Arsenal’s Cash Balance Drops By £64m, But The Problem Is Much Bigger Than That

This is an update on what I wrote this time last year, when after a couple of years of the cash balance dropping it was back up to a record of £231m. Today the Arsenal Holdings accounts for 1 June 2018 to 31 May 2019 were released – on the last possible day they were officially allowed to be. As last year, the club have ditched the glossy brochure and any fanfare, preferring the quiet release of a black and white PDF report on Pre-Kroenke taking 100 per cent control, the accounts were always released in October ahead of the AGM. Now there’s no longer an AGM, no other shareholders to keep happy, and no need to spend money on frivolities like colour pictures.

Regarding the cash situation, as you can see from the graph, the amount of cash Arsenal hold was on a generally upward trajectory since 2006 when the stadium move completed and the debt from that was restructured into a 25-year deal. Having spent £400m on the stadium the Board, fairly conservative by nature anyway, probably thought a bit of a cushion was advisable. Then the property crash happened and they thought an even bigger cushion was needed. And what if Arsenal dropped out of the Champions League? Better save enough to cover that for a season or two as well.

Then Stan Kroenke became majority owner, with a clear modus operandi of continuing the self-sustaining policy Arsenal had followed for generations. With one small alteration: he’d take a bit of money out as fees for unnamed services. Only £3m a year to begin with, but that’s still the wages for one first team player. The payments to KSE lasted only two seasons, such was the level of protest and the complete inability of the incompetent Board to justify them.

So the combination of the traditionally ‘safe’ behaviour and Stan Kroenke’s aversion to spending meant the cash balance increased year by year until it reached levels where not spending big money on players was starting to look completely ridiculous. If they didn’t want players they could easily have reduced ticket prices to a quarter of what they are and made all refreshments in the stadium free, but those things must not have occurred to them. So the likes of Ӧzil and Sanchez were bought. “At last”, said lots of people, “Arsenal can afford big players” – ignoring the fact that Ӧzil-sized fees could have been paid three years earlier – check the cash balances.

Eventually Arsenal did drop out of the Champions League, meaning a reduction in Uefa prize money, and ticket income stalling. Meanwhile wages and transfer fees keep going up, not to mention all the expense of running the club. On the credit side of the sheet, the TV money also goes up, but because everyone gets that it just leads to even more inflation in wages and transfer fees, and agents becoming even richer. The net effect was that Arsenal’s cash pile started to diminish at last, until record sales of players in 2017-18 gave a profit of £120m on transfers. Up goes the cash pile again. But that was temporary. Another season without the Champions League meant missing out on another £35m or so of income, and there’s no way of making £120m a year profit on transfers every year.

So the cash balance reached a record high in 2018 and at May 2019 was back down, but how much difference do either of these things actually make? Although clearly the richest clubs win the most trophies, there’s more to it than that. Spurs had much lower turnover and spent a lot less than Arsenal on wages for decades, yet clawed their way nearer until they at last managed to finish higher in the league, which they’ve done for three seasons now. They still haven’t won a major trophy since the middle ages, but they have improved. So clearly you can get to the level Arsenal are at by spending less than they are. Leicester, of course, won the league on a spend of peanuts, but even if you discount that as a freak occurrence, look at Man U: they were spending massive sums and getting nowhere under Mourinho, then under Solskjaer they won their first eight in a row and looked a completely transformed team. Since then they’ve struggled for consistency again. So yes, it obviously helps to be able to afford the best players, but the right coaching and management is also important.

Having swapped Emery for Arteta, have Arsenal now got the right coaching and management? That’s the big question. Ultimately it probably makes little difference if Arsenal have a turnover of £380m or £420m, or if they have to spend £20m on debt repayment out of whichever of those figures it is, because a difference of five per cent is minimal and can be wiped out by a single transfer fee negotiation. Stan Kroenke taking a £10m dividend or fee on top of that would make things a little bit harder, but ultimately you adapt your business model to what’s available. Spurs haven’t been and still so far don’t spend £200m a year on wages, because their turnover has not allowed that; Arsenal do, because their turnover allows it. But Spurs have coached their players to perform better over 38 games than Arsenal in recent seasons. As it happens, Spurs’ turnover has now overtaken Arsenal’s but their stadium debt is bigger so they’re still not throwing money around.

Either way, Arsenal and Spurs are both stuck below the Manchester Clubs, Chelsea and now European Champions Liverpool in terms of income. This doesn’t make it impossible for Arsenal (or Spurs), but it certainly makes sustained success more difficult.

So a cash pile of £231m or £167m isn’t hugely relevant. What’s more important is the underlying financial strength of the club, and where that places it in the list of clubs it’s competing against. On top of that you need a manager/coach who gets the best out of players if you want to win trophies. The team has to become more than the sum of the individual parts.

Results and performances for Arsenal for quite some time have been distinctly mixed. Wenger won the Double in his second season, which is a feat unlikely to be repeated. George Graham and indeed the great Herbert Chapman took longer to get going, but both eventually built sustained success. We can hope that Arteta follows. The problem right now is that the distinct possibility of dropping out of European competition completely next season, for the first time since most of the current players were born, is going to mean an even bigger hit on the finances, not to mention making it difficult to attract players. Arsenal are rapidly becoming the smallest of the ‘Big 6’ and in danger of becoming another Everton. At least the ‘Be careful what you wish for’ brigade can laugh.

Twitter: @P_h_i_1


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