Guest Post: Can Arsenal afford to pay RVP and others Mega salaries? Part 1

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Welcome to the first guest post in a while from resident Grover (Thomas, It’s up for grabs now ) and financial whizz Brendan Hasssett. Part two shall arrive tomorrow morning. A great read, I hope you enjoy it!

Will Arsenal rule the world under Financial Fair Play Regulations (FFP)

(All figures in GBP unless stated otherwise)

Robin Van Persie has been in incredible form since returning from injury on New Year’s Day. 31 goals in The Premier League (PL) in 2011 is a remarkable statistic. His hat-trick against Chelsea lifted the spirits of Gooners everywhere and prompted them to re-assess the bleak start to the season.  But with Van Persie stalling on early transfer talks, can Arsenal afford to pay him a salary close to what may be on offer elsewhere, and can they attract a few more top names and pay them similar salaries?

“I don’t have the inclination to go anywhere. This is the best team for me to be in.”

“The bottom line is that I want to win trophies with Arsenal, not with anybody else. I know you can win trophies in many countries and in many ways, but I want to do that in our way and in an Arsenal shirt.

“I’m sure I could win things at another team in another country, but would it feel like our trophy, my trophy? I’m not sure it would. Anything we win here will come from the heart and that’s what I want.

“It’s my dream and I see no point in speaking about other teams when I have these dreams. I think other people know that about me; I’m just hungry to win with Arsenal and that’s it.”

The above quotes from Van Persie were made after the 2-1 win against Barcelona and before the Carling Cup Final defeat to Birmingham City. Does he still feel the same? He was also speaking to the official club magazine. Can we rely on him to follow through with this and accept a smaller salary that may be on offer elsewhere? Does he still feel he can win trophies with Arsenal after the end of season collapse and flurry of transfer activity in the summer? Only he knows at this time and we will just have to let this one pan out until next summer but there must be a reason he is stalling? Nevertheless, I think it’s fair to say his current salary, (reportedly 70,000 per week), will have to be substantially increased to retain his services.

This season is the first when accounts come under the scrutiny of UEFA’s FFP regulations and Arsenal are well placed, reporting profits and sitting 5th in Deloitte’s annual Money League.  Are they poised to conquer the world and is Arsene Wenger’s goal to make the club number one in the world achievable?

                “I had a vision and I still have one. To make this club the best in the world” A Wenger.

If we listen to the board the fans just have to bide their time to see substantial success. FFP will level the playing field. Will the club march up level to Real, Barcelona and Manchester Utd?

This year saw a dramatic drop in profit with a 12.6m after tax result (2010 61m). Considering that property sales contributed 12.2m pre-tax profit and that the club made a profit on player sales of 6.3m these results need closer scrutiny. However, the club’s cash reserve also increased to 160.2m (2010 127.6m).

To be fair to the club any profit is a credible performance when one looks at the rest of the PL.  In 2010 only four clubs managed to turn in a profit. However, the club’s profit can be pinned down to a lack of significant net spend in the transfer market.

So how is the club doing and how is the future looking? Looking closer at the accounts we see that there are three principle revenue streams that contribute to turnover; match day income, broadcasting and commercial revenue.

Matchday Income and The Emirates Stadium.

The Emirates stadium has been incredibly successful. Only two clubs in the world make more from matchday income, (Real Madrid and Man Utd). This is a staggering achievement and dispels the myth completely that it is holding the club back. Arsenal have all but eliminated the advantage of the 76,000 capacity Old Trafford. Despite the extra capacity Man Utd only made 6.6m more in 2010 (100m) from Old Trafford than Arsenal did from The Emirates (93.4m). Although the 2011 results from both clubs show Man Utd gaining another 8m advantage. Primarily because of the extra games played due to getting to the final of the CL and progress in the FA Cup.  Considering that Arsenal make more than Barcelona, Inter, AC Milan, Liverpool, Bayern Munich and the rest, this is a stunning performance when compared to  the last season at Highbury (2006) when match day  income was  44m. This year the stadium cost the club approx 13.5m in interest plus 5.9m capital repayments. The stadium repayment interest rate is fixed for the life of the bonds until 2031. After these repayments this provides an additional net 30+ million per year over the Highbury days.

