Arsenal’s Finances: What do they mean for our transfer window?

I recently came across a table on the internet that I personally found fascinating, and to be frank, it made me very proud of our team.

I guess I always knew that it was the case that we spent less in the transfer market than all other clubs who finished in the upper end of the table, but it is nice for the difference to be presented so well in a way that I can show to my Tottenham supporting friends. Sadly, when I did show one in particular, he just laughed at me. I couldn’t understand. We had spent £21 million less than Spurs in the transfer market each season for the last five years, yet we have finished above them each and every year. Surely that should be embarrassing for he and his beloved team.

He then went on to point out to me that Spurs had spent the fourth most through that period, and at the end of it all they had finished fourth in the table, so really he wasn’t too concerned. Anything better than fourth and they were doing really well. More importantly, however, he pointed out to me that my club were a top club who were getting top level results each year, yet through the way our club was managed financially we were losing out on deserved trophies. If we spent the same sort of money that Manchester United spent (a difference of around £17 million each year) then we would surely have a trophy to show for that very same period. Whilst I argued with him about it for a while, I thought he was right. Why is it that despite our obvious financial advantage we are rarely treated to a big signing?

A common assumption that many of us make about Arsenal is that we are a club who are in a very strong financial position. The impression is that we have lots of money available to spend, but we are not doing so, for a number of poorly understood reasons. The last time I saw a headline on Arsenal’s finances, the headline stated that we had made almost £50 million in profits. Why isn’t this money being invested into the club? I thought for my first piece to fill in the transfer window lull that I would have a closer look at the financial position that Arsenal is in. How much money do we make? Should we be able to compete with other clubs in the EPL such as the Manchesters and Chelsea?

I would advise those of you who have any sort of financial interest (and even those of you who don’t) to check out the latest article on The Swiss Ramble covering Arsenal. For those of you who aren’t familiar with the Swiss Ramble, it is a fascinating blog that covers the finances of many of Europe’s top clubs, and even those that aren’t top clubs. I guess it’s not for everyone, but I find it interesting.

Most of my information I will pull straight the site as the writer has managed to compile all the information already, so I will save myself the effort. I am supposed to be studying for exams after all.

Revenue

The first thing to consider is Arsenal’s revenue streams. A quick flick over to the Deloitte Football Money League for 2012 tells us that currently Arsenal are generating the fifth largest revenue of any club in Europe. At first glance I feel like this is quite impressive given the fact that we are talking about a club who has not won a trophy other than the Emirates Cup for seven seasons now (apparently we have just won a trophy in Southampton though, maybe times are changing?). Once I think about it a bit more though, I come to realise that we built the new stadium and put ourselves into significant debt so that we could compete with clubs like Manchester United (who generate over £100 million more that us each season), so in a lot of ways maybe we aren’t generating as much as we maybe could or should be.

I’ll start by comparing Arsenal to Manchester United, after all, they are the club who have denied us so many times over the last 20 years. Currently in the three major forms of income for clubs, match-day revenue, commercial revenue and TV revenue, Manchester manage to top us in every single area. This is quite disturbing really, and each year, the gap is widening.

Arsenal’s match-day revenue is really quite close to Manchester United’s, and most of the difference can be put down to the fact that their stadium has more seats than Arsenal’s. I guess this is unfortunate in a way, but currently the gap is less than £20 million between Arsenal and Manchester (and in fact any other club), so it is no real cause for concern, but of course a greater income stream here would be nice. The club obviously agrees with me, hence the hikes in ticket prices, but I doubt they would be willing to expand the stadium to a greater capacity any time soon. Of course if we were to continue to, say the semi-final in all cup competitions (including the champions league) then we would host more home games, and as a result there would be an increase in match-day revenue on this front.

Television revenue is completely standardized across English clubs, so that we can’t ourselves do anything about the distribution of TV deals. If we were to win the Premier League next season the money that would come from TV for that directly would only be around £3 million, the difference in revenue between us and last season’s winners, Manchester United. The big place where our TV revenue could, and should, increase is Champions League revenue. For example, if we had made the semi-final rather than being knocked out when we had, we would have earned an extra €7.5 million in prize money (and the extra match day income from the extra two home matches). Quite an amount.

