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AST Analysis of Arsenal Holdings PLC Half Year Accounts to Nov 2015

Posted Thursday 10th March 2016

AST Analysis of Arsenal Holdings PLC Half Year Accounts

For the period 1 June 2015 to 30 November 2015


This analysis has been produced by AST Board member Simon Hill.

Firstly, we set out a simplified overview of the Arsenal's accounts in a table format. The figures are drawn directly from the club's accounts, with the full year to 31 May 2016 figures (and the split of football costs between wages and other football costs at the half year) being AST estimates.


6 mths to Nov 14

Yr to May 15

6 mths to Nov 15

Yr to May 16

Annual increase






Est. to May 16































Player loans






Football revenue












Total revenue


















Football costs wages






Football costs other






Amortisation of squad












Property & player loans






Total costs












Operating profit/(loss)






Player sales












Profit/(Loss) before tax












Profit/(Loss) before player sales and property







Matchday revenues (gate receipts)

In the first six months of the financial year there were 9 home games, 2 tour games and an Emirates Cup competition. Compared to last year, there was one more A rated fixture and one fewer C rated game, no Champions League Qualifier (B rated) and no League Cup game. However, there were two tour games (Asia Cup). 

The net effect of these changes was to decrease match day revenues for the period by £2m. In the second half of the season, the club will play one more FA Cup game at home compared to last season and benefit from an extra A category game being charged to non-season ticket holders, so overall we estimate match day revenues will be £99m compared to last year's £100m.

Matchday income remains one of Arsenal's main sources of competitive advantage compared to rivals such as Spurs (£40m), even allowing for associated debt and hosting costs.


Broadcast revenues

This is the last year of the current Premier League TV deal (Sky and BT) and the first year of the new Champions League broadcasting deal (BT). Arsenal had ten televised Premier League fixtures in the first half of the financial year and five Champions League games, securing a £7m increase in broadcast revenues from £53m to £60m.

We expect Arsenal's full year broadcast income to deliver an increase thanks to the new Champions League three-year prize money cycle underpinned by the new broadcast contract with BT. This is expected to increase Champions League prize payments by 50 per cent and TV pool payments for EPL teams by a further 50 per cent. Allowing for the absence of the qualifying game and Arsenal's third place finish in the EPL in 2015 this is likely to translate to an extra £10m (£35m in all).

There is also approximately £3m riding on winning the FA Cup again, which is discounted in our estimate for the full year.

Next season the new domestic Premier League deal will bring an additional £45m of revenue to Arsenal and an average addition £40m pa to all Premier League clubs. Arsenal are now very reliant on broadcast revenues for growth.


Commercial and retail revenues

Commercial revenues increased by 7 per cent to £41m and are expected to be £82m at year end.

Whilst the two headline deals with Emirates and Puma are significant (at £25m pa and £30m pa respectively), Arsenal's commercial and retail income is still only 50 per cent of the figures reported by Manchester United whose new kit deal with Adidas (£75m pa) together with other commercial revenues will give them a £100m pa spending advantage over Arsenal.

Arsenal also lag behind the commercial revenues reported by Bayern, Barcelona and Real Madrid who all earn close to £200m pa and the two state sponsored clubs (PSG and Manchester City) who receive well over £170m pa in commercial revenues. 

Arsenal sit tenth in the European Club table of commercial income meaning they are in the second tier of commercial income earners behind the likes of Chelsea, Dortmund and Liverpool, who all receive around £100m pa, but well ahead of clubs like Spurs who are not Champions League regulars and earn around £60m pa.

Sadly, the game at the top level in Europe is becoming increasingly polarised leading to a less competitive Champions League format. The super-rich Clubs are generating ever larger commercial success off the pitch through sponsorships and merchandise sales linked to success in the Champions League with its large bonus and tv related payments.


Property and player loans

The club is still working on the sales of the Holloway Road and Hornsey Road sites which should realise in excess of £10m once planning consents are obtained. 

In terms of loans, Szczesny and Sanogo were joined by Debuchy in January as notable loanees and small loan fees have been received on these deals.



2015 was another year of marked increases in wages driven by an upgrading of the squad, with Sanchez, Welbeck and Gabriel added and new contracts awarded to Walcott, Szczesny, Ramsey, Cazorla, Coquelin and Bellerin. However, as we predicted, the summer saw little activity, with Podolski and Diaby released and only Cech added.

In terms of the figures, this translates into an expected slight fall in wages (to £190m) due to last year containing the scenario of two seasons' worth of Champions League qualification bonuses being paid in the same financial period (as we qualified both in August 2014 through the play offs and May 2015 through finishing third).

