Arsenal Financial AnalysisAndrew Grant

PRT 466April 27, 2017

Table of ContentsCompany Profile 3

Economic & Environmental Issues 4

Revenue & Expenditure Summary 5

Assets & Liabilities Summary 7

Financial Analysis 9

Appendices 12

References 15

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Company Profile

Company Overview:Arsenal Football Club was founded in 1886 when factory workers from the

Woolwich Arsenal Armament Factory formed a football team. The team was first known as the Royal Arsenal and wore their famous red kits when a group of players from Nottingham Forest joined the club and asked their former club for spare kits and Forest obliged. The club won its first major trophy, the Football Association (FA) Cup, in 1930 under manager Herbert Chapman. The same year they also won the Football League, completing it’s first double, where they won both the league and FA Cup. This season would be the beginning of Arsenal’s dominance in English football. Current manager, Frenchman, Arsene Wenger galvanized the club to new heights and has turned Arsenal into a European powerhouse. The 2003/2004 season, led by Patrick Vieira, Thierry Henry, and Dennis Bergkamp, was an especially special one due to the fact that the team did not lose a single game all year and was thus dubbed “The Invincibles.” Wenger moved the club to the lavish Emirates Stadium in 2006 in order to boost revenue and attract better players. Wenger has revolutionized the Arsenal and has brought consistent European football and silverware to the club. Overall, Arsenal has won 13 league titles, 12 FA Cups, 2 league cups, and 12 Community Shields showing their dominance throughout English football. They currently play in the English Premier League and are a regular staple in the Champions League.

The Arsenal are owned by the Arsenal Holdings PLC. American Stan Kroenke is the majority owner of the club, with Alisher Usmanov owning the other portion of the club. The Arsenal Way is something that has existed for many years and is something that is aimed at bringing the community of Arsenal supporters closer together however they may follow the Arsenal. Arsenal Football Club strives to do things the right way while offering a great level of football for fans to watch. This happens through their self-financing approach, the use of the youth program, and the Emirates Stadium.

Activities:The primary objectives of Arsenal Football Club are to provide top quality football

that fans can be proud of. This includes competition in the most competitive football league in the world, the English Premier League. Arsenal also takes part in the Champions League, which features the top teams in Europe such as Real Madrid and Bayern Munich. Arsenal also has its own foundation called, The Arsenal Foundation where they give back to the community through their time and monetary donations. The

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Arsenal provide a top level service through their highly competitive football matches as well as giving back to the local community through The Arsenal Foundation.

Economic and Environmental Issues

Arsenal Football Club is one of the richest clubs and was ranked the 5th richest club in the world by totalsportek.com in January 2017. This means that they have the cash funds to buy some of the best players in the world. Arsenal Football Club has a cash reserve of £226.5 million, which was revealed in October 2016 by an article by The Mirror. This number is inflated though according to director Chips Keswick who said that, “after excluding debt service reserves and amounts owed to other clubs on past transfers due to past transfers the balance reduces to £149 million” (The Mirror, 2016). This sum of cash combined is more than top clubs like FC Barcelona, Real Madrid, and Bayern Munich. The amount of cash available is an economic opportunity that the club has yet to tap in to where they could buy top players from around the world. The club’s massive cash reserve allows for them to attract top talent, as well as pay the salaries of the players they have now in order to keep them at the club. This is definitely an economic opportunity that the club can reach for in the near future.

An economic challenge for Arsenal Football Club would be keeping their current foreign players and attracting new foreign players. The effect that Britain’s European exit, or Brexit, will have on the Premier League as a whole has yet to be seen in full affect, but is definitely something that will affect the league in the near future. Players could see their salaries drop in the near future would could entice them to go to other leagues such as the Bundesliga in Germany and Seria A in Italy in order to earn more money. Arsenal manager, Arsene Wenger, was quoted on the issue saying, “The players are going to see their salaries drop a little bit and the competition with Germany, for example, is going to be stronger." (Bishara, 2016). This could led to the league becoming less attractive, and, “the league becomes less attractive the broadcasters will offer less money for the rights, club revenues will decrease, and the Premier League will suffer the consequences,” said Wenger (Bishara, 2016). The affect of Brexit could cause Arsenal to lose some of their top quality players

Another economic challenge for Arsenal Football Club is the current television deal that is in effect for the Premier League. The current deal with BT Sports and Sky Sports, which are both domestic channels that cover the Premier League, and NBC Sports in America is one of the international outlets that covers the Premier League. This is a three-tier deal, according to totalsportek.com. Under the first tier, each team earns £55.5 million, which comes from domestic and international television. The second tier is based

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on where clubs finish in the league, where the last place (20th) club earns £1.236 million, and the team that wins the league earns £24.7 million. The final tier is based on how many times a team appears on television. If a team has less than ten live matches they earn £8.75 million and £875,000 for each live match after that. Arsenal Football Club made a total of £100.8 million from the televisions deal, which was highest in the Premier League. This could possibly become an economic challenge for them though because they could become too reliant on this revenue stream and may over budget because of it. With a failing season the team may not be able to pay player salaries and may have to lose the top talent that they have at the club currently. This would provide an economic challenge that the club would have to account for in the future.

