Some more Arsenal finance principles

These articles appeared in The Gooner in 2009 following the release of the Arsenal Holdings financial results. Obviously figures quoted are no longer applicable, but a lot of the general information and principles are still valid, and help to explain the background on the financial position – though Champions League qualification has become even more important.

Hard Times

We’ve struggled on the pitch this season, but what about off it, and what do Arsenal’s latest published accounts really mean? Nigel Phillips of the Arsenal Supporters’ Trust chats to Phil Wall

Phil Wall: Nigel, the figures just released by Arsenal are up to the end of November last year, and if you only read the Chairman’s statement you’d think everything was rosy – is it?

Nigel Phillips: I think the key there is that the recession hadn’t really started in the six month period these figures cover, so things were rosier all round. Really there are no big surprises, because the main income and expenditure is quite predictable and hasn’t changed hugely. The underlying message is that as long as the stadium is sold out and we qualify for the Champions League we can make a profit – just. Spending pretty much matches income.

PW: Presumably that depends on how much goes out in wages and transfers though?

NP: It does. And of course the property side of the business has an effect too.

PW: Let’s just talk about wages first – do we know who gets what?

NP: Not really – Arsenal don’t tend to give much information away, as we all know. We’re rarely even certain about the true price of players we buy. We can make educated guesses about what individuals get paid, because we know total wages are around £100m a year, and obviously we know the squad details, and that the manager believes there should be some equality – not everyone getting the same, but youngsters and junior squad members seem to get more than elsewhere, while we don’t have the Rooneys and Ronaldos on over £100,000 a week.

PW: I know the wage bill is something you’ve done some work on trying to figure out . . .

NP: It is. Fans have criticised the Board about ‘not investing in the team’, but our wage bill is bigger than the total turnover of almost every English club outside the big four. What is that if not investing in the team?

PW: Well the response to that is likely to be that supporters don’t want to see the ‘water carriers’, to use Cantona’s phrase, getting huge wedge for little impact – they’d rather pay, I don’t know, Eboue, to pluck a random name, much less, to have enough left for the occasional big name signing.

NP: A valid viewpoint, but surely if we want Wenger in charge we have to accept his methods? The recession might drive players’ wages down, but that always takes time. Other than that I can’t see much leeway in the costs – running the stadium is only going to get more expensive, for example.

PW: Okay, what about income then. How’s that looking?

NP: Well as I said, for the period these accounts cover it’s fine. But we don’t know if we’ll be in the Champions League next year and whether the recession or other factors will greatly reduce the matchday income next season. If Club Level and the boxes aren’t full we’ll need pretty much every other seat sold to keep up with expenditure, and season tickets will be harder to shift this year. It’s a test of the willingness of everyone on the waiting list to pay up, because many people probably won’t renew, whether through choice or job losses or whatever.

PW: And if we’re not in the top four?

NP: The CL money is about £40m if we have a good run. We’d be lucky to get a quarter of that through the UEFA Cup, or Europa League now. That’s a big hole. We’ve also been relying on Arsène to make a profit on player trading, which he usually does.

PW: And then he gets accused of turning us into a feeder club . . .

NP: Exactly. However, the point about income is that next season will be during the recession – times are getting tougher, and Arsenal need to sell seats renewal season tickets this summer. 

PW: Let’s talk about the property and the debts. What do the accounts give us there?

NP: Debts are where they’re expected to be. It’s a complex picture because different parts of the overall debt are at different rates and for different periods, and there are insurance premiums to pay against some of it, and so on. We can still be grateful that Keith Edelman managed to renegotiate loans at good rates on the new stadium debt while he could. Actually there’s one thing I want to say about cash balances: people sometimes see we’re holding a big cash balance and say, well why aren’t we buying players with it? But it’s mostly held as part of the loan agreements to cover future repayments, or to finish the building work – it’s not spare money. That does seem to be a misconception.

PW: How much cash have Arsenal got?

NP: As at last November, about £76m. But that’s nearly all in specific debt service reserve accounts or else to complete Highbury Square. Kaka is not on the shopping list!

PW: We’ve got Song anyway, so who cares?! Am I right there’s more information than before on the sales of flats in Highbury? I’ve heard rumours of very low completion rates and people wanting to back out or rearrange terms.

NP: All true. My feeling is the club has probably opened up a bit on this one because there are rumours out there. Again, it’s quite complex to explain the detail briefly, but Arsenal are quoting 186 completions out of the 655 units being built. I estimate that they need to sell another 340 apartments to fully repay the loans, after which everything is pure profit. A company called Fraser and Neave have contracted to buy 125 apartments, which would go a good way towards that, but they’re apparently ‘seeking assistance’ to complete, which is a concern.

PW: What’s their angle?