Broadcasting.

Broadcasting revenue was also stagnant in the 2011 accounts at 85.2m (84.6m 2010). An earlier exit from the CL was offset somewhat by extended runs in the FA and Carling Cups.

Broadcasting income is also dependant on the amount of times Arsenal are shown live (and participation in the CL). It also naturally follows that a drop out of the top four and a non-involvement at the end of the season will see less games shown featuring Arsenal.  Sky and ESPN have a commitment to show all the PL clubs a minimum amount of times. However, they also have a degree of flexibility and this is most evident towards the season finale when the teams in contention will feature more.

Barcelona and Real Madrid, for example, have the power to negotiate their own TV deals while PL clubs benefit from a deal negotiated by The Premier League. Liverpool’s recent suggestion to allow PL teams to negotiate their own deals looks like a non-runner. Such a change would require ratification by 14 clubs and this is highly unlikely to be approved by the smaller clubs, which would be like turkeys voting for Christmas.

Retail and Commercial Revenue.  

This element of the accounts stands out from the rest. While the Emirates revenue brings the club into the top three in the world, the commercial activities are to say the least mid-table. (13th in the money league). In fact this area has shown little growth. It is interesting to look at perhaps our principle ‘established’ big club rival in this area.

Arsenal v Man Utd last four years comparison: Retail & Commercial Revenue.

Arsenal                                 Man Utd

2008                       44.4m                                      64.0m

2009                       48.0m                                      69.9m

2010                       43.9m                                      81.4m

2011                       46.3m                                    103.4m

182.6m                                 318.7m

Clearly Arsenal are a full lap behind Utd in earning power.  Having closed the gap on matchday income, Arsenal disappoint when it comes to commercial income. The recent financial report points to a greater effort in this area and Tom Fox has been appointed to head a commercial team to drive up revenue in this stream. With key sponsorship agreed until 2014 (Shirt sponsorship rights & kit deal) this is going to be a difficult task. (There may be a possibility to re-negotiate or buy out the deals). The stadium naming right is tied until 2021. The pre-season tour to Asia was clearly a commercial decision. However, it looks like it will still be some time before we see these numbers rise dramatically. At this year’s AGM Ivan Gazidis said we will see evidence of this in next year’s accounts. So a hint there of stuff in the pipeline.

Commercially, the four clubs ahead of Arsenal in the money league outperform Arsenal by a significant amount, as do others in the PL.

Financial Power, Financial Fair Play and the future.

The four clubs ahead of Arsenal in the Deloitte money league are old established giants. (Real, Barcelona, Bayern & Man Utd). Between them they have won 20 EC/CL titles. Arsenal are the only club in the top five never to have won it. In the top ten on the money league they have this dubious honour along with Chelsea.

“There is a strong correlation between a clubs wage bill and on-pitch success. This year’s Money League clubs have won 43 of the 50 domestic league titles available in the ‘big five’ countries over the past ten years.” Deloitte Football Money League, 2010.

In the past ten years only one club outside the Money League top 10 has won the CL. (Porto 2004).

Another not insignificant disadvantage for English clubs is that the big European clubs generally all operate in a lower tax regime. In Spain top earners pay 43%. This 7% advantage just adds to the problems of English clubs trying to compete on players salaries. (Fabregas reportedly going to Barcelona for a smaller salary would require some closer examination!). Players and agents of course factor in the net income, with perhaps the exception of A Arshavin!

While FFP will certainly rein back the big owner-funded clubs of Man City and Chelsea, the old established giants will still remain as the principle forces to overcome.  There is no question that they are all preparing for FFP and will strive to meet the requirements, albeit maximizing the rules and any grey areas such as; what is the definition of fair commercial worth? This is where the main competition lies ahead, not just with Chelsea and City. And the effectiveness of the FFP rules has recently been tested by Man City’s recent sponsorship deal, which UEFA have said they will look at closely. We all eagerly await the result of UEFA’s scrutiny!