What happens this summer will largely depend on whether the Clubs propose and agree upon a new set of wage controls linked to the new TV deal. Most clubs outside the big six have wage bills in the £70m region and are unlikely to want to spend all their extra £40m pa in TV revenues on wages. Although Arsène Wenger would have us believe all the extra £45m pa TV income the new deal will bring to Arsenal is needed for pay rises for him and his players, we believe a new set of restrictions is likely to be agreed as the clubs are all conscious of the risk of being stuck with players on wages other European clubs can't afford and because there is now a majority of investor owners who want financial security and even a reward from owning their teams (to say nothing of growing political pressure to resist largesse).

The last set of restrictions allowed Premier League clubs to increase wages by no more than £4m pa unless they had cumulative non-PL tv revenue increases (commercial or gate money) and/or player trading profits to cover any excess.

The £4m pa cap (£12m over three seasons) ended up after three years at roughly 50 per cent of the average extra benefit the last TV deal generated (£25m pa). Applying a similar ratio would see a cap of around £7m pa (£21m over three seasons) in wage inflation which feels logical.

Arsenal may find that their ability to strengthen the squad is constrained by the fact they currently pay too many players more than they are worth and will be restricted in how much they can spend on other players.


Non-wage Football costs and Amortisation

Non-wage football costs cover team support, travel, medical costs, stadium running costs, insurances and retail costs of sale (running costs of The Armoury, cost of shirts etc). They are remarkably constant other than being slightly impacted by the number of home games held (approx £200k per home match day), tours held and retail costs of sales. For the past two years, there was the inclusion of a £3m fee paid to KSE for advisory services and it is unclear from these interim figures if a fee has been levied in the first half of the financial year or will be levied by the financial year end as has occurred in the last two financial years. We remain unconvinced of the true value of the services represented by the KSE fee as the club's statements on this have failed to provide any coherent explanation of the services provided.

Amortisationis the cost of buying the team spread over the length of the relevant players' contracts and includes costs like agent fees, Premier League levies and contract extension fees as well as the actual transfer fee paid for a player. The charge for the half year to November was marginally higher at £29m due to the modest investment of the past two transfer windows (approximately £40m gross in players over the summer and in January 2015). In the full year we expect an amortisation charge nearer to £60m, which is Arsenal's average annual spend on new player recruitment plus contract uplifts / extensions.


Profit on player sales

Arsenal booked no profit from selling Podolski but did recover his book value (£2m). Most of the clubs competing at the top of the game have traditionally not relied on player sales for income, although some have begun to resort to generating profits in this way to balance the books for either FFP reasons (Chelsea and arguably even Man City) or because of failure to qualify for the Champions League. Arsenal are now a buyer of mature talent as well as a buyer of developing talent, as one would expect from a top club, and we expect profits from player sales to remain less significant than in the past unless dissatisfied star players once again force exits.


'Spare Cash' / Resources available to strengthen the team

Arsenal reported cash reserves at 30 November 2015 of £135m - with further cash of £24m held back to guarantee debt service requirements. This was a significant decrease on cash reserves held in May (£228m total) but was not unexpected.

As we explained in our last report, Arsenal's end of financial year (May 31) headline cash figure (£228m) is always inflated by ticket payments for the coming season. These are used to pay some of the wages and bills for the rest of the summer ("working capital"), but there are also a number of other items that will use up the cash held at year end. These include:


·         An allocation of cash on the balance sheet (£35m) that the club can't spend because it's held to the order of its stadium bond holders ("debt reserve protections").


·         A net amount left in the balance sheet reflecting money to be spent and received on players spread between debtors, creditors and provisions (£85m). A big chunk of this is on a long-term basis (ie due in more than a year's time) as it relates to the agents cut on player transfers and wages and renegotiated contracts, and to deferred instalments on players and performance-related fees the club thinks will become payable in the future (in all approx £45m). In the current year we estimated that some £40m net is due to go out.


·         One-off amounts that were unpaid at year end (mainly located in accruals in the creditors note to the accounts). The club drew attention to FA Cup final ticket revenues not being paid over at year end, players' Champions League bonuses for 2015-16 being accrued in the year end results, the KSE consultancy fee and an unpaid corporation tax bill (£6m) as all being unusual factors that helped boost creditor balances at year end. It is hard to be precise with all these amounts but £15m was our best estimate of the amounts that will impact on free cash.


So to summarise, we set out below our view of Arsenal's cash position in May 2015:




Debt Service Reserve


Working capital                  


Net player payments due 2015-16


One off factors


Spare Cash


Net spent - summer 2015


Residual Cash



These interim accounts contain insufficient information to recreate this table at the end of November but we can see from them that a net £39m was paid out on player purchases so far (£40m allowed here) and a net £18m was incurred in summer 2015 (our estimate above allowed for £10m to be incurred). 

One off factors and working capital have used up £42m and regular trading (loss plus amortisation less loan payments and net capex) generated £12m, making a net £30m utilised compared to the £55m allowed for in our estimate. Given that more working capital is required through the period to March, and more may well be paid for instalments on players, we would reduce our estimate of residual cash to £80m.

