregas.
• The wage bill gets bigger and bigger every year.

The accounts

• Very simply the accounts work like this:
  • Add up all the money coming in: TV, gate receipts, prize money, sponsorship deals, merchandising, property sales
  • Add up all the money going out: bills, debt repayments and interest, running a stadium / training ground / offices / museum, admin, staff costs for everyone other than players
  • Work out the surplus: this is what you can spend on players, assuming there are no shareholder handouts (none at Arsenal for 40 years) or increased debt charges
  • If the club is well run, the surplus goes up each year.
• The surplus may look bigger or smaller, depending whether you measure it before or after a big chunk of income arrives
• Let's say the surplus is £100m. That means wages plus net transfer spend can't exceed £100m (without making a loss, which is not the Arsenal way).
• But it's slightly more complicated, because
  • when you sign someone you have to take their future wages into account as well,
  • and when you sell someone you don't end up spending the wages you thought you were going to.
  • As well as that, players get extended and improved contracts. So the amount of money available is a constantly moving target.
  • Not only that, but Arsenal don't announce either transfer fees or wages, so we have to make educated guesses based on figures in the published accounts (which are always several months out of date by the time we see them) and perceived market value of players.
• There's one thing we do know, though: the wage bill gets bigger and bigger every year.
• Analysis of all this leads educated observers to believe there is approximately £40m 'spare' at present - not that we know if it is available to the manager or not.
• In today's transfer market, that is not huge, but most supporters could list a dozen or more players not playing, not performing or out on loan who could be removed from the wage bill without adversely affecting the team.
• Whether the manager disagrees or agrees and is just having trouble shifting them is unknown, though Ivan Gazidis has admitted in conversation with AST members last month that there is some 'fat' to trim from the wage bill
• Arsenal prefer not to speculate to accumulate.
  • If there's £40m, they'll spend a maximum of £40m.
  • If there's a danger of missing out on Champions League income, they may save money to cover that

NB:

• All the above takes no account of whether Arsenal's policies are right or wrong! It's just the facts of the current self-sustaining policy.
• Who decides what to spend on players? Generally the manager from a wages and transfer budget that he is allocated by the Board (basically all the spare cash after expenses), but the Board undoubtedly influence decisions such as the Nasri sale who would have been a "free" this coming June

And to digress slightly from the main subject, Ticket prices:

• Rumour has it that ticket prices may rise again this year. I've seen many people say, "I wouldn't mind so much if they invested the extra into the team."
• Gate income is approaching £100m a year; wages are approaching £130m a year. The extra IS invested into the team - did I mention the wage bill gets bigger and bigger every year?
• Is this justification for increasing prices further? No.
• If supporters were prepared to go and watch whichever team gave the most value for price and entertainment, it would be a whole different ballgame. They're not, so it's important for fans to pressure the club into acting fairly on tickets
• Ideally loyalty should be rewarded: those who go most often pay least
• The club's justification for a 4% rise last year (6.5% inc VAT) was that prices hadn't risen for several years. Their justification assumes that prices were at the right level when they were last raised.
• I'd argue they were too high then and they're too high now.
• Increasing them further when the club is struggling (relative to recent history) just adds insult to injury.
• Commercial revenues are relatively poor compared to our peer group. Even a neutral observer of Arsenal's business operations would say that is where the work needs to be done to increase revenues; why should supporters, the lifeblood of any club, pay more to subsidise poor performance of the commercial team?

I hope that's all clear, but feel free to ask questions.
Oh, and follow me on Twitter: @AngryOfN5