As the January transfer window opens, Nigel Phillips recaps the financial position at Arsenal looking at stadium debt, cash, wages, property dividend, commercial income and UEFAs Financial Fair Play (FFP) rules

         Stadium debt of 240m is on a long term basis (September 2031 maturity), and is reducing each year with manageable annual debt service c20m pa

         130m of cash on the balance sheet as at 31 May 2010 represents season ticket money received in advance (60m), money on secured accounts for future debt service (30m) and money in the Transfer Proceeds Account (TPA of 25m) see below

         Wages are at an all time high of 110m and will increase significantly this season. Whilst wages to turnover ratio is a sensible and modest 50% of turnover they place AFC 4^th highest in the wages league table behind Manchester City, Chelsea and Manchester United

         Property development debt has now been fully repaid. All further property sales at Highbury Square and the future sale of the private housing market part of Queensland Road could generate 50m within the next 2 years

         Commercial income lags way below peer group as a legacy of the long term deals concluded with Emirates and Nike to put cash toward the Emirates stadium building costs. The shirt related deals, not stadium naming rights, run until the end of the 2013/14 season. Opportunity cost vs current fair market value is c15m pa

         Arsenal is fully compliant with UEFAs FFP not many are. There are several loopholes in these rules that can be exploited and will be (principally overvalued commercial sponsorships with parties connected to the ownership group). In brief FFP requires that clubs that want entry into UEFA competitions must operate with no more than 45m (39m) loss over a rolling three years starting from next season 11/12 so in reality it cannot be tested until end of 13/14 season.

What is easy to lose sight of amongst all the fanfare surrounding Arsenals financials every time the  figures are announced is that on a football basis only, before player trading, Arsenal Football Club just about breaks even. In crude terms, football income and football costs are just about in balance. Player trading has generated the football profits in recent years.

It appears likely that the property profits will be used to support the increasing football costs (wages) until the commercial deals are renewed in three years time (in addition to various capital investment projects at the ground and training centre.

One of the many financial covenants agreed to by the Club states that at least 70% of player sales proceeds has to be either spent on squad investment or retained in a Transfer Proceeds Account, basically a bank account “charged” to the stadium lenders as additional security. Whilst it is clear that the investment in the salaries of the existing squad members will have accounted for some of this required squad investment (with a new Sami Nasri contract likely to be the next significant investment), the AST believes that funds are available for player purchases in this window.

It is of course the case that sugar daddy clubs will out bid all competition and have a distorting effect on player prices. In contrast to this the funds now available to Arsene have been generated from within the Club albeit mainly from player sales which is all a part of the self sustaining business model that has been adopted. The quantum of funds available for squad investment (circa 40m now) will increase in future years as the Clubs commercial operation is enhanced and fair value is achieved on the major sponsorship deals of shirt sponsorship (Emirates) and marketing (Nike).

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The AST’s role is to scrutinise the clubs finances and have a view on the financial strength of the club which is underpinned by the ticket prices paid by supporters (virtually 50% of total club income).

Six month figures for period to 30^th November 2010 will be announced in late February 2011.