Friday Ramble: Profiting From Common Sense
Our second successive 6-1 victory at the Emirates was followed by the release of financial results for 2011-12, the highlight being that despite reduction in property income and an increase in the wage bill, the club posted pre-tax profits of £36m. You can read the full report, along with statements from Peter Hill-Wood and Ivan Gazidis here.
Of course the numbers relate to last season so the impact of Van Persie and Song’s exits and the arrival of our three new signings will only be seen in next year’s financials. The 2011-12 figures are boosted by the sale of Fabregas and Nasri which contributed significantly to the bottom line. In fact, as the following tweet from the esteemed Swiss Ramble indicates, Arsenal would have made a loss on £28m (£31m loss – £3m property income) but for these player sales.
#AFC 2012 results: excluding profit from player sales £65m and property profit of £3m, AFC actually made a loss of £31m before tax.—
Swiss Ramble (@SwissRamble) September 27, 2012
While I’m not well-placed to dissect the figures thoroughly and you should follow Swiss Ramble for a more detailed analysis, I do have a few observations of my own.
The first is that it goes some way towards explaining Arsenal’s proactivity in the transfer market this season. Last summer, we posted a profit of just under £15m but 85% of that was from property sales and it’s not clear when those were realised. With far stronger numbers behind him this year, Arsene Wenger was able to move quickly for Podolski, Giroud and Cazorla without having to wait for Robin van Persie’s sale. The numbers also suggest that Alex Song’s transfer to Barcelona was for footballing reasons rather than financial ones and the way Arsenal’s midfield have shaped up in early season matches backs up that view.
The second observation is that the wage bill has grown by £19m, a 15% increase from the year before. On the face of it, this seems high considering we lost two of our best players. But before jumping to conclusions and criticising our wage model, we should wait for other clubs to release their figures in order to draw a comparison. Nevertheless, it does point to the difficulty of retaining and recruiting top players. It also indicates that while the transfer fees paid for the likes of Arteta, Mertesacker and Co may not have been record-breaking, the wages of these professionals combined with better terms for younger players like Wilshere and Oxlade-Chamberlain have had a significant impact on expenses.
The third point is that Arsenal, like most other clubs, are finding it difficult to make an operating profit from football revenue alone. Player wages continue to spiral out of control and the Gunners are not in a position to challenge the likes of United, City and Chelsea for the signature of top players. As such, player sales have formed an integral part of the club’s strategy to remain profitable.
My final observation is on Arsenal’s commercial revenue, which still lags well behind other big clubs in the Premier League. This tweet points out the enormous the gap to Manchester United.
#AFC 2012 commercial revenue of £52m is less than half of Manchester United’s £118m.—
Swiss Ramble (@SwissRamble) September 27, 2012
While a few major deals are coming up for renewal at the end of 2013/14 season, AFC’s inability to capitalize on Arsenal’s global brand and Arsene Wenger’s personal appeal remains an area of weakness for the club. Some improvement has been made this year with a couple of new partners added but it’s not enough. With growth in gate receipts untenable and increase in TV income helping other clubs equally, Arsenal need to ramp up income from commercial deals to make up ground with the other clubs.
Going forward, commercial revenue should provide the biggest impetus for Arsenal in the near-term. A 13% increase is negligible when compared to how other clubs around Europe have been able to negotiate much more attractive deals. It’s an area where Arsenal need to shed their conservatism and adopt a more aggressive approach. As discussed previously, with income from football revenue not enough to return a profit, the inability to substantially improve revenue from commercial deals will mean Arsene Wenger will be forced to generate funds from player sales.
Overall, and for a sixth year running, Arsenal have posted a net profit. When you consider the challenges the club has encountered (loan repayment for stadium, grim property market, downturn in the economy, spiralling wages and unlimited resources of our opponents, among others) Arsenal Football Club’s resilience in producing positive results each year must be commended. The achievement of qualifying consistently for Champions League football should also be viewed in context of the club’s self-sustaining business model.
In his statement, Ivan Gazidis says:
We have faced criticism for sticking to our philosophy of living sustainably within our financial means rather than reaching out for a quick fix injection of money to solve all our supposed problems. But how much is enough to outspend others who have seemingly limitless means? We can and will forge our own path to success and avoid the many examples of clubs across Europe struggling for their very survival after chasing the dream and spending beyond their means.
It’s hard to argue with his view. While there are areas where the club can improve, the values that AFC continue to adhere to in the face of extreme pressure from within and without deserve to be recognised.
As fans, we look at the short-term success of other clubs and aspire for the same, which is quite natural. But as true fans, we should also take pride in the fact that the institution we love is run on principles which are committed to its long-term future. Personally, these values endear the Arsenal more to me than all the silver trophies in a cabinet.
Back tomorrow with the Chelsea preview. Until then.