Monday 11th May 2020
It has become standard when reviewing Arsenal’s financial numbers to assess the amount of the club’s cash reserves and to what extent these funds are committed to known expenditure (player wages, operating costs, money owed on player purchases, etc) and how much is left “freely available” to use for strengthening the playing squad.
What has had less focus is Arsenal’s overall debt position. This is largely because the annual debt service cost of about £20m (repayment and interest), is a known amount, changes little from year to year and is viewed as just another item of expenditure.
But the impact of COVID-19 means that the debt position becomes of far greater importance as:
We set out below the various forms of debt that Arsenal have.
Bonds relating to the construction of the Emirates Stadium – opened July 2006
The total project costs of the stadium were £430m and on completion Arsenal refinanced the loans (£260m) they had taken to fund the construction onto a long-term basis.
In July 2006 Arsenal Securities Plc issued £260m of “credit wrapped bonds” to financial investors. The issues were as follows:
While these rates may appear high in the context of current interest rates, it was deemed prudent in 2006 to fix the interest cost for the life of the debt. Some you win, some you lose!
As at 31 May 2020 the outstanding debt will be:
With a total stadium cost of around £430m, of which £260m was the bonds detailed above, the remaining £170m was generated as follows:
£55m - Nike’s payment for the 7-year kit deal from June 2004 until June 2011
£35m - Emirates Airline 15-year commercial partnership (to 2021 – since extended). The total deal was £90m for 8 years on shirts and 15 years stadium naming rights
£30m - New equity for a 5% shareholding from Granada Media / ITV plc (March 2005)
£10m - C & D Debentures (June 2003 – see below)
£15m - Delaware North – payment for exclusive 20-year catering licence (2026 expiry)
£25m - Club own resources / Highbury Square development
When funding was needed for the construction of the North Bank Stand at Highbury in May 1991 the club offered A and B (£1,500 and £1,100) debentures to supporters with very beneficial ticketing rights for 10 years.
This raised £14.4m from supporters and the underwriter, the Bank of Scotland. These debentures pay no interest and are not due for repayment until 2143 – yes, another 123 years! For those bonds that have not been lost in the mists of time come 2143, the then-holders will receive back their £1,500 or £1,100.
When there was a shortfall of finance for the new stadium the club once again tapped supporters with a further debenture issue (C and D bonds) in June 2003 which raised £10.2m. These debentures accrue interest at 2.75% pa and are due for repayment on 31 July 2028 at a cost of £15.4m.
As at 31 May 2019, Arsenal Holdings Ltd had available a £50m overdraft with Barclays. The overdraft was unused at that date but we believe will be utilised now because 2020-21 season ticket money is not coming in at the traditional time of April and May – renewal deadline is normally 1 June. It must also be remembered that Arsenal cannot call on £36m of spare cash due to the DRSA requirements.
Arsenal have spent over £300m gross on player transfers in the last three summers. Many transfer fees are paid on a staggered multi-year basis. We estimate that as of 31 May 2020 £120m of transfer fees are still owed to other clubs with about £40m due to be paid out during the summer of 2020.
In Summary – the overall debt position
Arsenal’s existing debt liabilities are:
£94m Stadium bonds amortising over the next nine years
£50m “Floating” stadium bonds due 2029-31
£15.4m C & D bonds due 2028
£40m Player payments due now
£80m Player payments due after one year or more
With most of Arsenal’s debt structured on a long-term basis and debt service costs a manageable £20m per year, the immediate pressing debt payments relate to past transfers.
Whilst the stadium-related debt is long term (due to be repaid in 2028-31) the monies owed to other clubs for the stage payments of players is more immediate. The overdraft is likely to be used for monthly payroll and other costs (estimated to be £27m per month) due to the shortfall in ticketing revenues.
This means that Arsenal may have a need to call on additional funding sources, which would be a decision for Stan Kroenke. Options open to him include:
The front page of the prospectus for Arsenal's £260m Bond Debt
Join us to gain full access
Become a member from as little as £20 a year