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.

Football club owners: Billion Dollar maybes

A FEW weeks ago, I was interviewed outside Arsenal’s Emirates Stadium by Spanish TV on the subject of club ownership and the European Super League concept. As I was speaking, there were a few irate Arsenal fans in the background shouting their disapproval of their own owner and the broader issue of billionaire club owners.

Although the European Super League debacle has gone away for the time being, it is likely to return. The underlying narrative has been about some billionaires misunderstanding the game and selling the souls of their clubs. Regardless of the motives of these people, they do own the clubs concerned, both legally and financially. They paid good money for their assets. In theory they can do precisely what they like with those assets, no matter how many people protest.

Most fans, when their club is taken over or sold by legacy owners, may wonder what lies in store, but generally, the financial benefit of a Russian oligarch, middle eastern oil man or Asian tycoon enthuses them for a while. To many, the cash influx means transformation of a club or salvation. Chelsea, for example, moved from being an under-achiever to one of the world’s top clubs, creating history by the season. 

On the other hand, the attractiveness of an established super club as a portfolio asset has often resulted in playing performance stagnating – such as at Manchester United and Arsenal. While Chelsea’s fans love Roman Abramovich as he’s funded something of a supermarket trolley-dash, Arsenal and Manchester United’s financial performance – largely dismissed by supporters – has been acceptable for their US owners. 

Now, Arsenal fans are urging Stan Kroenke to get out of “their club”. Kroenke and his contemporaries are, de facto benefactors. The fans complain about a club’s lack of “ambition”, which invariably means a reluctance to spend money in the market, while also moaning if a club raises prices or makes adjustments to accommodate the spending. 

As far as some folk are concerned, owners are supposed to stump-up and shut-up, providing the resources to facilitate success. Mike Ashley at Newcastle United is not popular with the fans but Newcastle have remained a relatively stable club. However, the last piece of silverware was won in 1969 and the last domestic trophy was secured in 1955. Newcastle fans have been longing for the club to be sold and it almost happened when the Saudi Arabian sovereign wealth fund made a bid. 

Fans point to owners that don’t “engage”, but at Chelsea, Abramovich’s voice has rarely been heard. But regardless of this, the Russian will always be seen as a good owner given the club’s record since 2003. 

For all the claims they want engagement, empathy and cultural alignment, what speaks loudest of all is simple – money. So does the money give you license to do as you please? In virtually all aspects of global business, it does, but not necessarily in football. 

What attracted the likes of the Glazers, Kroenke, Fenway and Abramovich to British football was the attractive revenue streams the growth trajectory and the links to customer bases. This may appear transactional, but the commercialisation and globalisation of football has made it appealing to investors, people who know how to run global businesses. 

Naturally, in a situation where income and profitability appears to be compromised, owners will invariably look for solutions to ensure stability and future growth. It’s not exactly “live by the sword, die by the sword”, but if you have prospered from football capitalism, which some clubs undoubtedly have, you will also be vulnerable to the downside of the free market.

And football ownership, predominantly, is a one-person board game, it’s not often that equity markets reward holders of football shares. This all flies in the face of the traditional football model, but the days of flat caps, terraces, Bovril and poor stadiums have largely gone.

So would life be better without the billionaires? Who will they sell to if that moment arrives? For every unhappy fan, there are others who long for a billionaire to drive into town and buy their club – to make them competitive (another term for big spenders in the market). As former England international John Barnes recently said, everyone wants their club to be richer than the next one and to win prizes. They urge their clubs to pay £ 100 million for an Erling Haaland, yet they don’t always want the baggage that comes with that status. 

Increasingly, British football fans are looking across to continental Europe at the model in Germany, the 50+1 system. There’s a lot to admire about German football and its ethics, but it may be too late for Premier League clubs to adopt such a concept. For a start, club owners may not play ball (why would they?) and the mechanics behind the transition may take years. But Britain can learn from Germany.

Whatever the solution, we have reached a point in time where better governance, financial reality and corporate behaviour within football has to be addressed. It’s a crucial time and the opportunity should not be wasted, but instead of banishing the money men, maybe stronger regulation and governing bodies with more teeth need to be introduced as soon as possible. In the meantime, fans should be careful what they wish for.

@GameofthePeople

This article appeared in Football Weekends magazine. Reproduced by permission.

Photo: Alamy

Without billionaires, football could flounder – so what’s next?

FOOTBALL’ s current model is unsustainable, of that there can be little doubt. The fans claim they despise the modern game’s over-emphasis on money and the focus on balance sheet over the romantic vision of the sport.

Although the European Super League debacle has gone away for the time being, it is likely to return at some stage and there is something inevitable about it. The underlying narrative has been about US billionaires misunderstanding the game and selling the souls of their clubs. In any crisis, it is very convenient to find a scapegoat and to direct focus anger and frustration at a person or group of people. Regardless of the motives of these people, they do own the clubs concerned, both legally and financially. They paid good money for their assets. In theory they can do precisely what they like with those assets, no matter how many people protest or how violent the language becomes.

Enthusiasm

Most fans, when their club is taken over or sold by legacy owners, may wonder what lies in store, but mostly, the financial benefit of a Russian oligarch, middle eastern oil man or Asian tycoon enthuses them for a while. To many, the cash influx means transformation of a club or salvation. Chelsea, for example, moved from being and under-achiever to one of the world’s top clubs, creating history by the season. On the other hand, the attractiveness of an established super club as a portfolio asset has often resulted in playing performance stagnating – such as at Manchester United and Arsenal. While Chelsea’s fans love Roman Abramovich as he’s funded something of a supermarket trolley-dash where trophies have been greedily accumulated, Arsenal and Manchester United’s financial performance – largely dismissed by supporters – has generally been acceptable for their US owners. 