The other part of the Champions League money comes from what is known as the TV pool, whereby a certain amount of money is allotted to each league’s clubs. Half is given based on the finishing position of the last season (we received 10% of this half for finishing fourth, Manchester United received 40% for winning the league), whilst the other half is based upon how far through the tournament the teams progress (so Chelsea did very well out of winning and the fact that no other English club made it very far through the tournament). So to give an example, from the TV pool, Arsenal received €14.4 million, whilst Chelsea pulled in €29.1 million.

I think my general point is that there is a big financial difference between finishing fourth and finishing higher in the table, and also making it further in the Champions League.

The final part of revenue that I will look at is commercial revenue. This is an area that Arsenal is falling behind in, and that we need to sort out. The club has been investing quite heavily in these areas by bringing in new staff (such as a significant financial outlay to bring Tom Fox in from the NBA to manage our long-term commercial viability) and what not, but over the past few seasons there has been no real growth.

As shown in this graph, we are earning a lot less from shirt and kit sponsorship deals than other clubs with similar or lesser stature than ourselves. This basically stems from the fact that we signed long-term deals when we were building the Emirates so that we could get big one-off payments (this includes the naming rights for the stadium until 2021). That was all well and good at the time, but now it is starting to hurt us. However, the silver lining is that at the end of the 2013/14 season, the shirt sponsorship and kit sponsorship deals will run out, and we will be able to renegotiate these deals. To give you an idea, we are currently pulling in around £13 million from these two deals, and Liverpool (who have just begun relatively new deals with Warrior Sports and Standard Chartered) are pulling £45 million each year.

Obviously the level of success that Arsenal are experiencing at the time of new deals will impact upon the value of these new deals. As such, I feel that any financial outlay over the next two seasons towards our footballing success may well pay for itself with the new deals. That doesn’t mean I am advocating excessive spending (Liverpool, anyone?) but just that if we are weak on the field, we should fix this weakness. Based on what I have been reading from Ivan Gazidis over the past few months, I suspect he is of the same opinion, which is why we have made a couple of good signings so far and I suspect there may be one or two more decent ones. I also feel like our squad are at a good stage right now, and so long as we don’t have a really bad run with injuries again next season we should be able to have a crack at a couple of trophies. Obviously if we won the title within the next two seasons, this would generate a huge long-term income boost. Well to be honest I’m keen for the club to win a trophy soon regardless of what the financial consequences are.

So at the current point in time, our revenue is really not as good as it should be. But it is good enough. As Arsene Wenger has stated in the past, each season we must make £15 million to cover the cost of our debt, so we must be prepared for the club to make a profit in most seasons to account for that. A lot of people seem to have an issue with the cash reserves that the club currently have (the last figures that I have found suggest that it is around £115 million) but I feel that having solid cash reserve is vital to the long-term survival of the club. Imagine if it had been Arsenal who had missed out on the Champions League thanks to Bayern Munich and Barcelona. We would definitely need to eat into the reserves then. The board has stated that they are open to that money being spent on new signings (some of it at least), but only if the player is of good quality, and at a good price. Whilst I personally have a lot of respect for the way that the club is run, I do feel that comments like those are trying to move the blame to Wenger, when in fact they are the ones keeping the purse strings tight. Actions speak louder than words, and signings are even louder again. When we make some good signings that are not in response to players leaving or to a poor showing in a game early in the season, I will begin to believe what Ivan tells us.

Expenses

Currently a real issue with Arsenal’s financial position is our wage bill (£124 million). For a club who has not had much real success over recent years, and with very few players who are on superstar wages, we have a very large wage bill. Whilst it is considerably lower than those at Chelsea (£168 million), Manchester United (£153 million) and Manchester City (£174 million), it is considerably larger than say, Tottenham’s (£91 million) or Newcastle’s (I had trouble finding numbers for them, but I suspect it will be as low as £70 million). Even more concerning is the fact that over the past 3 seasons our wage bill has increased significantly, whilst our revenue during that period has not increased. I would have thought that using a relatively young squad should give the club the advantage of paying players much less that if we had many older, more experienced players. I’m sure everyone here knows all about how we have screwed up on this front and instead have lots of underperforming players on long-term contracts that pay far beyond their worth. I completely understand why it is that we have taken to doing it this way after having lost a few decent players to free transfers it made sense at the time to start tying players down to long-term contracts (albeit with larger salaries) but the experiment has clearly not worked out.

