Arsenal Holdings PLC will shortly release interim results that cover the first six months of their financial year (June to November 2010).

The AST has undertaken its own independent analysis of financial recent developments at the club including reviewing previous accounts and can now set out its expectation of some of the main issues expected to be in the report and explain why, in contrast to recent years, we expect a small loss will be recorded, but that its not all bad news.

1. There were no major player sales in summer 2010 (Eduardo and Simpson being the only departures). This is the first summer for a long time that Arsenal havent had a significant departure. Arsenals record breaking 56m profit before tax last year included a 38m contribution from player sales. Take that out and only 18m is left.

2. Significant investment has been made in player contracts. Arsenals wage bill rose by 7m last year and this trend will continue as more contracts are renegotiated and/or contractual enhancements become due.

3. Arsenals property cycle is largely over (bar the significant one-off sale of the Queensland Road site). Last year Arsenal signposted that approximately 30m would be generated from selling the remaining stock of Highbury Square flats in 2010/11 but profits on that will probably only be 10%, so a 4m contribution at best compared to 11m last year. The declining property contribution together with reduced player sales would take full year profits for 2011 down to 11m from 56m.

4. Commercial income is static under the long-term front loaded deals negotiated to fund the cash injection needed for the building of the new stadium. We understand that Nike took up their option to extend their deal and the club has signed some other new (small) sponsorship deals, but commercial income stagnated last year and is thought to be little changed. This year Arsenals commercial income will be less than half that of Manchester United and also falls behind Liverpool and Chelsea.  This demonstrates the importance of Arsenal improving their commercial operations and why the AST has been challenging the club to undertake an overseas tour and review all of its sponsorship arrangements.

5. The first half of Arsenals financial year is always worse for revenue and profits as most of the clubs matches are played in the December to May period, meaning its  match day and TV revenue is disproportionately earned in the second half of the year  (last years split was 76m first half, 101m second half).

By 30 November 2010 Arsenal had only played 10 home games compared to 12 in the same period last year. There will be 12 Premier League home games (for which the club retains all of the gate receipts) in the second half of the year. The club also accounts for prize money in the second half of the financial year. The AST expects the interim figures to show match day and TV money to be less than 40% of a full years income and probably about the same as last years interim earnings of 76m.

While income fluctuates, many costs are fixed monthly sums, including the higher salary bill (players are no different to everyone else in expecting to be paid every month regardless of how busy they are at work).

So the static first half income together with the other factors listed above leads us to estimate that Arsenal are likely to report a small loss in their interim results.

However, its not all bad news. Arsenals minimal investment in new purchased players should see amortisation charges fall and the new TV deal should add to the running rate of income and perhaps most significantly, although Arsenals profits may have disappeared, spare cash should have grown from both selling down the property stocks (possibly 15m), and banking a tax refund (14m with any luck).

Of course the headline cash figure of 127m reported for 31 May will fall as the season ticket advances banked in May get eaten into by wage costs and other regular outgoings, but that free cash element should be apparent when year-on-year cash balances are compared at 30 November.

Arsenal Supporters Trust members should also be reassured that the Transfer Proceeds Accounts (TPA) and the clubs underlying financial strength mean that Arsne Wenger will have sufficient funds for further squad investment (transfer and wages) in summer 2011.

Declaring a large profit is not an essential part of the Arsenal business model. Nor is it desirable for its own sake. No dividends or management charges are paid by Arsenal and all monies made are re-invested in the clubs infrastructure and playing squad. The reduced profits for this interim year reflect the positive fact that the club did not sell a first team performer and placed many of its first team squad on enhanced contracts which makes it less likely they will wish to leave and ensures the club can demand a high transfer fee should a transfer be forced through.

Of course the debate about which players should receive new contracts will keep Arsenal fans busy for many months. The AST has previously raised with the club the suggestion that the club should review its overall playing infrastructure to make sure that it is investing its considerable wage bill as efficiently as possible. We would also welcome more explanation of the costs of running such a large reserve and youth squad and whether this provides added value in the round. We shall be taking this matter up with Ivan Gazidis before the summer transfer period.

The AST will produce a review of Arsenals interim results shortly after they are published in the week commencing 28 February 2011, with further debate and discussion at future AST meetings.