have fucked up the first team so enjoy mediocre teams for the next ten years,, oh the lies we have had to listen too for the last few years..Parts of yesterday's piece were misleading.
Expert Arsenal-watchers have explained the finances to me in round numbers.
So that's what I'm sharing with you today.
Accountants may balk at this summary, but here goes :
Arsenal's annual revenue is roughly £200 million.
Of that £200m, about £90 million comes from gate receipts and most of that is cash, apart from the upfront payments for four years of season-tickets in Club Level.About £3m per year.
Another £50m comes from TV games in the EPL and the Uefa Champions League.
Retail from replica shirts and assorted merchandise is about £10m.
The gate receipts, TV money and shop money are, effectively, cash.
The other £50 million is commercial money, but that is not all cash because much of it has been received in advance. That is where the shortfall arises. The club doesn't get that money because they front-loaded their commercial deals ands have recoieved a lot fo that cash already. The Emirates deal was £100m gross and £90m net to Arsenal.
Of that £90m, £72m is being paid in the early years of the deal, with very little in the later years.
The Emirates shirt deal is £48m over eight years. Which is £6m a year.The naming rights is a 15-year deal for £42.5 m. Which is only £2.5 million a season. That is : less than the gate receipts from one game !
As everyone knows, Arsenal borrowed £260m to build a stadium that cost £400m. So they had to find another £140m from their own resources. That is a helluva lot of money for any football club to find, in any country.
Some of that £140m was cash from the shares sold to Granada for £77m. Most of Nike's £55m was paid up front, and the Delaware North catering contract for £15 million was paid up front. That was cash that went into building the stadium. It's not rocket science: MD Keith Edelman needed money to pay the builders and some of his deals would never have been done if Arsenal did not need the money to build the stadium.
Those deals now look poor and cleverclogs columnists tend to say : Arsenal always know their price, but don't know their value. But others argue that you have to take the best deal on the table and get on with it.
Recapitulating, Arsenal has £150m in annual cash receipts. What do they spend that £150m on during the year?
Obviously, it's a big operation and costs are high.
Wages are £80m.
Running costs for the stadium are £15m
Other costs total a remarkable £35m.
Debt servicing on the stadium is £25m.
So £145m of cash is spent in the year.
And you've only earned cash of £150m before any commercial income. They may accrue £15m in commercial income in a year.
This is where the size of the squad, and the composition of the squad, becomes critical. Because there is no way that Arsene can allow his wage costs to creep up from £80m to £90m to £100m. That cannot happen. It's impossible. The money isn't there to pay it, even though there is a small amount of commercial money coming in.
When you look at it, the only variable cost is your squad. And the cost of the squad has been trimmed and trimmed again. That's why Arsene cannot put Adebayor's wages up from £35,000 a week to £70,000 a week. He can't double Ade's wages, let alone treble his wages, even if he wanted to. And he doesn't want to. ANR readers do not need me to tell them why Ade's wages should not be trebled.
Today the test of whether a club is being sensibly run is the wages/turnover ratio.
Michel Platini and his buddies think your wages/turnover ratio should be 50-55%. Remarkably, during the latest accounting period, Arsenal's wages/turnover ratio will be less than 50%.
So I was wrong yesterday to repeat The News of the World's suggestion that AW has to generate £24m profits on player sales. But that £24m has to come from somewhere and has to be paid. That is money which the team is generating by playing in their big new stadium, but which the manager doesn't get to spend on his team. Because servicing the debt is more crucial than buying Fernando Torres, even if Torres wanted to join Arsenal.
The six banks originally loaned Arsenal £260m. Later on, the refinancing deal included a raft of covenants which are there to protect the lenders. One of the covenants explicitly forbids a fire-sale of players, as happened at Leeds United when they got into big financial trouble soon after their Champions League semi-final in 2001, when they lost 3-0 in Valencia after beating AC Milan, Besiktas, Lazio and Deportivo La Coruna. Then the performance declines, and the club gets relegated, and that hurts the banks as well as the football club. There is a clause in the financing agreement which says that 75% of player sale proceeds have to be re-invested in the team, in new players and/or wages.
Where Edelman scored was his re-financing at a fixed interest rate. That means that Arsenal now enjoy very cheap money, which would be impossible these days. No banks would lend £260 million to a football club now, on any terms.
What about the property portfolio ?
In February 2008 we had the half-year figures up to November 30, 2007. Peter Hill Wood wrote that the proceeds of Highbury Square and Queensland Road would about £350 gross.
He did not break down that ball-park figure.It is thought that would come from £300m gross at Highbury Square, and £50 gross from Queensland Road, a site that the club acquired Arsenal as part of a land package. It is now is surplus land at the time of a credit crunch when banks will not even lend money to each other. The club always planned to get planning permission and then sell the site to a developer. In the current climate they might have to choose between holding onto the site for five years or flogging it for £20m.
At Highbury Square they have taken over £30m in deposits on the apartments and penthouses.
There is a loan of £150m and if they achieve £250m in sales, they net £100m of cash. If they make £200m in sales, they still clear the development loan of £150m.
But here is where the arithmetic gets interesting : If you need £200m to complete the development of Highbury Square, and your loan is £150m and your deposits are £30m, you are still £20m short.
So where did that £20m come from ?
Its highly likely that it came from money that the manager hoped to spend on new players and wages. Why? Because Keith Edelman could not find that £20m from anywhere else. That seems to be where the finances have gone wrong, and seems to be why Edelman was fired.
How should this situation be improved?
Well, Arsenal should renegotiate their commercial deals with Emirates.
When Abramovich bought Chelsea, they blew out the Emirates deal that Ken Bates had made.They paid the Emirates £30m to go away and made deal for much more money with Samsung. And they also blew out Umbro to make a better deal with adidas. And Manchester United walked away from their shirt deal on a break-clause two years before the end of their Vodaphone contract. But that was not their call. Vodaphone made that decision. Then the Glazers got United a £14m-a-year deal with AIG.
That's how big clubs operate. Arsenal get £6m a year from the Emirates, which is less than Ajax gets from AGEON, a Dutch insurance company. So Ajax have a bigger shirt sponsorship deal than Arsenal.
Unfortunately, Hill-Wood's attitude is : We are Arsenal, we have more integrity than other clubs, we've never renegotiated a contract with anybody in our history. That policy is old-fashioned, snobbish, and self-defeating. It's complete bollocks. Arsenal is a modern business like any other. And that's why they need a worldly CEO with some balls, rather than an administrator like Ken Friar.
Yes, it looks as if Stan Kroenke will join the board but when he does, if he does, it will be on his terms. Stan always negotiates from a position of strength and does not mind how long the negotiations take. But it's clear that Stan will not buy the whole club. And even if he did, he would have to borrow the money to do it. That is not what Arsenal want, or can afford, or what their supporters want to see happen.
What's interesting is that Arsenal have not yet hired a CEO.
Why is it taking so long? Is it because Stan wants to choose Arsenal's next chief executive? Or wants, at least, to approve the appointment.?
The question Arsenal fans should ask themselves is : If I'd invested £75m in a football club, would I want a say in the appointment of the new chief executive?
This re-enforces the belief of many on this forum, that Wenger is doing a fine job with, essentailly, one hand tied behind his back.
