Big loss for Arsenal underlines challenge to restore Gunners’ status

ARSENAL went into 2021-22 knowing they were not going to benefit from European competition for the first time since 1995. Finishing eighth for the second successive season, the club is still struggling to find consistency in the post-Wenger era. The latest financial report from the club emphasises that the Gunners’ continue to lose ground.

In 2020-21, Arsenal made a loss for the third consecutive campaign and the deficit increased to £ 127 million (pre-tax), up from £ 54 million in 2020 and £ 32 million in 2019. This was partly due to exceptional expenses of £ 39 million, but it also demonstrated the impact of covid-19. Since 2018-19, the last “normal” season, Arsenal have seen their revenues drop by 17% and between 2019-20 to 2020-21, they fell by 5% to £ 327.6 million. It is estimated the pandemic may have cost Arsenal around £ 80 million.

In the past five years, Arsenal’s position among the elite (aka the big six) has come under threat and they are now sixth in terms of total income and have been overtaken by their fierce rivals Tottenham. 

The club rearranged its debts and repayed some bank debt, which incurred a big chunk of exceptional items in the form of refinancing break costs. Arsenal rely on significant funding from KSE UK Inc (owned by Stan Kroenke) and they have a £ 70 million working capital facility with Barclays Bank. Their net debt has increased by 84% to £ 199 million due to a big reduction in cash.

On the pitch, while Arsenal have won four FA Cups since 2014, their league form has declined and from being a Champions League regular, they have spent five seasons outside the top four and four years in the Europa League. Rather clumsily, they went out of the Europa League at the semi-finals stage in 2020-21 to Villareal. Coach Mikkel Arteta still divides opinion among fans, although generally, he is popular and people appear to be buying into his “project”. His win rate, though, is 53.8%, lower than his predecessor Unai Emery, and there will be no silverware in 2021-22. Arsenal could still qualify for next season’s Champions League.

  • Revenues down 5% year-on-year
  • Pre-tax loss totals £ 127.2 million, net loss £ 107.3 million
  • Only Chelsea have posted a bigger loss in 2020-21
  • Wage-to-income ratio up to 73%
  • Profit on player sales drops by 80%.

Arsenal’s European run benefitted their broadcasting revenues, which increased by 55% to £ 184.4 million. Absence from Europe will obviously hit the club’s income in 2021-22, hurting almost as much as the ignominy of exclusion. Given the current climate, it was no surprise the Gunners’ matchday earnings fell dramatically from £ 78.7 million to just £ 3.8 million. With the return of crowds, Arsenal should see this revenue stream head towards the £ 100 million mark once more in the current season.  Commercial income fell slightly to £ 139.5 million in 2020-21, but was at a historic high level.

Arsenal’s profit on player sales fell by some 80% to £ 11.8 million, a far cry from the £ 120 million they made in 2018 and far less than the average over the past five years (£ 42 million). The club’s transfer market activity was relatively muted, their biggest signing being Atlético Madrid’s Thomas Partey, who cost £ 45 million, and Lille’s defender Gabriel, who was signed for £ 23 million. They sold goalkeeper Emiliano Martínez to Aston Villa for £ 20 million. Gross spend, according to Transfermarkt, was £ 77.4 million, the seventh highest in the Premier League, while their net outlay was £ 60 million. The club’s accounts show £ 115 million in additional player registrations. 

Even though revenues were 5% lower in 2020-21, Arsenal’s wage bill rose by 6% to £ 238 million, representing 73% of income. To the credit of the players, they agreed to a 12.5% pay cut during the peak of the pandemic. At the same time, the club made 55 people redundant, including their popular mascot, Gunnersaurus Rex. Since 2016, the Gunners’ wages have gone up by 22%, far less than the growth rate at the other big six clubs. For example, Tottenham’s salaries have grown by 105%, Manchester City’s 80% and Liverpool’s 51%. Interestingly, directors’ pay more than doubled in 2020-21. 

The financial news will do nothing to increase the popularity of the current regime at Arsenal, especially as they announced a 4% increase in season tickets for 2022-23 just before releasing their financials. However, Arsenal’s current malaise is a temporary thing and they will be bounce back. Whether they can become more successful depends on a more dynamic transfer policy that identifies talent at the right price as well as a longer-term view around developing a team that can be more competitive. A big change is also needed in the relationship between the club’s owners and the fans. If these factors can be improved, then Arsenal’s Emirates Stadium will be a happier place.

UEFA report suggests pandemic problems will linger

UEFA have issued their Club Licensing Benchmark Report for 2022 and the impact of the covid-19 pandemic is there for all to see. UEFA forecasts the full year 2021 will reveal losses among the continent’s top flight clubs of more than € 4 billion. Furthermore, the report shows that despite the dramatic loss in [matchday] income, player wages have still increased, albeit at a lower rate.

While revenues will recover, one worrying aspect of the pandemic is the rise in debt, with around € 750 million of new debt taken on by clubs. Larger clubs, in particular, were able to access bank funding to restructure their financing, as a result, the ratio of external debt to owner debt has creased from 3.7 to one in 2019 to 6.6 to one at the end of 2021. Only the largest clubs are able to access money at attractive rates, so interest charges will certainly impact future profitability.

UEFA believes the route out of the pandemic demands better cost control related to wages and transfer fees. In addition, long-term investment in infrastructure and youth development is a pre-requisite. The return of matchday revenues in 2021-22 should provide some relief – 88% of matchday earnings disappeared during the height of the crisis. 

