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The truth behind Arsenal's transfer budget this summer

Posted Sunday 15th May 2016

How big is the Arsenal war chest this summer? An appraisal of the CSS estimate reported in the press

The estimates published by CSS and widely reported in the national press will no doubt have AST members and fans in general wondering what is going on as the articles infer there's a lot less spare cash (practically none) for transfers compared to other estimates put out by both myself with my AST hat on and well regarded commentators like Swiss Ramble.

This appraisal is by necessity a detailed accountant's description of how Arsenal's finances work and how an accountant would seek to estimate the cash available for transfers in the summer.

The starting position has to be Arsenal's published accounts for the six months to 30 November 2015 and the balance sheet, profit and loss and cash flow contained therein. 

Using those accounts, the accounts for the year that ended 31 May 2015 and our knowledge of what has probably changed in Arsenal's income and expenses in the year to 31 May 2016 we can then estimate both the cash position at 31 May 2016 and the estimated balance sheet at 31 May 2016.

To then estimate Arsenal's cash available for transfers in the summer we need to work out:

·         how much of that cash is needed to be set aside for unpaid debts at 31 May 2016, and

·         what will reasonably be required for ongoing expenses in the year to 31 May 2017,

which in turn requires an estimate of:

·         what will be received and paid out over the course of the year to 31 May 2017, and

·         hence an estimate of Arsenal's forecast trading results and cash flow for the year to 31 May 2017.

That is a lot of maths!

Then to contrast we need to compare CSS's estimated balance sheet at 31 May 2016 to Arsenal's balance sheet at 30 November 2015 and explain what needs to have happened in terms of January transfers and payments for outstanding transfers for their estimate to be realistic and then to discuss their methodology for estimating what cash is going to be free to spend on transfers.

This is a lot of maths! So here goes.

We will start by first looking at CSS's estimate of cash at 31 May 2016 (£228m) and the results to 31 May 2016.

CSS's estimate of results to 31 May 2016


Yr to May 15

Yr to May 16

Yr to May 16



CSS Estimate

AST Estimate

Total revenue








Football costs wages




Football costs other




Amortisation of squad








Property & player loans




Total costs




Operating profit/(loss)




Player sales








Pre tax Profit/(Loss)





There's no massive difference between our estimates bar CSS assuming higher sponsorship and retail incomes and markedly lower player amortisation (£52m vs £60m).  This latter item is a bit odd as the charge for the six months to 30 November was £29m up from £26m in 2014 and was the same amount as was incurred in the second half of the 2014/5 financial year so a fall to an implied £23m in the second half seems illogical given the profile of the player pool is virtually unchanged (Elneny added and no one sold).

The balance sheet they forecast as compared to Arsenal's actual position at 31 May and 30 November is more interesting.


May 15 Actual

Nov 15 Actual

May 16

CSS estimate

May 16

AST estimate

Fixed Assets & Investments










Stock & property





Receivables <1year





Receivables >1year










Trade credit, tax, NI, bonds





Other creditors





Deferred income & accruals





Bonds & debentures>1year





Other creditors>1year





Provisions incl Def Tax





Net Assets











* Net Assets: Arsenal restated their accounts for 2015 in November adding £6m to debt figures and reducing Net Assets accordingly from £331m to £325m which CSS overlooked. Whilst CSS figures will be out for this reason it will have no impact on the cash estimate, they just need a higher debt figure and lower net asset figure to correct it.

Problems with CSS's May 2016 estimated balance sheet and cash balance:

1.       Players.  Movement in the players' figure is a product of spending on new players and contract renewal fees for agents, less amortisation and the book value of any players that are sold.  We know amortisation for the period November to May should be £29m, we know no one of note was sold and we know only Elneny was added.  For CSS's figure to be right £29m must have been spent in January… even £10m would be generous, £29m is totally implausible.

2.       Receivables include amounts in respect of player sales. In November these fell £6m as cash came in and there were no player sales of note, and none are expected between November and May by CSS so a fall of at least £6m over the year should be anticipated.  The seasonal rise to May expected by CSS in receivables is otherwise fair enough - there is normally some money owed from Uefa, for one thing.

3.       Other creditors due in under one year and over one year are predominantly made up of amounts due for player purchases.  When players are bought the fee is nearly always paid in instalments over a number of seasons.  As of November 2015 these had fallen to £55m from £80m in May 2015.  They would increase from November to May 2016 to the extent purchases in January (Elneny) were not paid for all at once, but fall to the extent further amounts had to be paid by 31 May from the amounts brought forward at November (£55m). Given that last May £50m was to be paid within one year some further reduction is inevitable, but not the full £50m as some of the players acquired by November (£20m) and in January (say £10m) will have deferred elements.  Even if one is kind and assumes £20m of the year's total spend of £30m was on deferred terms, at least a £30m fall has to be allowed for, yet CSS assume there is none which would entail Arsenal having spent an impossible £50m all on deferred terms last season when only Cech and Elneny were added.

4.       Deferred income and accruals were exceptionally high in May 2015 at £174m (up £28m on May 2014) and some of this is almost certainly due to one-off factors, so it's prudent to assume a lower level will exist in May 2016 (estimate of £160m).


