Arsenal's mysterious finances: Your thoughts?

Jens' Face

Steve McClaren's FC Twente controlled the midfield today, rolling over the Denilson/Ramsey partnership in cm.

Almost any Gooner will tell you that we really really need an experienced dm. Most will tell you that we need an experienced ball-attacking cb. And many will tell you, if pressed, that we could also really do with a true winger.

If we made these additions, we'd stand a good chance of winning the league. Without them, we stand very little chance of any trophy and there's the outside risk of losing the CL spot.

Anyone, everyone can see this. Yet it seems that Wenger isn't going to add anything more than a dm -- if we're lucky.

The basic assumption has to be that we're effectively skint. Whether that means we don't have any money or it would be imprudent to spend until we've seen our way out of the Highbury flats/housing crisis, it all amounts to the same thing. The only other alternative is the picture of AW as a seriously insane and stubborn mad scientist, cackling evilly at his image in the mirror, "I'll show them, I'll show them all!" Wenger isn't perfect; he's got his problems. But I'm betting that he's at least mentally competent.

But Arsenal's finances are a mystery on the scale of how did life start on Earth. I'd be really interested in y'all's attempts to make sense of them.

77

I thought Wenger already said you were skint...?

samabachan

I think your board are as crooked as Luton's and Wenger's been cut in on it so he doesn't kick up a fuss. Well that's a theory anyway.

The Hairdryer

Yous will be fine. Second or third next season.

Top

I'm pretty sure you'll be buying someone for that giant hole in your midfield - wasn't it only last week that Wenger said he would bring someone in for the holding midfield role, or did I imagine that?
EDIT: Found the article I was referring to, it's from last week:
http://www.timesonline.co.uk/tol/spo...cle4500459.ece
Wenger doesn't actually say anything about wanting to buy someone for the midfield, the Times just assumed that, he does however hint that you'll buy one more player.

But yes, your problems became very clear tonight, I find it amazing how you'll start the season having lost two of your very best players and still have Eboue, your only weak spot last season when attacking, as regular at right wing.

But I would be very surprised if you didn't buy someone for that holding midfield role. Ramsey is not ready at all, at least not if your three latest matches are anything to go by, and Denilson still doesn't impress me, even if he looks better on the ball than last season (though that doesn't say much) his positioning and overall ability when it comes to defending have not impressed me so far, and I wouldn't put much money on you to do anything significant this season if he's your first choice next to Fabregas.

I have no idea whether or not you're in a bad financial state, but I'm sure you'll be able to buy more players if you wanted to, and if you don't, then your description of Wenger as a mad man is probably not that far fetched.

Raven_Blade

Maybe you have become a selling club now. You seem committed to systematically wiping out your stadium debts. This means using minimal transfer fees while also raising funds by selling promising young players who wont make it.

Alex

Makes since

dumbo

Never quite understand the mystery and speculation surrounding Arsenal's finances. One minute they're Tiny Tim next they're Scrooge Mcduck.

Truth is Arsenal have a huge mortgage to pay off. You can spend 10 million on a player or take it off the debt. It's like a mortgage on a home, sure the wife might like some new furniture but breaking free of the mortgage death grip is more important. And sitting on the floor for 25 years won't do you any harm.

cesc's_mullet

The answer involves David Dein, Columbian Drug-runners, the NASA space program, the department of immigration and a duck.

77

Selling Club

teague

Queensland Road is the problem. It is an area to the south of the stadium that they are planning to develop.

Originally they were going to build lots of offices, shops and some flats there. Late last year they changed their minds because "The market for commercial office space has proved to be weak and has raised questions about the viability of this part of the development" and "The viability of the original scheme has been further questioned because land acquisition has proved to be significantly more expensive than originally planned".

They then decided to change the scheme to increase the number of flats from 288 to 725. They also dropped the offices and wanted to put in a cinema and restaurants instead. Islington council rejected the revised scheme last month.

