ARSENAL, once the standard bearers for conservatism and prudence in football, posted their second successive annual loss in 2019-20, but there could be worse to follow. Covid-19 aside – the club revealed £ 35 million of losses were attributable to the pandemic – Arsenal’s absence from the UEFA Champions League is costing the club financially and reputationally.
They’ve been overtaken in London by both Tottenham and Chelsea and in this current season, West Ham could easily finish above them. Arsenal have become a Europa League club, a position that they won’t want to become permanent. More positively, Arsenal did manage to win the FA Cup in 2020 under new manager Mikel Arteta, the sort of success that has eluded neighbours Tottenham for more than 12 years.
Although the club belongs to the 136th richest man on the planet, with a net worth of US$ 10 billion (only fractionally “poorer” than Chelsea’s Roman Abramovich), Stan Kroenke’s Arsenal have failed to make a profit in his first two years as 100% owner. In 2019-20, their net loss was £ 47.8 million, a far from satisfactory number although some Premier League clubs lost more money in 2019-20. Arsenal’s loss, which was up £ 21 million on 2018-19, would have been greater had they not made £ 60 million from player sales in offloading, among others, Alex Iwobi to Everton for £ 28 million and Krystian Bielik to Derby County for £ 10 million.
Like all major football clubs, Arsenal’s income from matchday was compromised in the closing months of 2019-20. Their revenues of £ 343 million were down by 13%, roughly in line with many of their competitors, with matchday income falling 18% to £ 79 million and broadcasting, at £ 119 million, 35% lower than 2018-19. Along with many of their peers, commercial revenues were a saving grace, rising by 28% to £ 145 million, thanks to a new deal with Adidas and the renewal of the club’s long-standing and successful partnership with Emirates. But Arsenal’s commercial operation is not as profitable as the likes of Manchester United, Manchester City and Liverpool. In fact, Arsenal’s £ 145 million is somewhat dwarfed United’s £ 279 million.
While their overall income still places them among the top earners in the Premier, the trend is becoming slightly worrying for Arsenal, who tapped into the Bank of England’s COVID Corporate Financing Facility to the tune of £ 120 million, a loan repayable in May 2021. Their revenues have stagnated in recent years and the 2019-20 season was their lowest for five years. Since 2015-16, Arsenal’s income generation has fallen by 2.25%, from £ 351 million to £ 343 million. Of the top six clubs, only Manchester United (-1.2%) have experienced a fall in this timeframe. Other members of the elite have enjoyed varying levels of growth: Tottenham 86% Liverpool 62% and Chelsea and Manchester City 23%.
Likewise, Arsenal have made less from European competition than their “big six” rivals, totalling around £ 215 million over the past five years compared to Tottenham’s £ 300 million and Chelsea’s £ 260 million. In that period, Arsenal have qualified for the UEFA Champions League twice and in the past three seasons have been in the Europa League. Prior to 2017-18, Arsenal had been Champions League regulars for 17 consecutive seasons. Obviously, this has affected the club’s broadcasting income significantly.
The Gunners’ wage bill was more or less unchanged in 2019-20 at £ 234 million, making their wage-to-income ratio 68%. This was offset by cost saving measures in response to the pandemic, including a wage reduction scheme agreed by the players and a waiver of remuneration by the executive team. Arsenal’s wages have plateaued after a period of continual increase. In nine years, however, they have grown by around £ 100 million. Although they have big earners such as Pierre-Emerick Aubameyang on their payroll, the departure of Mesut Özil should provide some balance sheet relief.
Arsenal’s transfer market activity resulted in a negative of £ 117 million, with expenditure of £ 182.2 million and income of £ 65 million. The biggest signings were Nicolas Pépé (£ 72 million, Lille), William Saliba (£ 27 million, Saint-Étienne) and Kieran Tierney (£ 25 million, Celtic). Only Aston Villa and Manchester United had bigger negative balances in the Premier.
Arsenal’s net debt has increased substantially, rising from £ 42 million in 2019 to £ 108 million. This is largely due to a reduction in cash at bank and in hand to £ 110 million from £ 167 million. Gross debt is still over £ 200 million.
The club has responded to the financial pressure of COVID-19 and has redeemed and refinanced fixed rate and floating rate bonds and an accompanying interest rate swap. Arsenal appears to have a close eye on financial management and uses derivatives to mitigate risk and closely monitors foreign exchange exposure.
How will a full season of next to zero matchday revenues affect the medium-term stability of Arsenal? Some analysts are predicting a deficit of up to £ 150 million in 2020-21 if stadiums remain empty in the next few months, which would send the alarm bells ringing. But every club would be in a similar position, suffering unsustainable and unprecedented losses. If a giant like Arsenal could encounter problems, just how bad will it be for the others?
There’s little a club can do to change this situation apart from spectacular success, cost-cutting or a capital injection. Arsenal could win the Europa League this season, which would take them into the Champions League in 2021-22. Otherwise, some financial engineering might be in order. This is where Mr Kroenke may have to swing into action.