Thread by @SwissRamble

Arsenal’s 2017/18 financial results covered a season when they finished 6th in the Premier League, while reaching the Europa League semi-finals. Manager Arsène Wenger was replaced by Unai Emery, while Stan Kroenke took full ownership. Some thoughts in the following thread #AFC

#AFC profit before tax increased from £45m to £70m, despite revenue falling £35m (8%) to £388m, mainly due to participating in Europa League rather than more lucrative Champions League, as profit on player sales surged £113m to £120m. Profit after tax improved from £35m to £57m.

All #AFC revenue streams decreased: broadcasting was £19m (9%) lower at £180m, mainly due to lower Europa League distributions; commercial dropped £10m (9%) to £107m; match day declined £1m (1%) to £99m; while player loans fell £5m to £2m.

At the same time, the #AFC wage bill, excluding exceptional costs, increased by £24m (12%) to £223m; player amortisation/impairment was up £15m to £92m; and other expenses rose £8m (10%) to £87m. There were also £17m exceptional leaving payments to Wenger and his support team.

On the other hand, the property next to Holloway Road was sold, contributing net £5m, meaning the Hornsey Road site is the only remaining development. In addition, net interest payable was £6m lower, mainly due to a positive movement in the market value of an interest-rate swap.

#AFC £70m profit before tax is not only a record for the club, but is the highest profit reported to date in the 2017/18 Premier League, just ahead of #CFC £67m, followed by #MUFC £26m and #WHUFC £18m. Two clubs have posted losses: #SCFC £30m and #EFC £13m.

In fact, #AFC £70m profit before tax is actually the third highest ever registered in the Premier League, only surpassed by #LCFC 2016/17 £92m, boosted by their Champions League adventure, and #THFC 2013/14 £80m, including the major sale of Gareth Bale to Real Madrid.

However, as chairman Sir Chips Keswick said (with considerable understatement), “Player trading has meant that #AFC has had another profitable year.” £120m profit on player sales, mainly Walcott, Giroud, Coquelin, Sanchez & The Ox, is highest in PL to date, ahead of #CFC £113m.

In fact, #AFC £120m profit on player sales is actually the highest ever made by an English club, ahead of #CFC 2017/18 £113m, #THFC 2013/14 £104m and #EFC 2017/18 £88m. It is around twice as much as Arsenal’s previous best: £65m in 2011/12.

The last time that #AFC made a loss was way back in 2002, so they have reported profits for 16 years in succession (accumulating to a total of £393m, averaging £25m a year). However, 2018/19 is likely to see a large loss, due to lack of Champions League and no major player sales.

After a number of years of fairly low profits from player sales, this shot up to £120m in 2017/18, though the 5-year average of £33m is still lower than the £36m achieved 2009-13. Excluding player sales and property development, #AFC would have reported a £55m loss last season.

#AFC EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation), considered as a proxy for cash operating profit, as it excludes player sales and exceptional items, slumped from £144m to £78m, though this is still the third highest in the club’s history.

Following this decrease, #AFC EBITDA of £78m is now only the sixth highest in the Premier League, less than half of #MUFC’s £177m, which is due to United’s amazing ability to generate cash, and also below #MCFC £125m and #CFC £94m (of the clubs that have reported 2017/18 results)

#AFC revenue decreased £35m (8%) from £423m to £388m in 2018, the first time revenue had fallen since 2010. Revenue has grown £145m (60%) in the 5 years since 2013, mainly broadcasting £94m (new PL deals in 2014 and 2017) and commercial £44m, with match day relatively flat.

Following this decrease, #AFC £388m revenue is now the fifth highest in the Premier League, having been overtaken by both #LFC £455m and #CFC £443m. The gap to #MUFC £590m and #MCFC £500m, is substantial, around £200m and £110m respectively.

Of most concern to #AFC supporters, #THFC are now only £9m behind, as their revenue increased £73m in 2017/18 to £379m, while #AFC declined £35m to £388m, producing a net swing of £108m. The gap was as much as £141m just two seasons ago.

#AFC fell 3 places to 9th in the Deloitte Money League, their lowest position since 2004/05. Their revenue reduction was the most of any Money League club. In the meantime, the Spanish giants have powered ahead: Real Madrid £665m and Barcelona £612m.

#AFC £142m Premier League TV money was £2m higher than the previous season, primarily due to higher facility fees £33m (broadcast live 28 times vs. 25), offset by a lower merit payment of £31m (5th place vs. 6th). Club has received £945m from the Premier League in last 13 years.

#AFC earned the most in the Europa League, €38m for reaching the semi-final, thanks to the high English TV Pool, though this was much lower than the prior season’s €65m. As Keswick said, “A return to the Champions League is a clear priority.”

As well as the direct impact on #AFC revenue of dropping out of the Champions League, this also means that their rivals benefit. For example, other English clubs earned higher sums in 2017/18: #LFC €81m, #CFC €65m, #MCFC €64m, #THFC €61m & #MUFC €40m.

Despite the lower money last season, #AFC have earned an impressive €219m from Europe in the last five years, only beaten in England by #MCFC €279m. However, Keswick noted, “We are very aware of the financial pressure which Europa League football places on the club.”

#AFC match day income fell slightly to £99m, even though they staged 4 more home games, mainly due to the Europa League run. This is the 2nd highest in the top flight, only below #MUFC £110m, but others are catching up through various stadium developments.

#AFC had the third highest average attendance in the Premier League of 59,323, though they have been overtaken by Tottenham, whose crowds have increased to around 68,000 at their temporary Wembley home. Ticket prices frozen 4 seasons in a row, though are among the highest in PL.

