Analysis of Arsenal Holdings PLC Full Year Accounts for the financial year 1 June 2020 to 31 May 2021

The following report is a short analysis produced by AST member Simon Hill examining the financial performance of Arsenal Football Club for the financial year ending 31 May 2021.

As usual we start with a simplified version of the club’s accounts in table format. The figures are all drawn directly from the published accounts now available on Arsenal.com.

Principal factors behind the loss before tax of £127m

The club attributes £85m of this loss directly to Covid-19 factors (very little matchday revenue, small reductions in commercial and TV income, big savings in other costs (no matchday costs) and big exceptional charges for refinancing the old stadium bonds early and replacing them with a loan from KSE which they stated was necessary due to Covid-19 driven cash pressures).

However, that still leaves a loss of £42m to explain and that stems from having a Champions League sized wage bill and transfer budget without the corresponding revenue (a good £80m more in matchday, commercial and TV revenue would be expected to be earnt in a standard year).

What is likely to happen in 2021/22?

The absence of Europa League football will further reduce matchday, TV and commercial revenues from their full post Covid-19 potential.

Significant wage bill cuts only started to come in to effect following the great free transfer giveaway the club conducted in January 2022 and whilst they will cut the annual wage bill by hopefully 10%, they will have limited impact on 2022’s results.

All told, we foresee a loss before tax around the £90m level for season 2021/22.

Did KSE put any money into the Club?

KSE did not fund the £127m loss. The Club did that from remnants of the legacy cash pile which fell by £91m in the year to £19m.

KSE did refinance the remaining stadium debt which included adding the attendant early repayment penalties to the overall debt level (£32m). However, KSE do not appear to have funded the interest rate swap liability of £26m which the Club paid for from cash flow.

Their loans to the club increased by £186m to £203m in total. This loan is repayable at 2 years notice which I estimate bears an interest rate around the 3% to 4% level.

However, in 2022 I consider it a certainty that they had to lend more money to fund existing transfer fee commitments at 31 May 2021 (£100m) and new ones taken on in the summer of 2021 (£125m net according to the accounts).  The exact extent of this new funding is hard to determine but based on the likely profile of when those existing transfer fee commitments will be due and the fact trading is likely to have generated little free cash, further additional debt from KSE in the region of £100m is more than feasible.

How much will the Club have to spend on transfers this summer?

Existing transfer fee commitments will still comfortably exceed a net £100m so any summer transfer budget will depend on player sales, the prospects for increased revenues in 2022/3 and KSE’s willingness to fund more investment in the playing squad.

Champions League qualification would obviously have a transformative effect on anticipated matchday, TV and commercial revenues for 2022/3, probably adding £100m to our expectations for the 2021/2 season which featured no European football.

Champions League qualification is also likely to encourage KSE to increase funding in the squad.

What is the financial justification for raising ticket prices for the 2022/3 season?

Inflation is often cited but outside of spending within their control (wages and transfer fees), relatively little cost is exposed to true wider economic inflationary pressures.

The Club may also say as stakeholders we should share in the burden of financing the Club but surely the fans deserve some reward for three relatively dark years of on pitch performances and for seeing hundreds of millions wasted on over paid players who have failed to deliver (ie Willian, Pepe etc).