Accounting for Arsene: Does Arsenal’s Fall From Grace Hurt Their Bottom Line?

Arsenal are at risk of missing the Champions League for a second season in a row. For Arsenal fans it feels like a punch to the gut and a worry for the future. For neutral fans it allows the banter to continue and a deviation from the norm we have seen for over a decade. For an accounting major like myself, I wonder what the ramifications are on Arsenal as a business. Is a deviation from millions of dollars guaranteed each season something that will hurt Arsenal?

Public companies are required to have annual reports with audited financial statements presented to shareholders. Arsenal are publicly traded but unlike Manchester United, their share price is astronomical (over $21,000 per share) and it is advised by the club itself  to not purchase shares to make a profit. Despite its oddities as a public (I would argue it is a semi-public company with a high share price and only 4% not owned by a select few people) company, it still has shareholders and therefore an annual report, where nerds like me can look at their financials!

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Their latest financial data from their 2017 annual report showed revenue of over $590 million. That includes payments made from participating the Champions League last season (and crashing out in the Round of 16) of around $76 million. In the Europa League this season, they could make around $15-50 million, possibly more, depending on where they finish in that competition. Expenses for Arsenal were around $520 million. So, 590 minus 520 leaves Arsenal with a “profit” of around $70 million. The difference between Champions League income and Europa League income could be anywhere between $30 to $60 million, leaving Arsenal still with a profit, if all other expenses and revenues unrelated to participating in the Champions League/Europa League are similar.

One source of revenue negates all of that: the broadcasting revenue from participating in the Premier League. That number will rise for Arsenal around $80 million year-over-year, an addition to the already astronomical amount Premier League clubs receive from these broadcasting deals. That basically negates the loss of Champions League football. Not to mention, as cynical as it sounds, Arsenal save money by not having to pay bonuses for Champions League qualification. If you play Football Manager, you sometimes notice a clause in players contracts that qualifying for a continental competition, in this case the Champions League, allows them to awarded a bonus. Arsenal dodged having to pay that last season, and likely will avoid paying that this season.

Not to mention, Arsenal have cash, and low debt. Arsenal boast around $145 million in cash and cash equivalents on hand. In their May 2017 financial report, they mention that the club has previously fully self-insured against a season without Champions League football. The idea that they could miss out on two or more seasons of Champions League football will truly test if their “insurance” is built to last. It is important to note that the $145 million of cash does not include  cash “designated as debt service reserves.” This means that before Arsenal begin to burn through their cash (if they don’t spend that much on players), then that cash amount will not decrease until their “debt service reserves” are depleted. As of now, and according to my analysis in this article, Arsenal are turning a profit for the foreseeable future, meaning their debt will have no need to be serviced since there is no debt. Please note that player transfer fees are amortized

This article does not take into account things such as lower game attendance, higher player wages, and loss of merchandising revenue as well as other long-term factors of missing the Champions League can affect. When it comes to merchandising it appears possible marginal loss of revenue as a result of a lack of success is completely negated by Arsenal dominating emerging markets. Places where economies are growing: Asia, Africa, India, and so on are being dominated by many big teams. Out of that will come sponsors, supporters, and more broadcasting deals. Arsenal apparently do well in Africa especially in Nigeria, although I don’t have data to support that, it is simply anecdotal.

It appears mega-deals from broadcasting and globalism means that Arsenal, the world’s 5th richest club according to Forbes, are “too big to fail.” Lack of success doesn’t mean that Arsenal will struggle financially. Hell, Arsenal will likely continue to turn a profit and allow Wenger to use his often-mentioned “war chest.”

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