Thread by @SwissRamble

Arsenal’s 2018/19 financial results covered a season when they finished 5th in the Premier League, while reaching the Europa League final. This was first season in 22 years without manager Arsène Wenger, who was replaced by Unai Emery. Some thoughts in the following thread #AFC

#AFC swung from £70m profit before tax to £32m loss, a £102m deterioration, very largely due to profit on player sales falling by £108m from £120m to £12m, though revenue rose slightly by £7m (2%) to £395m. After tax, went from £57m profit to £27m loss (£5m tax credit).

Highest #AFC revenue growth came from commercial, up £4m (4%) to £111m, while there were also increases in broadcasting, up £3m (2%) to £183m, and player loans, which doubled to £5m. On the other hand, match day dropped £3m (3%) to £96m. Property contribution was down £5m.

#AFC wage bill increased by £8m (4%) to £232m and player amortisation rose £4m (5%) to £90m. However, player impairment reduced by £5m. Interest payable rose £3m to £12m, but exceptional charges were down £13m to £4m (mainly payments to Wenger and his support team in 2018).

#AFC £32m loss before tax is obviously not great, though to place this into perspective it is much better than #EFC and #CFC, who both reported deficits above £100m. That said, other clubs have posted good profits in 2018/19, especially #LFC £42m and #MUFC £27m.

#AFC chairman Chips Keswick said, “Our player trading profit was limited”, as this fell from £120m to £12m, mainly Perez, Campbell, Akpom and some sell-on fees. This is firmly in the bottom half of the Premier League, e.g. much lower than #CFC £60m (highest to date in 2018/19).

The low player trading profit combined with a second consecutive season in the Europa League meant that #AFC recorded its first loss since 2002. This is a huge financial comedown, given that Arsenal have delivered five of the top 20 profits ever registered in the Premier League.

#AFC exceptional expenses fell by £13m from £17m to £4m. Changes in coaching and support staff were the main driver, but £0.7m last year were transaction costs related to Stan Kroenke becoming sole shareholder. Looks like no repeat of KSE £3m advisory fees in 2014 and 2015.

As #AFC noted, “player trading profits have a significant impact on overall profitability.” With exception of £120m in 2018, #AFC have not made much here with likes of Ramsey and Welbeck leaving on frees. This season will be higher after sales of Iwobi, Bielik, Koscielny, etc.

#AFC have made £170m profit on player sales in the last 5 years, which is around half of #CFC £332m. #LFC and #THFC have made £260m and £161m respectively, though this only covers 4 years, as 2018/19 accounts are not yet published.

#AFC EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation), considered a proxy for cash operating profit, as it excludes player sales and exceptional items, was unchanged at £78m. This is the lowest in last 4 years, significantly down from £144m just two years ago.

#AFC EBITDA of £78m is 5th highest in the Premier League. On the one hand, this is less than half of #MUFC’s £186m, due to United’s amazing ability to generate cash, but on the other hand it is significantly higher than #CFC £43m, due to the Blues’ player trading business model.

Despite the small growth in #AFC revenue to £395m, this is still £28m (7%) lower than £423m reported two years ago. All revenue streams are down since then: broadcasting £16m (8%), due to no Champions League, commercial £6m (5%), match day £4m (4%) and player loans £2m.

#AFC are the only Big Six club to see revenue fall in the last two years. While they have dropped £30m, others have made huge gains, especially #LFC, up £169m, and #THFC, up £153m. In fact, #THFC are now £65m ahead of #AFC, compared to a £141m shortfall just 3 years ago.

#AFC £395m revenue is now 6th highest in the Premier League, having been overtaken by #LFC £533m, #THFC £459m and #CFC £447m in the last 2 years. The £230m gap to leaders #MUFC £627m is substantial, but at the same time Arsenal are £200m ahead of 7th placed #WHUFC £191m.

#AFC fell 2 places to 11th in the Deloitte Money League, their lowest position since 2001. Their £4m 2019 revenue growth was one of the smallest – in contrast see Barcelona £129m and PSG £81m. Ivan Gazidis will have noted that Bayer Munich £582m earn around £200m more.

