So How Skint Are We?

As Arsene Wenger keeps on talking to the press about economics (perhaps to divert their attention from our football?) I thought I might as well have a trawl through the accounts of Arsenal Holdings Plc to see what all the fuss is about. On the one hand we are shown as the 3rd richest football club in the world in April 2008 as ranked by Forbes magazine, and on the other hand we are apparently skint and can’t afford to buy any players. WTF is going on?

What follows is some of what is in the accounts as at 31 May 2008 (the latest available) and my personal interpretation, which is in no way a professional opinion. I wanted to find out the answers to some simple questions:

Q1. How much debt are we in?
Answer: £416 million, but net debt = £318 million (after knocking off cash in the bank and loans receivable)

Q2. Is that a lot?
Doh! Of course it is. But to get some perspective net debt is 1.4 times annual Group turnover. So it’s kind of like, if you earn £30,000 per year and your debts are £42,000. Well, my debts (including mortgage) are more like 2.5 times my annual salary so at least Arsenal are doing better than me.

Answer: Yes, but thankfully it is not as bad as the £600 million (or whatever) owed by Man Utd.

Q3. Why have we got this much debt?
It sure as hell isn’t because we bought loads of players! Borrowing money to get something tangible which increases future earnings (e.g. our stadium) is a good thing, especially if we can spread the cost over 20 years or so.

Answer:
Stadium debt = £250 million
Development properties = £139 million
Other = £27 million

Q4. When is this debt repayable?
Stadium debt = over 21 to 23 years, average 5.3% interest
Properties = over 2 years, 6.6% interest
Other = 20 to 134 years, 2.75% interest

Q5. What interest do we pay
Answer: about £17 million last year (net)

Q6. How are they going to pay it off, then?
Well, the scary bit is the money borrowed for property development which is repayable within 2 years. The plan is that sales of the Highbury Square appartments over the next one or two years will be used to clear off this debt (currently £139 million). Any upside would be a “bonus” but the way the property market is going this might not happen.

Latest operating profit was £48 million (before player transfers) and cash increased by £19 million so if that keeps up there should be no problem servicing the long term debts.

Q7. How much money is there for players?
Once the property development loan is cleared off we will basically be paying off about £25 million per year in capital + interest. With the football side of the business generating £50 million per year of operating profit that should leave £25 million per year over. Until those appartments are built, sold and paid for I can understand the Board having slightly shitty pants, but in the medium term things are fine IF we keep qualifying for the Champions League.

Answer: I reckon about £20 million per annum if required, plus any proceeds of player sales, but zero if we don’t finish at least 4th.

Q8. Anything else of interest?

Answers:

a) Red and White Securities Ltd own 24% of Arsenal (Our own Oligarch)

b) Number of employees went up by 5 to 379, but staff costs went up by £11.6 million to £101 million – a 13% increase in one year. “During the year we have improved and extended the contract terms of a large number of first team players and, of course, of Arsene Wenger himself” says K Friar in the Financial Review.

c) Highest paid Director was K Edelman who got £1 million for the year plus a “golden goodbye” of £1.67 million when he left.

d) The players are valued at £55 million in the balance sheet (cost, not market value)

stevedon

Join the forum www.goonerforum.com

24 Responses to So How Skint Are We?

  1. Ole Gunner says:

    Debt is not taken off from profits. It’s taken out of Turnover. So profits are the surplus we have after debt payments.

  2. ewan says:

    If your economics are right, there will be no ManU, Liverpool and Chelsea. Should you not project, if Arsenal spends 30 million per year, then the club may get more revenue from cups won, TV shares, marketing revenue, t-shirt sales etc. Not to forget, there will less loss of players like Flamini and Hleb for next to nothing and then trying to recruit players like Ashavin for 20mio. You need to invest in football to succeed in football. Otherwise, Arsenal board and Wenger should quit football and start beoming property developers. Talking about that, that is probably how things started going wrong when they dabbled in Highbury Square. I am fed up with fans trying to justify Wenger’s action (or inaction). What about us fans paying good money to watch crap players play each week? Who speaks for us?

  3. indian gooner says:

    ewan if we spent 30m and didnt win trophies . we’d become leeds united thats why we are better of this way.
    although your point on the club spending money on highbury square redevelopment is well taken.maybe the fans should still be going to highbury because that’s where the money is being spent 🙂 bad joke

    if the club are really strapped for cash they should spend 10m on a defensive midfielder like inler or even parker and try a loan deal for someone to fill the creative midfielder spot.
    havent we made a net profit on transfer this season of around 10m with sell on clauses for bentley and muamba ?

  4. O.B says:

    yes that was a bad joke……..a very bad joke

  5. M Singh says:

    The very reason that Arsenal do not spend,I have refused to call myself a supporter of this shit club because they should be property developers and not owners/managers of a football club

    I sincerely wish and hope that arsenal do NOT qualify for champions league as they do not desrsve it .

