Arsenal’s Stadium Debt – The Inside Track

By Daniel Cowan
In Finance in Football
Apr 2nd, 2014
14 Comments

Welcome to Guest Wednesday! Today I welcome Calvin Masterson () who joins us to take a look at Arsenal’s stadium debt from a professional point of view.

As this season for Arsenal comes to an end, people start to look forward to the transfer window. This is the time when we can all dream about the additions that will make Arsenal into the title challenging side we all desire. However, as many fans remember all too well, the last few summers have produced primarily heartache, angst, and pain for Arsenal fans (tempered with a dash of Mesut Özil). The Wenger Outs have argued that Arsenal have been cheap, failing to spend so the club can make a profit for Mr. Kroenke. The Wenger defenders have argued that funds haven’t been here. I am here to try and discover the truth.

Everyone knows that in 2006, Arsenal left their old stadium, Highbury, and moved into a new ground called the Emirates. What most fans also know is that this move was expensive. However, most fans don’t know how expensive the move was. The stadium cost £390 million, with the club contributing £130 million and borrowing the remaining £260 million. That is where my expertise comes in.

I work in real estate finance; my company provides loans to clients to help them buy properties and improve them. While I am not actively involved in construction lending like the Emirates Stadium, the principles are very similar. What most people don’t know is that the lender in this case has huge authority to compel the club to repay the loans. While the laws in the UK are different than those in the USA (where I reside), the basic premise is the same: you have to pay the lender if the funds are available. Arsenal raised the £260 million through a combination of bond offerings and bank loans. Both function fairly similarly: the club receives a large sum of money up front for the promise of paying regular interest, plus paying the initial amount received back (the principal) over a period of time. Assuming the average interest rate on the £260 million of debt the club took on was 10% (not unreasonable at the time) Arsenal would owe £26 million every year to the lender. Now, since these loans were most likely not interest only, Arsenal would also owe a percentage of the principal back to the lenders. Thus, it is easy to see how these loans were responsible for the club having to make £30 million a year in “profit”. While it appeared as net operating income, it failed to actually flow through to the club’s coffers as it went to the lender instead.

The real question then emerges: did Arsenal have to do this? The answer is yes. If Arsenal had decided to spend £30 million on a player during that period and were not able to pay the lender, they would have been in default of the loan. The lender would have had various options, from garnishing Arsenal’s match day revenue (having it flow directly to the lender), or at the worst case foreclosing on the loan and taking over the club (or a portion of it). As we have seen with other clubs taken over by financial institutions (Coventry City) this is disastrous.  So, while Arsenal may not have wanted to sell players, they were forced to in order to avoid a more disastrous situation.

So what has changed now? Arsenal still have lots of debt to pay. However, the club has been able to boost revenues thanks to increased media rights deal (the recent TV deal for EPL rights in the USA was exponentially bigger than the previous one) and additional commercial revenue (PUMA kit deal, watchmaker, tailor, etc.). Going forward, Arsenal should be able to keep making debt payments while also making squad investments. Whoever the manager is going forward, they should be thankful to Arsène for ushering the club through this challenging period and leading it to a new era of financial freedom and prosperity.

Calvin Masterson is an Arsenal fan living in Atlanta, GA. A fan of the Gunners since 2008, he has never seen them win a trophy, but expects the drought to end soon. He is a fan of outlandish rumors, John Terry falling over, and late winners. 

Incredibly succinctly put, Calvin. It’s certainly something many don’t know or choose to ignore and explains the £70m kitty rumours from last summer when others were claiming there was £100m to spend – £30m of that may have been earmarked for stadium debt.

Thanks for reading guys and helping me support my fellow Gooner bloggers! Please comment on this post, subscribe by email, share with friends and follow me on twitter (@thedanielcowan). Please check out the official NLIR Facebook page http://facebook.com/northlondonisredblog for news, views, freebies and more. 

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About "" - 509 Posts

I am a South London born Gooner now living in Leigh-On-Sea, Essex. I'm a husband, daddy, podcaster, trainer enthusiast and aspiring author. My work is my passion and for that I will always be grateful. Here is where I write my thoughts and views on Arsenal Football Club, the greatest team the world has ever seen.

14 Responses to “Arsenal’s Stadium Debt – The Inside Track”

  1. LeBigMac says:

    It’s nice to read a level headed and well informed opinion rather than “He’s sh*t!, He’s got all that money to spend but he won’t spend it” etc etc etc
    I personally am proud to support a well run club that doesn’t conform to the outrageous demands of spending for the sake of spending. I firmly believe that the money in football is vulgar, so much so, for a short while (I mean it crossed my mind for a couple of seconds…) I contemplated supporting a lower league team as a kind of mini protest but in my heart I knew that it would make no difference so stuck by my club that I know can play with the big bucks boys but don’t conform to the Oligarch/Saudi influences.
    Money isn’t everything guys.
    Holding your head up and having morals and ethics is more important in this day of instant gratification.

  2. LB says:

    Interesting if we are purely referring to a ‘self-sustaining’ model. However, there are a growing number of voices in the club that want kroenke out and the well-minted Usmanov in. Afterall, then we’d have a owner that can sink £800 million into the club without batting an eyelid, ala Chelski and Oil-state City !!