The extent of #AFC revenue under-performance compared to other elite clubs is underlined by their Money League trend over the last decade. Their ranking fell from 5th in 2011 to 11th in 2019, while their revenue was £95m higher than 10th placed club in 2016, but is now £4m lower.

#AFC broadcasting income rose £3m (2%) to £183m, mainly due to reaching the final of the Europa League, compared to the semi-final the previous season. This was 9th highest in the Money League, though worth noting that Arsenal’s £34m European TV money was 3rd lowest in Top 20.

#AFC £142m Premier League TV money was same as the previous season, as lower facility fees (broadcast live 25 times vs. 28) were offset by higher overseas payment. The new TV rights deal will provide increased revenue in 2019/20, especially from overseas deals.

#AFC earned €34m from Europe for reaching the Europa League final, boosted by the new UEFA TV deal in 2019, though held back by #CFC winning the trophy (lower TV pool). My estimates are they will receive around £15m less in 2019/20 after going out in the last 32 to Olympiacos.

Despite reaching the Europa League final in 2019, #AFC £34m was less than half the £82m that #MUFC and #MCFC received for reaching the Champions League quarter-finals. Winners #LFC £98m and finalists #THFC £90m earned around £60m more, underlining the need to qualify for the CL.

The difference between the European competitions is vividly seen in the new UEFA coefficient payment (based on performances in Europe over 10 years). The highest ranked English team in the Champions League (#MUFC) received €31m, while #AFC only got €3m in the Europa League.

#AFC have earned an impressive €231m from Europe in the last five years, within striking distance of #THFC and #LFC, though a fair way behind #MCFC €337m. However, there has been a tangible drop-off in the last 2 years, when #AFC revenue was by far the lowest in the Big Six.

#AFC match day income fell £3m to £96m, despite staging the same number of home games and expanding club level. This is the second highest in the Premier League, only below #MUFC £111m, but others are catching up through various stadium developments (#LFC £84m and #THFC £82m).

#AFC had second highest attendance in the top flight of 58,943. Ticket prices frozen again for 2019/20, though are among the highest. Club will have to give supporters a rebate in 2019/20, as season tickets include 7 cup games and a maximum of 6 is possible after early EL exit.

The importance of match day revenue to #AFC is very clear, as shown by 25% of their total revenue coming from this category, well ahead of Real Madrid, Barcelona and Lyon, all 19%. Could be a big hit of Arsenal fail to qualify for Europe.

#AFC commercial revenue rose £4m (4%) to £111m, mainly thanks to the new Visit Rwanda sleeve sponsorship. This is 6th highest in England, but miles behind #MUFC £275m and #MCFC £227m. This is also a fair way below #LFC £188m and #LFC £180m, while #THFC £134m have overtaken them,

In the last 4 years #AFC commercial income has basically been flat (only up £8m), while this important revenue stream has grown significantly at the other leading clubs: £72-78m at #MUFC, #THFC, #LFC and #CFC; £54m at #MCFC.

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.

#AFC wage bill rose £9m (4%) from £223m to £232m (excluding exceptional payments), due to new signings and contract extensions, though no Champions League bonuses. This means wages have risen £32m in the last 2 years, while revenue has fallen £28m.

Despite the growth in #AFC wage bill to £232m, the increases at other leading clubs since 2016 have been much more (over £100m at #MCFC, #LFC and #MUFC). As an example, the gap to #LFC has widened from just £13m in 2016 to £78m in 2019.

Josh Kroenke said, “We have a Champions League wage bill on a Europa League budget”, but #AFC £232m wage bill is actually a fair way behind #MUFC £332m, #MCFC £315m, #LFC £310m and #CFC £286m. North London rivals #THFC are only £148m, but yet to publish 2018/19 accounts.

