Arsenal post £107 million loss due to Covid

If anyone’s interested,here is James Nicholas article on Arsenal financial losses.
Arsenal have posted their financial results for the year ended May 31, 2021. As expected, the club have recorded a huge loss — a total of £107.3 million after tax.

That is more than double their loss of £47.8 million for 2019-20. The results have been substantially impacted by the coronavirus pandemic, which forced the majority of matches in 2020-21 to be played behind closed doors.

The financial results are available here — but The Athletic has read through the club’s report, so you don’t have to. We’ve looked at key questions: how have the Kroenkes financially supported the club? Why have Arsenal raised ticket prices? What happens if there are financial ramifications to reneging on the European Super League? And what will the results look like next year?

Are these losses entirely down to the pandemic?

Undoubtedly a significant proportion is, yes. Arsenal played 31 home matches in 2020-21, but only two of them admitted any fans. The club consider as much as £85 million to be attributable to the impacts of COVID-19. This extends beyond the loss of match-day revenue. The club also incurred exceptional costs of £6.7 million in connection with “staff restructuring measures taken in response to COVID-19 impacts”.

Arsenal’s commercial revenue dropped from £142.3 million to £136.4 million, with the club citing “pandemic-related factors” as the key cause of the shortfall. Other clubs, such as Manchester United, experienced more dramatic losses in commercial terms. However, this did not happen across the board: in the same period, Manchester City’s commercial revenue rose from £246 million to a record £271 million.

Arsenal have also experienced a drop-off in revenue in the transfer market. In 2019-20, they turned a profit of £60.1 million through player sales. That figure has fallen to just £11.8 million (albeit it does not include the £25 million departure of Joe Willock to Newcastle, which took place later last summer). It’s the lowest amount Arsenal have recouped since 2017. Arguably, there is a case that this, too, is a consequence of the pandemic: with most clubs strapped for cash, it has not been a sellers’ market.

What other major expenses were there?

For starters, there’s the wage bill. Overall salary costs finished at £244.4 million — a rise of around £10 million — despite the cost-saving measures such as the player wage cut introduced in April 2020. It is worth noting these figures include the salaries of Mesut Ozil and Pierre-Emerick Aubameyang, both of whom have since left the club. Arsenal have sought to address their wage bill by recalibrating their salary structure, and expect a reduction in the results for 2021-22.

In July 2020, KSE restructured the debt Arsenal had incurred through building the Emirates Stadium. This meant paying several penalties to improve interest rates and to end Arsenal’s obligation to hold £36 million in a Bondholders’ debt service reserve account — essentially, it improved Arsenal’s cash flow. It did, however, incur exceptional costs of £32.2 million. Arsenal say that this decision to refinance, which many supporters felt was overdue, was also a direct consequence of the pandemic. They point out that “elements of the stadium finance bond arrangements were linked to gate revenues”.

So how much has KSE invested?

Arsenal’s statement is emphatic about the degree of financial reliance on KSE and Stan Kroenke: “Significant funding has been provided by the ultimate parent company, KSE UK Inc, which is wholly owned by the ultimate controlling party, Mr Kroenke. During the year, KSE UK Inc provided funds to refinance the stadium finance bonds and for working capital purposes as required. The financial challenge remains significant, but the club continues to have the unwavering support and commitment of its ownership, Kroenke Sports & Entertainment.”

In the full report, they seemingly go further: “The group is reliant on its ultimate parent undertaking, KSE UK Inc, for its continued financial support.”

The Kroenkes’ financial support to Arsenal has come in the form of loans. The upshot here is that KSE’s support has allowed Arsenal to drop their “external” debt from around £180 million to £16.3 million. Instead, they now have a £201.5 million debt to parent company KSE UK.

The interest rate on these loans remains private, although The Athletic has been told the terms are favourable to the club. The loan is repayable on two years’ notice, but as yet, no such notice has been received.

Arsenal fans protested against Kroenke following the club’s dalliance with the European Super League in April 2021 (Photo: Getty)
Any other interesting tidbits?

Yes. The cost of Arsenal’s proposed entry to — and attempted exit from — the European Super League have been passed on to KSE. Arsenal’s report notes that “the club was involved in certain proposals relating to a European Super League and the related costs associated with this project have been fully recharged to KSE UK Inc”.

The legal complexities of the Super League’s dissolution are still being unpicked. If Arsenal do pick up any penalty fees, KSE will foot the bill: “The group is monitoring certain ongoing matters relating to the closure of the European Super League project. If any additional costs arise as a consequence, these additional costs would be fully recharged to the parent entity, KSE UK Inc.”