The principle requirement of FFP is the breakeven rule. Clubs will be required to breakeven on their football activities. It is generally accepted that a good ratio of wages to revenue should be around 60%. Championship clubs voted to adopt the FFP principles and accept 60% as the maximum. UEFA recommend a maximum of no more that 70%. However, it is a break even rule which is assessed over a three year period. And, as some charges included in accounts are not assessed by UEFA, FFP is extremely difficult to predict at this early stage. For example, investment in youth structures and stadium are excluded. (But will appear in the Clubs accounts).

In the initial years clubs will be able to escape with a loss situation if these losses are covered by their owners. (If the cash injection is exchanged for shares in the club).  A loss of €45m is permitted for the seasons 2012-13 & 2013-14. If owners are unable to subsidize debts, the maximum loss is €5m.

From 2014-17, the overall permitted loss will be €30m. If a club does not breakeven and under certain conditions it can exclude player contracts concluded before June 2010. Therefore attempting to predict accurately the impact of FFP at this stage is a very difficult exercise. All the money league clubs are moving to bring their finances in order and with their advantage in earning power will stay significantly ahead of Arsenal and the others. Real Madrid are still top of the money list and their commercial and TV income leaves Arsenal’s results look distinctly average.

A UEFA benchmarking report showed that only 5 out of 80 clubs would fail to reach breakeven if the rules were applied to clubs entering competition in 2010/11.

 

The financial problem in European football resides not primarily with clubs in the top divisions, but with clubs aspiring to reach the top division. 

 

Stefan Szymanski. An Assessment of UEFA’s Financial Fairplay Rules, Cass Business School, City University London.

Interestingly, the same assessment identifies Liverpool, along with Chelsea and City as “being at risk” of not breaking even.

For part two, tune in tomorrow morning at 0800 sharp!

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66 Responses to “Guest Post: Can Arsenal afford to pay RVP and others Mega salaries? Part 1”

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  1. Neil

    Of course they can, and anyone who watches van Persie play knows that he doesn’t play for money, he plays because he loves to. It is only a matter of time before song, Wilshere l, wallcott and van Persie will be on 100,000 +. As long as Werner stays, it will happen. He wants the club to go forward, once the stadium is paid watch the wages increase. I personally think rvp is waiting to see if arsenal get the champions league next season. But until then, let’s enjoy him and the rest of the teams’ performances 🙂

  2. Thomas, It's up for grabs now

    There’s a part 2 Goon! I rambled on a bit.. Sorry! However, part 2 attempts to make sense of the figures and put them in perspective as to what the club can actually do in the transfer window and the salaries it can afford to pay, realistically! It looks at our wage bill and looks at the impact of CL football and the absence of it.. and if that would hurt us significantly?

    Hope you will find it interesting then!

  3. OBA

    I love this. Starting from the currency designed ball
    To the indepth financial analysis. I must have to read it
    On my notebook at home for more overview.
    I must appreciate that as an Arsenal fan, I’m in a very
    Relaxed mood to read, thanks to our winning streak.
    @legrove, you are more than just a football pundit, you
    Are a prolific writer. Can’t wait for the 2nd part!
    You rock!

  4. IvoryGoonz

    Thomas:
    Quick one before I keep reading.
    In the matchday income and the good results compared to Man Utd’s 75000 stadium, you got to take into account ticket prices.
    A full season ticket is pretty much twice the price at Emirates than Old Trafford…
    I’d also suspect with lower ticket prices, Man U also sells more merchandise on matchday than we do.

  5. Thomas, It's up for grabs now

    Ivory, Spot on. I can’t disagree with that.. We are the most expensive which is a big reason why we take in what we do! Nevertheless these pounds all end up in the accounts keeping the figures up!

    Just hope they increase the revenue by success on the field and not as Tom Fox first marvelled at.. That there was still a long waiting list.. and therefore with his business head on.. concluded that there was more room to increase the prices yet again!!

  6. Hitman

    Good effort Brendan and await part 2. Your post seem to confirm what most Grovers already knew:

    1. Our commercial dept is a let down.
    2. Gazidis is all talk – hasnt delivered any value to AFC. Bonus my arse.
    3. The fans are the real heros.Keeping the club afloat with match day turnover and sky subcriptions.
    4. Sustainable model – is an euphamism for fleecing the fans.
    5. Wenger’s transfer policy and lack of ruthlessness hinder rather than help. We waste valuable income on cripples like Rosicky/ Diaby etc rather than getting rid and renewing contracts on players who are not up to it – Denilson, Almunia,Squid, JD etc
    6. Failure to buy quality players means we lose out of additional TV income by failing to reach final stages of competitions games and pize money not to mention merchandise and brand recognition. False economy is the phrase I am looking for.