Even with planning, the scheme would still in doubt because with the current state of the housing market there is no way a bank would lend them the money necessary to speculatively build 725 flats.

So they are now stuck with a huge chunk of land that they paid a load of money for and they have no way of developing. I don't know how much they paid for the site but they had to buy out a number of businesses (some on CPOs) so it was probably a fair whack.

Arsenal's big financial problem is that as part of the move to the new stadium they chaged from just a football business to a football and property business. The planned redevelopment of Highbury, Ashburton Grove and related sites ended up including over 2000 flats.

At first this seemed to work very well; huge property profits would help subsidise the cost of the new stadium. They would end up with an incredible facility generating the largest matchday turnover of any club in the world and they would have a easily affordable debt level.

With the housing market slump this whole plan is at risk. They are now having to divert funds away from the football team to support the property business. If they take this too far they will be at risk of failing to qualify for the champions league. In their current financial position that would be disastrous.
I, of course, would find it hilarious.

cesc's_mullet

Teague, how would a take-over affect all this?

You know there's probably a move in the pipelines from that giant toad Usmanov. Some part of his company is headed by Dein himself, though I haven't bothered with the particulars as yet.

peterstorey

The Queensland Road scheme was and is a 'nice to have' - it isn't part of the core busness plan which is self sustaining without it nor is it being funded from the football club.

red2deadboy

Arse are an excellent investment for anyone with a spare few billion sitting around if they can afford to buy the club without finance. The proposed property development could be put on ice until market conditions change at which point the investor could make a nice profit. The biggest outlay is usually buying a new stadium and arse already have a state of the art one in place.
If they decide to go it alone they have to except that commercial sucess is primarilly driven by sucess on the firld, and this requires money. You always get the feeling the mad scientist wants all his key players to be unpolished gems he found on the beach and polished up.

Ceks

I'd be very surprised and dissapointed if we didn't bring in a DM. I'd like it to be before the weekend, but that looks increasingly unlikely.

Denilson isn't a suitable partner for Fabregas, and neither is Diaby. I'm actually inclined to suggest that perhaps Djourou should get a chance in the holding role. At the moment, he's probably our best option.

krazyrobus

Bet Diarra must be feeling really dumb right now.

032Devil

The area around the new stadium in Holloway is a almost a dead zone for businesses and I can foresee businesses struggling around there. The area around the Emirates is affected by the university and demand for student housing is high. Businesses rarely succeed in such areas. All the businesses and shops in that area have been struggling for decades.

The slightly more successful area is further down in Nags Head which is the main shopping area at the junction of Holloway Road and Seven Sisters Road. But even in that area shops have struggled for years: Pizza Hut recently closed down indicates how shops struggle. Also in recent years major retailers like Next, Woolworth have closed. M&S are surviving by the skin of their teeth.

Sarni

Inler is a solution to your midfield problems.

WeWonItTwoTimes

Having studied your last available accounts for the last hour or so I can reveal that there is no problem whatsoever with Arsenal's finances.

The mad scientist's bizarre unwillingness to spend money on players is the issue.

WeWonItTwoTimes

Yup, I don't see it as a cause for major concern.

The fact that you sold 700 flats in the Highbury Square development at the height of the property boom and have the vast majority of your debt secured at a fixed rate of 5% far outweighs any current difficulties with the Queensland Road scheme.

peterstorey

If the worst came to the worst we could simply sell the land for more than we paid for it.

I think Wenger decided in 2004 that it wasn't feasible to rebuild the team in the conventional manner since money was very tight then due to the stadium build and Chelsea were going to outspend him however much he laid out. Hence the youth build policy which you must admit wasn't far off last season.

This is now compounded by a reluctance to spend big particularly on average players like Barry since he (correctly) thinks the transfer system is heading for meltdown. I think he should compromise a bit just now and spend the £50M we need to give us a better chance of winning things even if the players are likely to have little or no sell on value. Possibly he has decided to do this but simply can't find better players than the ones he's got for anything but very silly money.

