Why Arsenal Must Spend In Order To Remain Sustainable

(Note: This economic analysis has some holes in it. The purpose of the article is to show why Arsenal need Champions League football. There are more stringent economic analyses linked at the end of the article)

As many have said on this website and on blogs, newspaper columns and football shows across the world, Arsenal are one of the few football clubs that do not have unsustainable debt and are profitable from football success alone. Recently, Parliament held Arsenal up as an example of how football should be run. While this is all true, the problem with Arsenal's economic system, and perhaps the problem with football in general today, is that it is dependent on revenue from the Champions League. Without that Champions League money, Arsenal are no longer the profitable organisation that they are portrayed as. 

Arsenal's most recently published yearly accounts are those for the 2009-10 season, where Arsenal played 25 home games. After the 2009-10 season, however, a new tv deal came into play for the Premiership, and thus more money was made by Arsenal last year despite a worse finish. Arsenal's accounts in 2009-10 also include variables: Income from property development, which no longer exists, and player sales, which can fluctuate. Thus, I am only looking at the football related profit or loss: Commercial income (shirt sales), matchday income, and broadcasting, coupled with football expenditures, such as wages, and operating a stadium. Finally, because the Premier League deal from 2009/10 is outdated, I will use the 2010/11 payouts, and the 2009/10 Champions and Europa League payouts. Not entirely accurate, I know, but these are the numbers available. 

European Football: Assumes Quarter-final stage is reached

As the table above shows, without Champions League football, Arsenal make a small yearly loss. Is the loss exceedingly damaging? No. The loss could be covered by the sale of players, and may be smaller (or larger) depending on how operating costs and matchday income is affected. However, the economic model that Arsenal use is designed on Arsenal playing in the Champions League, and making a profit. However, seeing as Arsenal also have a small debt from the building of the Emirates Stadium, a loss could force the selling of key players for economic purposes, hurting the chances of returning to the Champions League. Furthermore, matchday income can be affected by less attractive fixtures and commercial income can be affected by Arsenal falling out of the Champions League, and thus losing shirt sales, etc, etc. Finally, without Champions League football, Arsenal become a less attractive club to incoming players (just think of the players Liverpool signed when they were out of the Champions League: Almost all, aside from Luis Suarez, from English clubs and not considered big names). 

Having lost Cesc Fabregas, and potentially losing Samir Nasri, and needing strengthening before the season even started, Arsenal are many favourites to not make the Champions League. So far, their performances haven't been inspiring, and they've lacked creativity, having failed to score in both of their Premier League matches. There are admittedly injuries, but signings would improve the depth of the squad, and as shown, the difference between the Champions League and profit, and non-Champions League and losses is £30m, which is close to the rumoured price of Eden Hazard, a player who would immensely improve Arsenal. Arsenal have that £30m from selling Cesc Fabregas; by spending it they ensure that they receive more money down the line. From an economic standpoint, spending the money now makes sense; saving the money doesn't. 

Arsene Wenger is facing a crucial week. Failure to sign players and improve his squad could see Arsenal miss out on the Champions League next season (and this season isn't in the bag either). Without the Champions League, Wenger's sustainable economic model only works by selling valuable assets and cutting high wages; i.e. what clubs like Sunderland do. If Arsenal are to remain sustainable, then they must spend. 

Sources

The Swiss Ramble: Cash City Rockers

Arsenal Accounts, 2009/10

Premier League Broadcast Revenue, 2009/10 and 2010/11

UEFA Champions League and Europa League payout 2009/10