The Athletic has appointed Chris Weatherspoon as its inaugural dedicated football finance writer. Chris, a chartered accountant, will leverage his expertise as The BookKeeper to delve into the financial aspects of the sport. He will commence his analysis this week by evaluating the financial health of several prominent Premier League clubs.
Find out more about Chris, share your ideas with him, and read his first two articles examining the finances of Manchester United and Manchester City.
Arsenal’s resurgence in English football has been a long-awaited milestone. It has been two decades since they last lifted the Premier League trophy — few would have anticipated that the legendary ‘Invincibles’ squad of 2003-04 would mark the end of Arsene Wenger’s league victories.
However, football — particularly in England — has undergone substantial transformation since the days of Thierry Henry, Dennis Bergkamp, and Robert Pires.
Financially, Arsenal has contended with the seemingly limitless resources of Chelsea and Manchester City, rivals whose dominance has often been bolstered by signing key players from Wenger’s arsenal.
The financial influx at those clubs sharply contrasted Arsenal’s ongoing commitment to sustainability, which naturally affected their performance on the field.
Another external factor that constrained Arsenal’s growth was their transition from Highbury to a modern stadium in the early 2000s. This change inevitably brought significant financial burdens that hindered their ability to compete for titles, especially as rival clubs benefitted from oligarchic and state wealth simultaneously.
While the Emirates Stadium stands as one of the finest in the country, the initial construction costs loomed large for years, allowing other clubs the opportunity to surge ahead. Between 2005 and 2022, Arsenal secured just one second-place league finish, with Wenger’s departure at the end of the 2017-18 season marked by fan unrest.
Nearly twenty years after the Emirates opened its doors, Arsenal has undergone a transformation.
Guided by manager Mikel Arteta, the club has moved from finishing between fifth and eighth place to genuinely contending for the title. They narrowly missed out in the previous two seasons to one of the finest club teams in football.
As improvements on the pitch have paralleled off-field growth, Arsenal ranked seventh in football revenue last season, a leap of four places from three years prior, marking their highest position since 2017. With new sponsorships signed and Champions League revenue being reintegrated, their income is set to rise further this season.
Arsenal are now regular loss-makers – so what’s their PSR position?
In spite of this positive news, Arsenal’s recent financial accounts reported another loss, with a pre-tax deficit of £17.7 million ($23 million) last season.
Like many Premier League clubs, Arsenal’s financial results negatively impacted due to the Covid-19 pandemic in 2020. However, the losses began before that. After 16 consecutive profitable years, they have now recorded six consecutive annual pre-tax losses, totaling £328.7 million in that span and nearly erasing the £385.0 million surplus from the prior 16 years.
The pandemic certainly influenced results, especially with a club-record loss of £127.2 million in 2021, yet the past six years correlate directly with Kroenke Sports & Entertainment (KSE) taking full control of the club. Arsenal transitioned from public ownership to a private entity in October 2018. Since KSE’s exclusive control, the club has made considerable investments in the squad, and last season saw substantial revenue growth.
Should the recurring losses raise alarms? Are the Kroenkes financially uninformed? Probably not. Rather, after years of restraint, KSE has allowed investments to align the club with Europe’s football elite.
However, bring up ‘pre-tax losses’ in current football discussions, and the talk often swiftly turns to profit and sustainability rules (PSR).
Given Arsenal’s six-year streak of losses, PSR concerns loom for both their owners and fans, but there’s nothing to be unduly alarmed about — as they cannot claim losses as high as they might otherwise like.
Owners can inject ‘secure funding’ (often through share issues) to expand their club’s PSR loss ceiling, up to a maximum of £105 million over a three-year period. However, most of KSE’s contributions have come via loans, which don’t qualify as secure funding — apart from a £5.4 million capital contribution in 2023. As a result, Arsenal’s allowable PSR losses over the past three seasons stand at £20.4 million — the minimum of £15 million applicable to all clubs, plus that capital injection. Yet, for the period of PSR from 2021 to 2024, we estimate Arsenal to have recorded a PSR profit of approximately £28 million — comfortably avoiding a breach by £48 million.
