Arsenal today announced record pre-tax profits of £56m and said that the property built as part of the move to the Emirates stadium, the Highbury Square development, is now debt free and making money for the club.
The healthy picture contrasts favourably with the situations at Liverpool and Manchester United, where the highly leveraged debt carried by both clubs has led to high interest payments and fan protests. But it may also increase pressure from Arsenal supporters on the manager Arsène Wenger to invest some of those proceeds in his squad and so increase the chances of winning a major trophy. The last one was the FA Cup in 2005.
The sale of 362 apartments at Highbury Square and the social housing at Queensland Road, developments that were part of the move to the Emirates, generated revenues of £156.9m and allowed Arsenal to repay in full the £129.6m in bank loans taken to fund the construction. The property sales helped increase turnover to a record £379.9m from £313.3m.
The results were also boosted by a net profit of £13.6m on player trading, including the sales of Kolo Touré and Emmanuel Adebayor to Manchester City.
Peter Hill-Wood, the chairman, paid tribute to Wenger's careful management of resources and commitment to bringing through young players, paying tribute to his ability to "extract value" by selling those "no longer central to his future plans". Wenger recently ended speculation about his future by signing a contract to stay until the end of the 2013–14 season.
The financial report pays tribute to Wenger's "excellent understanding of the club's business model and the finances available to him". The club's overall turnover from its football business was marginally down, owing to five fewer home cup matches, reduced income from merchandising and catering (put down to the recession and reduced number of matches) from £48.1m to £44m and an increase in the wage bill from £104m to £110.7m.
The financial report reveals that while that wage bill, at 50% of turnover, remains within the club's target range, it warned there "continues to be upward pressure on players' wage expectations" and warned of further rises to come in the next year.
The plan to partly fund the move to the Emirates through property sales was questioned by some at the height of the recession, but it has now paid off. There remain 85 units up for sale at Highbury Square, but they expect to move them on by the end of the next financial year, and there is another significant housing development that has yet to be built at Queensland Road, which will be constructed by a third party.
"The most pleasing aspect of these results is that the returns generated in the property business during the year, particularly at Highbury Square, have allowed us to repay £130m of bank loans and significantly reduce the group's overall net debt," said Hill-Wood. "We now have a debt-free property business which is accumulating surplus cash as further unit sales are made at Highbury Square and which has three further property assets to realise over the next few years."
The group's overall net debt has been reduced from £297.7m to £135.6m. That contrasts sharply with the £716m borrowed against Manchester United and their own stake in the club by the Glazers and the £237m owed by Liverpool to the Royal Bank of Scotland. Such is the interest on those loans that the Anfield managing director, Christian Purslow, admitted this week that servicing the debt absorbed most of Liverpool's cashflow and left little spare to invest in the squad.
While welcoming the results, fans' groups warned that Arsenal should start planning now for an era beyond the windfall provided by the property portfolio.
"They are very good figures but looking forward, Arsenal's football income only just covers its costs and shows why the future commercial income is so key," said a spokesman for the Arsenal Supporters' Trust. "As the property development comes to an end, it demonstrates the importance of improving commercial revenues and growing overseas."
Arsenal's commercial income is roughly half of Manchester United's, which has targeted overseas deals in recent years. The chief commercial officer Tom Fox has overseen a reorganisation of the department and will look to aggressively grow revenues.
The key period will be from 2014 onwards, when deals with Emirates and Nike are due for renewal. The huge overseas exposure of the Premier League has made sponsorship and commercial deals a key revenue stream.
Wenger has traditionally resisted pressure to take his team on pre-season tours to boost the club's profile but admitted at last week's shareholders meeting that he was likely to have to bow to pressure to do so. The chief executive Ivan Gazidis, who spent much of his career in the US, and Stan Kroenke, the US sports mogul who is the club's single largest shareholder, are both keen to grow the club's profile overseas. The club also recently signed a deal with the sports media group MP & Silva to develop broadcast and online products aimed at an international audience.
"There is no doubt that the areas of commercial activity and sponsorship provide the greatest opportunity for the club to generate significant incremental revenues in the medium to long term," said Gazidis.
He described last season as "something of a roller-coaster ride" on the pitch but said the club are well placed to succeed. "The competitive landscape makes it ever tougher to achieve success on the field and standing still is simply not, and never has been, an option for the club," he said. "It is important that we continue to develop a vibrant and robust business with sufficient revenues to sustain success. The group has made good progress over the last year and I am excited by the opportunities which we have in front of us."
Source: Owen Gibson, The Guardian on 24 Sep 10
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