Wage cuts & lost millions - Why Arsenal are facing a financial black hole

[The GodFather]

 

 

The Gunners have been managing their accounts prudently for years but they have been hit particularly hard by the effects of Covid-19
As the stand-off between Arsenal and its players continues over wage cuts, the same question keeps getting asked.

Why is a club that has consistently posted impressive accounts for the majority of the past decade already struggling for cash just a month into football’s enforced suspension?

Are things really as bad as they seem? Or is owner Stan Kroenke using the financial issues caused by the Covid-19 pandemic as an excuse for slashing a wage bill that his son, Josh, publicly admitted less than a year ago was becoming increasingly problematic?

 

It's not just supporters that are asking that question either. It’s the players as well, which is why we are in the situation we are now, with the squad rejecting Arsenal’s latest proposal: a year-long 12.5 per cent wage cut.

The sense of distrust between the squad and the club’s executives has been almost palpable for some time. The current talks – which have been ongoing for the past fortnight – have done little to remove the pervading mood of suspicion.

On one hand, the players are open to at least deferring some of their wages should the money be used to keep other club staff in their jobs throughout the pandemic, but they want assurances that the cash will not just go into the Kroenke’s pocket or bolster potential transfer funds.

 

The players hope that further talks over the coming days will find some sort of solution, which the club insists is a necessity.

So, why is it that Arsenal appear to be in such a difficult financial situation?

Ever since the Gunners made the switch to Emirates Stadium from Highbury, the finances have been strong – with the numbers mainly being held up by matchday income, player sales and broadcast revenues.

However, in December, Arsenal announced an operating loss of £27.1 million ($34m) for the year 2018–19. It was the first time the club had posted a loss since 2002. And why? The £230m ($287m) wage bill.

Arsenal have embraced a self-sustainable model, but it is founded upon Champions League football. For two decades under Arsene Wenger, that was almost viewed as a given. But those days are gone.

 

 

 

It’s been three seasons now since Arsenal dined at Europe's top table and their absence has hit them hard in terms of earnings.

Three successive campaigns in the Europa League have done little to make up for the lost revenue, although the money that has been generated from Europe’s second-tier competition has at least softened the blow a little.

 

Arsenal’s run to the Europa league final in 2019 generated the club £34m ($44m) in earnings. And whilst that figure was a welcome one, it was drastically lower than money made by the English representatives in the Champions League that year: Liverpool, who won the competition, earned £98m ($126m), while Tottenham Hotspur £92m ($118m), Manchester City £82m ($105m) and Manchester United £82m ($105m) also pocketed healthy sums.

The figures show the importance of qualifying for the Champions League. Inter, who didn’t even make it out of the group stages last season, earned £48m ($105m) – far more than Arsenal received for making it all the way to the final in the Europa League.

So, it’s that prolonged absence from Europe’s elite competition, combined with one of the highest wage bills in world football, that led to the club’s first operating loss in 18 years.

 

Arsenal would have actually posted a significant loss in 2017-18 had they not generated a profit of £115m ($144m) on the sale of players including Alex Oxlade-Chamberlain, Olivier Giroud and Theo Walcott.

The financial landscape at Arsenal has changed significantly since they last competed in the Champions League. It’s something the club have been working on, but with the wage bill as it is, it has proved incredibly difficult to even break even.

The outlook for 2019-20 was looking much improved, however, thanks to the new commercial deals with Adidas and Emirates and some significant player sales, but now the coronavirus pandemic has suddenly brought with it unprecedented financial pressure.

 

“This is one of the most challenging periods in our near 134-year history,” a statement released by the club on Wednesday said:

“The suspension of football and the broader global economic impact of the virus mean that many of our revenue streams are on hold or are at risk. The potential impact on our revenue streams puts our operating model under pressure.

“The potential financial impact is significant so we must be responsible and act now to best protect Arsenal from what might happen in the months ahead.”

Arsenal do have healthy cash reserves in the bank of around £167m ($209m) – something that is always a source of frustration with supporters when a transfer window passes relatively quietly.

However, a significant proportion of that money has to be retained to cover the covenants on the stadium loan and, thus, can’t be used to plug holes elsewhere.

 

Whether that view gets much sympathy from the players – who have already felt victimised during this crisis by influences outside of football – remains to be seen.

But the decision taken by Arsenal's 14-man executive team - which includes head of football Raul Sanllehi, managing director Vinai Venkatesham and academy manager Per Mertesacker, to waive more than a third of their own wages for the next 12 months certainly puts pressure on the squad to share some of the financial burden.

Talks aimed at finding a solution will continue over the coming days and the figures show why Arsenal hope they will swiftly come to a positive conclusion.

Edited April 17, 2020 by flaffy213
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