Arsenal's 2012 Finances In Review, and Opinion

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One of the most scrutinized aspects of Arsenal has been their financial prudence and insistence on self-sustainability. See how their current financial health affects the club today and in the future.

Arsenal Football Club released their financial results for the year ending May 31, 2012, and there's only one thing a person can really glean from it. Arsenal, while in prime financial position to assume a broadcasting revenue hit if they were to fail to achieve Champions League qualifications thanks to a healthy cash balance, must increase their stagnant revenue stream if they want to continue their financial position. There really is no other way around it, and in that regard, 2014 can't get here soon enough for Arsenal.

To get right into this, here are some key numbers to take away from the release of the reports. There are many sources out there that you can retrieve these numbers from if you want to scour the internet further, but I will continue to promote Swiss Ramble as a resource since the guy is an absolute financial genius:

  • Arsenal's profit before tax in 2012 was £37M (£30M after tax). These numbers are up significantly from 2011 (£15M before tax, £13M after).
  • Cash balances come in at nearly £154M (for all you "SPEND SOME F*CKING MONEY" folks, this is where you can start up your clever song while completely disregarding the rest of the report; I'll cover this in a second). The Queensland Road property sales, which is £26M but won't be fully accounted for another two years, was not included in these figures, so it's easy to assume that the current cash balances are close to £180M as I type this. With our current debt levels at £258M (mainly tied up in the stadium and on a fixed, low-interest rate), the net debt of Arsenal comes in at £104M (lower if you assume the club has some of the QR property income stashed away).
  • The reason for the increase in profit boils down to nearly every supporter's favorite thing in the world: player sales (£65M in 2012; £6M in 2011) less player wages growth from 2011 to 2012 (£124M in 2011 to an astonishing £143M in 2012). In other words, Arsenal could not have afforded to let Gael Clichy and Samir Nasri see out the end of their contracts without either agreeing to a new deal (highly unlikely) or being sold (this is where you can draw your own conclusion about Theo Walcott's situation). Note that these numbers include the Fabregas, Clichy and Nasri sales from last summer, but do not include the RVP and Song sales from this past summer.
  • Tying into the above bullet point: Arsenal's wages increased from £124M in 2011, to £143M. Blergh, ugh, barf. However, that accounted for the fourth-highest in the EPL last season; for those who say that wins are correlated to how much is spent in player wages, the club actually out-performed their expected league finish.
  • Arsenal's commercial revenues came in at £52M, which has nearly increased every year (from £33 million in 2006), but continues to be blown out of the water by other European clubs (Manchester United's commercial revenue in 2012 was £118M). Further, total revenues decreased from £256M in 2011, to £243M, mainly due to not having the Highbury Square apartment revenue to account for this year and going forward, and football revenues have now seen their revenues nearly capped, in a way, over the past four years: £225M in 2009, £223M in 2010, £225M in 2011 and £235M in 2012.
  • For those still singing "SPEND SOME F*CKING MONEY" while bemoaning our pattern of player sales, this one's for you: If you exclude the profit made from player sales (again, £65M) and property profit (which amounted to £3M), Arsenal would have reported a loss of £31M before tax in 2012. The last time the club reported a loss was in 2002.

So a couple of things. Again, this is a club that must begin to find new and profitable revenue streams. This should be at the forefront of any conversation if you're someone who wants the club to consistently retain current players while having the ability to pay for new players in the transfer market.

I'll explain: In the above-linked Swiss Ramble article, our match day revenues in 2011 (which were £93M, and which saw an increase to £95M in 2012) were the fourth-highest in the world, trailing only Real Madrid, Manchester United and Barcelona. Even more, our match day revenue accounts for our highest percentage of revenue, something no other club profiled in Deloitte's Money League can claim. Arsenal set out to maximize as much revenue as possible when they set about undertaking the building and implementation of Emirates Stadium. HOWEVA, Arsenal won't continue to see any sort of significant bump in match day revenues since they've recently capped their worlds-highest ticket prices for nearly all of their ticket category levels, and there's always the real possibility that the club could see decreases in match day revenue throughout the years if they fail to qualify for the Champions League in any given season.

Broadcasting revenues (which remained virtually the same from 2011 to 2012, at £85M) should increase thanks to the new overseas TV rights, but that doesn't help Arsenal stand out from the rest of the league since all EPL clubs split 100% of those fees equally. Clubs finishing higher in the table receive more domestic TV revenue thanks to additional facility and merit fees that are dispensed according to final table placement and how often the clubs' matches are broadcasted. The gap, though, between the first place finisher and, say, the 6th place finisher is roughly £3-5M, nothing that won't make-or-break a club's financial statement.

Which, long story short, brings us back to commercial revenues. Above, I've laid out two of the three biggest revenue streams a club relies upon. The one area that the club can solely say they're responsible for is commercial revenue. Suffice to say, Arsenal comically fall behind their fellow competitors in this area. For the sake of this comparison, I'll refer to EPL clubs only, and in the year 2010-2011 since all clubs have yet to release current figures: Manchester United earned £103M in commercial revenues that made up 31% of their total revenues; Liverpool with £77M/42%; Manchester City £58M/38%; Chelsea with £63/25%. In that same time period, Arsenal earned £46M that made up only 20% of their total revenue.

As noted above, the club only increased their commercial revenue by £6M. The only thing to really say about this is that there's so much room for improvement in this area and 2014, when the club is able to renegotiate their shirt sponsorship and kit manufacturing deals, cannot get here quick enough (unfortunately, they're locked into the stadium sponsorship deal - a source of revenue that's been exploited recently - until 2021 and, even then, the club will walk into those re-negotiations in the weaker position since the stadium has been known in its entire history as "Emirates Stadium" and if they were to talk to other interested parties their expected stadium rights fee would be less since many in and out of the sport would still refer to the grounds as "Emirates Stadium." You could call this the "Wrigley Field Syndrome"). The club has made it a focus to bring in marketing gurus who've specialized in commercial product growth, and they've started to increase the number of secondary sponsors that they've lacked in the past.

It's going to take a lot of work to get to the levels of Real Madrid, United, Barcelona and Bayern Munich, but one can't help but think that if the club were to take the exponential rise in shirt sponsorship deals across the EPL along with our continual competitive squads fielded, visibility in Europe thanks to our streak of Champions League qualification and financial stability and long-term outlook (thanks to our shrinking net debt, which stands at only £98M and is actually something to be proud of considering the bulk of gross debt is stadium-related), the club should be able to grow the commercial revenues to a point that relying on Champions League broadcasting income and player sales are a thing of the past. And, if that day ever comes, the club's insistence on self-sustainability will finally bear the fruits of everyone's labor.

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