Thread by @SwissRamble

As Arsenal fans nervously await the outcome of this summer’s transfer window, I thought it might be interesting to look at why the club is facing more financial challenges these days. Some thoughts in the following thread #afcb

On the face of it, #AFC are doing fine, having reported profits for 16 consecutive years, adding up to a grand total of £393m, averaging £25m a year. Furthermore, Arsenal’s profits in the last two years were a healthy £70m in 2017/18 and £45m in 2016/17.

In fact, #AFC £70m profit before tax in 2017/18 (the most recent published accounts) was actually the fifth highest ever registered in the Premier League, though it is worth noting that this was comfortably surpassed by two rivals that season: #THFC £139m and #LFC £125m.

However, this profit was driven by £120m from player sales, so #AFC actually made a hefty £42m operating loss in 2017/18 – a £94m decline from the previous season’s £52m operating profit. This was due to the “double whammy” of no Champions League and a surging wage bill.

In fact, given that there were no major player sales in 2018/19 (only Perez, Campbell and Akpom), it is highly likely that #AFC will report a large loss before tax for last season – the first time the club will have slipped into the red since 2002.

#AFC were the only club in England’s Big Six to see revenue fall in 2018. In fact, their £38m growth since 2016 is miles lower than their main rivals, four of whom had revenue growth above £100m. Most painfully, in this time #THFC have closed the gap from £141m to just £10m.

In 2010 #AFC revenue of £223m was second only to #MUFC in Rngkand, but they have slipped to 5th place in 2018 with £389m. They are now at least £50m behind the top four clubs: #MUFC £201m, #MCFC £114m, #LFC £66m & #CFC £59m. The swing to #LFC over this period is more than £100m.

Looking at the 2018 Money League, it is striking to see that #AFC had the worst revenue performance of all the clubs in the Top 20, falling by £30m compared to the previous year. In stark contrast, there was strong YoY growth at #LFC £91m, #CFC £80m, #THFC £74m and #MCFC £50m.

Chief executive Ivan Gazidis had boasted, “We should be able to compete at a level like a club such as Bayern Munich”. However, in 2009 #AFC were only £23m behind Bayern, in 4th place in the Money League, but this had risen to £168m in 2018, as Arsenal fell from 5th to 9th place.

The failure to qualify for the Champions League has really hurt #AFC revenue. Despite reaching the Europa League final in 2018/19, this was only worth £32m, at least £50m below the English clubs in the CL. In fact, finalists #LFC and #THFC received £98m and £90m respectively.

In the last 2 years #AFC has earned by far the least of the Big Six in Europe, just £74m against #LFC £189m, #THFC £163m and #MCFC £157m. Arsenal is the only club to see their European revenue fall compared to the preceding 2 years. Success on the pitch is important.

That’s equally true domestically. Although #AFC Premier League revenue is quite close to the rest of the Big Six, thanks to the equitable nature of the deal, they have the lowest growth since the latest 3-year cycle started, e.g. only £41m compared to #LFC £62m.

#AFC commercial revenue has barely grown at all in the last 3 years, up by just £4m since 2015. In the same period, growth at the other Big Six clubs ranges from £38m to £79m. North London neighbours #THFC have more or less closed the gap to Arsenal.

Commercial revenue has long been #AFC Achilles’ heel, but the shortfall against the top four has significantly widened in the last 3 years: #MUFC £94m to £169m, #MCFC £70m to £125m, #LFC £13m to £47m and #CFC £5m to £58m. Where exactly was Gazidis’ supposed commercial expertise?

In fairness, better sponsorships will come on line in 2019/20 at #AFC with new Emirates and Adidas deals adding an extra £40m a year (plus sleeve sponsor Visit Rwanda £10m from 18/19). The problem is that the other clubs are not standing still, so their deals will also increase.

The move to the Emirates Stadium increased #AFC match day revenue to around £100m, but there has been little growth since then (good news, as no ticket price increases), while other clubs have been growing this revenue stream through stadium moves or expansion.

This means that #AFC still enjoy an advantage over their rivals in terms of match day revenue, but this has been steadily eroded, so the difference is now much smaller, especially #LFC £52m to £18m and #THFC £50m to £28m. New club seats will bring in an additional few million.

Apart from £120m in 2017/18, #AFC have been poor at making money from player sales recently. In the last 5 years, their £165m is a long way below #CFC £337m, #THFC £265m and #LFC £260m. This is better than the two Manchester clubs, but they do have very different business models.

In the preceding 5 years (2009-13), #AFC actually made the most money £180m from player trading with the next highest being #MUFC since then, while Arsenal have fallen back in this increasingly important activity.

#AFC transfers net spend took off in the last 4 years, rising from £40m to £232m, but this was arguably too little, too late. Furthermore, they are still significantly outspent by #MCFC £517m, #MUFC £447m, though they have spent more than #CFC £194m, #LFC £184m and #THFC £(29)m.

