Arsenal’s financials: the in-depth analysis and what it all means. « Untold Arsenal: Arsenal News, supporting the club, the players and the manager

By Phil Gregory

Righto, so Arsenal have released their latest financial statements, so let’s have a look at them.

There’s been much ado made over record breaking profits and turnover, but it’s important to remember that this is solely attributable to the property development side of the club and so these bumper profits are largely going to be a one-off. Moreover, these profits weren’t diverted into Arsene’s kitty, we instead used them to pay off huge sums of the more expensive bank debt so as to save us money in the long run.

As it stands, our debt consists of around £240m of cheap (5.3%) bonds, which have a fixed repayment plan in place, so won’t be paid off en-masse like the bank debt was. That leaves us with roughly £20m of costs in regards to our remaining debts: £5.6m of capital repayment on the bonds, and the rest is the interest bill. It is interesting to note also how much cheaper (and longer-term) our bond debt is when  compared to Manchester United, and also how we actually have a plan in place to pay it off when the final maturity date comes.

I’m going to concentrate purely on the footballing side of the club ‘s business from here on. Any figures mentioned are excluding the property side of the club which is now generating pure cash profits with every sale.

Looking at the numbers, the numbers aren’t as good as you might expect from the recent headlines, largely thanks to the recession. Turnover actually declined slightly compared to last year, from £225m to £222.9m. That is partly because of a decline in matchday revenues from £100m to £94m due to a lower number of home games played that season. Commercial revenues are also down to £44m from £48, likely attributable to the recession causing people to think twice about that replica shirt, but also partly the lower number of home games reducing merchandising sales at the club shop. These declines were partly offset by the ever-rising TV money, with the Gunners featuring on TV four more times than the previous season and a spanking new Champion League TV deal starting up.

Given the fall in other revenue streams except TV, broadcasting revenue now contributes 38% of revenue. This is a fairly large rise compared to last year but nothing to be overly worried about, given the profitability of Sky and the lack of bad news emanating from the wider broadcasting   market (unless you’re in Spain).

Such results led to operating profits falling to £35.5m, which is hardly a cause for concern! Operating profits are a great hallmark for how secure a club’s core business is and it is clear to see that we are well in the clear in that respect.

Wages rose to £110m, up £6m from the year before. The accounts make it clear that more growth is to be expected due to contract renewals and the like, but with wages at only 49.7% of turnover (admittedly up slightly on the previous year) we can afford to absorb wage rises for some time yet. That, however is a tricky situation to manage. If wages are restrained, the club has substantial profits that can be reinvested into the team, be it in the transfer fees or wages of new signings. Once wages rise however (and bear in mind even if nobody is bought, wages will rise due to renewals, young players getting paid more as they develop etc), such profits are eliminated, and a manager has to sell in order to buy sustainably.

Freeing up money for the transfer fee and making room in the wage budget in order to keep the books balanced is never going to be easy, so the flexibility offered by solid operating profits is always welcomed.

Amortisation spending (transfer fee divided by the length of the contract) was also up slightly. This isn’t surprising, as the sales of Adebayor and Toure won’t have taken much amortisation costs off the books.  Toure joined in 2002 for £150,000 and Adebayor was signed in 2006 for £3m, so neither had anything left to be amortised.  The acquisition of Vermaelen and the subsequent amortisation would easily have outweighed the final few pounds of amortisation “saved” made by selling Kolo and Adebayor.

Overall, there’s much to be pleased about and many of the downsides can be explained as either the vagaries of sport as a business or the recession. For me, we’re in a fine situation while many of our rivals are getting worried at the new Financial Fair Play regulations. The worry for the whole game has to be the constant upward pressure on wages, especially with TV money unlikely to be far from the top of the market.

Were the Financial Fair Play regulations responsible for this summer’s quiet transfer market? It’s hard to say. Bar City, the big clubs didn’t really spend and this will have impacted on the amount of money the smaller sides had to play with. That said, many of the smaller sides are at best barely profitable, so tight lending conditions combined with a new fear of lending to football as a result of the RBS-Liverpool situation might have ended the prospect of buying players on credit supplied by the financial sector. Such a move isn’t a bad thing, and clubs may soon realise in order to buy they have to first generate profits, and the only real cost with potential to be significantly cut is wages. Maybe I’m too optimistic, but the new-found restraint may be here to stay.

Except for Arsenal of course, who will have the ability to spend ludicrous amounts of money sustainably next summer, with the only restraint being the 25 man squad limit and the coming of age of various of our Young Guns.