  7. IvoryGoonz

    Thomas: just a quick calculation, 75k ->100m, 60k->93m, makes an average ticket of 1333 for Man U, 1550 for us.
    so in comparison, that’s 14% more expensive.

    I really hope the board will align ticket prices in future with other clubs. this is way too expensive, and has a direct impact on people spendin on beer and others on match day. actually, if tickets were 14% cheaper, I believe people would be more enclined to spend more on matchday.

    It also begs the question “why didnt we build a 75k or 80k stadium?”.

  8. Thomas, It's up for grabs now

    Ivory.. Our ST allow access to 26 games.. that’s the 19 PL plus cup games. Some clubs have different schemes.. only allowing access to the 19 PL games. So it’s difficult to compare without all the restrictions on each season ticket.

    But I don’t have a ST so I don’t know enough about that. If a ST holder would care to comment??

    But the club must be rubbing their hands together at all our home draws in the CC! I think we are already at 25 games.. 3 CC plus 3 CL plus the 19 PL games.. Moves them closer to that magic 26 number.. and over!!

    Oops, forgot about the Qualifying games for the CL..

    How does that work ST holders?

  9. John

    There was a time many moons ago when Arsenal and Utd were of a similar standards in footballing terms. The fact that in commerical revenue they have shot light years ahead of us falls on they heads of the Arsenal board who stood still.

    When Arsenal won the league without losing a game there was no push/drive to secure better deals in truth Wenger not taking Arsenal to Asia or America at this stage was a terrible decision. Then we tied oursleves into woeful deals while securing the Emirates finance.

    The only plus is that after 2014 we club should be able to secure much better sponsership provided the team keeps competitive.

    We also have gsome amazing young talent in our squad and in the young ranks so the need to buy should be less in the coming seasons.

  10. IvoryGoonz

    Thomas: I know, it’s true.
    thing is if you go down that road, you cant only count on the season tickets, you have to count individual ticket sold, for each game, depending you’re red, or gold member, including the money value of the “gifts” depending on the deal, and yes, depending on how many games, which competition and all that.
    but overall, that’s the simple calculation I made above, which is the average money a fan pays counting a full attendance over the last season.
    You could integrate the overall attendance percentage for that season to make it right, but I don’t believe the difference would be so huge that it would make up for that 14-15%.

    the last financial banner to add, unless it’s accounted for in the matchday income, but I dont believe so, is the actual competition’s money.
    winning a CL game, drawing or losing it, doesnt give you the same amount…

  11. gambon

    Very good posts Thomas, I enjoy your posts anyway.

    One thing I will say. The lack of revenue from Broadcast & Gate (and somewhat from commercial & retail) can largely be attributed as being our own fault due to our lack of ambition.

    If we were getting as far in the CL as UTD, and winning the PL we would be earning much more Broadcast money, and each extra game adds £3m to the gate. Remember 08/09 when we got to the CL and FA semis? Well we had £100m gate (as opposed to ~£94m these past 2 years).

    Naturally the more successful we are the better our commercial pull is, and the more big name (ie not koscielny & gervinho) players we have, the more people are in the retail outlets.

    It really is a case of us having to make the first move and speculate to accumulate, as it seems the only other option is to hope we get a lucky season where we somehow get easy draws in all cups to boost our income.

    Look forward to tomorrow.

  12. gambon

    Thomas

    In terms of home games, it’s:

    – 19 x PL games
    – 5 x CL games (we have already qualified)
    – 3 x CC games

    With a half decent FAC run and at least a CL quarter, we should have a very big revenue from gate receipts, dont forget the 6% increase.

    I would predict £110m or so.

  13. Thomas, It's up for grabs now

    Cheers Gambon! 😉

    I agree on the speculate to accumulate. We need to keep hold of RVP and add some quality to keep us in the CL places and drive on from there.