    They are treating the fans like shit

    I hope they get it back

  6. king gooner says:

    there are two schools of thought currently splitting the gooner empire-first is we don’t have a pot to piss in because of stadium debt etc-if this is the case-wenger is undoubtedly doing a a fab job to keep us up where we are considering the shed loads of dosh being spent by everyone else in the richest league in the world-the second alternative view is we do have shed loads of money,after all we’re 3rd richest club in world with gate receipts of 3 million plus per game-if so where,s the money going?is wenger refusing stubbornly to spend it_to prove a point about his yuf sytem or are the board hoarding it away,after all they always banging on about that wenger has money to spend-SOMEONE IS CLEARLY LYING-QUESTION IS WHO??MAYBE AN HONEST ACCOUNTANT CAN LOOK AT & TELL US WHAT IS GONG ON IN LAYMAN TERMS!!!!

  7. Drew says:

    Ewan brings up a fair point, the board is playing it way too safe, no one is asking us to go as heavy in debt as Man U (forget about Chelsea as they are a business model waiting to collapse) but you have to invest in our players for future earnings. Think about how many more games Man U have played this past year, look at their nike contract, their sponsorship.. all dwarf our deals. That is how they are able to bring in their next wave of expensive players to help them compete, through monetary and cup success on the field.
    I agree, instead of giving in to Flamini for an extra 1 or 2 mill to his salary we let me off on the free and now we have to dish out 20 mill for a player. How can that be good economics. Same story with Edu. And none of this we do not want to hold the club ransom. what do you think Ade did this past summer. Do you really think he deserves to be paid as much as Fab and more than Flamini. You can’t give in to 1 player and not the other, especially if the other one is much better.

  8. ewan says:

    Indian Gooner must be Wenger in disguise. Leeds went bust not because of spending 30mio per season but many other negative factors. Arsenal was just slightly off the pace last season. 30mio spent last sesaon would have won the league – easily. 30mio spent this year would not have Flamini leaving (he just wanted more wages), added more firepower and would also see Arsenal up at the top.

  9. Sardar-a-ka-bara says:

    M Singh if you are not a supporter of this magnificent club, please keep your thoughts to yourself, and do not try and spoil this forum!

  10. tomm says:

    Good article. But some terrible comments.

    M Singh – it’s abundantly obvious from your comments your are not an Arsenal fan so why don’t you go back to supporting Man United. Or I hear Man City have some cash now.

    I agree about the comments about property developing. The club should have sold the land off to a developer along with the planning permission – a bird in the hand and all that. The board saw dollar signs and got greedy – they thought they could make a £100m profit. They’re not the only ones to get caught out by the economic crisis, but they should never have taken a property risk. That’s not their business.

    As for all this “are they lying?” crap: yes they have money in the sense that they have cash lying around. But whether they use it depends on their attitude to risk – that attitude had changed a lot now that one of their major assets, the residential development, is losing value by the day as a result of the property slump. They are no doubt also beginning to wonder whether they will fill out the stadium during a major recession. Bottom line is: the future looks bright in the long term. But if the club runs out of liquid cash (as opposed to net assets), no matter how big a business you are, you are in big crap. This almost happened 3 years ago and could easily happen again (in 2 years?) now that financing is harder to get. Hence the (perhaps excessive) caution of some board members.

    People need to be realistic and give up on this “I want it all now” attitude. I am happier to support a real club that works its way up into the big-time than have a rich tosser pour cash into my club and turn it into a trainset. I know for a fact Abramovich inquired about 2 other clubs, including Arsenal, before Chelsea agreed to sell. Would you seriously rather he had bought us?

  11. geez says:

    thing is, if we are supposed to have £20-30M for transfers each year, where is the rest of the money from all the previous years where we havn’t spent anything like £30M?? by my reckoning, what with sales of players as well, should we not have in excess of £100M available??? maybe lots more ??? at least if the board had said we have used it to lower our debts we could understand more why we have nothing to spend, but they don’t so where has this £100M plus gone ???

  12. Marconio says:

    What happened to the £100m Fly Emirates gave us for the naming of the Stadium?

  13. brdgunner says:

    Can I ask where this info was sourced from?

  14. Biscuit says:

    King Gooner it was Wenger who wanted the new stadium and debt – don’t thank him at all for it because HE put us in this position. As far a I am concerned the board of directors have either been extremely naive when calculating the cost of this project or they are ripping the pay customers of left right and centre. It does’nt matter either way because the results are the same – we are operating in a situation where our income matches more or less our outgoings i.e. we are skint. If the board want Arsenal to be successful on the pitch (investment in experienced players is essential for this) then the ONLY solution is foreign investment and Arsenal with its huge fan base, world class stadium and history would be a very attractive proposition to a foreign investor – Agree or do not agree the only way now for Arsenal to compete is to open ourselves to foreign investment other wise we will never generate the kind of funding to make us truly competitive.