#AFC wages to turnover ratio increased from 58% to 59%, around the same level as #MCFC and #LFC. In 2019/20 “club has further invested in the wage bill”, but wages should also fall following many player departures plus loan clubs covering salaries of Mkhitaryan and Elneny.

Departing chief executive Ivan Gazidis’ total remuneration fell from £2.7m to £846k, as he left for Milan end-October 2018. However, don’t feel too sorry for him, as he trousered around £22m during his tenure, despite #AFC league position and Money League ranking both slumping.

#AFC player amortisation, the annual charge to expense transfer fees over the length of a player’s contract, rose 5% (£4m) to £90m. This expenses has more than doubled in the last 5 years from £40m in 2014. Impairment charge, reducing player values, was down from £6m to £1m.

#AFC player amortisation of £90m is the 5th highest in the Premier League, but still a long way below #CFC £168m, #MCFC £127m and #MUFC £126m. Also behind #EFC £95m and may be overtaken by #LFC £77m when 2018/19 results are published.

#AFC depreciation fell slightly to £15m. This non-cash expense is often overlooked, but worth noting that this is the highest in the Premier League, ahead of #MCFC £13m, #MUFC £13m and #THFC £11m (likely to rise with development of stadium and training ground).

#AFC made player purchases of £99m, including Torreira, Leno, Sokratis and Guendouzi. This is around the same as #MUFC £103m, but long way below #CFC £281m. Also outspent by #EFC £146m, #WWFC £11m and #WHUFC £108m. The club has splashed out £379m in the last three seasons

#AFC net spend has substantially ramped up in the last 6 seasons to an annual average of £58m, compared to just £1m for 2010-14. Gross spend has risen from £39m to £97m. 2019/20 includes the big money signing of Pépé plus Saliba, Tierney, Luiz and Martinelli.

#AFC gross debt reduced from £217m to £209m, while cash decreased from £231m to £167m, so club moved from £15m net funds to £42m net debt. Majority of debt due to be repaid in 2029 with £50m due in 2031. Club also owes £77m transfer fees, though is owed £24m by other clubs.

#AFC gross debt of £209m is now only 5th highest in the Premier League, behind #MUFC, who have £511m even after all the Glazers’ re-financings, while some have taken on debt for new stadiums, e.g. #THFC £466m & #BHAFC £280m. Following Moshiri’s investment, #EFC debt up to £337m.

#AFC paid £11m interest in 2018/19, only below #MUFC £19m and #THFC £14m (2017/18 comparative). Spurs’ interest payments should further rise as their stadium debt increases. #AFC £121m fixed rate bonds cost 5.8% a year, while £48m floating rate bonds are 7%.

#AFC cash balance fell from £231m all-time high to £167m, partly due to delay in season ticket renewals into June as a result of Europa League final. Cannot all be used to buy new players, e.g. have to maintain £37m debt service reserve, but still only surpassed by #MUFC £308m.

#AFC cash flow from operations was £30m (down from £123m), though £62m (net) was spent on player purchases with another £13m used for infrastructure investment. Around £20m went on servicing the debt (interest £11m, loan £9m), resulting in a £64m decrease in cash.

In the last 5 years, #AFC have had half a billion Pounds of available cash: £458m from operations and £41m decrease in cash balance (but no owner funding). Around 60% £293m was spent on players (net), but important sums also went on interest/debt £99m, capex £77m and tax £30m.

After reporting a £32m pre-tax loss in 2018/19, #AFC supporters will be interested in the likely figures for 2019/20. My rough estimate is they will return to a small profit of £6m, though this is based on some fairly broad assumptions.

In 2019/20, despite Europa League shortfall, #AFC revenue should increase, mainly due to the new sponsorship deals. Likely to be offset by cost growth, mainly player amortisaton (wages assumed to be flat). Importantly, profit on player sales should be around £40m higher.

Josh Kroenke said #AFC fans should “be excited”, but Sir Chips cautioned, “another season outside the Champions League will continue to apply pressure to our financial results.” The self-sustaining business model is very dependent on CL qualification – or profitable player sales.