Arsenal Financial Analysis via Deloitte

So the Deloitte Football Money League report for the 2012/2013 season is out!!!!!!!!!!!

 

Don’t share my excitement? Must be only us geeks think it’s cool. Don’t blame you.

But this geek stepped it up and went back and got them all – back 10 years to the 2003/2004 season. I’m going to show you what a new stadium can do for you. I’m also going to have a moan about the lackluster performance of the Arsenal management team, specifically around commercial revenue.

First things first – the new report. Arsenal fell two spots to 8th globally, leapfrogged by oil rich PSG and Manchester City. Now given their riches perhaps that shouldn’t be surprising, but I think you will see there is more to it. Not just their rise, but our…… well, sloth-like upward movement.

Deloitte present revenue in terms of Match Day, Broadcast, and Commercial. I’m going to present Match Day for the good news and Commercial for the bad. Broadcast is dependent upon league negotiations and performance on the pitch (participation in, and a late run in the Champions League, will bump the number). We’ve been rather consistent in that respect so I left those graphs out (there are too many already, even for a self-aware geek).

The good news: The new stadium really has done what was promised. Match Day revenues (the thick red line) have kept us somewhat competitive. We leaped over Chelsea and increased our advantage over Liverpool (the Man City gap is because they didn’t make Deloitte’s top 20 that season). We almost came up to Manchester United heights, and with their seating capacity that is damn good. And yes, high ticket prices have something to do with that – whatever you think of them. More later.

Chelsea and Man City don’t necessarily need more Match Day revenue – FFP rules are flawed and they can game the system. Liverpool on the other hand need it, and aren’t going to get it without changes to the stadium or pricing. Arsenal did extremely well here.

Now I said ‘somewhat competitive’ above, and that’s because I’ve been highly critical of the ‘financial constraints’ excuse of the past. We could have been more competitive and nothing was stopping us but ourselves – scared of debt’s shadow (previous article here if interested – The Financial Constraints Fallacy).

There is also some good news on the Commercial revenue front. We just announced a deal with Puma that is a big jump from previous, we’ve been adding more commercial partners, and the shirt naming rights are coming up for renewal soon as well. …This is all tempered by the following though:

  • The Puma deal, while good, is certainly not great. Moh (@ArsenalMoh8) wrote about it rather completely here – The Puma Deal – A Comparative Analysis. The former deal was so poor, the Puma deal looks great on the surface – but as Moh points out, its the kind of deal you get simply by showing up for the meeting. This was no master stroke, it is nothing more than market value.
  • Yes, we’re adding commercial partners. But we pale in comparison to the increase of others.
  • The Emirates contract extension was also a poor move in my opinion. A temporary small shot in the arm, but left far too much on the table given the state of such commercial deals recently. We let them off easy and it is reflected in the rather stagnant performance overall.

I should not have labelled it a ‘small’ shot in the arm, its a respectable deal. However, all the people touting the Emirates deal as the biggest ever… well, must be qualifying that as the biggest ever… for Arsenal. First of all its not the biggest deal – Manchester City have that title with Etihad. Second, people seem to miss the point that it includes stadium naming rights for an additional 7 years. So it also falls short of Manchester United’s deal with Chevrolet. I simply do not understand how people think its the biggest deal ever – misled by Arsenal press releases I suppose. If you read the press release again it says ‘one’ of the biggest deals ever – which could mean any damn thing. If it was 3rd best in the BPL at the time, what will it be come 2015? Which brings us to:

This deal was negotiated in 2012, two years before the current deal was to expire.
1) To who’s advantage was that? Emirates. Of course they were willing to sign a deal then, they know its worth MUCH more later. Which leads me to…
2) With the growth in commercial deal value, why would Arsenal negotiate a deal in 2012 for money to be gained in 2014? It will not be worth as much later. Why the hurry, why the rush? Any negotiator will tell you, its music to their ears to hear the other party has a deadline or is in a hurry. Arsenal showed their cards before the dealer even dealt.

Anyway, the current numbers. Here are the commercial revenue numbers for the BPL big boys:

Its easy to see here – the significant rise by several top clubs, compared to the ho-hum rise by Arsenal. Complain all you want about Manchester City and the Etihad deal, but I’m looking at Liverpool – we should certainly be capable of staying with them, and we haven’t. ‘Asleep at the wheel’ may be the nice way of putting it – further thoughts require a censor for my potty mouth.

The potential Puma impact? Sure would look good, yes – would bring us level with Chelsea it seems. But that also depends upon others not growing as well, and looking at this trend that seems unlikely. We may catch up to their 2012/2013 numbers, but still likely lag behind when 2013/2014 is revealed. Again, good… but not great. And we should expect great.

We want to compete with the best right? Even globally. Well here is commercial revenue with a few of the global Goliaths:

Again, stark rises in commercial revenue in recent years by everyone……. except Arsenal. I think the management team at Arsenal have a lot to answer for.

Overall revenue growth for most teams is coming from commercial deals. Ticket prices don’t increase enough year over year to account for much growth (except for Bayern, who gained full ownership of their stadium, which is reflected in their jump in 2007/2008). Broadcast revenue may fluctuate based upon team performance, but for the top teams that doesn’t move a lot unless the entire league renegotiates a deal (a BPL uptick should be seen in next years data for instance). But commercial deals – they are the stuff of legend in football management (well, a new stadium is too to be fair). And Arsenal are not writing any legends of late. After the stadium boost we’ve gone dark, rested on our laurels. Here are the overall numbers (match day + broadcast + commercial) for the global big boys that reflects this – we were trending with them, then fell behind:

Not to paint a completely dark picture though, things are solid and looking up. Arsenal are in a strong financial position and performing well overall (commercial revenue being the only black eye). New contract opportunities are going to provide a bump. But aim higher I say! Bring in new partners, get creative – as others have.  We’re lagging our competition.

The cynical and provocative question, however, is this: Are Arsenal making up for their commercial shortcomings on the backs of fans (match day revenue)?

Ivan?

You there, …or asleep at the wheel?

(Ya, that was mean, but I’m on my third scotch and pour a heavy glass)

 

@GolfinGooner

 

One Response to “Arsenal Financial Analysis via Deloitte

  • Kiran Prem
    2 years ago

    @GolfinGooner
    My name is Kiran Prem and I am currently in the process of writing up and academic research paper for my masters degree. It is about: How as a business organization, Arsenal have managed to stay out of debt despite switching stadiums to bigger and better facility, from the period 2003/4 to 2008/9 and talk a bit about the present state as well. I wish to talk about the strategies adopted and the finances involved. Any input or guidance you can give me on this topic will be truly appreciated. Thank you for your time and I am eagerly looking forward to your reply.

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