Arsenal’s financial position from 2021/22 to 2023/24

We are grateful to AST member Simon Hill for once again casting his expert eye over Arsenal's financial position.

The following table sets out a snapshot look at the figures for the financial years to 31 May 2022 (season 2021/22), 31 May 2023 (season 2022/23) and 31 May 2024 (current season). The first two are actual figures as reported in Arsenal’s report and accounts posted at Companies House, while the current season figures are an estimate based on our best guesses, past experience of Arsenal’s finances and the information that is in the public domain about transfers, TV deals and player wages.

The overall picture shows that Arsenal have been making consistent losses in each of the last three seasons as cost increases have kept pace with the growth in revenue.

*Cash generated toward player trading is a simplified description of the amount we see the club generating for expenditure on players and fixed assets.

Introduction

The club’s report and accounts are increasingly tight-lipped about the precise reasons for revenue and cost increases. Open source material like transfermarket and sportrac provide data on player trading and wages and writers like Swiss Ramble provide good data on TV revenues, but getting behind the commercial revenue and other cost lines is nigh on impossible. The UEFA club report (The European Club Finance and Investment Landscape – February 2024) provides some insights on merchandise sales but much of the open source material available is based on rumour and guesswork, so it is becoming increasingly difficult to prepare estimates and explanations for all the changes in the figures. 

Matchday

2021/22 was severely impacted by the absence of European football. 2022/23 saw a return to 2018/19 levels of matchday revenue from the return of European matches, touring, the playing of more Arsenal Women matches at the stadium and a 4% ticket price increase. In 2024 we predict further growth from a run into the later stages of the Champions League and  a ticket price increase averaging 5%. There is potential for this to be bettered by more profitable touring arrangements in 2023/24 than 2022/23 as Arsenal once again focus on pre-season tours to the United States where ticket receipts are extremely high.

Broadcast

2022/23 saw a substantial rise in TV money from improved Premier League overseas rights and a better finishing position of second in the League compared to fifth (increase due to merit payments) plus the return of the club to the Europa League. In 2024 we foresee a further substantial rise from reaching at least the quarter finals of the Champions League and a similar strong finishing position in the league.

The next Premier League TV round is delivering only inflationary growth (and that in exchange for more televised games) with future growth seemingly now dependent on the US market. In short its potential for dramatic growth appears to have topped out.

Commercial

Commercial income increased by £27m in 2023/24. What stands behind the increase is more difficult to assess as sponsorship contract details are kept confidential and major contracts are increasingly performance-based. Furthermore, there has been a considerable expansion of the club’s retail and merchandising operations, the exact extent of which has not been disclosed but is referred to in the UEFA club financial report and the club’s accounts. We believe much of the increase in 2022/23 stems from expanded retail and merchandise sales (the UEFA report referenced a 24 million euro increase) and the enormous leap in other costs which is where associated costs of sale and distribution would sit supports this assertion.

The Emirates and Adidas deals have been renewed on what is rumoured to be improved terms extending to 2028 and 2030 respectively (perhaps adding up to a further £25m pa from 2024/25) and other sponsorships like Sobah have been added in 2023/24. We expect further substantial growth in commercial revenue in 2023/24 as the club returns to the Champions League for the first time in five seasons, but it has a long way to go to match the levels of, say, Liverpool (£272m in 2022/23, which is over £100m more than Arsenal).

Wages

A substantial reduction in the wage bill was achieved in 2021/22 following the cancellation of Ozil’s contract in January 2021 and Aubamayang’s contract in January 2022. The full year benefit of losing Aubamayang from the wage roll together with the expiry of Lacazette’s contract in June 2022 generated further substantial savings in 2022/23. However, offsetting that was considerable re-investment in new signings in summer 2022 (Jesus, Zinchenko and Vieira) and again in January 2023 (Trossard and Jorginho) that with Champions League qualification bonuses (including to the coaching squad) and contract renewals led to a £23m increase in wages to £235m. In part, off the pitch increases in boardroom pay (£2m), a 60 person increase in the size of the commercial team (possibly £2m pa) and general wage inflation will also have been a factor.

Bumper new contracts for the likes of Saka, Martinelli, Ødegaard, Gabriel and Saliba plus the marquee signings of Rice and Havertz and return of Champions League appearance bonuses potentially provide an eye-watering increase in salaries for 2023/24 of at least £60m pa. As in the summer of 2023, we expect the club to work very hard to offload unwanted players in the summer of 2024, though hopefully with more success than in 2023 when Pépé eventually left on a free, Tierney went on loan, but Partey remained.

Amortisation

This is the write down of the value of the playing pool, including agents fees on new contracts, for existing players and add-on costs triggered by appearance fees, qualification bonuses for the Champions League, etc. Provisions for agent fees on new contracts make up a considerable portion of recent cost.

Arsenal added aggressively to the playing pool in 2021/22 (net £64m value increase to £650m) and went further still in 2022/23 (a net £120m increase to £770m) and have likely added £150m in 2023/24 (net of the writing-off of the cost of a fully written down Pépé and the historic cost of Xhaka who was sold). This pushed up the amortisation charge from £127m in 2021/22 to £155m in 2022/23 (inclusive of an exceptional £18m write down in the value of Pépé) and will likely see an amortisation charge of around £180m in 2023/24.