    Although I do see the CL money as pivotal to keep moving forward. We are at 55% of revenue on wages and losing that would leave us in a bit of a pickle! and as you know.. lack of success drives revenue down in every other area then.. dominos and all that!

  14. goonermart

    A good post guys, nice one.

    I think its clear to see that ffp is not going to change our postion in world football.

    also it maybe a bit premature for all the self congratulating by Gazidis and co in believing that we will suddenely become successful with the implementation of ffp.

    There is no doubt we could pay bigger wages if we would reduce the size of our squad and reduced the wages of unproven players.

    Wenger should manage the team to be successful rather than for some ideological crusade

  15. Bade

    One I would like you to investigate more, is the question whether a new commercial deal (shirts one) can give us enough room to start a new deal and pay off the remaining of our current one.

    I’m not familiar with the accurate numbers, but I reckon we could almost double our current deal, in annual perspective. Is it so?

  16. Thomas, It's up for grabs now

    Ardengooner.. 40% of FA Cup gates go to the visiting side.. but after all expenses are deducted.. stewards, polices costs, match officials etc etc..

    Goonermart!
    Now that’s the question!

    Bade..
    The agreement between them would permit on deny that.. I have read that there may be a possibility to buy out the deal. but that would depend on the alternative deal on the table if there was an overall net gain! Such agreements are not available in the public domain.

    It seems to be generally accepted that if we had the power to renogiate that deal we would get substantially more than what we are getting now. Figures reported in the press say we got 8m a year from Nike until 2011. That deal was extended.. don’t know the new figure.. Man U get 24m (reportedly) for the same deal!

    The accounts don’t disclose these details

  17. Richard

    To borrow a word that is often used in the comments section. FACT. There are not many of them in the post.

    I hope the second part will contain facts and figures to build up to your conclusions.

  18. Droid

    Thomas

    Great Post! I have a few questions.

    “In the initial years clubs will be able to escape with a loss situation if these losses are covered by their owners. (If the cash injection is exchanged for shares in the club).”

    So if the owner has to inject cash he has to buy shares, is that right? So, say if the shares of a club are worth X pounds now and then the owner has to cover the losses by buying the shares of the club, isn’t he increasing the prices of the shares? Wouldn’t this encourage short term buying in the rest of the market and artificially inflate the share prices? Would this rule result in a “bubble”?

  19. Dutchman

    Do you guys think that RvP, Walcott and song will extend their contract? We have to give walcott and song thier extension now! Before it is too late, why do we always wait so long for extensions? Why didn’t we give those extensions last year? Bad management, really bad management. What if song, walcott and RvP will leave???

  20. Byo

    Great analysis. Great read. I always peruse Swiss Ramble as he delves into the economics of football quite well. I look forward to part 2.

    What I have gathered over the years is managing a team involves more than putting out 11 on match-day. However, one should be able to decipher and appreciate the work you have put into this without slagging off Koscielny/Grevinho, especially when it has a very peripheral bearing to your thesis.

    It looks like Wenger has assembled a team that has some of the intangibles that irked me over the years, characteristics I believed were absent- a team that shows it will not be intimidated; that has a leader on the pitch; that celebrates goal-scoring like they enjoy it;etc. I believe these ingredients are just a important as the technical ability of individual players.

    Again, thank you.

  21. D-Gooner

    First off it was a great post, as alays! There is no doubt that an on-field success is vital to an off-field success. It shows greatly here in the US as it’s extremely hard to find Arsenal gears in stores. Even the Nike stores have twice as much United gears as Arsenal’s, showing an on-field success plays a huge part.

  22. IvoryGoonz

    goonermart says:
    November 24, 2011 at 21:05

    IG, we couldn’t build a stadium with a bigger capacity as there was to much opposition from cunts
    ———-
    can you expand on that? 😉

  23. Ricky

    Can hardly remeber a couple of the players in that line up but what a back four.. John lukic was a good keeper too.

    ———–LUKIC
    O’LEARY BOULD ADAMS WINTERBURN

    ROCASTLE THOMAS RICHARDSON MARWOOD

    ———MERSON SMITH

    Never knew graham was linked with the real madrid job in the 80’s.. When you look atthe mans record for us it makes you wonder what went wrong after arsenal.