I think it is easy to look at those numbers alone and get concerned, but the reality is that we all know that we have way too many players at Arsenal who are being paid for nothing basically. I dread to think how much having Squillaci has cost us this season, not to mention players like Almunia, Park and Diaby. Hopefully these players will be able to contribute something in the coming season, or they won’t be on the books, but either way I think we have a few players to move on. If that does occur, I don’t think our wage bill will seem so excessive, depending on the number of newer players that we bring in.

How could he be unhappy?

Whilst I’m sure many of you here will disagree with me to a large extent on this, I also have a major issue with the amount of money that Arsene Wenger is being paid. Earlier this year, France Football released the salaries of the highest paid managers in football, and Arsene Wenger came in in fourth place, earning €9 million each year. That is more than Sir Alex Ferguson. Whilst I feel as if Wenger has earned the right to be paid amongst the best, given our mediocre performances of late, I just can’t see how it can be justified that Wenger earns more than SAF. I’m not sure what the solution is to be honest. Maybe performance based pay is an option (I wish we could implement this across the board like Manchester United have), but I’m not expert in this area. I guess a few million pounds spent on a good manager each season can hardly be our greatest concern, but it is typical of our wage structure that Wenger is earning more than SAF.

Conclusions

In summary, I feel like Arsenal is in a strong financial position. Obviously, that is up for discussion, but in my opinion we are all set. The board seem to be aware of how important the next couple of seasons are, and they are doing everything in their power to make sure that we achieve at a reasonable level over that period. I feel like if we continue on at around the same level over the next couple of seasons, maybe make slightly longer runs in each of the cups, then there is no reason that we can’t be generating a good £40 million extra each season. Obviously that could potentially have a huge impact upon our football team. Imagine signing a player of Pastore or Hazard quality each season. I would like to think we would be much better off than we are now and would be competing at a much higher level.

But if we really want to make ourselves a really strong team though, we really need to focus on achieving greater things now, to secure our long-term viability at the top level.

The greatest striker that ever lived?

Hypothetically lets say that we sell Diaby (£8 million), Chamakh (£5 million), Djourou (£6 million), Park (£2 million), Fabianski (£2 million), Bendtner (£8 million), Vela (£5 million), Denilson (£4 million) and Arshavin (£7 million) then we could end up with quite a financial boost (anything up to £40 million). I know that it will be difficult to sell some of these players at all, let alone get the sort of money for them that I am talking about, but I’m sure we can get something for some of them. Together these players played almost no role in our season (other than Djourou and Arshavin of course), and together for the year they would have cost us at least £20 million in wages for the season. That money could have been spent much more wisely

Once we clear these players from the books and collect the transfer fees from them, we would have a fair bit of money to play with. They would be able to cover the costs of a new midfielder and a new defender, for example. Good ones as well. For example, Nuri Sahin was purchased for €10 million from Dortmund 12 months ago by Real Madrid. Imagine if it had been us? I’m not so sure we would have missed Wilshere so much this past season. Also given the recent transfer of Jan Vertonghen for £10 million to Spurs, I think we can see quite clearly the sort of quality that we could be using all of this money on.

Now I’m not saying I think we should move on all of those players, and bring in all of the players I mentioned. They were simply examples (I am personally a fan of Djourou and I think he could be a pretty solid defender given a good run of games). It is only to show what sort of changes we could make if the board does decide to have a real crack at the title this season.

For a long time now I have been advocating that the club changes the way in which it goes about business. I feel like ever since David Dein left the club, we have not made significant steps forward. I’m yet to come to a conclusion as to what this means, or what we can do to fix it, but I am convinced that without David Dein we need to have someone else injecting some real energy into the administration of the club. The only real consolation is that a very large portion of Stan Kroenke’s wealth is invested into this club, so I have faith that he will work to only increase the value of his investment. However, I am not convinced that means making us the best club in the world. Only time will tell.

Friend or foe?

I apologise for the excessive length of this post. I’m also sorry if there is some stuff in there that is a bit out of date, I wrote it a while ago and I’ve tried to fix it up a bit, but I have no doubt I will have missed some things.

This post is basically going to be a springboard for me to write a few more posts over the coming weeks on Arsenal’s management, particularly our actions in the transfer window. So until next time.

–Lachlan

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Category: Arsenal News