The following statement from Arsenal's 2010 financial report gives a good picture of the current stadium debt. It also allows us to make a good projection of what the future is to be, what I call the New Era. (Scroll to page 20 of the report.)
Further significant falls in either gross or net debt are unlikely in the foreseeable future. The stadium finance bonds have a fixed repayment profile over the next 21 years and we currently expect to make repayments of the debt in accordance with that profile.
As of May of 2011, the stadium's net debt stood at £98 million, and if one were to project that it'd continue to fall as it had done in previous years, then one might surmise that it'd be paid off in the next six years at the current rate of about £15 million per annum.
But this doesn't seem as cleanly clear-cut. Fluctuations must be accounted for. What is sure, though, is what we find in the statement above, that the payments have reached a stable rate and are to be spread out over a long period: 21 years.
The club chairman, Peter Hill-Wood casts further light (scroll to page 2):
The Group’s only remaining debts are the long-term bonds which represent our “mortgage” on the Emirates Stadium and supporter-held debentures, which are also long‐term.
Expectation (and I had once thought so myself) that the remaining stadium debt will be paid off within the next few years to allow for the purchase of players from the freed-up income is mistaken.
As I noted in my five-part series on Robin van Persie, early payment of the debt doesn't seem profitable to Arsenal. This is said to carry a huge penalty, so that the most profitable route for Arsenal is this long-term payment plan, which should constitute manageable debt.
So, then, clearing away the remaining debt in one fell swoop isn't the way things are to go. But since the stadium debt has evidently been a huge constraining factor in Arsenal's ability to spend in the transfer market, are we then to continue in this manner? Is this to be status quo for the foreseeable future?
If so, then clearly this isn't going to be a new era at all, and this is both damning and very frustrating. For, surely, Arsenal should transit from their financially-constrained period to a period of consolidation, where the debt ceases to hamstring the club.
The other implication of this is that, as long as the debt continues to be a huge factor in Arsenal's finances, the actual operating income is incongruent with Arsenal's status as a rich club. This asset becomes, in actual fact, useless, except as it profits stakeholders, Stan Kroenke and Alisher Usmanov, that is.
If debt payment is to be steady and stretched across 21 years, then it should constitute a non-nuisance aspect of Arsenal's management. That is, it should, ideally, cease to impact on the club's ability to buy, pay and retain its players.
Anything besides this borders on the disastrous: a heavyweight who can't punch. A rich man who, in essence, is a poor man.
Failing this, the only thing that should balance this is when rival clubs start to operate relative budgets, operating essentially within appropriate means and not run up huge losses, such as has been the case at Chelsea, Manchester City, Barcelona and Real Madrid.
In other words, if things are to continue this way, Arsenal's only salvation must lie in the coming Financial Fair Play.
Else, Arsenal must drastically increase her commercial revenue to soften the effect of the annual £15 million that must be generated to service this debt.
(On the face of it, £15 million isn't that big in the life of a big company, but the reality is that football clubs are not anyone's definition of big and viable companies.)
The picture that emerges (unless, of course, things are to be different) is that the annual £15 million is a huge millstone around Arsenal's neck; one that must surely sink her, insofar as transfers and trophies are concerned.
Despite this, though, financial analysts continue to insist that Arsenal's stadium loan represents a savvy business operation, one that is unlikely to be matched by any club.
Let's take a different look at Arsenal's financial situation.
The Stadium is both a blessing and a curse. Photo courtesy of Arsenal.com.
The club has made £389 million from operating activities in the last six years. This is net profit. What, then, has the club done with this much money? This is an average of £64 million per each of these six years, money that presumably could have been used to bring in more and better players.
We should note that net profit means that players' wages and purchases of new ones in each of these years have been accounted for. So we cannot hide behind the wages argument. Although, of course, the net profit of each year is before the purchase of any set of players for that year.
The total given here nevertheless takes that into account, so that this is truly net profit, over and above expenses including the purchase of new players.
This money represents "free" money, unaffected by any outstanding expenses, or so it seems.