  24. goonermart

    Dutchman, and isn’t it funny how these three players are playing better with contract renewals hanging over their heads.

    January is make or brake for wenger.

    Looking forward to part two of the post.

  25. roaaary

    Really interesting read thomas an illustrates information which is not always clear when presented in the media.
    Its obvious madrid united and munich are always goin to be ahead of us in terms of finances, but in your view what is the most realistic area which we can increase revenue? Ticket prices cant rise too much higher so do you feel we need to be exploiting commercial sponsorship?

  26. goonermart

    Ha ha, I remember those players well Ricky.

    Some quality players, Marwood was a bit of a one season wonder but he was the perfect provider for smudger, brilliant crosses from the left.

    Those were the players I grew up watching, and slightly before that the likes of groves and hayes.

  27. GoooonPowa

    Did samir nasri change his twitter handle from nana08 to samnasri19? I was sending some abuse his way during their CL game and noticed yesterday from RvP s twitter msg that his handle is different. Anyone know?

  28. gnarleygeorge9

    Brain, Brian Marwood, Brain Marwood on the wing!

    Anyway, goonermart just changing the subject a bit. I’m loving the chavs being in disarray 😎

  29. gnarleygeorge9

    I’m loving, also, how Arsene Wenger is making me eat my words. After the Blackburn loss I had him out the door, but cor blimey Le Prof is up & about.

  30. gnarleygeorge9

    …….& the coverage is even better now that ESPN are on board. We get ESPN x 2 so I never miss the Gooners first thing in the morning when in the eurozone. Not to mention the 6 live games of a Saturday, plus the installment on Sunday, & Monday &……..

  31. Bade

    Our next 4 games 2 home then 2 away:

    (H) Fulham EPL, $ity CC
    (A) Wigan EPL, Olympiacos CL

    SO basically we can rotate and play our strongest teams in the two EPL games, the other two games we can rotate

    Squillaci, here we come!

  32. Mayank

    I see no point playing full strength against City in the CC. Their 2nd team is strong enough to give us a game even if we play our first. At least if the kids beat them they’ll get a huge confidence boost. I say play our CC squad in both midweek games and play a well rested squad in the league.

    The way I see it we should play our best 11 on
    26th Nov
    3rd Dec
    10th Dec
    18th Dec

    Ample rest

    City will have to play their first team
    27th Nov(A)
    3rd Dec(H)
    7th Dec(H)
    12th Dec(A)
    18th Dec(H)

    4 games in 15 days last being us.

    Risking injury for the CC is stupid.

  33. Mayank

    City get a days rest after going away to Liverpool before playing us. They’ll have to play a weak side. No point of us playing full strength anyway.

  34. roaaary

    Really interesting read thomas an illustrates information which is not always clear when presented in the media.
    Its obvious madrid united and munich are always goin to be ahead of us in terms of finances, but in your view what is the most realistic area which we can increase revenue? Ticket prices cant rise too much higher so do you feel we need to be exploiting commercial sponsorship?

    I believe one method currently not being explored would be to associate arsenal with other businesses to increase their marketing for a fee. Using player image rights with various clothing/food companies could drive

  35. Thomas. it's up for grabs now...

    Roaaary!
    Commercial income is the obvious one that can grow substantially.. But as Gambon points out, achievements on the pitch drives revenue up in all areas.

    I can’t see them coming back again this year for ticket price hikes. They are already top dollar.

    And like you say, some creative thinking in the commercial department. Who would have thought you could get 40m sponsorship for a training kit! (DHL and Man U over the next 4 years!)

  36. Thomas. it's up for grabs now...

    Carlos,
    I agree. I would recommend anyone with an interest in the finances to read the Swiss Ramble for greater detail. There is an awful lot of detail in there and facts and figures and it’s quite a long read. Very good detail, which interests me, but it is a much more comprehensive analysis. It’s very hard to condense such information.

    However, this post is not designed to go into every detail. The purpose is to look at the wages particularly (and the CL revenue) and try to make a judgement on what we can do in the future. I cover this in the second part. The first part is more facts and figures and a lead-in.
    Of course, in the end, it’s just my opinion! 😉