    • Daniel Cowan says:

      Is that the kind of club we want?

    • ClockEndRider says:

      The is no evidence that Usmanov would do this. You are parroting the wish fulfilment fantasies of the very very small but loud minority who don’t seem capable of thinking for themselves and choose to equate having an oligarchic large shareholder with said oligarchs largesse towards the club were he to be a board member. The simple fact is that when he started buying shares he said the first thing he would do is to institute a policy of dividends for shareholders. This means taking money out, not putting it in.
      Be careful what you wish for.

  3. naz says:

    Whilst I agree with the maths in this article I disagree that you have to sell your best players to ‘make ends meet’. Before building the stadium the club should have had a strategy on how it would meet the loan obligations.

    It cannot possibly be club strategy to sell your best players. Clearly the club did not have or could not execute their strategy. The board should be held accountable for this.

    As for moral ethics, building a new stadium so you can make more money and charge the highest ticket prices does not seem moral to me. In the end of the day whilst other clubs are funded by the rich, Arsenal is funded by the common man on the street with no returns for the common man.

    Not very moral from where I am standing.

    • Daniel Cowan says:

      That depends on whether you believe the introduction of oil money affected the clubs ability to make money. “Highest” ticket prices is a fallacy. One of the highest is more accurate. It might seem pedantic but subtle differences can be important. Arsenal is not funded by the common man. The common man puts in as much money (proportionately) as fans of other clubs do. The difference is we use that money and the money generated from commercial deals rather than benefactor money.

  4. double canister says:

    Calvin

    Are you aware that the AFC board refinanced a large portion of the stadium debt approx. 4 years ago into a long term Bond (20 years I think) which pays out 22m a year? There are still 16 payments to be made.
    That’s not the only part of debt to be paid, as even more money was paid out to relocate existing businesses who were already in Ashburton Grove, plus infrastructure upgrades to the tube stations and a new council waste centre.

    The remaining land is being developed in stages for commercial uses, but as you would know yourself, as AFC are the developer of much of this land – there are huge lead-in costs such as planning, design fees, contractor payments to be paid out before a penny is made on property sales.

    he global financial crisis mid-way through the project didn’t help. Selling out best players (reluctantly) was one of the few additional sources of funds.

    • Daniel says:

      It’s my understanding that we had a very bad loan repayment structure and conditions that we were able to renegotiate last year and that is the reason why were able to afford Ozil.
      We also had very bad deals on the stadium name and the emirates sponsorship deal and took a long deal with Nike (that wasn’t great) for financial security.
      Now we have renegotiated all those deals we should have enough money to buy a £30M player every season without selling one.
      Please tell me if this is not true.

  5. Simon says:

    But if we had £100m in cash and only £30m to spend on services/repaying our loan…. Then we had a lot of money to buy players. We only had £70m… Sheesh! So is it conformed then that we have the money but can’t/won’t spend it?

    • Daniel Cowan says:

      We spent £42.5m of it. Factor in wages, signing on fees, contract extensions etc…

  6. Paul says:

    The initial article is correct in most of what it says and the points made. Equally someone mentioned the debt was refinanced four years ago. However a few points are missing, the main one being the global financial crash two years into the project. To put it simply, the cost of money rose, so the loan cost more and the repayments were not of the same value.
    So the numbers on the whole project rose, while the value of things like the property assets dropped. The flats at high bury we’re not as valuable as hoped. This meant the club/business had to adapt and adjust the plans from year to year. All of this is clearly available in the annual accounts.
    Did the have to sell, well some would have been inforced sales, and some would have been convieient sales, some would have been “in the best interests of the football side” and some would have been because of issues behind the scenes, just like any club.
    This was always going to be a ten year project, and so it has been. Maybe, despite the massive challenges out of the control of the club, we are one year ahead of the plan. Last years purchase of Ozil was for me, one year early. Keep in mind the timeline of our main commercial deals, both Emirates & Nike were to be renegotiated this season, so financially it should have been the summer of 2015, earliest Winter of 2015 that the money reflects in our operating accounts.
    So whoever it is, and yes Mr Wenger played a massive part, the club has done exceptionally well and is ahead of the plan

  7. Thanks Calvin, interesting read. I recommend all Gooners read the book “Arsènal: The Making of a Modern Superclub” by Alex Fynn and Kevin Whitcher. I would go so far as to say that I’m not willing to consider your opinion about The Arsenal and the situation we find ourselves in until you read that book! It explains a lot about the impact building the stadium had on our finances, for example, how the financial crisis affected the plan to sell the flats linked to the development. Don’t forget there was no Chelsea or City when we committed to building the stadium (the former consistently nicks our transfer targets [Mata, Hazard, Wright-Phillips!], the latter has bought most of our oh-so-nearly successful 2008 team!), there also was no financial crisis. (They also talk a lot about David Dein, unrelated to this matter). Anyway, read the book!

    • Daniel Cowan says:

      I think the point he makes purely about paying back capital and interest is pertinent even before you factor in all of the other issues you raise.

  8. Akash Deep says:

    Simple stuff that a lot of people choose to ignore. Thanks for the professional perspective. I wasn’t aware of the kind of authority the banks can have over such sanctions.

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