Looking into the current season, The Athletic estimates Arsenal could potentially lose up to £97 million while still adhering to the Premier League’s PSR guidelines. However, that situation appears unlikely, and it’s noteworthy that they are also subject to UEFA’s financial regulations. UEFA limits squad expenditure, and based on player wages representing 70% of the total wage bill, Arsenal operated at around 60% last season against a cap of 90%. UEFA’s loss thresholds are generally lower than those of the Premier League as well.
After expenses, we expect Arsenal to maintain compliance, although the club is diligently managing both current and future financial standings.
Soaring revenues reflect their on-pitch rise
Arsenal’s revenue growth last season can be described as substantial. While it’s common for the world’s top clubs to break revenue records, the magnitude of Arsenal’s improvement was striking: turnover reached £616.6 million in 2023-24, marking an increase of £150 million — nearly a third. Even with Champions League bonuses, this is a significant rise for a club that already ranked 10th in global football income.
Revenue surged across all main categories: matchday, broadcast, and commercial. Each income stream achieved new highs. Broadcast revenue was the highest at £262.3 million, with around 30% growth across the board.
At the Emirates Stadium, matchday revenue soared. With several nine-figure earnings during the season, last year’s matchday income of £131.7 million was a notable jump from £102.6 million in 2022-23.
This increase results from multiple factors.
Most notably, Arsenal hosted one more home game (25) last season compared to 2022-23, replacing four Europa League matches with five Champions League fixtures, allowing for premium pricing on a more prestigious competition. Additionally, Arsenal made adjustments to ticketing for 2023-24, reducing the number of matches covered under season tickets from 26 to 22 and raising general admission season ticket prices by an average of five percent.
The result was Arsenal’s highest single-season gate receipts by far, propelling them to second for matchday income in England, having trailed Tottenham Hotspur in the previous two seasons. Their matchday revenue was only £5.5 million behind Manchester United last year, marking significant progress compared to the over £30 million gap of the prior two seasons. Though the Emirates Stadium may have constrained the club for several years, the advantages of relocating there are becoming increasingly evident. Since its opening in 2006, Arsenal has amassed gate receipts exceeding £1.652 billion, quadrupling the initial £390 million construction cost.
While less dramatic, the rise in TV revenue is also critical. The difference between the Europa League and the Champions League is stark. Arsenal collected £80.4 million in broadcasting revenue from their journey to the Champions League quarter-finals last season, more than triple what they earned for reaching the prior round of the Europa League in 2022-23.
Perhaps most crucial is the increase in Arsenal’s commercial revenue.
Top clubs have increasingly relied on sponsorship and marketing agreements for revenue, and Arsenal’s £218.3 million in commercial income signifies a notable leap and a closer alignment with domestic rivals. While Arsenal may still rank lowest in commercial earnings among England’s ‘Big Six’, they’ve narrowed the gap significantly. Chelsea’s commercial revenue exceeded Arsenal’s by over £40 million in 2023; that gap has now shrunk to around £7 million.
The growth of commercial revenues was fueled by several deals: a kit supplier contract with Adidas worth £75 million per year, front-of-shirt sponsorship from Emirates (£40 million), naming rights for their training center from Sobha Realty (£15 million), and sleeve sponsorship from Visit Rwanda (£10 million).
Future growth appears assured as well.
The Emirates deal has been renewed to £60 million annually, effective this season, and the club anticipates improving sleeve sponsorship revenues once the Visit Rwanda agreement comes to an end this summer.
A rising wage bill — yet still at the lower end of the elite
Surprisingly, the recent uptick in on-pitch success has brightened the atmosphere within the Emirates. Generally, a club’s wage bill determines its on-pitch performance, yet Arsenal is defying that trend positively.
