Another Look at the Arsenal Financial Statements

This article is an extension of the good work done by Arsenal Station. I am making an attempt to look at some aspects in greater detail. Please make sure you have read that article or our results as published here before reading further.

Some major financial dealings have not been captured in the reported numbers as they have occurred after 31^st May. But they have been mentioned in the report separately, these are

• Sales have now completed on 445 apartments with a cumulative revenues of £172 million. Considering the fact that we had revenues of £15 million and £88 million from apartment sales in 2008 and 2009, it is safe to assume that we have generated a further £69 million in the last few months
• The sale of two players who lie on opposite ends of the spectrum of my feelings for ex Arsenal players has reportedly generated £40 million
• The property development debt was at £129.6 million at the end of May 2009. Highbury Square loan formed the bulk of it at £123.6 million and it has been reduced to £47 million in the period between the end of May and the publication of results. Interestingly, this is a reduction of roughly £76.6 million. I am assuming that the £6 million loan for Queensland Road property has not been repaid during this period.
• Since the subsequent apartment sales have generated a sum less than the amount repaid, the key question is whether the repayment includes any part of the aforementioned transfer fees that we have received? At least £7.6 million has been paid in excess of what has been generated. Moreover, if there were construction costs or any other expenses related to the apartments sold it is possible that a significant portion of the transfer fee was used to repay the loan. The club has certainly not been clear on the exact details

Now let’s return to the published results.

Firstly, we must understand that profits and cash are not the same thing. So if we show profits after tax of £35.2 million that does not mean the manager has that amount to spend. In fact it’s hardly related to the cash available to the manager. This can be seen from the increase in cash and bank balance from £93.3 to £99.9 million. Profits are good for shareholders of a football club but not necessarily for the manager. I am not saying that the profits would hurt a manager but they might not have the same impact and practical value for him.

Our total turnover has increased significantly. But that is mainly down to the property business which has its own costs and debts so it doesn’t translate into anything beneficial from the football point of view. Our revenues from the football business have increased but so have the costs. This can be seen from the profit before tax of the football business being pretty much same as the corresponding figure from 2008.

The second important thing to understand is cash and bank balances. If we have close to £100 million in cash it does not mean that we can go ahead and make a bid for Messi. From the total cash £32.3 million belongs to the debt service reserves. In other words, that money is not available to Wenger. So we have roughly £68 million cash available to us. Now we have to consider the following possibilities

• Highbury Square The stadium loan has £245 million outstanding with a 20-22 year period or repayment and a 5.3% rate of interest. We made a payment of £5.3 million this year. But if the loan is to be paid in the specified period, basic arithmetic shows that we will soon be making payments in excess of £10-15 million on that loan
• The property market is uncertain. The sales we have recently completed might tempt us into thinking that the rest will happen soon and we will be rolling in cash. But we need to realize that these are mainly from bulk sales and after long negotiations
• Our income from football business is close to its peak. Some of our commercial contracts are long term in nature and we are generating very close to our capacity in terms of gate revenue. Chances of there being any significant increase in this income are minimal
• Now suppose we have a year without Champions league qualification. This could straight away lead to a loss of around £30 million in revenue for that year
• The increase in income tax rate might force us into further improving the player contracts
• We might have payments due based on landmarks achieved by Walcott, Sagna, Eduardo or any other player

These possibilities mean that we have to be prudent and maintain a high cash balance. Ultimately how much money is available to the manager is something I am not qualified to comment on. I am sure we cannot afford to spend £18 to £30 million on players like Anderson, Carrick, or Berbatov who don’t perform at a level demanded by their price tag. But we can certainly spend on one or two Wengeresque signings if need be.

Considering the above and looking at the likes of Nasri, Eduardo, Ramsey, Vermaelen and Arshavin I think “Arsene Knows” is a serious contender for understatement of the century award.

I will have to look at the some of the recent financial statements of ManYoo to figure out just how they can afford to waste all that money. There are some other aspects of our numbers that can be analyzed in detail as well. But that will take some time. For now I’ll just keep the faith.