With leagues feeling the pressure, the bigger competitions have attempted to become more innovative in raising money. La Liga, for example, has an agreement with private equity firm CVC that will earn them € 2 billion in exchange for 8.2% of commercial rights. The leagues have identified that their broadcasting rights are gold dust for investors and Serie A, the Bundesliga and Ligue 1 have all explored possible deals. It may take time to get universal buy-in, indeed in Italy the clubs were reluctant to go down this route. In Germany, fans will undoubtedly block any move to sell the family silver.

The Premier League’s financial power is highlighted once more by the UEFA report. In the transfer market, the summer of 2021 saw over € 2 billion of activity involving the league, which represented 27% of the market. The Premier clubs spent € 1.4 billion themselves. The Premier was the only major league to be anywhere near pre-pandemic peaks.

The Premier’s TV revenues are far more democratically distributed than any other league. The ratio between top and bottom is just 1.2x, which compares very favourably with the other leagues, most notably Portugal, where the ratio is 9.2x due to the top three clubs (Benfica, Porto and Sporting) negotiated their broadcasting deals individually.

The difference between English clubs and their peers is very clear when it comes to TV money. The average received per club in the Premier is € 117 million, far greater than Spain (€ 70m), Germany (€ 66m), Italy (€44m) and France (€ 22m), and multiples of countries like Portugal (€ 9.2m) and the Netherlands (€ 4.2m).

All over Europe, however, club losses area hitting new highs, although UEFA believes if the pandemic had hit a decade ago, less stringent governance would have seen more clubs encountering serious, far-reaching problems. Only two clubs among Europe’s elite, RB Leipzig and Valencia, saw their revenues increase, while clubs of the status of Barcelona (-14%), Manchester United (-18%), Inter Milan (-19%), Paris Saint-Germain (-15%) and Juventus (-14%) all saw significant drops in revenue. The pandemic has left around 25% of top division clubs with negative equity.

As mentioned, UEFA sees infrastructure investment as crucial as football attempts to mount a recovery, so stadium construction will be on the agenda. A total of 18 new stadiums have been built during the pandemic and in 2021, there were six new arenas and four rebuilds. Predictably, the number of stadium renovations has decreased in the past two years as clubs have cut back on investment in fixed assets.

The pandemic did not stop ownership activity and in 2021, there were 30 top-division takeovers, an increase on 2020. However, acquisitions slowed in the second half of 2021. US investors were especially active, securing minority stakes in European clubs including Crystal Palace, Liverpool, Wolverhampton Wanderers, Augsburg, Atlético Madrid and Club Brugge. Across Europe, 52% of clubs are privately-owned, 48% have public ownership models.

UEFA is aware of requirement for some adjustments across the industry. Andrea Traverso, their director for financial sustainability and research, commented: “The report clearly demonstrates the need for change in club football finances…strong balance sheets are important for attracting new owner investment and supporting third-party financing arrangements.”

A special report on women’s football will follow. 

Football Media Watch: The Covid call-offs, desire or necessity?

WHEN Arsenal asked to have their big north London derby against Tottenham called off, people were scratching their heads and questioning why it was so late in the day. After all, they only had one (later two) Covid-infected players but apparently were going to be without 19 members of their first team squad. Admittedly, they have other players lost to the Africa Cup of Nations, but in theory, shouldn’t they have been able to play the game? They have a big squad, all the Premier clubs appear to have sizeable squads, so where’s the problem?

Even right down to non-league level, a manager wants to play his strongest team, so if a convenient postponement can help out when the squad is weakened or lacking some key players, then so be it. We’ve all seen surprising cancellations that turned out to be very helpful for coaches who might be in charge of a struggling team needing a break.

With TV effectively running the game in so many ways, postponements are generally not as commonplace as they used to be, but covid has given football the chance to call a game off if the virus has hit the squad hard. At the time, some sceptics did caution that this was open to abuse and while nobody really wants to say it for fear of having questions interpreted as heartless, cynical probing, increasingly, there is concern some clubs may be trying to “game the system”.

Pundits Gary Neville and Jamie Carragher have both suggested postponements should not be taking place in the age of big clubs with expensive 30-40 man squads. Neville, always willing to stick his head above the parapet, said on Sky: “What started out as postponements due to a pandemic has now become about clubs not having their best team [available]”.

The timing of Arsenal’s request was unfortunate – they had just had a player suspended after a red card in midweek (Xhaka) and had let two players go out on loan. Similarly, when Liverpool asked for their Carabao Cup semi with Arsenal to be rescheduled, they later revealed their covid testing had produced “a lot of false positives”. It doesn’t take much for football to come up with conspiracy theories or for fans of opposing clubs to quickly assume some skulduggery has taken place. 

The Athletic reported that there is a lack of transparency and consistency and suggested there has been an abuse of the rules. A case of clubs desiring a postponement rather than needing it. “The bottom line, according to one medic, is that no games should be called off given the size of the team squads and availability of back-up players from the youth ranks.”

Carragher said on Sky that “no other league in Europe is doing this” and believes there is no doubt teams are taking advantage of the situation. Interestingly, when the FA said clubs should play FA Cup games if they have 13 fit players, there was not a single postponement. This not only implies clubs are comfortable playing weakened sides and confirms what we already knew, the competition is a much lower priority among the elite.

Back to that London derby and Tottenham were clearly unhappy about the cancellation. The Guardian reported this comment from the club: “The original intention of the guidance was to deal with player availability directly affected by Covid cases, resulting in depleted squads that when taken together with injuries, would result in the club being unable to field a team. We do not believe it was the intent to deal with player availability unrelated to covid. We may now be seeing the unintended consequences of this rule. It is important to have clarity and consistency on the application of the rule. Yet again fans have seen their plans disrupted at unacceptably short notice.”

Sources: The Times, Sky, Guardian, The Athletic, iNews, BBC.