Looking forward to May 2016 we estimate that the residual cash available will grow in the second half of the financial year, which contains the bulk of TV and match day revenues together with Platinum and Gold Season Ticket renewals to somewhere in the region of £120m come 31 May 2016.

The club would no doubt claim that a further £45m should be reserved for transfer fee provisions payable in the future, but some of these payments are not due for at least one year and we would argue enough caution is already being applied given the impending new TV deal adds £45m pa to the current rate of annual cash surplus being generated before player trading (some £40m pa).

We would also like Arsenal to explain why over £50m of cash is held in the property companies (Highbury Holdings Ltd) and not in the football side of the business.


Relative competitive financial standing


Arsenal have enjoyed a period of relative financial improvement over the past three seasons which has seen significant net investment in the squad (over £115m) and a huge increase in the wage bill (up over £30m pa). This coupled with a temporary reigning back of expenditure by Chelsea and Manchester City as FFP bit led to a narrowing of the wage bill differential. There's still a significant difference (circa £20m pa) but it is telling that the gap in performances on the pitch has also narrowed over this period and Arsenal now have one of their best chances in years to win the League.

Arsenal have few opportunities to improve their financial standing relative to their competitors other than by winning the Premier League or Champions League and buying stars that raise the club's profile (sponsorship potential). They can't increase gate revenues, already rely on Champions League income for spending and will be constrained by any new wage cap.

However, Arsenal's relative position is arguably at risk by virtue of their reliance on Champions League income to maintain their spending on the pitch and their high visibility to sponsors. Arsenal lack the revenue cushion of Manchester United and the deep pockets of the owners at Chelsea and Manchester City, who are now free again to invest modestly to protect their teams following UEFA's apparent back-tracking on FFP, and like Liverpool before them are exposed to a prolonged absence from the Champions League .


In terms of threats, they face:

·         The risk stars will agitate to leave if there is no success this season

·         The risk they too might lose out on a Champions League place in an ever more competitive league

·         The risk others who increase gate revenues (Chelsea, Liverpool and Spurs) will be able to spend more on wages, as will those getting in to the Champions League.


Of course, if they can get more out of their wage bill (currently £190m pa) compared to their rivals (eg Spurs £120m pa) that might not matter, but there is again the suggestion that Arsenal have players on their books earning wages other clubs would struggle to justify (Walcott £140k pw; Szczesny at or close to six figures) and that readjustment could be painful.

Moreover, whilst in the past Arsenal have protected themselves by buying very well relative to their peers, that advantage has now waned and is seemingly enjoyed by others outside the old top 4 (notably Leicester and Spurs), so it is our assessment Arsenal are exposed to downside financial risks which have been exacerbated by a failure to invest all of the cash reserves available at a time of weakness amongst other leading clubs.


Capacity to invest in the summer

Capacity to invest in the summer will be a product of:


·         The amount of spare cash available (we suggest £120m)

·         The amount raised by involuntary player sales (obvious risks are Sanchez, Özil, Bellerin and Koscielny)

·         Wage capacity freed up by retiring players (Flamini, Arteta and Rosicky account for probably close on £10m pa in wages) less the contracted rises (Oxlade-Chamberlain, Sanchez and Özil are all being mentioned)

·         The extent of any Premier League wage cap for the following season (we suggest the permitted increase may be £7m)

·         The amount of income at risk next season from a Champions League play-off (none hopefully, but £30m rides on group-stage qualification)

·         The amount generated and wages freed up from voluntary sales


We also note that while Arsenal have kept their powder dry that transfer fees and wages have increased greatly. Spare cash of £50m two years ago could have bought two world class players. This coming season it is likely to buy just one.


In summary

Last year we commented that Arsenal were now in a situation where they need to focus on winning trophies and being more successful with the resources in hand as this is the key driver to any future substantial growth in revenues outside of the Premier League TV deal and to retaining their stars. The pressure should very much be on the players to perform or to be moved on to generate revenues to be reinvested, much as Chelsea have done.

Last summer Arsenal had £80m of spare cash, capacity to increase the wage bill by over £10m pa from the new Champions League deal and certainty over their income due to a third place finish, yet they chose not to invest in the outfield squad and instead rely on improvements by their existing squad of players (notably the likes of Walcott, the Ox, Welbeck, Wilshere, Flamini and Campbell). The sudden spike in transfer fees seen last summer may well have played a part in the manager's thinking (United paid a reported £60m for Martial; City over £50m each for De Bruyne and Sterling) but failure now to capitalise in this period and win the League opens up downside risks and in hindsight looks inadvisable. Arsenal now risk watching a Spurs title victory and having some of their best players agitate to leave.




AST, March 2016