The Swiss Ramble, the much respected blogger on football finances, explains:
[I]t’s all about the new stadium, property and other infrastructure (e.g. the new medical centre at London Colney) with £180 million going on capital expenditure and £111 million on loan interest. Since these loans peaked in 2008, another £156 million (net) has been used to repay debt. And of course the cash balances continue to rise…
In other words, the board hasn't diverted the money into its own pockets as some disgruntled fans insinuate. (Even the Rambler notes that this hasn't been the case at all at Arsenal in the last forty years.)
No matter how you look at it (I have done so myself and Swiss Ramble is far better at this, finance being his area of expertise), the Arsenal board has done amazing business with the club's finances.
It is the reason even a rival club with the gravitas of Liverpool has come to Arsenal to study their model with an eye of replicating the club's success with its own finances. UEFA's own financial people have come to Arsenal to look at the model, part of the preparations to impose the Financial Fair Play rule.
Although the above explanation accounts for where the money has gone, there's one thing to consider, and it comes by way of a much-maligned statement by Peter Hill-Wood earlier this year when things looked as though Arsenal would miss out of next season's Champions League football.
Speaking to Daily Star, he had said, "From a financial point of view, not qualifying for the Champions League is quite a blow." But, he continued. "We have been planning for not qualifying every year, so it is not a disaster, but it would be nice if we could.”
But how would this be possible?
Cash reserve is the answer, which, presumably, Arsenal should have, as any viable company should. Whether Arsenal do have a reserve (and there are conflicting statements) or not is beside the point.
This man's constraints haven't really been appreciated by a lot of fans. Getty Images.
What I'm trying to point out is that the availability of money isn't tantamount to spending all of it.
For example, there may be a reported £50 million of "surplus" cash. This, though, doesn't mean that the club should blow all of it on players.
Some of it should be spent, surely, but all would be more than foolish—the reason clubs like Rangers FC, Portsmouth and Leeds United, and even the newly-resurgent West Ham United ran into financial trouble.
There is a possibility that as financially viable as Arsenal’s structure is, even this teeters precariously on the edge of disaster if imprudence and underachievement creep into the picture.
At the height of the panic that overtook the club—due the team's disastrous beginning to the 2011-12 season—the Arsenal Supporters Trust had bellowed that the likely scenario of Arsenal missing out of Champions League football, would represent (according to them) a loss of £45 million in income.
This meant that Arsenal would not be able to meet the FFP financial demand that requires that every club breaks financially even in the coming season, since this loss of income would mean Arsenal would operate at a loss.
This isn't quite so (and Swiss Ramble provides a good analysis of this: scroll to question 2). But the point is that the club must always be prepared for shortfalls in income, say, from a non-qualification to the Champions League. This, again, means it isn't advisable to squander every penny you earn.
I should like to touch on Arsenal's developing image as a selling club.
I have noted in several places in the past that Arsenal are vastly out-boxed by the top rich clubs when it comes to commercial revenue.
I have said that Manchester United, for example, earn about a £100 million more than Arsenal, which (but for their Glazer debt situation), gives them a huge advantage over Arsenal in the area of transfer purchases.
Here's what Swiss Ramble says about this. (Find this under question one.)
The Spanish giants, Real Madrid and Barcelona, generate around £200 million more than Arsenal at £433 million and £407 million respectively. Similarly, Manchester United earn over £100 million more with £331 million, while Bayern Munich’s revenue of £290 million is a handy £60 million higher.
It’s difficult to compete with these clubs with such a financial disadvantage, especially if you consider that they receive the benefit of that substantial additional revenue every single season.
What is more damning is the fact that Arsenal have practically flat-lined when it comes to commercial revenue, while clubs with relative less success in the past seven years—clubs such as Liverpool and Tottenham Hotspur—have increased their commercial revenue
Hear it from the Rambler:
The reality is that Arsenal’s revenue has been essentially flat over the last three seasons at around £225 million, while other clubs continue to grow their business. In that period, Manchester United, Tottenham and Manchester City have all added more than £50 million income, while Chelsea have also earned an additional £19 million. Of the top six, the only club to have under-performed like Arsenal is Liverpool – and even they have actually delivered impressive commercial gains to compensate for the loss of Champions League football.