For years, Arsenal’s wages were around the £230 million mark, with only an £11.5 million increase from 2018 to 2023. This was, in part, due to lacking Champions League football and the resulting contractual bonuses. However, with the return to the elite competition in 2023-24, the wage bill surged by £93 million (40%), prompted by roster investments and renewed contracts for key players like Bukayo Saka and William Saliba.
Even so, this just brought them closer to their competitors. Wage expenditures at Manchester City and Chelsea have topped £400 million in recent seasons, while Liverpool (£387 million last season) is closing in on that mark. Although Arsenal’s salary costs surged to record highs, they still lag behind several clubs they’ve recently surpassed on the pitch.
Over the last two seasons, Arsenal, under Arteta, has significantly outperformed their wage expenditures. In 2022-23, they finished as runners-up despite having the sixth-highest wage bill in the Premier League. Last year, they managed a second-place finish again while possessing the fifth-highest payroll.
This narrative only partially captures their achievements.
Consider that throughout both seasons, Arteta’s squad presented the only substantial challenge to Manchester City’s domestic supremacy, particularly in the first year, with a wage structure far below that of the champions. During City’s treble-winning season, their wage bill exceeded Arsenal’s by £188 million. That disparity lessened last season as City’s staffing costs dropped while Arsenal’s escalated, though it remained £85 million.
Interestingly, in each of those years, Arsenal employed more administrative personnel than City, highlighting the stark difference in player compensation between the clubs.
From transfer misers to one of the biggest spenders
In recent years, Arsenal’s transfer market activities have intensified, underscoring their emergence from the shadows of stadium debt.
While net transfer spend is somewhat of a limited indicator, it’s significant that in six of Arsenal’s initial seven years at the Emirates, their net spend ranked among the lowest in the Premier League. In those circumstances, consistently qualifying for the Champions League was no small feat.
Since the 2018-19 season, once KSE took full ownership, Arsenal has adopted a clear strategic shift, committing a net £857.2 million on transfer spend, the second-highest in English football, trailing only Chelsea, and nearly tripling their net outlay from the preceding six years (£310.5 million). In gross terms, Arsenal has invested £991.7 million in the previous five years, surpassing both City (£970.3 million) and Manchester United (£918.3 million). Chelsea’s expenditure of £1.458 billion from 2019 to 2023 remains unmatched, but Arsenal, formerly frugal in transfers, has significantly increased their investment.
As of the end of May last year, Arsenal’s current squad was assembled for £882.4 million. This is a significant figure, yet when comparing with the league, it becomes clear why the club has needed to invest so heavily.
Despite a substantial recent transfer outlay, Arsenal’s squad ranks only fourth in terms of overall cost, with both Manchester clubs having invested over £1 billion on their squads as of their recent financial reports, while United’s costs exceeded that figure early in the current season.
Arsenal’s transfer investments have been considerable, but they are still playing catch-up.
Shareholder loans are low-interest and now top £300 million – but is that the whole story?
Recent months have witnessed increased scrutiny regarding shareholder loans, as Premier League clubs voted in November to standardize their treatment akin to other associated party transactions (APTs).
Clubs will now have to reflect shareholder loans at fair market value (FMV), implying that those that don’t comply might face upticks in interest expenses. This would not only affect a club’s net income but also influence their PSR evaluations.
Arsenal currently owes £324.1 million to KSE, with the owner providing another £61.9 million in cash loans last season.
On the surface, this would suggest Arsenal could face penalties under the adjusted APT regulations. However, Arsenal supported the changes, while Manchester City — lacking shareholder loans — voted against them. This discrepancy raises questions about the nuanced nature of these new regulations. The amendments state that only loans taken from owners post-November 22, 2024, are mandated to be recorded at FMV. Any funds borrowed prior to that date, although subject to potential FMV scrutiny, will not necessitate adjustments to club accounts.
Nevertheless, City’s ongoing legal disputes with the Premier League have led the club to seek validation to question those November amendments’ legality.
