Arsenal Football Club have historically been one of England’s elite, and their performances on the
pitch this season certainly seem to suggest they’re on their way back to that pinnacle
How do they compare off the pitch, though? What kind of financial shape are they in?
In a previous video, we’ve highlighted the key things to look at as we read
football club financial statements – specifically:
1. Revenue growth and mix 2. Wages – cap,
distribution and inflation 3. Debt and finance
costs (including re-structuring of debt) 4. Transfer spending and Return on Investment.
We’ll examine each of these aspects for Arsenal using their latest available financials (2021-22,
specifically for the year ended May 31st, 2022). Let’s start with revenue growth and mix.
Arsenal’s revenue growth was a healthy 13% in 2022 over 2021,
driven by primarily by 75% growth in matchday income with the re-entry of fans into stadiums.
Over the last five years (2017-22) though, the trajectory has been negative with revenues
falling 13% from 423 million pounds in 2017 to 369 million pounds in 2022. In the same period,
all of Arsenal’s top 6 rivals have powered ahead despite COVID – Manchester City’s
revenue grew 35%, Liverpool’s grew 34% and bitter rivals Tottenham Hotpsur’s
revenue grew by 45% to 443 million pounds. This means Spurs now make 20% more revenue
than Arsenal – they were making about 40% less revenue than Arsenal in 2017.
Muted revenue growth is a key concern and focus area for Arsenal. Should they win the
Premier League though, the fillip that could enable through better sponsorship
deals and enhanced broadcasting income through participation in the Champions
League would elevate Arsenal’s income generation potential significantly.
Arsenal’s revenue mix is diversified and overall healthy – there’s been an
increased shift towards commercial as a source of income (from 28% of revenue in
2017 to 38% of revenue in 2022), which is a trend seen across most Premier League clubs.
However, one could argue there’s massive untapped potential here – Arsenal’s commercial revenue was
54% higher than Tottenham’s in 2017, it’s now 30% lower. Arsenal’s ability to build
and harness a commercial engine will be a key determinant of the club’s ability to compete
financially with rivals in the next decade and also reduce reliance on matchday income
(currently around 24% of revenue for Arsenal, which is above other top 6 peers at 15-18%).
Next, wages. Arsenal’s wage bill was cut by 11% in the last year and now stands at 212
million pounds. The club described it as “a process of restructuring
the men’s first team squad to improve efficiency”. This basically meant getting
rid of older or under-performing players sometimes even for free who in the words
of Josh Kroenke were “being paid Champions League wages without qualifying for Europe”.
Arsenal’s wage inflation is the healthiest amongst the top 6 clubs with a growth
of just 7% in the last five years. By contrast, Tottenham’s wage bill grew 65%,
Chelsea’s grew 55% and Manchester United’s grew 45% in the same period. Arsenal’s management of
wages overall has been commendable – it also serves to accentuate the job Mikel Arteta has
done to build this team into a title-competing unit with a significantly lower wage bill.
A noteworthy mention is that wage management goes beyond players to the management as well – the
wage paid to the highest earning director - Ivan Gazidis - in 2018 was a casual 2.7
million pounds, while in 2022 Arsenal’s highest earning director was paid 635
thousand pounds (less than a fourth of Gazidis). To put this in perspective,
Daniel Levy earned 2.7 million pounds last year, and Ed Woodward earned 2.9 million pounds.
Overall, though, while Arsenal’s 58% wage-to-turnover ratio appears
healthy (it’s one of the lowest in the premier league), the truly sustainable way to manage
wages is to accelerate revenue growth thereby enabling the club to afford wage increases.
The third important aspect we’ll look at is debt and finance costs. Arsenal’s gross financial
debt stands at 234 million pounds, which is well below other top 6 peers – Manchester
United’s for instance is 636 million pounds and Tottenham’s is 853 million pounds.
Specifically of interest is also the debt re-financing in the wake of the
pandemic. This significantly reduced interest costs – Arsenal’s interest
payments averaged between 10 and 12 million pounds annually over 2013-20 and dropped to
5 million pounds in 2022. It also unlocked a 35-million-pound cash reserve which per the
previous debt agreement had to be held in reserve only for debt and interest
payments. This gave Arsenal a one-time cash injection which was much needed during COVID.
Finally, player transfers. Arsenal’s transfer spending has increased
exponentially in the last five years, splashing out roughly 750 million pounds,
almost double the 386 million pounds in the preceding five years.
In 2021-22, Arsenal spent 188 million pounds to recruit the likes of Ben White, Martin Odegaard,
Aaron Ramsdale, Takehiro Tomiyasu and Albert Sambi Lokonga. This was higher than both
Manchester clubs. That trajectory is likely to continue in the current year with the arrivals
of Gabriel Jesus, Oleksandr Zinchencko and Fabio Vieira costing well over 100 million pounds.
This spending combined with muted revenue growth has led to an explosion in credit-based transfers
or ‘transfer debt’ – the money Arsenal owe other clubs for player transfers. This amount now stands
at 183 million pounds, double the 77 million pounds it was in 2019. This is also the
highest number in the Premier League, making it imperative that Arsenal accelerate revenue growth.
The second implication is a sharp increase in player amortization or
the annual charge to expense transfer fees over the duration of a player’s contract.
Arsenal’s player amortization stood at 125 million pounds in 2022 (more than double
the 59 million pounds it was in 2016). This places Arsenal fourth in the Premier League
on this dimension and has impacted the bottom-line heavily in recent years.
What’s our conclusion from all this, then? Are Arsenal financially healthy? Arsenal are broadly
alright financially right now but negative revenue growth in the last five years is a major flag.
It is imperative for Arsenal to accelerate revenue growth in the next couple of years
to prevent the current situation from snowballing. Revenue growth would help
manage down the wage bill as high-profile players come up for contract renewals,
and manage down both player amortization and the growing transfer debt.
A Premier League title wouldn’t hurt either, of course.