Arsenal Finances

Discussion in 'Arsenal Talk' started by TheLoneFalcon, Sep 22, 2014.

  1. Maybe

    Maybe Well-Known Member

    While I agree with that, I think he doesn't have the football understanding to interfere with the lower level decisions like Özil's contract. He had people who were responsible for players contracts and he had trust in them over the last decade. They let him and the club down, but a better owner would probably do something about all that mess in recent years.
  2. Fallout

    Fallout Well-Known Member

    while the swiss ramble analysis has value, you can't base an analysis of football club finances entirely on the income statement. the impact of player amortization is extremely significant to the bottom line, but it doesnt reflect the underlying economics in a clean way.

    cash flow statement is king here imo. agree with the poster above: we are a EL club paying CL wages. it's definitely hurt our cash flows, but the new deals we have coming into effect should boost them, and it's clear we are trying to reduce wages across the board.

    all in all, our finances are okay but not great, and our rivals have been catching up to us financially (which makes sense given how crap we've been on the pitch).
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  3. BigPoppaPump

    BigPoppaPump Well-Known Member

    I wouldn't take everything Swiss Ramble says as gospel, the guy knows we don't understand finance like that so posts a whole bunch of numbers to convince us of whatever narrative he's pushing.

    However, I don't even blame Kronke as much as Gazidis and Wenger. The people Stan delegated to are the ones who ****ed up the most.
    thierrytheking14 and Dj_sds - like this.
  4. devlin_adl

    devlin_adl Member

    He is clearly pushing a narrative, but that doesn’t mean his narrative is wrong. The figures are all 100% correct, with the exception of the transfer fees (which come from Transfermarkt, and are not verifiable). All this information has been available since February, when the last of the annual reports for 2017/18 were released, all Swiss Ramble has done is put it together in a digestible format.

    It could be argued that an additional post regarding cashflow would be the best proxy regarding how much the club can afford to spend on transfers, but this could be done easily simply by adding back player amortisation to the pre-tax profit figures. Even on this comparison, Arsenal would be dead last in the top six.
    Last edited: Jul 2, 2019
  5. devlin_adl

    devlin_adl Member

    Not catching up. Overtaken. Even Sp**s, in the 2018/19 season, with their run to the CL final.
  6. Hunta

    Hunta NOT In A Caravan Trusted

    Not sure how you decide who’s to blame more out of Gazidis and Kroenke. Personally I’d say Gazidis because of how badly he run the club and wasted millions, but then as the owner surely Kroenke should have kept a closer eye on things.

    Seems a bit fishy how Gazidis left a few months after Josh finished his stay in London, even if he got a pay rise and bigger role at Milan.
  7. celestis

    celestis Arsenal-Mania Veteran Moderator

    How Kroenke didn't bother to ask how revenue was stagnating and being matched by Clubs of less stature is beyond me . It's his money for ffs.
    Last edited: Jul 2, 2019
  8. Hunta

    Hunta NOT In A Caravan Trusted

    I want to know who was deciding on Gazidis’ bonuses. By the sounds of it he was giving himself them. :lol:
  9. Mo Britain

    Mo Britain Doom Monger

    Probably because he doesn't give that much of a ****, his main beef is accumulating capital rather than revenue.
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  10. Divided_Pie

    Divided_Pie Well-Known Member

    So, besides the fact that it would reduce the amount of cash on hand, what is the downside to investing some of the massive war chest on buying a player? If the key is getting back to CL football and staying there consistently, seems that making a Van Dijk type signing over and above the regular budget would seem wise. Are there FFP or other reasons not to do so, or is it just a conservative reluctance on the part of ownership/management?
    qwerty99 likes this.
  11. DanDare

    DanDare Emoji Merchant

    From an accounting point of view, does the purchase of the player get divided by years of contract?

    So you lose £80m cash but gain am asset of say £80m which counts as a loss of (1/length of contract) x 80m each year?

    If so could we make cash purchase for a player if we really desired and still not be making an accounting loss?

