Arsenal – Why a £36 million profit isn’t good news.
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Arsenal – Why a £36 million profit isn’t good news.
Arsenal released their latest set of accounts last week and despite showing a huge profit before tax of £36.6 million (up from £14.8 million the previous year) to many disgruntled Arsenal fans it appears that Arsenal value strengthening their balance sheet, as opposed to strengthening the squad.
On the face of it the massive £32 million increase in football profit was impressive until you realise that the profit was due to player sales contributing £65 million. Furthermore, the revenue from the property business, which bolstered the previous set of figures, has fallen off drastically falling from £30.3 million to £7.7 million as the Highbury Square development is now almost entirely sold.
Everything isn’t quite as rosy in the garden as the figures would at first suggest and the bottom line is that Arsenal have once again made another sizeable profit, on the back of player sales.
Profits of £190 million in the past five years sounds amazing, especially for a Premiership side, until you realise that Arsenal’s profits are almost exclusively down to player sales and property development. If the £2.5 million profit from property development and the £65.5 million profit from player sales were excluded, the football club would actually have made a sizeable loss of £31.3 million last year. No other leading club has been so dependent on player sales as Arsenal have in the last six years, selling the club’s stars has brought in £178 million.
The harsh reality for Arsenal fans is that if the status quo remains then nothing is going to change until at least 2014. With revenue of £235 million, which is the fifth highest in the world, it shouldn’t be an issue, but the problem is that Arsenal’s revenue has been stagnant in recent years, compared to other leading clubs who have shown massive growth.
Since 2009 revenue has risen £10 million, whereas broadcasting revenue has risen during this period from £11 million to £85 million, which is a damning incitement of the poor job done by the Arsenal commercial department. Commercial revenue is only £4.4 million higher than the £48.1 million received in 2009; compare that to Real Madrid and Barcelona who both increased revenue by around £90 million during the same period.
The biggest problem Arsenal face is that they tied themselves into long-term deals to provide security for the stadium financing but recent deals by other clubs now make that arrangement look like a poor one. The Emirates deal was worth £90 million, covering 15 years of stadium naming rights (£42 million) running until 2020/21 and 8 years of shirt sponsorship (£48 million) until 2013/14.
The shirt sponsorship deal is now worth a poor £5.5 million a season whereas Liverpool, Manchester United and Manchester City earn around £20 million a year from their sponsors. Arsenal currently lag a long way behind Sunderland, Tottenham, Newcastle and Aston Villa.
In 2011, the deal with Nike was extended by three years until 2013/14 and is worth £8 million a season, which looks very poor value compared to the £25 million deal recently announced by Liverpool with Warrior Sports and the £25.4 million paid to Manchester United by Nike.
Admittedly, they have signed some new sponsors, but there has been little tangible revenue improvement and Manchester United currently attract more secondary sponsors than Arsenal do.
Match day income of £95 million is the fourth highest in the world but following the recent ticket pay rise, this revenue source would appear to have reached saturation point as Arsenal continue to register capacity crowds of 60,000 and their ticket prices are among the highest in the world. The cheapest ticket for Saturday’s match against Chelsea was £62 and yet match day income was actually higher in 2008/09 at £100 million, due to the high number of home games played.
It has to be a concern that last season saw the first operating loss since 2002 due mainly to the wage bill escalating up 15% despite the sale of Fàbregas and Nasri two of the highest earners. Since 2009 wages have risen by £39 million while revenue increases have been poor and this imbalance has seen the wages to turnover ratio increase drastically from 46% to 61%. Arsenal’s wage bill of £143 million is now the fourth highest in England, behind City (well over £200 million), Chelsea (£168 million) and Manchester United (£162 million). The wage structure at Arsenal causes problems in that squad players are handsomely rewarded for sitting in the stands. One interesting aside; Arsenal’s lack of success on the pitch and commercial growth did not prevent Ivan Gazidis from awarding himself a big pay rise, with his salary package rising 24% to £2.15 million.
After many years of large profits it is difficult for most supporters to understand where all the money has gone. Arsenal may have laid out nearly £90 million on new players in the past two seasons, but this has been more than offset by big money sales. Net player registrations are just £4 million in the last six years and only 1% of the available cash flow has been spent on bringing in new players. Since they moved to the Emirates stadium, they have made £49 million in the transfer market and are the only leading English club to be a net seller.
The price of Arsenal’s self-sustaining model has been to regularly sell the club’s best players, while charging the highest ticket prices in the country, so the Arsenal story is not quite the financial success that has often been portrayed in the media.
Arsenal have an incredibly high cash balance of £154 million, which is significantly higher than any of their competitors and for the fans, it must be particularly galling that the club’s two majority shareholders, Stan Kroenke and Alisher Usmanov, who between them can give Abramovich and Sheik Mansoor a run for their money haven’t invested any money into the squad.
I have three friends who support Arsenal and they are all becoming increasingly disillusioned with the lack of success on the field. They have seen Chelsea sign long term Arsene Wenger target Edin Hazard, who has made an outstanding start to season, whilst they have had to endure the loss of RVP and Song, following on from the loss of Fabregas and Nasri last year.
The board wastes no opportunity in telling supporters how ambitious the club are and only last month Peter Hill-Wood argued: “We have a pretty good chance of challenging for the Premiership. I don’t see why we cannot win it this year”. Following the release of the figures last week Arsenal fans should have been overjoyed, but after the defeat on Saturday not one of my Arsenal supporting friends is confident that they will even achieve a top four finish this year, that alone win the title and that means a lot more to them than a healthy bottom line.
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