However, this is partly due to #AFC inability to consistently make money from player sales, so on a gross basis they have spent a lot less than all but #THFC. In the last 4 years, #AFC £360m was significantly below #MCFC £689m, #MUFC £604m, #CFC £546m and #LFC £447m.

It’s also fair to say that although #AFC have finally started to “spend some fucking money”, they’ve not spent it very well. The attached player ratings are obviously subjective, but most fans would argue that the club has not got much value for half a billion outlay since 2013.

#AFC have in the past made decent money from property development linked to the stadium move, but this is now drying up. The club made £7m from this activity in the last 3 seasons, less than a quarter of the £30m they made in the 3 seasons up to 2011.

Although there are issues with the size of the #AFC £223m wage bill, it is clear that their rivals are also outpacing them here, e.g. Arsenal’s £31m growth since 2015 is only higher than #CFC £28m, but it is around a third of #LFC £98m and #MUFC £93m.

The comparison with #LFC is particularly illuminating, given the Scousers’ recent success on the pitch, as #AFC wages were higher until 2015, but are now £40m behind. In fact, #AFC wage bill is lower than all of their rivals – except #THFC, who have over-achieved on £148m.

Of course, #AFC wage bill will reduce following some departures this summer (Ramsey, Cech, Welbeck, Lichtsteiner and Ospina), but they will struggle to address the issues caused by incredibly high salaries for players they might like to move on, e.g. Ozil, Mkhitaryan and Mustafi.

Former chief executive Ivan Gazidis somehow received a cool £2.7m remuneration, even though #AFC failed to qualify for the Champions League, all revenue streams fell and wages spiraled out of control. For some context, he “earned” twice as much as his counterpart at #LFC (£1.3m).

In fact, Gazidis trousered around £22m for presiding over this decline during his 10-year tenure at #AFC. Nice work if you can get it. Maybe he will do better at Milan. “In bocca al lupo, Ivan.”

In 2018 #AFC also had to make exceptional payments for the first time in living memory with £17m for the departing Arsène Wenger and his coaching staff. Interestingly, other clubs more accustomed to such payments (#CFC, #LFC and #THFC) have reduced these recently.

#AFC ability to outspend others has diminished. In 2012 they had almost as much cash (£154m) as the rest of the Premier League combined (£181m), but in 2018 other clubs have seen their cash boosted by new PL TV deals, so they now have £686m compared to #AFC £231m.

In 2011 Gazidis said that “we deliberately kept some powder dry” re #AFC spending plans, which has made no sense, as transfer fees inflation has meant that prices have rocketed up, while the weaker Pound has further reduced the club’s spending power abroad.

Some pundits might believe that #AFC have paid off the stadium debt, but this is not true. Arsenal had £217m debt remaining in 2018 with the majority only due to be repaid in 2029 (£50m in 2031). #MUFC still have around £500m, while #THFC debt will rise due to new stadium.

So #AFC are still paying around £12m interest a year. Added to £8m loan repayments, that means £20m outgoings a year. The interest is actually less than #MUFC £19m, while #THFC £14m will rise once they have taken out all the loans for the new stadium.

However, while #MUFC can cope with the cost of financing their debt, due to their ability to generate cash, this is a tough ask for #AFC, amounting to around £100m over the last 5 years. In contrast, #LFC only paid £13m interest over the same period, a huge competitive advantage.

#AFC unwillingness to spend their money also means that they have paid £33m to the taxman in the last 5 years, compared to a grand total of £1m from #CFC, #LFC and #MCFC combined. They were only surpassed by #THFC £46m, including £26m in 2017/18 alone.

It is evident that some clubs have benefited from substantial owner financing, especially #CFC and #MCFC who have received over £300m in the last 5 years. In addition, #LFC received £93m, partly for the Anfield expansion. In contrast, #AFC received nothing from Stan Kroenke.

Given the ineptitude demonstrated by #AFC executives, it is debatable whether any Kroenke money would be used wisely, but there are things that he could do: (a) refinancing of debt (though high penalty payments); (b) Walmart sponsorship (at, say, £20m “market value”).

As part of a longer-term strategy, Kroenke could also invest significantly in the #AFC Academy, resulting in a pool of talented players that would either enrich the first team squad or be sold profitably (the Chelsea model, if you will).

#AFC have no FFP issues at the moment (either Premier League or UEFA), mainly thanks to the high profits on player sales in 2017/18, but this will become more of a concern going forward, despite the large exclusions for academy, infrastructure, women’s football and community.

So, lots to consider for #AFC management, though the challenges could probably be simplified to Arsenal needing to get back into the Champions League as soon as possible. However, this is by no means an easy task, especially when their rivals are outpacing them off the pitch.