    Is it the way we run things that stops us doing this or is this not how the accounting works?
  12. Fallout

    Fallout Well-Known Member

    there's no real downside to investing other than fear of failure.

    we are already holding well above the minimum cash required to maintain our debt.

    maybe there are some operational issues during mid-season where we are spending a lot more cash than we take in, but it's tough to make a case for that being a problem given how little cash other teams are holding.

    the only other constraint beyond debt levels and mid-season liquidity (that i can think of) is FFP; here, the constraints are both on transfers of new players as well as annual wage growth. from what i gather from other posters, it seems like we've been having issues with the annual wage growth constraint. however, now that several players have left on free, it shouldn't be an issue for this summer.
    Gooner Zig likes this.
  13. Fallout

    Fallout Well-Known Member

    your understanding is very good.

    buy player for 80M on a 4-year contract:
    (1) balance sheet = intangible assets up 80M, cash down 80M, so equity is unchanged
    (2) cash flow statement = cash down 80M
    (3) income statement = no impact

    notice, no change on income statement despite massive cash loss.

    move forward 1 year:
    (1) balance sheet = intangible assets down 20M (=80/4), cash is unchanged, so equity down 20M
    (2) cash flow statement = no change
    (3) income statement = amortization expense up 20M, so net income is down 20M

    sell player when he has 1 year left on his contract for 80M:
    * at this stage, the player is worth 20M on our balance sheet due to all the amortization that has piled up*
    (1) balance sheet = intangible assets down 20M, cash up 80M, so equity up 60M
    (2) cash flow statement = cash up 80M
    (3) income statement = profit on player sales is 60M, so net income up 60M

    focusing on the last transaction, the club will report a "profit" of 60M on player sales even though we initially spent 80M for the player and received 80M!

    overall, the income statement for football clubs is really problematic because the way amortization is recorded does not align cleanly with the underlying economics.

    edit: to expand on the above, the problem (imo) is that amortization is recorded on a straight-line basis. meaning, 20M gets deducted from the player's value on the balance sheet each year. in reality, though, the player's valuation does not decline on a straight-line basis. the player's value decreases slightly each year until his contract runs down to 1-1.5 years, at which point there are massive reductions to the valuation. if amortization worked in this way, then that would correct one of the problems i see with it.

    there is one more problem as well that i won't bother going into unless there is actual interest, but it is significant.
    Last edited: Jul 3, 2019
  14. DanDare

    DanDare Emoji Merchant

    Thanks for that post, it was really useful. I am interested to hear more
  15. Fallout

    Fallout Well-Known Member

    lets say that instead of selling the player in his final year, we manage to extend his contract and keep him.

    then, his value on the balance sheet (i.e intangible assets) will go up by the sum total of his new wages over the length of his new contract. this amount will then get amortized on a straight-line basis.

    why is this a problem? the player's new value on the balance sheet reflects wages ONLY and is not a reflection of the player's fair value on the market (remember that when we first bought him, his balance sheet value reflected the transfer fee and his wages). therefore, any amortization based on this new value is purely cosmetic and, frankly, out of touch with the reality of the situation.

    similarly, any income statement "profit" we make when we eventually sell the player will again be a function of the player's misstated balance sheet value.

    overall, the income statement gets thrown out of whack quite hard.
  16. Maybe

    Maybe Well-Known Member

    I think we still have a massive issue with this. The board has one job for this summer and that's not buying players. So far, the board just managed to lose players on free, but the real task for them is to clear the rotten part of the squad and that's something Wenger and Gazidis were never able to do. If we can't clear the squad, we can't expect any changes this summer or the next one. Losing Ramsey and Wellbeck won't change that
  17. Fallout

    Fallout Well-Known Member

    think there's a small misunderstanding. all i'm saying is that because we cleared a lot of wages due to free transfers, we shouldnt be limited in terms of the amount of wages we can potentially give to new signings this summer. in previous summers, this was not the case apparently. let me know if i didnt interpret your post correctly though.
  18. Sanchez11's ghost

    Sanchez11's ghost Superior Journalist To Charles Watts

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  19. DanDare

    DanDare Emoji Merchant

    So why is it all done this way?
  20. Fallout

    Fallout Well-Known Member

    the standard accounting ruleset used in most industries is being forcefully applied to this industry.

    this is done despite the existence of key differences in terms of:
    (a) the magnitude of intangibles relative to other assets on the balance sheet
    (b) the way those intangibles are recorded -- i.e. since football clubs buy players, the players have to be recorded as "investments" on the balance sheet, subjecting their accounting valuation to all the forces we've discussed previously (whereas normal companies don't "buy" workers under normal accounting interpretation).

    most football clubs don't trade on stock exchanges, so there is no incentive for accounting bodies to develop a unique accounting ruleset for football clubs (since retail investors don't have money at stake and theoretically don't care about doing a proper valuation of the club). plus, it's a relatively small industry in the grand scheme of things.

    some industries that have a lot of large publicly-traded companies (e.g. insurance) do have their own accounting rulesets because the fundamentals of the business differ so markedly from other industries.
    Last edited: Jul 3, 2019
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