How Champions League participation has helped transform Arsenal’s revenues

A Special report by AST member Simon Hill

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 (season 2023-24). These are actual figures as reported in Arsenal’s report and accounts posted at Companies House.

The table shows phenomenal 50% growth in both revenue and wages over the past 2 seasons as the club went from playing no European football in 2021-22 to Europa League participation in 2022-23 to Champions League participation in 2023-24. This illustrates the transformative impact European football has on the club’s ability to invest in the team, yet it is telling that during this period Arsenal have continued to make consistent losses as wage increases have kept pace with the growth in revenue and other football costs have almost doubled.

*Cash generated toward player trading is a simplified description of the amount the club generates 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 good 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) provided some insights on merchandise sales but much of the open-source material online is based on rumour, so it is becoming increasingly difficult to prepare estimates and explanations for all the changes in the figures. 

Both myself and Swiss Ramble were close to 10% (£60m) out in estimating revenue and costs for 2023-24, though we were closer in terms of forecasting the net loss (only £10m adrift). I think this just illustrates how tricky forecasting future revenues have now become, particularly commercial revenues. The club is basically looking to break even or run at a small loss.

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 eight Arsenal Women matches at the stadium, plus a 4% ticket price increase.

In 2024 we saw dramatic growth from a run into the quarter final stages of the Champions League, an FA cup game against Liverpool and a ticket price increase averaging 5%. More profitable US summer touring arrangements, improved Arsenal Ladies matchday receipts and no doubt improved Premium seat sales over the past two seasons will have helped, but there’s no denying 2023-24 matchday revenue at £132m surprised everyone and represented 30% growth in one season.

Further growth in matchday revenue for 2024-25 is expected due to both a price increase and addition of an extra game in the Champions League.

Broadcast

Season 2022-23 saw a substantial rise in TV money from improved Premier League overseas rights and merit payments from a better finishing position (second from fifth) plus the return of the club to the Europa League. In 2023/24 there was a further substantial rise from reaching the quarter finals of the Champions League while placing second again in the league.

The next Premier League domestic TV round is delivering only inflationary growth (and that for more televised games) with future growth seemingly now dependent mainly on the international market, with the US increasingly relevant. In short, broadcast’s potential for dramatic growth has topped out and it is now the team’s performance that is key. In particular, qualifying for the Champions League is vital to sustaining current levels of investment in the team.

Commercial

Commercial income increased by £27m in 2022-23 and £49m 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 was referred to in the UEFA club financial report and the club’s accounts for 2022-23 and 2023-24. 

It is worth noting that it is in Arsenal’s interest to expand retail sales even if in doing so they yield no meaningful profits. This is due to all turnover counting towards UEFA's 70% cost control ratio. In other words, £100m of ‘no profit’ retail lets you spend £70m on the team.

We believe much of the increase in 2022-23 stemmed from expanded retail and merchandise sales (the UEFA report referenced a 24m euros increase) and the enormous leap in other costs, which is where associated costs of sale and distribution would support this assertion.

The 2023-24 accounts do now disclose retail cost of sales which again jumped 40% to £27m so there was probably a similar increase in retail revenue. We all anticipated a boost from the new Sobha naming rights deal and bonuses for Champions League participation. The early extensions of the Emirates and Adidas deals in 2023 and 2022 are rumoured to be adding additional revenues of up to £10m and £15m pa respectively but quite from what date no one is certain.

The accounts for 2023-24 referenced the Emirates deal so no doubt that contributed to the unanticipated growth we have seen but it is curious the Adidas deal which was extended in late 2022 was not mentioned in either set of accounts. The original Adidas deal expired summer 2024 so maybe the uplift is to come in 2024-25 or maybe it was taken in 2022-23.

The phenomenal growth in commercial and administrative headcount (62 additional people in 2022-23 and a further 87 in 2023-24 to 514) is primarily aimed at boosting partnership income. This is a lot of cost so the club must be anticipating further substantial growth in commercial revenues. This might be expected as the club has a long way to go to match the levels of, say, Liverpool (£295m in 2023-24, which, in a year when Liverpool missed out on the Champions League, was over £70m 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 Aubameyang’s contract in January 2022. The full year benefit of losing Aubameyang from the payroll 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 board room pay (£2m), a 60 person increase in the size of the commercial team (possibly £2m pa) and general wage inflation will also have been factors.

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 provided a large increase in salaries for 2023-24 (up £93m to £328m).

As a general rule the club struggles to offload unwanted players without recourse to agreeing early termination payments, as we clearly pay very well, so Arsenal lean on loans to recoup whatever we can until contracts expire.

In summer 2024, the club cleared a lot of players. They sold Smith-Rowe, Nketiah and Ramsdale, let Soares and Elneny leave on expired contracts, and loaned out Nelson, Vieira and the oft-loaned Lokonga and Tavares. They took on Calafiori, Merino, Neto and Sterling but the net changes will probably not have added much to the wage bill.

This summer as the club looks to free up capacity to invest in new players, Tierney’s deal will expire but Nelson, Vieira, Lokonga and Tavares will return from loan. Partey and Jorginho are at the end of their contracts, and the situation with Jesus and Tomiyasu will be complicated by their long-term injuries so another stressful summer awaits the new sporting director (whoever that may be).

As an overall sentiment, it is hard to see any further significant expansion of the wage bill as the revenue growth just won’t be there to support it and the club’s starting point is a £50m plus operating loss before player trading. Player trading cannot be relied on year-in, year-out to deliver significant profits – well, not in Arsenal’s case. 