This fact is the reason (as I noted in my Messi article) Arsenal are putting greater emphasis on income generation outside the three major areas that have yielded the club's revenue in the past few years: the sale of the Highbury properties, broadcast earnings and match-day revenue.
Aside from this, it has been necessary for Arsenal to sell players in order to make up for the huge shortfall in revenue relative to her competitors. Sales such as those of Thierry Henry, Nicolas Anelka, Patrick Vieira and Marc Overmars have made a great deal of sense.
In the case of Henry and Vieira, they were sold at the point of their depreciation. They never recreated their Arsenal form at their subsequent clubs, and they yielded handsome profit for Arsenal. In the case of Anelka and Overmars, it was a savvy business move that yielded huge profit for the club.
Here's an example from Alex Fynn and Kevin Whitcher of how such sales have contributed to the club's development and its overall appreciation in value. (See p. 78 of their Arsènal.)
[Wenger's] sense of timing of when to release a star has usually been spot on. Although he would not have chosen to sell Anelka, to secure Thierry Henry as a replacement for less than a third of fee received from Real Madrid was a masterstroke (and the remainder underwrote construction of the sumptuous new training center at London Colney, jokingly referred to as the 'Nicolas Anelka Training Ground' by Bob Wilson)
Anelka fetched huge profit for Arsenal. Getty Images.
A point to note from this is that the sale of players is a normal part of clubs' business operation. Manchester United, for example, sold Cristiano Ronaldo in his prime, earning huge revenue as a result. AC Milan, to take a recent example, have just sold two of their best players for a handsome reward.
Had Manchester so desired last year, they could have sold Wayne Rooney and earned huge revenue as a result. But therein lies the meat of the matter: choice.
Inasmuch as choice factors in all this, it isn’t accurate (or fair) to say that Arsenal are a selling club, insofar as this implies players' exodus.
A number of players listed as evidence of this constitute specious proof. Arsenal chose to sell Henry, Vieira, and Overmars, to name only a few examples. So I fail to see how this constitutes exodus.
The only accurate examples are Ashley Cole (and not even Kolo Toure), Emmanuel Adebayor, Samir Nasri, Gaël Clichy (but even here nobody minded that much), Cesc Fabregas and now the Robin van Persie situation (if indeed he moves).
But even here, why this became a problem (when it did) is lack of replacement for the departing player or players. When this is done (and this has been done in the past), I fail to see how it becomes a problem, or how this it is different from the normal business of buying and selling players.
In all these cases, Fabregas exempted, money had a great deal to do with the situation, and this admits the Manchester City and Chelsea factors.
Mikel Arteta has turned out to be a savvy buy, for me a good replacement for Fabregas. Getty Images.
The Way Forward
How do you compete with seemingly unlimited funds when you don't have such funds yourself? Do you bankrupt yourself simply to match your rich neighbor pound-for-pound?
In the real world, this would be deemed foolish by all sane persons.
But football doesn't seem to be the real world. Fans and the media are intent on treating it like the fictional world of art: Arsenal should simply spend.
Here, anything is possible, Vampires have "normal" relations with normal men and women; heroes shoot their way out of every jam unharmed, hitting every mark but miraculously avoiding getting hit themselves; dragons are pets of humans; CSI manages to solve every crime it tackles.
For some fans, football should be a fictional world: Manchester City squanders a billion pounds in two years on players? Well...you should do the same. Why, borrow the money, stupid!
Rangers collapse? Who cares? Just borrow the money. If we collapse someone will bail us out. You see there's always a “someone” out there. Why, we have Usmanov.
Our envy of these people should be tempered. Getty Images.
How exactly in all of this is Podolski the New Era? What do I think Alisher Usmanov's role should be in this? Will Financial Fair Play really help Arsenal? Do I think Van Persie should be sold or forced to stay?
These and more I will address in Part 3. Meanwhile, please let me hear what you think