Previous names: Dial Square, Royal Arsenal, Woolwich Arsenal

Tuesday, September 25, 2007

Arsenal battling with Manchester United to become the richest club

By 1970’s Gooner

Arsenal Holdings Plc has announced bumper figures for the year ended May 2006.

The results include the hugely positive effect of the extra revenues arising from the move to the Emirates.

Arsenal now take in £3.1m per match day as opposed to about half of that during the Highbury days.

What is also encouraging is that the debt taken up to build the stadium is only £260m and has now been wrapped up in a bond which has a 23 year repayment period with a very favourable average interest rate fixed at about 5.20%.

The stadium cost about £430m and the rest of the money not taken up as loans must have come from the company’s own cash and from advance sales of the property developments at Highbury, Hornsey Street and Queensland Road.

Bear with me a little longer till I give you the most important piece of information and then we will bring everything together to where we are all interested.

That is the cash available for transfers, the Board’s statement with regard to the use of the cash generated and where Arsenal would stand in the world rankings next year.

Arsenal have reported a net profit of only £5.6m. This is after tax, transfers, interest payments and a one off non repeatable expense of £21.4m (which represents fees and other expenses paid to banks for arranging the loans and the bond issue).

However when you take out the "one off non repeatable expense" then the profits rise to £27m! And this is after paying off the interest for the loans raised to build the stadium!

Most of this profit comes from match day revenue with only £6m from the sale of property.

So from the financial point of view the move to the Emirates has been a very sound investment decision which will continue to generate profits for years to come.

And these profits generate a lot of cash that are theoretically available for transfers; if Wenger chooses to use them that is!

The figure banded about of £74m is the cash sitting in the company’s bank account! And this is after paying out £38m for the property developments.

When this side of the operations is completed there will be even more cash available for transfers totalling about £120m!

It is very interesting to note what the Board have to say about how this cash is to be used:

“Despite the income and profits we expect to derive form the operations, shareholders should not expect growing profits and growing cash balances.

The Board believe that the best long term policy is to re-invest the cash back into the development of the team. The objective is to make available to the manager the maximum possible funds for the development of the playing squad.”

So this is a clear message that profit taking by the shareholders is not on the agenda. It is also an indirect way of implying that a new owner may wish to use the club’s cash for other reasons.

And these reasons maybe to recover the original investment, or provide a return for the capital invested and /or pay off of the debt that may have been incurred to buy the club in the first place!

None of these pressing targets are bothering the existing Board. And we should be grateful for that.

But this is not all. There are other variables not taken into account in these financial accounts that are going to push the revenues and profits to an even higher level than before, which may propel the club to the top of the rich club.

There is an additional £30m to come next year and every year after that from the new deal which the FA has concluded with regard to selling the Premier League TV contracts.

And there is the additional cash that may be generated from the progress of the club in the Champions League. Last season Arsenal were knocked out in the last 16 round. The year they reached the final the take was £20m!

Leaving the Champions League revenue out of the equation as it is uncertain at the moment and assuming a modest rise in other revenues it is conceivable that Arsenal’s turnover will rise from the 200m in 2006 to about £235m.

This however includes property development turnover of £26m repeatable for the next three years only.

Arsenal’s expected turnover does not include the profit from Wenger’s transfer activity this year which includes the £16m from Henry’s transfer to Barcelona plus the salary savings of the transferred players.

This is because this will not have an effect on the “operational” turnover figures of the club.

It will of course have a huge impact on the profits and cash generated (see my posting “Arsenal's transfer kitty is still bulging”)

Now let’s have a look at the big earners league table

CLUB REVENUE (2005-06 season)

Real Madrid - £202.0m
Barcelona - £179.1m
Juventus - £173.7m
Man Utd - £167.8m
AC Milan - £165.0m
Chelsea - £152.8m
Inter Milan - £142.8m
B Munich - £141.5m
Arsenal - £133.0m (rose to 200m for the 2006-07 season)
Liverpool - £121.7m

Arsenal are now second in the big earners table just behind Real Madrid. Next year they are likely to be pushing for first place.

This will depend on how well Man Utd do from the rise in their ticket prices, the increase in seating capacity and the new TV money.

My estimations are that their turnover will rise by about £65m to reach the level of Arsenal’s expected turnover of about £235m (Man Utd expect that their revenues per game will increase by 23% to reach the same level as Arsenal’s).

So both teams will be vying to be top of the League in both the football and financial arenas.

I think for now we would settle with staying on top of the League. Wouldn't you?

“Arsenal's transfer kitty is still bulging”

Fabregas is a more effective player than Scholes. The statistical analysis backs it up