  15. Drew says:

    king gooner, you are correct there are 2 school of thoughts on this, but which ever is in the right, does not address the bad business involved in letting Flamini go on the free. I can understand not securing a contract earlier as he was a fringe player, but last season he was clearly the driving force behind this team, letting him go over a couple of million was just wrong.
    I personally believe that we do not have much money to piss away and the board is now also saving a bit of cash in case we do not make champions league next season. There is no doubt in my mind that no other coach could have steered a club through a new stadium in the inflated market we have seen the past few yrs. There is no doubt that Wenger is the best man for the job, however he is not above criticism when we say that letting Flamini go betrayed a bit of Arsene’s stubbornness.
    Another thing is no one is saying sign a 30 million player but cmon we let 2 of our best players leave and replaced it with one good player. And that was after it was clear we ran short of players towards the end of last season.

  16. goonerdave says:

    Tomm, think you’ve got it pretty spot on there.
    Marconio, the £100 Million from the Emirates sponsorship deal was pretty much cash upfront and resolved the running out of cash 3 years ago, as many other deals like catering were done cash up front so we could fund the stadium.
    Geez – most of the funds have gone on wages, previously we couldn’t compete in this field but we’ve done that first to retain talent like Cesc and today Jack for the longer term stability and competitievness of the club, think most fans would agree that to keep your good players is the primary aim, adding players comes when thats done. We’ve got some left over sure, but due to our ill-fated affair with property development and the current economic climate, splash the cash is not the moto of any club but a foolhardy one.

  17. Drew says:

    Biscuit, I think you are being a bit unfair. At the time Arsene was dreaming of a new stadium no one could have predicted that Abramovich would come in and change the face of the sport. If that did not happen, this would still be a two horse premiership and we would have competed just fine. There was no way of seeing this inflated situation. Arsene was just doing what was best for the club at that time. At that time, OT had twice the capacity of Highbury and Arsene was just officially turning us into a big time club with a big statdium as demanded by our stature round the globe.

  18. LB says:

    The property debt has nothing to do with the football club. If it tanks, the banks take a bath, not Arsenal. It’s in a differetn entity.

    Ole Gunner, debt is taken off CASH FLOWS. Profit is after INTEREST, but not capital. Cash flows reflect the real cash situation after debt repayments.

    If profits are around 25m, then you have to take off capital, say another 10m, that leaves 15m in cash.

    The other clubs, including Man U, borrow additional more short term funds to fund player acquisitions. That’s what Arsenal is avoiding and it’s the right thing to do. We should be glad our board is conservative. Right now it’s the prudent thing to do. Folks, the global financial crisis is only now starting. Paying above 15m for a single player is stupid in the current conditions.

  19. LB says:

    Biscuit, the club is better off after the stadium, even with the repayments. If we were still at Highbury, we would not be able to do ANYTHING at all.

  20. LB says:

    Geez, there is cash in the bank. That’s why Gooner used NET DEBT, that is, after cash. I thought the cash was around 70m.

    But you don’t want to spend too much of it until the global crisis is clearer. It’s too risky. If things get slightly worse, most EPL clubs will go down. That’s what the board is thinking and we should support them.

  21. LB says:

    Tom’s comments are spot on.

  22. Family Enclosure Man says:

    Tomm – Brilliant: most intelligent post on this subject for ages. Spot on.

  23. Amos says:

    If you think we are struggling to buy players with the revenue for the new stadium just imagine how much harder it would be if we were restricted to the much lower revenue from Highbury.

    Geez and Marconio ask where the money from previous player sales and the Emirates, and other sponsorship deals in earlier years, went. The total stadium and related costs were £420mn the stadium related loan is £250mn. We had to find £170mn for the stadium from our own resources. By and large that’s where it went though we have also maintained the highest wage bill in the PL with the exception of ManU and Chelsea (in fact as a percentage of turnover it is higher than ManU).

    The Highbury Square and Queensland road developments are separate developments and the risks ring fenced. If the information at the AGM a couple of months back is correct there is no problem in paying off the short term loans. The only issue is whether we make a profit of any size from it but a profit hasn’t been budgeted for anyway. So any impact would only be positive.

    Do we have money? Yes we do £93mn of it in cash. About a third of it is in a secure account to meet debt covenants but we have money available. That’s not to say we will spend it – unless Wenger finds someone he wants to spend it on.

    The stadium is an important part of long term development. It is a project that has taken mmore than 8 years from conception. We have only completed 2 financial years in the new stadium. Profit in the fist year was negligible due to exceptional items related to the stadium and restructuring finance. The 2nd year was the first with a decent profit. The financial benefits from the stadium was always going to lag behind the income. The club believes that it has to make the money before it can spend it. For the long term health of the club, whatever the short term frustrations, it is by far the wisest course to take.

  24. tomm says:

    It is right that the stadium debt is ringfenced, but the benefits of that are overstated.

    The debt is secured against the land – in other words, if we default, the bank owns the stadium. While the club will not go bust if it defaults on the loans, it will be in pretty bad shape without a stadium. Ultimately, we would expect the banks to lease it back to us, but that is still a catastrophe scenario and we can forget about being a global superclub if it happens.

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