Thread by @SwedishRumble

(1/22) On the pitch this year, #Arsenal is drawing comparisons to the #Invincibles, but success in games also means big profits. In this 🧵, I will explain how this would mean that #AFC could afford to buy 3.1 “Mudryk” in the summer of 2023 under the new #FFP (#FSR). #Gunners

(2/22) This is under the assumption that #Gunners win the Premier League this season. A potential Caicedo signing is currently up in the air, but would impact the financials roughly the same as a summer signing.

(3/22) I mark the quality of my forecast on a scale from 1-10 depending on available information. In this case, the mark is a generous 2, since we do not have access to the 21/22 Annual Accounts.

(4/22) The main rules #AFC must comply with in the new #FinancialSustainabilityRegulation / #FSR (replacing #FFP), described as FPP with teeths, are the #FootballEarningsRule (“FER”) and the #SquadCostRule (“SCR”). Let’s first look at the FER.

(5/22) UEFA’s licensing system is backward-looking. Hence, /24’s spending in the summer of 23’, impacts its license in 24’. The FER monitor period in 24’ covers the 22/23 season and the 23/24 season.

(6/22) To ensure compliance in 24´, Arsenal must in the summer of 23’ determine its outcome from 22/23 and prepare a budget for 23/24 based on a forecast for its financials from that season. Since we do not have any 22/23 data, we must forecast both 22/23 and 23/24 seasons.

(7/22) The basis for our forecast will constitute on the information provided by (a) Deloitte regarding #ArsenalFC in its Football Money League (in EUR), see below:

(8/22) (b) OffThePitch’s PL forecast 21/22 regarding Arsenal (in Sterling):

(9/22) So what have happened on the income side for Arsenal? Without UEFA tournaments in 21/22, the broadcasting revenue in 22/23 will in increase due to EL and in 23/22 due to the CL. Match Day revenue is fairly stable. We will apply ordinary growth.

(10/22) In addition, finishing 1st instead of 8th, increases Arsenal’s merit payments from the PL pot, based on projections from the always magnificent @SwissRamble we estimate this to entail a 35m (!) increase.

https://twitter.com/SwissRamble/status/1465580502698631171?s=20&t=IVQ01zi4zswgd0LLTm0GjQ

(11/22) On the cost side, the cost for both amortization and wages have of course risen because of a net 160m net spend on transfers, but veterans Torreira, Lacazette and Bellerin have left the club and Elneny’s contract is up in the summer.

(12/22) As a result, we get the following forecast under the #FootballEarningsRule for #AFC, meaning that the Club theoretically could incur additional costs for the 23/24 season of £126m:

(13/22) So what does “incurring additional costs of £126m” mean? Can Arsenal spend £126m on players? No.

(14/22) Buying a player impacts Arsenal’s costs for 23/24 in two ways. (1) The players amortization cost. The amortization cost is the transfer fee divided with the length of the contract the player gets. (2) The players wage.

(15/22) Mudryk’s transfer fee was reportedly £88.5m, and lets say he get a 5-year deal worth 100k a week, the cost for buying one “Mudryk” would be 88.5/5=17.7 plus 5.2m in wages, i.e. £22,9m, meaning that Arsenal could afford 5.5 “Mudryks”.

(16/22) This is just in relation the FER, we must still test the SCR. But is in any event a very good result under the FER, but also include an est. that Arsenal will sell players for a net profit of 30m in the summer.

(17/22) Over to the #SquadCostRule, under which a licensee’s squad cost ratio for the licence season must be no greater than the defined limit of 70%. What is the Squad Cost Ratio? It is basically calculated as follows on a 12-month basis:

(18/22) The SCR is however implemented in three steps, 31 December 2023 the defined limit is 90%, in 2024 its 80% and in 2025 its 70%.

(19/22) The football player and staff wages are not reported separately from other wages, but with Arsenal employing app. 650 individuals, we assume that the cost for other personnel is 19.5m.

(20/22) Under the above assumptions, we get the following result under the Squad Cost Rule:

(21/22) As a result, we can see that the amount of costs Arsenal can incur in the summer of 2023 will be limited by the SCR (£70.5m) as opposed to the FER (£126m).

(22/22) So what does it mean that #AFC can incur an additional £70.5m in costs in the summer of 2023? By the same principles as set out in tweet (15/22), it means that Arsenal could buy 3.1 “Mudryks”.

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