AST assessment of Arsenal’s financial position heading into the

final hours of the transfer window

This short review of Arsenal’s financial position is in the form of a Q&A with AST Board member Simon Hill who leads the AST’s analysis of Arsenal’s financial position.

The AST review of the last formal set of Arsenal accounts published – Arsenal Holdings PLC Half-Year Accounts for the period 1 Jun 2013 to 30 Nov 2013 – can be read here.

Question 1. What spending power did Arsenal enter the summer transfer window with?

The AST estimates that on 1 June 2014, at the start of the transfer window, Arsenal’s cash reserves would have just topped an extraordinary £200m. This figure is inflated by the fact most season ticket renewals are paid in April and May.

Of this £200m an amount needs to be set aside to pay on-going running costs and to cover debt service requirements meaning approximately £140m remains free to be spent on player acquisition (and other club investment such as at Hale End), although a contingency for missing out on Champions League qualification of say £40m would be prudent.

Hence the £100m figure the AST estimated earlier this year as being the resources the Club would take into the summer 2014 transfer window, an amount which was subsequently confirmed by other sources and often quoted in the press.

Question 2.  How much has been spent so far and what does this mean for the amount of cash remaining?

Allowing for new signings and agents fees which are quite considerable factors these days we believe that close to £75m has been spent on player recruitment so far.  Almost £30m has been recouped on player sales (Vermaelen, Vela and Djourou).  The cash reserves available to the manager are therefore somewhere in the region of £55m to £60m including money needed to replace club captain Thomas Vermaelen.

Question 3. What is the impact of the new signings and departures on the wage bill?

Assuming a similarly remunerated replacement for Thomas Vermaelen, the net wage bill is expected to rise by approximately £10m – following a similar increase this past season – to approximately £170m in season 2014-15.

Question 4. What is the ‘right’ amount of total wages that Arsenal should be paying, given the wages paid to players are often greater over the length of contracts than the amount of transfer fees?

Wages are the pinch point and the factor that Arsenal’s Board will be watching closely. The club have confirmed that they plan to keep wages at a ratio of circa 60% of annual revenues. Arsenal’s anticipated income of £310m for season 2014-15 therefore supports a wage bill of approximately £165m, once you make allowance for the debt service costs. This also allows £55m per annum for replacement of players, plus any profits on selling players.

Question 5. How much more can Arsenal realistically spend this transfer window?

Until a few days ago I assumed that up to £15m would be spent replacing Vermaelen, leaving £40m more available should a last minute option catch the manager’s eye in the midfield or centre forward position.

Arsenal can afford to spend a bit above this level on players as they have surpluses brought forward and will make close on £30m this summer from player sales. I believe they could push the boat out for another £40m signing earning £10m pa without it being an issue of concern in terms of the impact on the wage bill.

Question 6. What are Arsenal’s future revenue stream looking like? Can they continue to invest with confidence?

Arsenal’s income looks likely to remain around the £310m mark for a couple of years, with the new Puma and Emirates deals now in place. Any growth will be from secondary commercial deals and then possibly from new TV deal revenues (new Champions League deal in 2015-16 and Premier League in 2016-17). Relative to its peers, therefore, Arsenal’s income is unlikely to change materially. Ticket prices may also increase again.

Question 7. When are Arsenal’s next financial figures published?

Arsenal’s figures for the year to 31 May 2014 are due for release last week of September.

Question 8. Are there any Financial Fair Play issues that might prevent Arsenal from investing?

UEFA FFP rules pose little risk for Arsenal because of past profits generated from player trading. A loss of UCL income would however cause an abrupt halt in wage growth under the Premier League’s own FFP rules, which restrict rises in wages to £4m except for increases justified by rises in non-PL TV deal income or player trading.

You could argue Arsenal should spend the money whilst they can on boosting the wage bill (as Liverpool are!) and buy another big money player they can afford. This would set the wage total at a higher level and avoid the potentially serious issue of a wage cap imposed through the very FFP arrangements that they led the effort to introduce.