Now, Arsenal fans are urging Stan Kroenke to get out of “their club”. Kroenke and his contemporaries are, de facto benefactors who subsidise the fans’ favourite pastime. The fans complain about a club’s lack of “ambition”, which invariably means a reluctance to spend money in the market, while also moaning if a club raises prices or makes adjustments to accommodate the spending. It’s not just an elite problem, this mindset can filter right down to grass roots.

Does an owner have any rights? As far as some folk are concerned, they are supposed to stump-up and shut-up, providing the resources to facilitate success. Mike Ashley at Newcastle United is intensely unpopular with the fans. He’s not an easy fellow to warm to by all accounts, but the chasm between him and the Newcastle fans is huge. He’s not a local, which doesn’t help in an area that has one of the strongest regional identities. Newcastle fans loved it when Sir John Hall ran the club because he was one of their own, but the finances were actually sub-optimal during this period. Ashley’s prudence has meant Newcastle are a relatively stable club, but the last piece of silverware was won in 1969 and the last domestic trophy was secured in 1955. Newcastle fans have been longing for Ashley to sell and it almost happened when the Saudi Arabian sovereign wealth fund made a bid. This tested the fans who had to balance moral issues with the desire for success. 

Engage

Fans point to owners that don’t “engage”, but at Chelsea, Abramovich’s voice has rarely, if ever, been heard, and the messages that do come through to the coal face are undoubtedly crafted by the club’s marketing department. Yet the Russian will always be seen as a good owner given the club’s record since 2003. 

For all the claims that they want engagement, empathy and cultural alignment, what speaks loudest of all is simple – money. Robert Shrimsley, writing in the Financial Times, made this hard-hitting but accurate assessment: “The football fan is one of the most deluded and over-sentimalised creatures in modern life. We allow ourselves to be seduced by badge-kissing players who shove off for higher wages.”

So does the money give you license to do as you please? In virtually all aspects of global business, it does, but not necessarily in football. Abramovich, for example, gives instructions for managers to be sacked when he feels the relationship is turning stale. It’s a model that works, even though it doesn’t always feel right. However, you rarely hear anything about the end of a manager’s contract at Chelsea – they are obviously paid off well with plenty of non-disclosure agreements in place.

John Barnes, the former Liverpool and Watford star, believes that fans have to understand club owners such as those behind the European Super League. Speaking on a Soccerex webinar, Barnes pointed out that the narrative was all about owners not “getting” football, but he said it is time for fans to really understand the business people behind the game. 

The very thing that attracted the likes of the Glazers, Kroenke, Fenway and Abramovich to British football was the attractive revenue streams the growth trajectory and the links to customer bases. This may appear transactional, but the commercialisation and globalisation of football has made it appealing to investors, people who know how to run global businesses. 

Naturally, in a situation where income and profitability appears to be compromised, these people will look for solutions to ensure stability and future growth – for their assets. It’s not exactly “live by the sword, die by the sword”, but if you have prospered from football capitalism, which some clubs undoubtedly have, you will also be vulnerable to the downside of the free market and its tactics of preservation and damage limitation. And football ownership, predominantly, is a one-person board game, it’s not often that equity markets reward holders of football shares. This all flies in the face of the traditional football model, but the days of flat caps, terraces, Bovril and poor stadiums have gone and are possibly served through much lower levels of the game’s pyramid.

So would life be better without Kroenke and the Glazers? Who will they sell to if that moment arrives? For every unhappy fan, there are others who long for a billionaire to drive into town and buy their club – to make them competitive (another term for big spenders in the market). As John Barnes said, everyone wants their club to be richer than the next one and to win prizes. They urge their clubs to pay £ 100 million for an Erling Haaland, yet they don’t always want the baggage that comes with that status. 

Ek

Arsenal’s fans, for instance, believe the grass will be greener on any side that Kroenke isn’t sitting on. If he does sell to the Spotify owner, Daniel Ek, a Swede with a net worth of US$ 4.5 billion, will the club’s culture change? Arsenal are valued at around £ 1.8 billion, Ek is just as likely to use the leveraged buyout method as other club owners. He’s a fan, he wants to take Arsenal back to where they once were, but in an age when we talk about billions as if they are small change, transformation may come at a cost to the owner. But it should be remembered that Spotify, like many aspects of the new economy, is considered a disruptor that challenged the status quo.

Increasingly, British football fans are looking across to continental Europe at the model in Germany, the 50+1 system. There’s a lot to admire about German football and its ethics, but it may be too late for Premier League clubs to adopt such a concept. For a start, club owners may not play ball (why would they?) and the mechanics behind the transition may take years. But Britain can learn from Germany.

Perhaps one very German idea, the implementation of a corporate supervisory board at clubs, may be a start. This could include regional Football Association representation, local authority involvement, key sponsor, primary financial source, supporter groups and landlords. If nothing else, it could act as a backstop to prevent rogue owners from going haywire. 

Whatever the solution, we have reached a point in time where better governance, financial reality and corporate behaviour within football has to be addressed. It’s a crucial time and the opportunity should not be wasted, but instead of banishing the money men, maybe stronger regulation and governing bodies need to be installed as soon as possible. This is, in many ways, football’s Lehman Brothers moment.

@GameofthePeople
Photo: ALAMY