NP: I assume they just saw it as a simple investment opportunity – sell on the completed units for a profit – but the market has changed. Trouble is, the club are in a position where it will take a lot longer to get their money back and make profit for the football business, and that’s obviously not good news.

PW: You mentioned the ‘football business’ there, is the property side having an effect on Arsène’s plans, or the Board’s plans, for footballing matters now?

NP: Well the Board always say the property side is ‘ringfenced’ and legally separate. That’s difficult to see in practice, because it’s almost inconceivable that Arsenal could, for example, default on property loans without involving the football club. And the idea of the property was to make profits for the benefit of the football side, and that’s not happening yet, so yes, it must have an effect.

PW: Arsenal recently got planning permission to develop the other site at Queensland Road. What’s the deal there?

NP: Queensland Road is now fairly inconsequential compared to Highbury. There’s a £5m loan on it, but with the state of the market I can’t see significant profit or loss there in the foreseeable future. It was originally  hoped Arsenal could sell it for about £50m.

PW: There’s plenty more we could talk about, like the sponsorship deals and the retailing, but we’re going to run out of space. Can you give Gooner readers a quick summary of the overall position and what these latest figures tell us?

NP: Overall they show a self-sustaining business model that works, but expenditure is currently geared to the good times, not a recession. Property is hanging over Arsenal in a way that was never envisaged. We need to qualify for the Champions League and keep the stadium full or nearly full. The next published figures will tell us more, but IF we finish top four and IF Highbury Square sales keep going and IF the ‘premium’ seats in the ground get sold then Arsenal as a business will ride out the recession without needing major cutbacks in spending – ie wages.

PW: Nigel, thanks for that analysis. As we speak, Emmanuel Eboue has scored three goals in two games, so maybe the good times are back!

Rich Man, Poor Man?

Arsenal’s accounts to May 2009 were published a few weeks ahead of the AGM in October. So the big question: Does the manager have money to spend or not? 

Nigel Phillips, financial wizz of the Arsenal Supporters’ Trust, chats to Phil Wall

Phil Wall: Nigel, earlier this year we looked at the accounts to November last year. Six months on, what’s new?

Nigel Phillips: Up until May, not a huge amount. All the action came over the summer really, with Toure and Adebayor sold and almost 250 Highbury Square flats too. Those two things brought in around £110m, which changed the picture quite a lot. If you recall, Red and White Holdings – Alisher Usmanov – were suggesting in the summer that the club were so short of funds that a rights issue was needed. That particular message is less strident at the moment. But as for the published accounts to May, not very different to the previous 12 months. In a recession, that’s a good result.

You’ve made the point before that a lot of the income is easy to predict, as it’s gate money and TV deals.

Yes, those make up over three-quarters, and the rest is retail and commercial, which are also fairly predictable. The joker is always player trading. Arsène usually makes a profit – £23m in the period to May, and of course the Man City money since. The obvious question is, where does that go? And it does go back into the squad. Part of the stadium finance deal’s terms say that 70 per cent has to be reinvested, or held aside to reinvest in players, and the club do say that all transfer profits are available to the manager.

So Arsène has to buy?

There’s the catch: it can go on wages too. And a lot of players get improved contracts at Arsenal.

Some would say rather too readily!

It’s not my place to comment! But Arsenal keep that part of the finances very close to their chests: undisclosed transfer fees and no wage breakdown. We know matchday revenue and wages are both about £100m, though wages are probably rising faster. Realistically ticket prices will rise at the rate the market can stand, which means as long as the stadium stays full, they’ll go up. So far all seats sell, despite the recession. But there’s no sign of a credit crunch in player wages! 

Tell me about it. So Arsène might be just spending his transfer profits on the world’s highest paid youth team?

My view is that there is still money to spend in January – £40m in for two players, and Vermaelen was the only summer purchase of any size. Of course there was Arshavin in January as well, but even so my reading of the accounts says there are funds available. Though I should add that the club always says, both publicly and privately to the AST, that the Board don’t interfere in football management, so no one is telling the manager to buy.

What about the Highbury Square sales, does that affect what Arsène gets?

Not at this stage. Ultimately the club hope to profit on the property business and feed the football side, but at the moment we’re talking about covering building costs and debt repayment. Selling 150 flats in one block in the summer was a big bonus, but a further 100 flats need to be sold to clear the property loans.

Do we still rely on Champions League qualification for a cash boost?

It’s important, certainly. The Chairman said again at the AGM that they budget for qualifying three years out of four, but of course if you slip out it might be very hard to get back in. It’s about £40m for a good run in the competition, so even one year without that means no profit.    

So in summary, with a full stadium and CL qualification we can stay in the black, and if Wenger wants to spend in January he can?

In summary, yes!

No doubt many fingers are being crossed. Thanks Nigel.

Nigel Phillips is a Board member of the Arsenal Supporters’ Trust. Membership of the Trust costs just £2 a month. See

Twitter: @AngryOfN5


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