Amir

It seems that every summer someone from Arsenal - Edelman this time around, I think - comes out and talks about the club having a lot of money to spend, but it never happens.

Bilbo

I agree with you here. The only really rational explanation for Wengers lack of spending is that the club are looking further down the road than a lot of other clubs.

They should have plenty there to be near-certain of a top four finish as it is, and spending 40 or 50m is not going to guarantee anything. United and Chelsea are both extremely strong at the moment.

teague

But then the "land acquisition has proved to be significantly more expensive than originally planned". Not only in the amounts spent but on the related legals etc. costs due to the complexity of forcing through the CPOs. They would have also spent a lot of money just getting the various schemes through planning.

I suspect that Queensland Road was "a nice to have" but given the current circumstances it is probably not at all "nice to have" anymore.

Arsenal are clearly suffereing from restricted cashflows because of the debt they have taken on becoming a property company. The sensible, safe thing to do would have been to sell all the surplus land (including highbury) to a property developer and used this money to bring the stadium debt down. Instead they got greedy and tried to keep the development profit themselves. This looked like a great idea whilst in the middle of a property boom. Now that we are seeing the steepest falls in house prices in memory it is looking like a terrible mistake.

teague

A take-over would have a good chance of fixing the problems. The new owner would be going into the deal with their eyes open and be aware of the shitty state of the property deals. In the current climate no bank would fund a takeover so it would have to be someone with a lot of spare capital. On that basis they would be able to fund the club through its cashflow crisis.

My information is a little out of date but I know that six months ago Usmanov was expecting to take control soon. The last six months could have changed things in two radically different ways.
1) The deteriorating financial circumstances could have put him off the deal. This might well be the case if he was only interested in the club for the property deals.
2) The clubs cashflow crisis could be forcing the club into his filthy rich hands. This might be the case if he is after the football team rather than any (now non-existant) property profits.

WeWonItTwoTimes

They did hit the jackpot with the Highbury Square development though which will offset any potential loss made on the Queensland Road scheme.

The Highbury Square development money is going to flood in over the next 12 months and coupled with a strong balance sheet and large cash reserves I think you're wrong to say Arsenal are suffering from restricted cashflows due to the property business.

What evidence do you have to suggest that they are suffering?

teague

Very unlikely. The value of development land falls far quicker than the value of developed properties. Roughly, for every 1% drop in house prices in london the underlying land value falls by between 1.5% and 2%. So if property prices have fallen by 20% the land would have fallen in value by 30% to 40%.

On top of that, Arsenal will be in for interest costs, land acquistion costs and design development fees. On the plus side for Arsenal, by creating a large site (using CPOs) it may well have been worth more than the sum of the parts. But that just means they will avoid getting wiped out by Queensland road rather than just badly stung by it.

Unless they picked up all the land for a pittance I do not think there is now any way they will ever get all their money back. Even if they wait it out for the property market to come back the compounded interest costs will kill their profits.

Domino

I remember when the Arsenal board came out stating their 'record breaking' figures and that Arsene had a £70million war chest. They wanted to try and show United that they could compete off the field..and they failed.

teague

That remains to be seen. They still have 5%-10% unsold and they do not yet know how many of the "purchasers" will actually complete. If someone has put down a 10% deposit but thinks that the value has now dropped by 20% the sensible thing is to walk away and forfeit the deposit. (Technically they are legally liable for the full purchase sum but Arsenal would have to go to the expense of suing them to get the money).

For some buyers they will not be able to complete even if they wanted to. As the property value has fallen and credit conditions have worsened they will not be able to get the mortgage they require to complete. Many of these buyers would have been intending to get a buy to let mortgage which are now virtually impossible to get at rates that make financial sense.

The expected profit margin on this kind of development is typically 20%-25%. If 10% of the flats are unsold and 10% fail to complete then the profits aren't there (yet). Even worse, failure to get a required number of completions by a certain date might trigger penalty clauses in their banking covenants. The club may suddenly find itself paying extra interest on the development costs that have not been paid off via flat sales yet.