Arsenal do not pay dividends to owners but it is interesting to note that the remuneration for directors doubled from £529,000 to £1.1 million. These higher fees reflect the increased involvement of board members Lord Harris and particularly Tim Lewis in the running of the club. As the report puts it: “Included in the above amounts are fees paid to Harris Ventures Limited in respect of services provided by Lord Harris of Peckham and fees paid to Clifford Chance LLP in respect of services provided by T J Lewis.”

Are these losses why ticket prices have gone up?

In part, yes. Arsenal’s match-day revenue suffered enormously in 2020-21 on account of the pandemic, dropping from £75 million to £3.8 million, as only two games were played with fans at the Emirates. Even that £75 million figure was a considerable drop from their pre-pandemic match-day revenue of £96.2 million, recorded in 2019.

Arsenal announced yesterday that ticket prices will rise by four per cent. The stadium-wide increase comes after holding their prices for seven consecutive seasons.

The Arsenal Supporters Trust (AST) has declared the price hike “unjustified at a time Arsenal’s overall revenues are increasing and fans are experiencing other pressures on their disposable income”. Certainly, the news will be unwelcome, especially at a point when energy bills and the general cost of living in the UK is on the rise.

The AST estimates that the four per cent increase will make Arsenal an extra £3.8 million in 2022-23. Such a figure is a relatively small proportion of Arsenal’s overall revenues. The Bank of England has warned that inflation could reach as high as seven per cent in 2022. Arsenal’s price increase is below that rate, but with other revenue streams such as broadcast rights so lucrative, did supporters really need to feel the pinch?

Arsenal’s case is that it’s not just about next year — even if the ticket price holds over the next five years, that could mean an extra £19 million in revenue. These are not insubstantial figures. Arsenal intend to invest in updating the Emirates, at a cost of millions. The club will be undertaking a major refurbishment of the roof, as well as introducing new big screens, turnstile readers to speed up entry, and renovating the exterior wraps outside the ground. This price increase will effectively contribute to that expense.

As of yet, it’s unclear how many other Premier League clubs will follow suit. Norwich have already announced a price rise — their first in nine years — of seven per cent. Leeds have announced plans to increase the price of their season tickets by as much as 10 per cent. This is after 11 seasons without a hike. Others clubs, such as Brighton, have declared a price freeze — but this comes after making several “minimal increases” in recent years.

So a season ticket is definitely more expensive next season?

Well, strangely enough, not necessarily. Arsenal did not play any home FA Cup ties this season, due to their third-round exit away at Nottingham Forest. That means season ticket holders will receive a “cup tie credit” rebate.

For most ticket holders, that will mean prices temporarily going down. By way of example, should Arsenal qualify for the Champions League next season, the £75.33 cup tie rebate means the price of the average season ticket will actually go down by £26.33 from £1,219 to £1,192.67.

Europa League qualification would see the average season ticket reduce by £31.33 and no European football at all would see a price drop of £35.33.

Corporate seats will almost certainly experience a rise. With the average “club level” seat currently coming in at as much as £3,689, the four per cent increase will ultimately surpass the cup rebate.

Any other news on the tickets front?

Arsenal have introduced a new discount of 25 per cent for season-ticket holders and match-by-match ticket purchasers between the ages of 19 and 21. The 57 per cent discount offered to Cannon members aged 17 and 18 has been extended to be functional beyond the family enclosure, and now applies to anywhere in general admission seating. Arsenal are also improving access for Junior Gunners to attend matches with adults.

The AST has applauded the new 25 per cent discount for 19-to-21-year-olds, something they have campaigned for over a protracted period. The presence of new fans in the ground has been partially credited with an improvement in the atmosphere at the Emirates, and these discounts should allow that process of rejuvenation to continue in the stands as well as on the pitch.

Will next year’s financial results be better?

Yes, next year’s accounts will look somewhat healthier. The return of match-day revenue is obviously a major boost, and the club have also been able to reduce their wage bill.

Nevertheless, Arsenal still expect to record a loss for a fourth consecutive year. This will be partly due to their significant expenditure in the transfer market — some post-balance notes on the account state that since the close of the 2020-21 financial year, Arsenal have spent £125.8 million net on player transfers. That figure accounts for the signings of the likes of Ben White, Martin Odegaard, Aaron Ramsdale, Takehiro Tomiyasu, Albert Sambi Lokonga and Nuno Tavares.

These results for 2020-21 also include broadcast revenues for the Europa League, in which Arsenal reached the semi-final. This year’s results will not be boosted by any revenue from European football. A return to the Champions League would boost Arsenal’s chances of returning a profit in 2022-23.

(Photo: David Rogers/Getty Images)