April 7, 2017
This article first appeared on The Blue Room on 29th March 2017.
I was asked an interesting question on Twitter in comparing the Arsenal Emirates stadium financing to the proposed financing of Bramley Moore.
It’s widely thought that the stadium financing of the Emirates has held Arsenal back since 2006, and that this is the principle cause of their relative lack of success in the last 10/11 years. Well, I don’t subscribe to that view at all. Whilst it’s true that the original terms were quite onerous (more later) and considerably more onerous than the proposed Bramley Moore stadium terms, the major reason for not competing with Arsenal’s peers lies with the Arsenal board not their financiers.
The fact is that the Arsenal board are guilty of several strategic decisions which has led to Arsenal not being as competitive in the transfer market as their financial strength and revenues would allow.
The whole period with Wenger’s tacit approval has been marked by caution and in my opinion excessive financial prudence.
Usmanov and Moshiri as owners of Red & White Holdings were both critical of the board’s original and subsequent unwillingness to put cash into Arsenal’s business, relying more on debt to fund the stadium. Now that may seem a little odd, particularly in the light of Moshiri’s strategy with everton, but more of that in a few minutes.
When the Emirates stadium was built in 2006, the cost was £390 million, £130m was provided by the club and £260m in the form of a 14 year fixed rate senior debt deal with a number of banks including RBS. In addition further loans were provided for working capital purposes and for the property development division of Arsenal dealing with the redevelopment of Highbury.
The initial £260 million was lent in 2003, and was subsequently converted into a £260m bond issue in 2006. One of the conditions of the 2006 refinancing was that Wenger commit himself to the club until at least 2011 – a clear indication of his compliance with the financial prudence strategy of the club.
Such has been the financial prudence of the club and not only in the early years, that in the period 2007-2015, 36% of the club’s expenditure (including net spend on players) has been on debt interest and debt repayment. This is an important figure, something we will return to when looking at Everton.
Further to the above Arsenal have devised a trading strategy of generating profit principally from two sources – player trading and property development profits from the old Highbury stadium and associated properties. This has covered operational losses, and allowed Arsenal to build a significant cash pile which in net terms almost completely wipes out their remaining debt.
Player trading – a big part of Arsenal’s financial strategy:
Figures in £m
Aggressive accumulation of cash to reduce net debt position
Figures in £m
So there’s Arsenal’s financial strategy since the Emirates has been built, prudent building up cash, reducing the net debt, whilst generating considerable profits from player trading.
A deliberate strategy with the compliance (and to a large part, executed) by the manager Arsene Wenger.
So how does that compare with the proposed financial deal to deliver a brand new, iconic stadium on the banks of the Royal Blue Mersey?
Firstly it has to remembered that Everton remain relative financial tiddlers compares to Arsenal with our 2016 turnover being £121.5 million against Arsenal’s £350.6 million.
The proposed funding package for Bramley Moore Dock is an entirely different proposition to Arsenals – size of turnover being one of the considerations.
Everton have gone for a long term structured debt repayment strategy, largely covering all of the costs of the stadium, whilst using a combination of the City Council’s Balance Sheet and a charge against all assets of the club to provide a secure low interest debt deal.
The objective is to minimise the burden of the stadium financing at a time when the club is in an expansionary phase regarding player and squad development, yet from a low but rapidly rising income base.
As mentioned, in the last accounts Everton had turnover of £121.5 million. I’ve done some estimates of the likely turnover by the season 2020/21 our likely first year in our new stadium.
In that year I’m assuming the following turnover figures:
Obviously these figures are estimates, based on Premier League participation and Europa League qualification. For non-qualification revenues would probably fall by £30 million (including sponsorship) and for Champions League last 16 qualification rise by a minimum of £20 million. Therefore the range may comfortably be expected to be £245 million to £295 million per annum 2020/21 onwards.
This turnover figure is extremely important as we can determine the affordability of the proposed Bramley Moore financing package.
Estimates have varied from £14 million to £17 million annual “rent” costs. I’m going to be slightly more cautious and say for ease of calculation £20 million.
Based on these figures, the loan “burden” on Everton should represent base case 7.3% of turnover, best case 6.8%, and worst case (assuming continued Premier League membership) 8.2%.
This needs to be compared with the percentage of turnover applied to interest and debt repayment at Arsenal 2007-15, 36%
The original question asked about how Arsenal financed their stadium and the impact it had on their player acquisition, and how that compares to Everton. Clearly the Arsenal board has had a greater impact than the stadium may necessarily have had itself, but the message for Evertonians is that the proposed Bramley Moore scheme has minimal impact on the normal finances of the club and actually allows us to significantly build revenues assisting the ongoing development of the club, a better quality squad and higher wages arising from non-broadcasting incomes.
Far from being a burden, Bramley Moore is an affordable, yet critical enabler in the development of the club, back to competing with the biggest and the best.