In the last 24 hours at least three national newspapers wrote about a report on Arsenal’s finances that’s just been published by an investment house called CSS. This report claimed that Arsenal would have only around £4m to spend in the summer transfer window, unless they took advantage of a £50m overdraft facility that, as far as anyone is aware, the club has so far never used.
Now we all know that Arsenal’s famous cash balance – over £200m in the accounts last May, and £159m at half year in November 2015 (when it’s always a bit lower) – is not ALL available to spend on players. There are other bills to be paid. The cash balance goes up and down during the year depending on when chunks of income are received and whether any big purchases are made. It’ll be up around £200m again by the end of May 2016, though, and this report wants us to believe that out of that only £4m is spare! Arsenal have just been ranked as the fifth most valuable club in the world by Forbes (pinch of salt required on any Forbes figures, but still), and are around the same ranking for turnover, but apparently would barely be able to afford another Ligue 2 defender!
So what is the truth? The truth is that expert commentators like the AST and Swiss Ramble, both of whom study the Arsenal accounts closely, believe the available funds figure is a lot higher than £4m.
Here’s a summary of what the report said and why it’s wrong. A fuller version with much more explanation is available on the AST website here.
First the report estimates what Arsenal’s overall cash position will be at 31 May 2016. To do this you take the accounts from May 2015 and November 2015, and use your knowledge of income and outgoings based on known events and all the activity of previous years. This is standard accounting practice and not difficult for anyone used to reading accounts. So there are estimates for revenues from retail, match income, property, etc, and outgoings of wages, amortisation, depreciation and so on. This brings you to an estimated Profit & Loss account figure. The report estimates a profit of £3m while the AST estimate is a loss of £7m. Not a huge difference.
However, for reasons I won’t go into here, the AST has markedly different figures for player valuations and outstanding amounts payable for player purchases than are in the CSS report, which means that CSS assume the cash balance at May 31 2016 will be £228m (exactly the same as May 2015), while the AST assume £199m. On the face of it this is bad news – CSS say there’s only £4m spare of £228m, and the AST say there isn’t even £228m!
The CSS maths then goes like this:
- £228m cash at 31 May 2016, minus the amount that can’t be spent due to loan agreements (CSS estimate £32m) = £196m
- Add in debtors outstanding at the end of May (CSS estimate £75m) = £271m
- Deduct full amount of creditors outstanding at the end of May (CSS estimate £267m) = £4m
That’s the kind of accounting that people who aren’t accountants do. It implies Arsenal stop trading on 1 June 2016 and just settle all unpaid bills. For it to be correct it would mean that:
- no cash would be generated from trading in 2016-17 that could be used for player purchases next season – ie Arsenal will trade at a loss up to May 2017
- there’ll be no debtors or creditors at the end of May 2017, bar existing long term creditors (eg bonds and the stadium mortgage)
- there’ll be no season ticket renewals in May 2017
- all taxes and bills are paid immediately every month
- all money due from Uefa and the Premier League will be paid in lump sums immediately it’s due
These things won’t happen.
For a start they’ve assumed there is no room for revenue to grow at all, despite the new TV deal delivering an estimated £45m extra!
So what is the proper figure of available cash for transfers?
The AST figures are worked out like this:
Estimated cash at 31 May 2016 = £199m
- amount held as agreed for debt servicing, estimate of £35m: running total £164m
- net amount due on existing player purchases during the next 12 months, estimate of £30m: running total £134m
- allowance for working capital, £30m: running total £104m
- allowance for debt repayments scheduled, £8m:
Which leaves: £96m
Which as you can see is a bit of a difference.
You can argue that Arsenal should keep some of that £96m in reserve for a rainy day, but bear in mind that the new TV deal guarantees tens of millions of additional income over and above wage increases (which are capped), and several big name players on big money are definitely leaving in summer 2016.
CSS say the £4m available can be boosted to £54m by using an overdraft facility. As mentioned above, there’s no sign Arsenal have ever done this or intend to.
So given it’s so far wrong, why did the papers not check this estimate out with the AST or the club? Of course as soon as one prints it, others jump in as they don’t want to be left out. They’ve all printed ‘highlights’ of it, but in order to get the full report you have to go to the investment company’s website and put in your email address. As any marketer knows, there is nothing more valuable than a bona fide list of email addresses of people interested in your product. The returns on selling to people who’ve signed up to email lists are so much higher than those from random spamming. A cynic might suggest that a report could be deliberately “provocative”, so that those who read it and recognise that it’s unrealistic will unsubscribe from further marketing emails, leaving the gullible on the list to have further marketing thrown at them. I’m not for a moment suggesting this is the case here, just that it’s a tactic that some unscrupulous people might employ.
I guess all I’d say in conclusion is don’t believe everything you read in the papers.
STOP PRESS: Arsenal somewhat unexpectedly came second in the Premier League! The jump from third is worth an extra £1.25 million in PL prize money, and approximately an extra £3 million in Champions League cash as a result of a bigger share of the Market Pool money for English clubs (half the pool of about €90 million is split 40% / 30% / 20% / 10% for first to fourth places; Arsenal will get 30% of €45 million rather than 20%).