The Economics Behind Arsenal's Grand Plan for Global Domination

James McNicholas@@jamesmcnicholasFeatured ColumnistSeptember 6, 2013

LONDON, ENGLAND - SEPTEMBER 28:  Arsene Wenger manager of Arsenal (R) and Ivan Gazidis, CEO of Arsenal (L) look on prior to the UEFA Champions League Group F match between Arsenal and Olympiacos at the Emirates Stadium on September 28, 2011 in London, England.  (Photo by Clive Rose/Getty Images)
Clive Rose/Getty Images

What does success really mean for a football club? In the case of Arsenal, it's difficult to define the parameters.

Away from the pitch, Arsenal have flourished. The move to the Emirates Stadium has had a huge impact on the clubs economics. In 2011/12 (the last season for which we have access to complete financial figures for every club), Arsenal turned over a staggering £235 million. That’s the third-highest figure in England, and, according to football finance blogger Swiss Ramble, it could rise to £300 million by the end of this season.

Arsenal’s profits are impressive too. In 2011/12 they recorded the highest profit before tax of any Premier League club (£37 million). That’s no anomaly, either: the last five years have seen the Gunners rake in an incredible £190 million in profit. While other football clubs financially implode around them, Arsenal have not made a loss since 2002.

Unfortunately, it’s almost as long since Arsenal won a major trophy.

It is now more than eight years since a Patrick Vieira penalty kick allowed them to beat Manchester United to win the FA Cup.

From where we stand today, that looks like the distant past. Vieira is now a football executive at Manchester City, and United have gone on to claim a whole host of trophies, including a second Champions League win.

In the meantime, Arsenal’s bank balance has swelled, but the trophy cabinet has gathered dust. Arsene Wenger would doubtless point to his extraordinary record of consistently finishing inside the Premier League’s hallowed top four, but that simply isn’t enough to satisfy a generation of Arsenal fans raised on a diet of champagne football and significant trophies.

The truth is that Arsenal have undergone a decade of considerable sacrifice. The strong financial footing they now hold is a consequence of careful management and strict budgeting. The move to the Emirates Stadium has brought an enormous increase in revenue but also incurred huge medium-term costs. 

Arsenal have had to cut their cloth accordingly. Decade-long deals were agreed in 2004 for both kit and shirt sponsorships, which, given the benefit of hindsight, have offered diminishing market value. Loan repayments have had to be met, and the squeeze has been felt on the field. Arsenal have been unable to meet the wage demands of existing talent and forced to look for bargains when recruiting new players.

Inevitably, the side has suffered.

By remaining in the Champions League the club have clung on to another crucial revenue stream, but a true title challenge has been beyond them. Arsenal have managed to get by on the bare minimum.

That now seems to be changing. Arsene Wenger and chief executive Ivan Gazidis have both been very vocal about the club’s enormous ambition. In order for those ambitions to be realised, the financial power the Emirates Stadium clearly possesses must now be harnessed to influence events on the pitch.

Heading in to the summer the club had enormous cash reserves. Those have been built up significantly over the last five years. In 2007, Arsenal had a whopping £74 million in the bank. By 2012, that figure had more than doubled to £154 million.

To put that in perspective, Manchester United can currently call upon less than half that amount (just £71 million). It’s an astounding fact but Arsenal have almost as much cash in reserve as the rest of the Premier League clubs combined (£181 million).

Arsenal’s fiscal health has also been helped by a brand new £150 million naming rights deal with Emirates. The Daily Mail have also reported on the possibility of a new kit deal with Puma which would provide another shot in the arm for Arsenal’s ever-increasing financial strength.

Speaking to The Mirror earlier this year, Ivan Gazidis openly recognised that his primary responsibility is to use this new financial security to build an Arsenal team that can be just as successful on the field:

What we can do is develop a really solid financial platform for the club that gives us the ability to compete for top players – both top players that we bring in and top players that we want to keep.

We want to be able to invest in the team a little bit more now so we’ll have that capability by the summer.

Gazidis was true to his word.

The signing of Mesut Ozil seems to represent a pivotal point in the club’s history. When Arsenal’s board sat down to decide to move from Highbury to a new modern super-stadium, this is the sort of deal they envisaged being able to pull off. Ozil’s transfer was wrapped up over the weekend, but in truth it has been more than a decade in the making.

It’s an elite signing and one that helps establish Arsenal as a elite club. This kind of high-level transfer activity also brings with it other economic benefits: The Mirror report that in the two days immediately following Ozil’s arrival, sales of Arsenal replica shirts increased by 12 times their normal amount.

As well as signing new megastars, Arsenal should now be able to keep their best players too. In 2011/12, Arsenal took a £65 million profit from player sales. This year it will be closer to £10 million, raised by selling squad players Gervinho and Vito Mannone.

For the first time in years, Arsenal have not lost a key player this summer.

It’s not all rosy for the Gunners. Arsenal still have a significant gross debt to service. At the end of 2011/12, that figure stood at £253 million, with a required annual repayment of around £19 million.

There will be worries, too, over a rising wage bill. Since 2009 the cost of wages have grown by 38 percent to £143 million. Revenue, however, has increased by just five percent. The size of Arsenal’s salary costs probably goes some way to explaining the enormous clearout the playing staff has undergone this summer.

Despite these concerns, Arsenal are clearly in a strong position. The signing of Ozil represents the culmination of years of work. The parsimony is over, and Arsenal fans can once again dream of assembling a team to compete with the world’s best.

The advent of UEFA’s Financial Fair Play (FFP) regulations will only help matters further. Ivan Gazidis said of FFP, “football is moving powerfully in our direction.”

Under Gazidis’ guidance, Arsenal are moving powerfully in a positive direction.


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