The increase in amortisation charges from £117m in 2020/21 reflects a phenomenal investment in the playing squad over the past 3 seasons (close to £700m) partly offset by a considerable clearing out of some equally expensive players (close to £400m at cost).

Other football costs

These include hosting costs of matches, travel, retail costs of sale, costs related to sponsorship agreements, medical costs and all the usual types of overhead present in any substantial organisation. They have also been the proverbial curate’s egg as far as knowing what is in them, what moves them and why they have changed season by season. They fell by a staggering £32m in 2020/21 to £47m when no games were played with spectators in attendance and were still down below trend in 2021/22 at £75m when there were no European games played and no touring.

Logic said they would return towards 2018/19 levels in 2022/23 (£86m) plus a big chunk for inflation in travel costs, energy costs (100%), hosting extra women’s games, matchday staff wage increases, increased squad insurance, etc but they came in at a mind-blowing £112m without any real explanation given.

We are speculating that a large chunk of the unexpected increase (over £15m) is down to the change in retail and merchandising strategy and represents additional costs of merchandise and distribution. It is interesting to note that most of the top European clubs experienced a less substantial uplift in other costs in 2022/23 of 18% on average compared to Arsenal’s 50%.

Finance costs

Recent increases in interest rates, higher borrowing from KSE and more regular use of the overdraft facility were expected to have a significant impact on finance costs. However, interest costs on KSE debt equated to only around 1% in 2021/22 and to around 1.5% in 2022/23. It is hard to know why the implicit interest rate is so low. However, it should be noted that KSE charged below market rates for some of the finance extended and accounting rules dictate that that benefit is treated as a capital contribution (shown at £5m in the accounts). The discount is amortised over the life of the loan and treated as additional interest expense each year. It is hard to know if this practice will continue but we suspect it will. We allow for a modest amount of interest for the KSE loan, overdraft and the debenture loans in 2023/24 of £10m.

Cash flow

Given the recent history of losses (almost £300m over five years) and massive investment in the playing squad, it is hardly surprising that Arsenal have had to draw increasingly on loans from KSE. Remember, KSE paid up the remaining original stadium debt early in 2020/21 to generate more financial freedom in the running of the club. In 2022/23 a further £16m was advanced by KSE and in 2022/23 a further £41m (net of the £5m capital contribution) was advanced taking their loan to £258m. This is a loan with a two-year notice period for repayment, notice which had not been given as at 31 May 2023.

Equally significantly, net transfer debt (the net amount owed to other clubs for deferred instalments on player purchases) has grown from a whopping £193m at 31 May 2022 to £272m at 31 May 2023. These amounts include provisions for bonuses on appearances, etc.

Given there has been a further net investment in players in 2023/24 of £156m and a quick estimate of cash that will be generated in 2023/24 for player instalments is around £129m, the combined level of transfer debt and KSE debt is going to increase still further – probably by in excess of £50m to something in the region of a combined £520m.

Paying in instalments for players is common practice (typically over two years) and clubs in receipt of an IOU from Arsenal can easily turn this into real cash via the many ‘football finance institutions’ active in the market. The size of transfer debts outstanding has increased dramatically across the Premier League with Man United and Spurs owing even more than Arsenal. However, at some point that level of debt has to top out and start falling.

One final point to note is the £43m cash balance at 31 May 2023 is largely illusory as it is purely a function of the timing of season ticket renewals. For most of the season the club utilises its overdraft facility, probably to the tune of around £30m.

Overall picture

The owner has backed the management team tremendously over the past two seasons, spending half a billion pounds (gross) on new signings and providing generous new contracts to the young core of the team. We believe 2023/24 will see an enormous increase in team spending (a mix of increased wages and amortisation charges) that will require club turnover to hit the £650m mark within 2 years, not including the impact of transfer profits, to meet UEFA’s 70% cost control ratio. That is going to require not only a sustained presence in the Champions League and an expansion of commercial income but also a steady stream of transfer profits.

The club needs the academy to deliver players and profits in the way City, Liverpool and Chelsea’s academies have and that will be a big challenge and one that has largely eluded the club of late.  

Wider sentiment

In his review of the 2022/23 season Swiss Ramble explains in detail how Arsenal’s finances have transformed in the past five seasons from profitability to persistent loss, with the debt profile increasing.

Obviously Covid had an impact but the lack of Champions League football and the squandering of money on expensive players who failed to deliver were the real drivers.

The owner faced with a “put up or sell up” situation in 2021 decided to “put up” and has transformed Arsenal from the self sustaining Bank of England club to just another owner-funded highly-geared Premier League club competing for the “Arsène Wenger Cup” – a top 4 finish.

In fairness, the game has become ever more competitive and owner-backed investment has expanded competition for those coveted Champions League spots and even the secondary Europa League spots to eight or more teams. It is a high stakes game, where costly errors in the transfer market, underperformance on the pitch and a failing academy can threaten a club’s elite position.

Provided UEFA has the stomach to enforce its new cost control rules (unlike with FFP) and provided clubs don’t continue to find ways to dodge the rules, they do promise to bring some restraint to club spending. That sanity is much required in an environment where state-backed and billionaire ownership is increasingly dominating and exposing clubs to financial peril.

Simon Hill, March 2024