** Update at 6:30pm BST 22 Jul **

I realised I was underestimating sponsorship money with the uplift from Emirates and the Adidas deal being much more lucrative than the previous Puma deal. This means that the current cash situation is likely to be better than I’d thought, so I’ve amended the tables below. This raises the possibility of a small net transfer spend, though there will still be a large hole in the finances later next season if the usual £90m+ of ticket money doesn’t arrive. 

How much cash have Arsenal got to spend?

Arsenal are traditionally a cash-rich club, but Coronavirus effects are hitting football hard. Premier League clubs have seen income streams dry up and they face great uncertainty as to when things will be back to normal. Most clubs will struggle to meet their commitments over the next few months, with TV money deferred and reduced and no immediate prospect of many selling season tickets. Meanwhile wages – the single biggest cost for all clubs – still have to be paid, along with all the other running costs of a major club. In Arsenal’s case, running costs are close to £90m a year.

So what’s currently available? I’ve done a cashflow based on the start date of the published accounts from 2019, added in all income and taken off known expenditure to see what the position is now, and for the next couple of months.

Caveats: It’s rough and ready, figures are approximate or rounded, some may be a little over or under, some dates may be out, but the totals of income and expenditure are realistic (and the problems are very real).

If you want the short story, here it is:

• There’s very little money for transfers this summer, apart from what can be generated by sales
• Arsenal’s cash is much lower than it’s been for years, and depending when income arrives might be close to running out
• The wage bill cannot be allowed to increase
• Özil is a giant millstone – ideally he needs to be sold ASAP
• If there’s vastly reduced ticket income for 2020-21 and/or no European football the problems will mount during 2020-21, so big spending is unlikely

This time last year Arsenal would have had a cash balance of around £175m. Even with big summer spending in 2019, they would have expected a higher figure for July 2020 due to the increased sponsorship deals with Emirates and Adidas.

KSE are taking over the majority of the debt and freeing up the £36m debt reserve, and this will help keep Arsenal from needing their overdraft when stage payments for players bought in previous years have to be paid in August.

Can anyone be bought? Yes, but it depends on the deal. Depends who can be sold to reduce the wage bill. Depends whether the club (Stan) want to take a risk on season tickets being sold for 2020-21.

But don’t expect a net spend in tens of millions. Don’t expect Stan Kroenke to put his own money in either. It hasn’t happened so far, and it won’t happen to fund transfers, no matter what anyone else tells you.

 

If you want more detail, here’s the long story:

Arsenal have for years been a cash-rich club, but with a very high wage bill and a reliance on ticket income that’s proportionally higher than anyone else in the Premier League.

Covid-19 and the three-month delay to the season has meant a loss of ticket income for the games played since the season was postponed, season ticket income for 2020-21 has been delayed and will probably be much reduced and some broadcast income has been delayed. Worst case is that sponsorship deals and income from them are also affected. Meanwhile outgoings have only dropped slightly, with the much-publicised wage cuts and running costs down towards close-season levels during the hiatus.

What this means is that Arsenal’s cash was substantially lower at the end of May than it would have been if the season had played out normally, and it’s continued to drop since.

As most people know, around £36m of cash has had to be held in reserve as a guarantee for future debt repayments. Arsenal recently announced that KSE UK, the club’s sole shareholder, would be taking over this debt. The terms (and therefore the long-term implications) aren’t fully known, but it does mean that from 11 August Arsenal will no longer need to maintain the debt reserve. This is useful because the club may (depending on when broadcast and sponsor income arrives) be close to running out of cash, and could even be effectively using their overdraft facility to keep the Debt Service Reserve Account topped up. There will be some relief if the remaining Premier League TV income is largely paid by the end of July, and further relief when KSE officially take over most of the debt on 11 August.

However, the next problem immediately looms: there was a big net transfer spend in the summer of 2019. Again as most people now realise, all big transfers get paid in instalments, generally over 3-4 years, and this year’s payments will be due by August. Without the debt reserve being freed up Arsenal could struggle to meet those payments from reserves.

This means there is not much of a transfer war chest. There is little available, except what can be generated by sales, and the club will want to reduce the wage bill substantially. But it’s a buyer’s market, because there are very few clubs with spare cash and many players around Europe, including some still within contract, will be released. So anyone expecting big money sales will probably be very disappointed. (Guendouzi for £30m? Only if PSG are smoking the extra strong stuff.)

Assuming next season’s TV money starts to come in from September and some tickets can be sold, then the position may ease a little. Qualifying for Europe would also help, with a minimum £25m-£30m guaranteed during the season. Arteta has talked of the scenarios of doing a lot, a little or nothing in the transfer market. I think he can forget ‘a lot’ and concentrate on working with little or nothing.