The importance of match day revenue to #AFC is very clear, as shown by 25% of their total revenue coming from this category. This is much higher than any other leading club, e.g. #THFC 20%, #MUFC 19%, #LFC 18%, #CFC 17% and #MCFC 11%.

#AFC commercial revenue fell 9% (£10m) from £117m to £107m, mainly due to penalty clauses in sponsorship deals for not qualifying for Champions League. This is the 5th highest in England, but miles behind #MUFC £276m & #MCFC £232m; and also fair way below #CFC £165m & #LFC £151m.

Since 2015 #AFC commercial income has basically been flat (only up £4m), while this important revenue stream has grown significantly at the other leading clubs: #MUFC £79m, #MCFC £59m, #CFC 57m, #THFC £43m and #LFC £35m. This season boosted by Visit Rwanda sleeve sponsor £10m.

More encouragingly, #AFC will have improved commercial deals from 2019/20: extension of Emirates sponsorship at £40m (up £10m) and Adidas kit supplier (reported £60m vs. Puma £30m). Worth noting that Emirates includes naming rights and does not allow separate training kit deal.

This is important, due to Premier League Short-Term Cost Controls, which restrict annual wage bill increases to £7m – except if funded by more revenue from sources other than PL TV deal, thus increasing pressure to grow commercial income (or increase profits from player sales).

#AFC wage bill surged £24m (12%) from £199m to £223m (excluding exceptional payments), due to new signings and Ozil extension, though no Champions League bonuses. This increased (worsened) the wages to turnover ratio from 47% to 58%, though not as high as 64% in 2013.

Despite the growth in #AFC wage bill to £223m, the increases at other leading clubs have been even more. For example, the gap to #MUFC has widened from just £11m in 2015 to £73m in 2018 with United’s wages just shy of £300m. Arsenal also below #MCFC £260m and #CFC £244m.

Nevertheless, #AFC wages are higher than all other Premier League clubs, though we can anticipate increases in #LFC £208m and #THFC £127m (both yet to publish 2017/18 figures). However, Arsenal note “the club has invested further in its player wage bill”.

Following the increase in the #AFC wages to turnover ratio to 58%, this is now the highest (worst) of the “Big Six”: #THFC 41%, #MUFC 50%, #MCFC 52%, #CFC 55% and #LFC 57%.

Departing chief executive Ivan Gazidis somehow managed to increase his total remuneration from £2.6m to £2.7m, even though #AFC failed to qualify for the Champions League, all revenue streams fell and the wage bill is out of control. He trousered around £21m during his tenure.

#AFC player amortisation rose 11% (£9m) to £86m, reflecting the club’s significant investment in the playing squad. This expense has more than doubled in the last 4 years from £40m in 2014. There was also a £6m impairment charge to reduce a player’s value.

Following this growth, #AFC player amortisation of £86m is the 4th highest in the Premier League, but still a long way below #MUFC £138m, #MCFC £134m and #CFC £124m. #LFC £58m should also increase one 2017/18 results are published.

#AFC depreciation also increased by 5% to £16m. This non-cash expense is often overlooked, but worth noting that this is the second highest in the Premier League, though still only half of #THFC £33m (due to development of stadium and training ground).

#AFC made player purchases of £166m, which was more than the previous 2 seasons combined (2017 £114m, 2016 £35m). Included Aubameyang, Lacazette and Mkhitaryan. Still only around half of #MCFC £328m, and also less than #CFC £290m, #MUFC £243m and #EFC £215m.

#AFC net spend has substantially ramped up in the last 5 seasons to an annual average of £51m, compared to £5m net sales for 2009-14. Gross spend has risen from £33m to £81m, while sales have fallen from £38m to £30m. 2018/19 includes Torreira, Leno, Sokratis and Guendouzi.

#AFC gross debt reduced from £227m to £217m, while cash increased from £180m to £231m, so club moved from £47m net debt to £15m net funds. Majority of debt due to be repaid in 2029 with £50m due in 2031. Club also owes £100m transfer fees, though is owed £61m by other clubs.

As a result of the reduction, #AFC gross debt of £217m is now only the 4th highest in the Premier League, behind #MUFC, who have £496m even after all the Glazers’ re-financings, while #EFC and #BHAFC owe £224m and £223m to their owners. #THFC debt will rise due to new stadium.

#AFC paid £12m interest, only below #MUFC £19m and #WHUFC £13m (interest accrued on loans from Sullivan and Gold over the past 6 years). #THFC interest payments will significantly rise from £6m as their stadium debt increases.

After 2 years when #AFC cash balance fell, it has rebounded £51m to an all-time high of £231m. Clearly, this cannot all be used to buy new players, e.g. have to maintain £36m debt service reserve, but the figure is likely to raise a few eyebrows when the club is pleading poverty.

To reinforce this point, #AFC £231m cash balance is only surpassed by Manchester United’s £242m. It should be noted that Tottenham’s £200m (in 2016/17) is a bit misleading, as it is mainly due to loan advances for the new stadium development.

#AFC cash flow from operations was an impressive £123m, boosted by £58m of working capital movements (largely increase in creditors). Only £29m (net) was spent on player purchases with another £12m on capex. Around £20m serviced the debt (interest £11m, loan £9m) plus £12m tax.

In the last 4 years, #AFC have generated £429m from operations (with no owner funding). Just over half £232m was spent on players (net), but important sums also went on interest/debt £79m, capex £65m and tax £30m. Remaining £24m “used” to increase cash balance.

There has been a major change in how #AFC use cash in the last 4 years: much more is now spent on players and (to a lesser extent) capex, while a lot less goes on financing (interest and debt payments) and just increasing cash balance.

While this is a very good set of financials, #AFC do face some challenges. The self-sustaining model is very dependent on Champions League qualification – or profitable player sales. Without these, the wage bill will come under pressure, making it more difficult to compete.