Season review
Welcome to the first ever article on the Football Boardroom – Please take a seat! Our goal is to bring you the latest financial information on clubs around the globe, but first we will be taking the time to provide you with information from the 2019/20 season which in most cases, is still the most recently available financial data.
We start our analysis with a look at Arsenal, who had an eventful 2019/20 season.
Kicking off the campaign with Emery following the loss of the 2019 UEFA Europa League (UEL) final, fans hoped for a push for top four but after significant investment in the summer transfer window, failed to adequately challenge resulting in Emery being replaced by Arteta, who while leading the club to a disappointing 8th placed finish in the Premier League, concluded the season with an FA Cup win that lifted the mood.
As we will see with all clubs and has been well documented across football, all clubs have been heavily impacted by COVID-19.
Arsenal saw revenue fall 13% to £340m as games were played behind closed doors and as a result of its financial year ending on 31 May 2020, seeing some revenue deferred into 2021 due to the Premier League season being delayed into July 2020.
This had a significant impact on profitability with Arsenal recorded losses before tax for the second successive season (increasing to £54m) and operating profits falling by 83% to £9.4m, with the club stating a net impact due to COVID-19 on profitability of £35m.
Arsenal are in a position where its investments in the playing squad will need to pay dividend if they are to challenge the top Premier League teams again or see its finances worsen even once COVID-19 is hopefully an issue of the past.
Revenue
Overview
Arsenal saw its revenue decline 13% to £340m with some of the loss revenue from matchday and broadcast sources being offset by a significant increase in commercial revenue as a result of its new Adidas deal.
Matchday
Matchday revenue fell from £96m to £79m as the club played its final four home games behind closed doors and suffered from a shorter run in the UEL, having been knocked out at the Round of 32.
Arsenal state that £14m of this £17m decline is due to COVID-19, with the remainder due to UEL performance and other factors.
With almost the entirety of the 2020/21 season being played behind closed doors, Arsenal face a hole of over £70m (20% of its 2020 revenue) in its revenue that will severely impact its bottom line.
Broadcast
Arsenal saw its Broadcast revenue fall by £183m to £119m (35%), driven by the deferral of £34m of its revenue into 2021 having played 10 of its 38 Premier League games after the end of its financial year (31 May 2020).
This revenue will help to absorb some of the loss matchday revenue in 2021. In addition, the club suffered broadcast rebates of between £10-15m which will not be present in 2021.
Commercial
Arsenal enjoyed a 28% rise in its commercial revenue to £142m on a more positive note following its new Adidas kit deal worth c.£50m per season, a significant uplift on its former £30m per season Puma deal.
The Gunners also state it has suffered £6m of lost commercial revenue due to COVID-19 which it will hope to claw back in 2021 to offset the non-existent matchday revenue in 2021.
Summary
Arsenal is likely to see revenue decline further in 2021 following a close to full season without fans.
The influx of its deferred broadcast revenue and return of some other revenue to pre-COVID-19 levels will offset some of this to ensure the club remain above the £300m revenue mark.
A return to the UEFA Champions League (UCL) will be key to any significant revenue rises going forward.
Operating costs
Overview
Despite declining revenue, Arsenal saw minimal cost reductions, with costs falling by £5m to £332m (2%) as much of Arsenal’s cost base was already fixed for the season.
Arsenal did state that they saved £19m on costs in 2020 due to COVID-19, driven by much-publicised temporary wage cuts agreed with its players.
Wages
Wages remained flat at £235m, with wages in fact due to rise without the costs savings mentioned above following new signings in the 2019 summer transfer window.
Falling revenue however saw the wages to revenue ratio deteriorate from 60% to 69%, still slightly below the maximum level (70%) UEFA see as being financial sustainable.
Included in this total was £10m of compensation to Emery and his backroom staff following his sacking. With these costs not being present in 2021, Arsenal may see any wages rise from new signings absorbed to a large extent by this.
Other costs
Arsenal’s other operating costs declined by 7% to £81m, with the club making savings during COVID-19 in areas such as matchday.
Non-player depreciation and amortisation increased by 7% to £17m following further capital expenditure.
Summary
Arsenal like many other clubs were unable to substantially offset revenue declines with cost reductions, hurting profitability.