I would also stress that this is not worst-case. Worst case is Arsenal have to pay more to other clubs in money owed than I’ve estimated, very few or no ticket sales are possible for several more months or longer, and next season’s TV deal is further reduced. If all those happen the problems will be far bigger.

Bear in mind also that cash is normally at its highest level at the start of summer because it’s used to cover costs through the many months of the season when income slows down but expenses don’t. So it’s not a good position to be going into September with nothing in the bank – unless something changes there’ll be a fat hole in the finances by spring. So even if there appears a relatively healthy position right now, spending tens of millions is very unlikely.

What can alleviate this situation? Well the obvious answer is Stan Kroenke investing money into Arsenal for the first time, as opposed to into Arsenal shares or debt takeovers. Will it happen? My guess is only if there is absolutely no alternative. We might reach that point before the end of 2020-21, depending what can be done with the wage bill, whether fans come back in large numbers and whether Arsenal qualify for Europe.

Meanwhile, we wait to see whether Stan Kroenke is prepared to put Arsenal into a bigger deficit position to build a more competitive team. (And whether the KSE debt restructure is a short-term and very temporary gain ultimately balanced by a damaging long-term loss.)

Here are tables of my workings. Firstly the expected position if the season had played out normally, and then the current position with a lot of income delayed or gone.

 

Notes on the table (refer to numbers on the left):

1 Platinum tickets – Club level and boxes – are renewed earlier than standard season tickets, so income expected in April and May.
2 Season ticket deadline is normally end of May, but in 2019 renewals went into June due to the Europa final right at the end of May. So assumed all Gold season ticket money in June.
3 Non-season ticket matchday income is assumed equal through the year, other than summer. Obviously the number of home matches in any month affects this, but not drastically.
4 Premier League payments are split into categories with the biggest lump sums at the start and end of the season.
5 Facility fees depend on appearances in live televised games. I’m assuming monthly payment a couple of months behind the appearances, with a larger final payment at season end.
6 Merit payment depends on final league position and is normally paid by the end of May.
7 Overseas payments are shared and are in tranches through the season.
8 Commercial share paid at the end of the season.
9 Champions League or Europa League pool money – the equal split for the qualifying clubs – is in two tranches.
10 Merit money is paid in instalments, with payments in spring depending on progress through the competition.
11 Uefa payments are set in euros, so subject to currency fluctuation for British teams.
12 The Emirates and Adidas deals are assumed to in two lump sums, and it’s assumed there is no delay to 2020 payment.
13 Other sponsorship, including the Rwanda shirt sleeve deal, is assumed to come in throughout the year, with a boost in summer as it’s mostly on an annual basis, but total amounts are not huge.
14 Retail (shop and mail order sales) are assumed to be roughly equal month by month, with a boost for new shirts in summer, start of season enthusiasm and Christmas sales.
15 Any loan fees are assumed to be received up front at the start of the season. For 2019-20 there were loans both ways, so the net figure is not enough to make a material difference.
16 Property profits may arrive any time of year, but are now largely finished so won’t make any material difference.
17 The biggest expense is wages, which is roughly equal through the year, though liable to small rises. Only bonuses will alter that, and even they are likely to be spread.
18 All other expenses of running the club and stadium, offices, travel, training ground, etc.
19 Net spend of £93m in 2019. Deals aren’t all paid in one lump sum, but usually spread over 3-4 years, so assume upfront cost of £30m.
20 Net in 2019 was £53m owed, so assume net payment about 1/4 of that.
21 Debt repayment is believed to be 6-monthly in March and September.
22 Spring is usually the time when cash is lowest. If it had been a ‘normal’ season, cash at 31 May 2020 would be expected to be around £228m including the debt reserve.

Covid-19 influenced version:

 

1 No season ticket money coming in for April or May 2020. Possibly some in August and September?
2 No matchday income since February.
3 Possible new season fee in September, but may be reduced due to ‘rebate’ agreed.
4 Facility fees for live televised games deferred to summer.
5 Merit payment deferred to the amended season end date – assumed not paid till August.
6 Final payments for overseas and commercial assumed deferred to the amended season end date – probably paid in August.
7 Early exit from Europe, so assumed no change to previous prediction.
8 Assume little or no change to sponsorship arrangements, though possibly some payments will be deferred.
9 Possibly some loss of retail sales due to postponed matches, and summer boost probably delayed.
10 Loan fees unknown, but unlikely to make a material difference as there will very likely be ins and outs roughly balancing.
11 Wage bill slightly reduced from April due to cuts.
12 Other costs assumed lower from March due to stadium running, some team costs, etc.
13 For 2020, the net figure owed will have risen due to big 2019 spending, so much higher payments will be due to other clubs.
14 Will probably change in 2020-21, but details of KSE refinancing aren’t known.
15 Debt reserve is freed up in August by bond debt restructuring.

 

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