At a net impact level, this suggests a starting cash figure of £199m, some £29m lower than CSS's estimate. This sounds like bad news! Well the next part of the puzzle is how much does that leave spare for transfers…


CSS calculate what is spare by first deducting the estimated debt service balance held within cash that the club can't access (estimated at £32m). Last May it was £35m so for safety it's better to stick with that figure - which looks on the face of it like more bad news.


Then CSS do two things to the remaining amount of cash (£196m) that can only be described as bizarre:

1.       They add the full amount of estimated receivables in under one year at 31 May (£75m) and then:

2.       They deduct the full amount of creditors due in under one year - £267m

3.       This leaves £4m free to be spent on players.  With nothing more to come from trading in 2017 which they assume generates no cash for player purchases.

I am trying to find a way to put this politely but frankly this is just nonsense. 


It assumes basically that the following May (2017) Arsenal's accounts will have zero debtors and zero creditors and during the year Arsenal will have generated a net zero from trading! This is just impossible. It means no season ticket renewals are paid in May 2017, it means all taxes are paid for immediately each month, all bills paid immediately, all Uefa receivables sent immediately, all other receivables from the Premier League deal are paid immediately. It's not real life.

They have assumed creditors and debtors in May 2016 return to May 2015 levels (£192m) so quite why they should go to zero by 1 June 2016 and stay at that level all year right through to 31 May 2017 at a one time cash cost of £192m is to put it mildly baffling and beyond any accounting logic.

What is equally daft is to assume Arsenal's trading for 2017 will generate no cash to go towards player acquisitions.  Indeed, they even say there's no scope for revenue growth next year yet cost pressures will remain, totally ignoring the small matter of the new £8bn TV deal which will deliver at least £45m in extra income at no cost to Arsenal! Then there is the fact that the Profit & Loss figures adjusted for non-cash costs like player amortisation provides £60m in cash to go toward player acquisitions even if Arsenal make no profit. So that's £105m of cash flow that has just been ignored without explanation, on top of the £192m whisked away!

So what is a fair estimate of Arsenal's available cash this summer, and why?

Well, let's talk through the way the AST present matters and relate that to the estimate we have for May 2016:

1.       Start with the estimated cash figure less the debt service (£199m less £35m = £164m)

2.       Deduct amounts in creditors and debtors that relate to existing player purchases and sales (£45m at November, £40m we assume by May) that will need to be paid next year - £30m (as at least £10m of the total relates to amounts due after May 2017). Running total now = £134m.

3.       Make an allowance for season ticket money and other sponsorship income that is needed to fund working capital (costs) during the season.  Arsenal's in-season cash flow is complex in that different streams of income come in at different times. Some is received in advance (season ticket money, some sponsorship cash from Puma and Emirates) but most is received in arrears (some TV appearance and merit cash, Uefa Champions League monies, etc) or when games are played (non-season ticket sales).  Costs (mainly wages) are predominantly evenly spread over the year, so there is a need to fund costs until the deferred elements of income come in and Club Level season ticket renewals for the following season are received (April).  This amount we estimate at £30m, based on the approximate phasing of the relevant income streams in terms of cash next season and allowing for a modest increase in wages (Premier League rules will limit growth in wages to £7m of the extra £45m being received). Running total now = £104m.

4.       Make an allowance for debt repayments scheduled (£8m) and any net capital expenditure (assumed as nil). Running total now = £96m.

Of course, it can be argued some level of buffer or reserve should be kept, but equally it needs to be remembered any new player acquisitions will involve some deferred element spread over the next two or three years and the new TV deal locks in a guaranteed £31m of extra cash in 2018 and £24m in 2019 (net of allowed wage increases), so there's plenty of future slack. So we would argue £96m is a fair free-cash estimate (before any cash generated from player sales).

CSS do mention another factor that they say will allow Arsenal to spend more than their £4m free-cash estimate: a £50m overdraft, which they seem to suggest becomes permanent new borrowing as elsewhere they say there's no free cash flow to pay it back. From our knowledge of the stadium bonds, no additional borrowing of this nature would be allowed other than on a very short-term basis, so really they should have stuck at £4m.

The club would of course also point out they also need to pay the extra wages for any new players.  Normally that would be around a fifth of the fee on a big name signing, and whilst that is limited by the £7m cap being imposed (ie there's no point trying to spend £50m on a player if you aren't allowed to increase your wage bill by £10m to pay the wages he demands), you must also remember that wage capacity is freed up by players leaving and Arsenal have three senior names retiring.


The author's credentials.  Simon Hill is a qualified chartered accountant who worked at Ernst & Young for 15 years in audit and corporate finance.  He spent over 10 years specialising in due diligence; analysing business's accounts and forecasts of future trading and cash flows for a variety of corporate clients, investment houses, merchant banks and banks and latterly specialised in corporate debt restructuring and rescue.  He then spent 15 years as Finance Director for a privately owned publishing company before retiring in 2012.  He has performed an analysis of and generated forecasts of Arsenal's six monthly and annual financial results since 2008 for the AST in conjunction with Nigel Phillips.