The club has continued to spend and will therefore struggle for profitability in the next few years unless significant rises in revenue are generated in the coming years through improved sporting performance and/or player sales, with Arsenal perhaps needing to alternatively focus more aggressively on cost cutting which may hamper its squad’s competitiveness.
Transfers
Overview
Arsenal spent significantly in 2020, breaking its club-record transfer fee to sign Pepe for £72m, also spending significant sums on Saliba (£27m), Tierney (£24.3m), David Luiz (£7.8m), Mari (£7.2m loan fee) and Martinelli (£6m) for a combined £144m.
Leaving the emirates stadium were Iwobi (£27m), Bielik (£7.4m), Koscielny (£4.5m), Ospina (£3.2m), Mkhitaryan (£2.8m loan fee), Jenkinson (£2.0m), Asano (£0.9m) and Monreal (£0.2m) for a combined £48m.
This led to a significant net transfer spend of £96m which unfortunately for the Gunners did not lead to any meaningful sporting improvements in the league, ultimately costing Emery his job.
Amortisation
Arsenal incurred £113m in player amortisation charges, an increase of 25% following increased player investment, which is likely to increase further in 2021 following further investment.
Profit on player sales
Arsenal generated greater player sales in 2020 of £60m which helped offset some of its loss revenue. This was primarily driven by the sale of Iwobi but supplemented by the deals above and activation of some performance related bonuses not disclosed by the club.
Emi Martinez was the only major outgoing in 2021 and therefore this will impact profitability with profit on player sales likely to be reduced.
Transfer debtors / creditors
Arsenal has decided to aggressively spread the payments of its transfer fees over several years which has seen the amount it owes in transfer fees increase to £154m in 2020, with the club only owed £47m in comparison meaning it owes £107m net in transfer fees.
Despite this appearing a significant number, Arsenal have continued to spend suggesting confidence in their ability to meet these payments.
The recovery of this investment will either be driven by future player sales or revenue increases. This strategy could pay off handsomely should performances improve; however, the clock is ticking.
Profitability
Overview
Arsenal has always been synonymous with financial stability in the Wenger era. This has changed recently with the profitability of the club adversely impacted by its lack of UCL participation. A return to Europe’s top table will be key to returning to profitability in the coming years.
Operating profit / loss before player trading
The Gunners narrowly recorded a profit before player trading of £9.4m, however this was 83% down from 2019 as the revenue losses caused by COVID-19 were felt.
Operating profit / loss after player trading
Operating losses after player trading doubled. This was largely driven by the operating performance of the club with the increase in profit on player sales (£48m) more than offsetting rises in player amortisation (£22m).
Profit / loss before tax
Arsenal incurred losses before tax for the second successive season, increasing from £32m to £54m (68%) as the club struggled, like many others through COVID-19.
Arsenal will need to either focus on revenue generation, cost reduction, or both to return to profitability in the near future.
Assets / Liabilities
Overview
Arsenal is an asset rich club with net assets of £345m in 2020, down from £393m in 2019. The club clearly felt the pinch of COVID-19 as cash reserves fell by £57m and net debt levels rose.
Cash flow
Cash levels fell by £57m to £110m as the club saw lower cash inflows from its operations (£30m to £19m), saw net cash outflows on transfers (£58m) and capital expenditure (£13m), while £15m of new debt from Stan Kroenke was swallowed by interest and repayments of debt of £20m.
Transfer spending was at a similar level to the previous year but is likely to increase due to the level of transfer debt the club currently holds and lower sales in 2021.
Debt
Debt levels remained relatively similar to 2019. External third-party debt declined £6.1m to £203m while Stan Kroenke injected £15m of new funding.
Post year-end, Arsenal refinanced its debt through Stan Kroenke and accessed government COVID-19 support to take out a £120m loan that it must repay in 12 months and therefore is a relatively short-term measure to get the club through the pandemic.
Net debt
Due mainly to lower cash reserves, net debt levels more than doubled from £42m to £108m as Arsenal looked to manage its finances through these tough times.
Conclusion
Arsenal is a club that have been at a crossroads in recent times. The club’s fall from Europe’s top table and subsequent declining performance means the club seem further from the top than ever before, both on the pitch and financially. Arteta has been backed and the outcome on the pitch in the next couple of years with this young squad will be key to the club challenging again. Should it fail to realise any significant sporting or financial returns on their investments, the road back to the top four and beyond may slip even further away.
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