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). Interestingly, deferred payments are discounted by a notional interest charge that is taken to profit and loss.

Arsenal added aggressively to the pool in 2021-22 (net £64m increase to £649m) and went further still in 2022-23 (a net £125m increase to £774m) and added a net £110m in 2023-24 increasing the historic cost of the playing pool to £882m. 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 Pepe) and £172m 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 on £700m) and a considerable clearing out of some equally expensive players (close on £400m at cost).

Other football costs

These include match day staging costs, travel, retail costs of sale, costs related to commitments under sponsorship agreements, medical costs and all the usual types of overhead present in any substantial organisation (such as insurance and legal fees). The club does not divulge much of what moves these figures and why they have changed season by season. They fell by a staggering £32m in 2020-21 to £47m when games were played without 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 toward 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 significantly higher than expected at £112m without any real explanation given.

We speculated that a large chunk of the unexpected increase (circa £15m) was down to the change in retail and merchandising strategy and represented additional costs of merchandise and distribution. 

In 2023-24 other costs shot up another £34m (30%) to £146m – almost double their level two seasons ago. We can see retail cost of sales provided some of this increase and other retail costs will have been on top but with only marginally more games played at the Emirates, at an underlying level it remains a mystery. 

It is interesting to note that most of the top European clubs experienced an uplift in other costs in 2022-23 of 18% on average, compared to Arsenal’s 50%, and that Arsenal’s other cost bill is comparable to that of Man United (who were at £149m in 2023-24) whilst less than that of Spurs, who carry a lot of catering and non-football hosting costs in that line (£167m in 2022-23).

Player trading 

Player trading has become the release valve for clubs who are over-spending relative to their on-pitch performance. Witness Chelsea and Aston Villa’s extreme behaviour last summer, arguably manufacturing profit so they met the Profit and Sustainability Rules (PSR) rules. There is a valid argument the club needs the academy to deliver players and regular profits in the way Man City, Liverpool and Chelsea’s academies have to provide wiggle room for investment over and above the core £120m pa level .For the past two summers that has been the case for Arsenal with Balogun, Xhaka and several academy players providing the £51m reported for 2023-24, and the sales of Smith-Rowe, Nketiah and a handful of other academy players expected to deliver even higher profits in 2024-25.

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. Whilst at a headline level they are now a significant item at £18m pa there are a number of unusual items underneath. 

One would imagine the main driver is KSE’s debt (now £324m up from £259m). However, interest costs on KSE debt equated to only around 1.5% in 2022-23 and to around 2.5% in 2023-24. This is because KSE charges below market rates for some of the finance extended. Accounting rules dictate that that benefit is treated as a capital contribution when such funding is advanced (shown at £5m in the accounts in 2022-23).

There is now also another notional interest charge in the accounts of £6.5m for the notional benefit of having deferred payment terms for player purchases (over £100m is due over one year on such terms and a net £230m in all). This is knocked off the purchase cost of the player and paid out with the instalments.

Cash flow

Given the recent history of losses (almost £300m over 5 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 2023-24 the loan increased by a net £65m to £324m. This is a loan with a two-year notice period for repayment, notice which had not been given as at 31 May 2024.

As 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 and £275m at 31 May 2024. These amounts include provisions for bonuses on appearances, etc, and with the KSE loan equate to combined finance of some £600m.

The level of investment in the team seems to have topped out in 2024-25 with a net £20m incurred last summer and with a quick estimate of cash that will be generated in 2024-25 for player instalments of around £120m there is the prospect that the combined level of debt will fall this season. When the club talks about sustainability it is really trying to say the level of cash generated should be sufficient to keep a winning team (ie fund net transfers). 

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. 

One final point to note is the £68m cash balance at 31 May 2024 is largely illusory as it is purely a function of the timing of season ticket renewals and for most of the season the club utilises its overdraft facility (probably to the tune of around £30m).

Overall picture

The owner backed the management team tremendously for a couple of seasons spending £700m (gross) on new signings and providing generous new contracts to the young core of the team.  Last year, we felt that the club would need turnover to hit the £650m mark within 2 years (give or take the transfer profits that could be made) to meet UEFA’s 70% cost control ratio. That seems to be on the cards provided the club can sustain its presence in the Champions League.

Last summer there was clearly scope to add more but obviously the right player could not be found and Sterling came as a last-minute high earning loan signing. What has transpired this season with injuries is obviously disappointing but as fans, how can we complain about an owner backing the levels of investment we have seen? 

Wider sentiment

In his review of the 2023-24 season Swiss Ramble explains in detail how Arsenal’s finances have transformed over five seasons from annual profitability to persistent loss with the debt profile increasing.

Obviously Covid had an impact but repeatedly missing out on Champions League football and the squandering of a lot of money on 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 yet another owner-funded highly-geared Premier League club.

 In fairness, the game has become ever more competitive and owner backed investment has expanded competition for those coveted 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 the need to drop down a level (witness the carnage unfolding at Man United). Now, arguably, the role of sporting director has become as pivotal to a club’s success as first team and academy management.

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 around commercial income and transfer profits, they do promise to bring some restraint to club spending and that sanity is much required in an environment where state-backed and billionaire ownership is increasingly dominating. In this regard, it is no wonder rules over what constitutes fair levels of commercial income from related parties and sustainable losses are being challenged by clubs backed by sovereign states. “Honest” clubs like Arsenal will be hoping the rulebook prevails.

Simon Hill, March 2025