Previous names: Dial Square, Royal Arsenal, Woolwich Arsenal

Tuesday, July 31, 2007

Arsenal’s transfer kitty is still bulging

By 1970's Gooner

Arsene’s dealings in the transfer market so far are creating very large surpluses of cash that are burning a big hole in his pockets. I calculate that net cash generated from transfers in and out since the window opened are as high as £26m!

They may soon find their way, I hope, on new signings. There's not many days left for the window to close afetr all.

First it was Henry’s sale to Barcelona then Ljumberg’s disposal to West ham and then Reyes’s transfer to Athletico Madrid. The latter for reportedly £8.1m which will bulge the kitty even more.

Arsenal have this annoying policy not to disclose transfer fees paid for players nor related financial arrangements such as players wages and other details. Quite shocking really considering that the company is quoted in one of London’s prestigious Stock Exchange Markets.

Nevertheless the original terms of Reyes’s transfer to Arsenal have been reported by the press at the time. The then 20-year-old winger was signed from Sevilla in a four-and-a-half-year deal worth up to £17.5m.

It was revealed that Arsenal would pay an initial £10.5m with £7m to follow depending on appearances and “add ons” conditional on Arsenal winning the Championship, domestic cups and the Champions League. I presume that Arsenal will have already paid the additional amounts agreed for Reyes’s appearances and for the trophies won during the time he grudgingly spent at Highbury.

We can therefore assume that there will be no significant amounts of money to go out from the £8.1m fee to be received from Real. On the other hand there will be no savings from his future salaries that Arsenal would have paid had he stayed on. The alternative to this transfer would have been another loan deal where his wages would have been met by the club taking him on.

Looking at the net cash generated from transfers in and out since the window opened I calculate that this kitty is as much as £26m!

Transfers in:

Sagna £10.1 (fee £7.5m plus wages for two years reported at £2.6m)
Dudu £10.6 (fee £8m plus wages for two years assumed at £2.6m)
Fabiansky £2.0m (wages not known but assumed not significant)
H Nordveit £2.0m (wages not known but assumed not significant)

Total £24.7

Transfers Out

J Aliadiãre £1.5m (wages not known but assumed not significant)
T Henry £ 29.0m (fee £16m plus wages for two years reported at £13m),
F Muamba £ 2.0m (wages not known but assumed not significant)
F. Ljungberg £10.2m (fee £3m plus wages for two years reported at £7.2m),
J. A Reyes £8.1m (no saving on wages assumed as explained above)

Total £50.8

In order to compare like for like this calculation takes into account not only the transfer fee but also two year’s salary to be paid for the players brought in and similarly the salary saved for the players transferred out. A two year horizon is chosen even if Henry’s contract had four years left because Ljumberg’s contract had two years remaining.

In a comment on a posting on the same subject it has been correctly pointed out to me that Henry’s merchandising income should also be factored out. This is difficult to gauge.

However account has to be taken that sales of shirts etc will in part be switched to other Arsenal favourite players. It has been reported that sales of shirts with Fabregas on the back were much more evident during the emirates Cup than before. In addition merchandising sales will go up due to the new players coming in like Eduardo for example.

Still it’s a bulging kitty which ever way you look at it. The question that begs itself is will Wenger buy any more players? The money is there!


Anonymous said...

Its obvious surpluses are going into the stadium...AW is a footballowners dream come true!

Anonymous said...

He is positioning himself to buy more players. He said so himself. He was probably waiting for the Reyes transfer and the money to do so.

dave said...

This shows how financially prudent Wenger is as well as the board. But surely Wenger has to get in at least another signing before the season starts. We are running out of time.

John said...

Arsene Wenger has often stated that he spends the club's money as if it were his own. The man also has a degree in Economics, which suggests that he places a higher importance on the quality he can acquire per unit (pound, euro, dollar) in a buy than the total quality. Though the club is not dangerously in debt, I reckon Wenger will keep the money in his pocket until January. By then, more of the debt will have been paid off and Arsenal will know their status in all 4 competitions, as well as how much further they can go.

Anonymous said...

Unless you are the accountant of Arsenal FC, the truth is you know NOTHING of how much transfer fund AW got.

All the figures u list there are rubbish. u either read it on the paper, or from the FM. The dumbest post I ever read.