Future implications stemming from that situation remain uncertain, but presently, Arsenal’s outstanding £324.1 million to their owners won’t result in increased financial repercussions. Only new loans captured after the specified date require FMV accounting, thus significantly mitigating any potential financial strain linked to the PSR calculation.
If this situation seems concerning, consider the purpose behind the borrowing from KSE.
Many of those loans were established during the 2020-21 season but didn’t add new debt. Prior to that season, Arsenal had about £218 million in debt, predominantly tied to bonds from the Emirates Stadium construction. Those bonds were reliant on gate receipts, which were severely impacted by the pandemic. KSE intervened to refinance those debts, incurring a £32 million break cost (a fee for prematurely canceling the loans), leading to most of Arsenal’s debt now being owed to their owners.
Before restructuring those debts, KSE already had £15 million owed to them, and the total amount due increased from £201.6 million in 2021 to £324.1 million by last season. The additional £122.5 million has primarily financed squad enhancements, suggesting that Arsenal has achieved a competitive sporting benefit. However, this ignores the costs associated with KSE’s debt restructuring in 2021; the £32 million break cost far exceeds the interest the club would have accrued if the additional loans had been recorded at FMV, though this argument may diminish over time as shareholder loans persist.
Additionally, it’s noteworthy that KSE’s loans are not devoid of interest.
In the previous four financial years, Arsenal incurred interest expenses on ‘Other’ items (including the KSE loans), reaching £7.8 million last season. Based on the average loan balance across last season, this reflects an effective interest rate of 2.7%. Although this is not market rate, it does indicate there is no free ride.
What next?
Even with another annual loss, Arsenal’s latest accounts depict a club on an upward trajectory.
As revenues surge and losses decrease — all while the team becomes notably more competitive on the pitch — it’s evident that today’s Arsenal is quite different from the organization that KSE took full control of six and a half years ago.
The continued financial generosity of this era remains to be seen. KSE, similar to other Premier League owners with interests on both sides of the Atlantic, is undoubtedly keen to establish a sustainable financial footing. While the repayment of their £324 million loan seems unlikely in the near future, Arsenal’s recent transfer activities suggest a potential slowdown. They recorded a net spend of £21 million during summer, followed by a quiet winter transfer window.
Nonetheless, it’s improbable that they will refrain from investing in the squad for the next season. Given the arms race nature of football, it would be unwise for KSE and Arsenal to have spent substantially over the past five years only to halt investment. Despite their growth, the club has yet to secure top honors domestically or internationally, apart from the 2019-20 FA Cup, making any reduction in spending a counterproductive tactic, particularly as rivals would likely continue to invest.
Encouragingly, Arsenal’s day-to-day operational cash flow has surged recently, boosting the chances of maintaining competitiveness even if KSE opts to restrict its financial input. The club generated £176.1 million in operational cash flow in 2023-24, potentially setting a Premier League record for that season and surpassing figures from financially stable clubs like Tottenham (£131.2 million) and Manchester United (£121.2 million).
A significant portion of this cash flow stems from their return to the Champions League. Their forthcoming two-legged quarter-final against Real Madrid may not be considered enviable, but reaching the last eight is estimated to yield at least another €100 million (£84 million/$109 million) in prize revenue. Should they progress beyond the defending champions, they would earn an additional €15 million for a semi-final position, €18.5 million for reaching the final, and €6.5 million should they win.
Even if they exit at the hands of Madrid next month, this season is projected to be the most lucrative European campaign in Arsenal’s history. Their estimated prize earnings from UEFA competitions over the last two seasons, £164.4 million, is nearly equivalent to the total amassed over the prior six years combined (£165.8 million).
Arsenal supporters might question why the club didn’t secure vital attacking reinforcements during the winter transfer window.
This inquiry holds weight, given their significant prior investments. Perhaps the available options did not present a sound financial proposition. However, fans can anticipate greater expenditures from their club this summer.
(Top photos: Getty Images; design: Eamonn Dalton)