Revenue and Expenditure Summary

RevenuesIn the 2015 financial year Arsenal Football Club saw the majority of their revenue

come from television and broadcasting rights and gate/match day income. These two categories totaled £125 million (36%) and £100 million (29%) respectively. These two categories make up a total of 65% of the company’s revenue. These two categories make up the Premier League television deal, ticket sales, food and drink revenue, as well as matches being broadcast around the world. The other 35% of the revenue came from merchandising, property development, player trading, and sponsorships.

The table below shows each revenue stream as well as a pie chart the different percentages that each stream made up.

Television and Broadcasting Rights £125 million

Gate & Match Day Income £100 million

Commercial £79 million

Retail £25 million

Property Development £15 million

Player Trading £0.8 million

Expenses

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In the 2015 financial year Arsenal Football Club saw the majority of their expenses come from football costs wages as well as other football costs. These two categories totaled £192 (57%) million and £72 million (21%) respectively. Both of these categories totaled to be 78% of the club’s expenses. The other expenses that the club paid were related to amortization of the squad, depreciation, and property and loans.

The table below shows each revenue stream as well as a pie chart the different percentages that each stream made up.

Football Costs Wages £192 million

Football Costs Other £72 million

Amortization of Squad £55 million

Depreciation £15 million

Property and Loans £2 million

Television and Broadcasting

36%

Gate and Match Day Income29%

Commercial23%

Retail7%

Property Development4%

Player Trading<1%

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Assets and Liabilities Summary

AssetsArsenal Football Club saw their largest assets come from property, plant, and

equipment (PP&E) and cash and short-term investments. These two categories totaled £419 million (45%) and £228 (25%) million respectively. This means that 71% of the club’s assets came from these two categories. The remaining 29% was made up by: intangibles, receivables, inventory, and prepaid expenses. The club had a combined £919 million in assets, with £596.25 million being current assets.

Below is a table showing the breakdown of the assets as well as a pie chart that shows the different percentages.

Property, Plant & Equipment £419 millionCash and Short-term Investments £228 millionIntangibles £172 millionTotal Receivables £45 millionPrepaid Expenses £36 millionTotal Inventory & Other £19.25 million

Football Costs Wages57%

Football Costs Other21%

Amortization of Squad16%

Depreciation4%

Property and Loans1%

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LiabilitiesArsenal Football Club had the majority of its liabilities for the 2015 Financial

Year come from total debt and long term debt. These two categories totaled £215 million (36%) and £208 million (34%) meaning that 70% of the club’s liabilities related to debt in some sense. These two sub-categories will be group under current liabilities. The other 30% was made up of: accrued expenses, other current liabilities, and accounts payable.

Below there is a table depicting the breakdown of these liabilities and a pie chart to show the different percentages.

Current Liabilities £423 million

Accrued Expenses £194 million

Accounts Payable and Other £94.74 million

Other Current Liabilities £67 million

PP&E46%

Cash25%

Intangibles19%

Receivables5%

Prepaid Expenses4%

Inventory & Other2%

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Financial Analysis

This portion of the analysis will provide ratios of the organization’s current financial standing. These ratios will then be used to interpret how successful how the organization will be in the future.

Current RatioThe current ratio is a liquidity ratio that is used to determine an organization’s

ability to pay its current liabilities. It is found by dividing current assets by current liabilities. A ratio of over one indicates that a company is in a better position to pay off its current liabilities (Investopedia).

Current Assets Current Liabilities Current Ratio£323 million £275 1.17

The current ratio for Arsenal Football Club for the 2015 Financial Year is 1.17 which means that Arsenal is in a great position to pay off it’s current liabilities. The owners and board of directors have done a great job of saving money so that the organization does not have to worry about going into debt in order to pay its liabilities.

Debt to Equity Ratio

Current Liabilities54%

Accrued Expenses25%

Accounts Payable and Other12%

Other Current Liabilities9%

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The debt ratio is a ratio that is used in order to find a company’s financial control. This ratio depicts how much debt a company uses in order to finance its assets. Finding this ratio requires dividing a company’s liabilities by their stockholder’s equity, and it is often shown as a percentage. Having a high debt to equity ratio indicates that a company may be a risk in paying things off. (Investopedia).

Total Liabilities Stockholder’s Equity Debt Ratio

£594 million £325 million 182.7%

The debt to equity ratio for Arsenal Football Club is 1.827 or 182.7%. This shows that Arsenal Football Club is a liability when going to the back due to the fact that they have much more liability than they do stockholder’s equity. This could lead to them not getting a loan from the bank due to such high liabilities.