Anonymous said...

Not sure I understand your logic about no savings on Reyes wages. Obviously we didn't pay him last season as he was on loan but we did pay Baptista, therefore you do have to factor in the savings on wages of around 4 million for 2 years. I don't honestly believe we will see any significant outlay on players until the summer of 2009 at the earliest, this is because at that point Highbury Square will be finished & the 125 million loan will be paid off immediately, & as Edelman recently said the floating rate bond of 50 million will also probably be repaid with some of the profit. That will leave 210 million to repay over a 22 year period at around 17 million a year, which is nothing for a club like Arsenal.

1970's gooner said...

The figures are taken from published sources. I have just brought them all together under a common denominator so that we can compare like for like.
It is an inescabable fact however that the difference between transfers in and out is a very large positive.
This cannot denied.

1970's gooner said...

To previous anonymous

My assumption on Reyes is that if he had stayed on he would have gone on loan elsewhere as he did not want to carry on at Arsenal. So we would not have had to pay his wages anyway. Baptista would also have been released anyway as has been the case.

What you say about the Highbury development is right but Arsenal may assign those earnings to a Bank and receive the income now through a loan or some other instrument. My sources indicate that this may have been arranged already as part of the whole financing scheme for the Emirates.

If you have any information related to Arsenal's finances please let us know!

Anonymous said...

Did have a chuckle when I read this. For someone posting as 'Arsenal Analysis', your Financial knowledge seems pretty poor.

For there to have been a net cashflow from transfor activity, you cannot include future wages & salaries. Whether positive or not, these do not materialise until they occur- your analysis takes them out over two years, which, to be quite frank, is pretty irrelevant to the current cash position.

We also not not know what payment plans were made with the buying clubs (we only got the final payment from Real for the Anelka sale a couple of years ago). For all we know, Barca could be paying us off over 3 years. So unfortunately you are a million miles away from being able to say what cash impact there was to the company Balance Sheet.

A real measure of the impact to the club is obviously the profit made on the deals. Before you go writing that its the same thing- again its not. Here you would have to include any one-off costs associated with the transfers(golden hello / handshake, agents fees, etc).

You would also have to take a gain/loss on disposal of Fixed Asset (depending on what value the player had been given on the Balance Sheet).

Now, I actually agree with some of the sentiment- having a good read of the previous 2 years company accounts (bearing in mind the 2006/07 accounts are due to be published any time)- Im fairly sure that Wenger is certainly not cash restrained at present- not if the preliminary report was anything to go by. If income growth from matachday continued to the same trend, I think they'll be aound c.£30m increased EBITDA over previous years (Earnings Before Interest Depreciation Tax & Amortisation). But then again, until weve seen the accounts- its just speculation :)

1970's Gooner said...

To previous anonymous,

Before you have a chuckle you must sit down and think a little bit beyond mere figures and accounts.

When a business plans its cash flow it does not only look at its very immediate cash needs but also a little bit down the line.

In the same way that Arsenal have sold players and “saved” their salaries for the next two years, they have signed new players and their salaries have to be paid for the next two years. The two years were chosen since it was a reasonable short term period but also Ljumberg’s contract had two years to run so it was an appropriate time horizon on which to base the analysis.

In other words to take only the immediate cash impact of transfers in and out would not have been very representative of the amount of cash that Wenger would have had at his disposal when he sat down to decide his budget for transfers.

This is because, as you may know, transfer budgets are agreed between manager and Board not only on transfer fees but also on salaries to be paid to the players. The manager is given a total budget to play with which includes total cash outlays for fees and salaries.

To put it another way if Wenger bought just one player on a free and sold one other player for 16m then according to your calculation Arsenal’s net cash would be a huge positive of 16m.

Well it wouldn’t since this other player will require a salary. The more representative way to look at it is obviously to factor in the two salaries; one saved and the other to be paid.

Lastly I should remind you that the value of Fixed Assets in the Balance sheet has nothing to do with cash. It may just happen that an asset disposal is far more than its Balance sheet value and therefore the profit on the transaction is high but the cash coming in to the business is the whole amount of the net transfer fee irrespective of the balance sheet value!

I agree with you that account has to be taken of other income such as match day revenue etc but this particular article looked at only the transfer activity.

Thanks for your comments.

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