Assessment Overall, Arsenal Football Club seems to be in a steady financial state, and will

continue to prosper in the coming years. They have a high cash reserve that is more than some of the top teams in Europe combined which is an impressive feat. Financial stability in the English Premier League is highly dependent on media revenue as discussed earlier. This revenue is based on how successfully you are in the league; the higher you finish in the league table, the more money you will receive. Teams such as Arsenal and Manchester United receive much more television money than teams such as Swansea City and Crystal Palace. Of course if a “big club” such as Arsenal had a bad season and finished in the lower half then they would not receive as much money from the television deal. Fortunately for Arsenal they have such a large cash reserve they would be able to handle this downfall in revenue, and not be worried about having to selling players or restructuring contracts within the club in order to cope with this loss. The continual success in the English Premier League has allowed for the club to participate in the Champions League, which is an added monetary bonus. This added bonus is another reason as to why Arsenal Football Club will continue to be financially stable.

Brexit has had a profound impact on not just Arsenal Football Club but the English Premier League as a whole. It has caused a rise in the prices of players, which means that their weekly wages will be higher as well. Arsenal Football Club has a strict wage budget that it has had in place but this inflation in prices might cause to break it, in order to keep their top players like as Alexis Sanchez and Mesut Ozil. As mentioned earlier, they have a mass cash reserve, which will allow them to cope with this. Years of being financial conservative has led to them piling up this cash reserve. The move from

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Highbury to the Emirates Stadium has also allowed them to be financial stable, by allowing them to maximize ticket revenue.

Arsenal Football Club is well known for their financial stability throughout the footballing world, and this has ensured that the club will be able to successfully deal with any problem that may arise in the new future. They have plenty of money to buy players and keep up their training facilities. This has made Arsenal Football Club one of the most successful football clubs both on the pitch, in trophies won, and off the pitch, in their financial stability, with the large cash reserve that they have. Arsenal Football Club will continue to be financial stable for years to come based on past tendencies and their current financial situation.

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Appendices

Appendix AFiscal data as of May 31 2016 2016 2015

ASSETS

Cash And Short Term Investments 226 228

Total Receivables, Net 38 45

Total Inventory 16 14

Prepaid expenses 24 36

Other current assets, total -- --

Total current assets 305 323

Property, plant & equipment, net 421 419

Goodwill, net 0.67 1.08

Intangibles, net 146 172

Long term investments 4.98 4.17

Note receivable - long term -- --

Other long term assets -- --

Total assets 878 919

LIABILITIES

Accounts payable 11 7.62

Accrued expenses 177 194

Notes payable/short-term debt 0 0

Current portion long-term debt/capital leases 7.56 7.12

Other current liabilities, total 44 67

Total current liabilities 240 275

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Fiscal data as of May 31 2016 2016 2015

Total long term debt 201 208

Total debt 208 215

Deferred income tax 26 30

Minority interest -- --

Other liabilities, total 83 80

Total liabilities 549 594

SHAREHOLDERS EQUITY

Common stock 0.06 0.06

Additional paid-in capital 30 30

Retained earnings (accumulated deficit) 298 296

Treasury stock - common -- --

Unrealized gain (loss) -- --

Other equity, total 0 (1.09)

Total equity 328 325

Total liabilities & shareholders' equity 878 919

Total common shares outstanding 0.06 0.06

Treasury shares - common primary issue 0 0

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Appendix B

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ReferencesArsenal FC History. Retrieved April 26, 2017, from

http://www.arsenal.com/history

Arsenal FC. The Arsenal Foundation. Retrieved April 26, 2017, from http://www.arsenal.com/thearsenalfoundation

Arsenal have more cash than Barcelona, Real Madrid and Bayern Munich combinedStuart MacFarlane http://www.mirror.co.uk/sport/football/news/arsenal-more-cash-bank- barcelona- 8968436

Arsenal Holdings PLChttps://markets.ft.com/data/equities/tearsheet/financials?s=AFC%3AISD& subview=BalanceSheet

Can Premier League survive Brexit? Motez Bishara. http://edition.cnn.com/2016/07/19/football/brexit-effect- on-english-premier- league/

Conn, D. (2016, May 25). Premier League finances: the full club-by-club breakdown and verdict. Retrieved April 26, 2017, from https://www.theguardian.com/football/2016/may/25/premier-league-finances-club-by-club-breakdown-david-conn

Financial Analysis: Solvency Vs. Liquidity RatiosInvestopedia Staff - http://www.investopedia.com/articles/investing/100313/financial-analysis-solvency-vs-liquidity-ratios.asp

T. (2016, November 14). Premier League Prize Money 2016. Retrieved April 26, 2017, from http://www.totalsportek.com/football/premier-league-prize-money-table- 2015/

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