With only a couple of days left in the transfer window, Arsenal have completed the majority of their summer business.
Since January, Arsenal fans have known that the club’s priority target for the summer was Declan Rice. Having fought off competition from a host of clubs, and finally come to an agreement on payment terms, Arsenal completed the deal in July.
Arteta has conspicuously reduced the amount of leaks coming from inside the club, leaving fans and journalists wondering who else the club were targeting in the summer. Having initially been interested in Mason Mount, and subsequently signed Kai Havertz, it is clear that the club were targeting a versatile attacking midfield/forward profile. Another evident priority was adding depth and versatility to defence, with a deal pursued and agreed quickly for Jurrien Timber. Finally the club secured a long-term transfer target in David Raya to compete for the gloves with Aaron Ramsdale.
It seems that these four signings constituted phase one of the club’s summer business – priority acquisitions. The second phase has focused on outgoings. Returning loanees and the four signings mentioned have left Arteta with a bloated squad. While exits are still being negotiated for more players, Pablo Mari, Granit Xhaka, Matt Turner and Auston Trusty have all left on permanent transfers with Marquinhos also leaving for Nantes on loan. More recently, Arsenal seem to have come to agreements which will take Folarin Balogun back to Ligue 1 with Monaco and Kieran Tierney to La Liga with Real Sociedad.
So what financial impact will these incomings and outgoings have on Arsenal’s finances?
Find more of my work on Arsenal and football finance here.
Background
Going into this summer, Arsenal were in a strong financial position to invest heavily in the squad. The club have made a concerted effort to trim the wage bill in recent years, selling (or terminating the contracts of) players such as Pierre-Emerick Aubameyang, Alexandre Lacazette, Willian and Bernd Leno. Consequently, Arsenal’s wage bill has decreased from £244m in the financial year ending 31 May 2021 (2020/21 season) to approximately £212m in the financial year ending 31 May 2023 (2022/23 season), per my analysis.
The club’s excellent performances in the 2022/23 season have garnered significant financial reward. The Arsenal Supporters’ Trust recently revealed that the club will earn £162.2m in broadcast revenue from the Premier League as a result of their 2nd place finish, significantly more than the £145.9m received for an 8th place finish in the 2020/21 season.
Of course, the greatest financial prize is Champions League qualification. On average, Premier League clubs earned £80m from Champions League participation in the 2022/23 season compared to the £23m Arsenal earned in the Europa League. Moreover, qualification will trigger bonus clauses in sponsorship contracts, further increasing club revenue (although some of this gain will be offset by similar bonuses in player contracts).
In summary, Arsenal’s prudence and on-pitch overperformance, relative to financial expenditure, has allowed the club to spend heavily on recruitment first, confident that they will not breach FFP even if they cannot subsequently sell members of the current playing squad.
The purchases:
Please note that the transfer fees included below are estimates, based on journalists’ reports, and do not include add-ons. The calculations also include an implicit assumption that all players were signed/sold on the first day of the financial year, so amortisation and wages are included for an entire year.
Kai Havertz
The first official acquisition of the summer was Kai Havertz, joining from Chelsea for an initial fee of £62m and £3m in add-ons. Although his wages were reported to be £350k per week in certain German publications, that amount seems highly unlikely given it would make him Arsenal’s highest paid player. Hence, for the purposes of this calculation, I have assumed that his salary is £250k per week, a similar amount to his reported salary during his time at Chelsea. This seems a reasonable estimate based his standing within the squad – first team player but not a star (yet).
Note: In each of my assessments, I have included agent fees of 10% which are capitalised along with transfer fees and amortised over the length of a player’s contract.
Combining the yearly amortisation expense of his transfer fee with his wages, the extra cost to Arsenal’s bottom line related to Kai Havertz will be £26.6m.
Declan Rice
At points in the saga, negotiating with West Ham for Declan Rice appeared to be a Sisyphean task, but Arsenal and West Ham have finally come to a full agreement for the transfer of Declan Rice. The transfer was for a club record fee paid by Arsenal: £100m guaranteed with £5m of add-ons.. Like Havertz, Rice’s salary has not been disclosed by any reliable journalist. However, given his position as the club’s record signing, but having been on lower wages previously than Havertz, I have assumed a weekly salary of £250k.
The effect of the Rice transfer on Arsenal’s bottom line next season will be £35m, comfortably the highest of any player in the squad.
Note on payment structure:
Now seems a relevant time to mention payment terms and cash. Everything I have spoken about previously relates to accounting. While accounting is based on real world transactions, and cash flows often match up to revenue and expenditure in the profit and loss account, that is not always the case.
For example, Declan Rice’s (estimated) wages represent a £10.4m cash out flow each year and they also represent a £10.4m salary expense to the P/L.
However, it has been well publicised that Arsenal will pay West Ham the transfer fee for Rice in three instalments over 24 months. Let’s assume these instalments are £33.3m each and are paid on 1 July each year. These represent cash outflows but they are notrecorded as expenses and they do not affect the club’s profit for the year. The expense recognised in Arsenal’s accounts each year is an amortisation charge, where the amount of the transfer fee is spread over the length of the player’s contract.
For more information on the payment terms and why they delayed Declan Rice’s transfer to Arsenal, check out this article.
Consequently, there are two primary financial considerations for Arsenal in their transfer business: accounting and cash.
In order to meet FFP regulations, Arsenal must focus on accounting treatment. However, the club must also be able to meet their payment commitments as they come due because “cash is king”. Given the sustainable model imposed by the Kroenke’s, it is unlikely that the owners would be as willing to supplement the club’s cash flow through equity injections or debt to the extent of some other Premier League owners.
Hence, it is possible that the payment terms of the Declan Rice transfer may have hamstrung the club with respect to other transfer business due to cash constraints. Per my calculations prior to this summer, FFP is not a pressing concern.
Jurrien Timber
One of the shining lights of pre-season, Timber may have already played his last game for Arsenal this season after an ACL injury on his Premier League debut. I’m sure I speak for all fans in wishing him a swift recovery and hoping that he may be available for the run-in.
Despite his injury, Arsenal must still record the same expenses relating to Timber for this season as if he were fit. Arsenal have reportedly paid an initial fee of €40m, with €5m of achievable add-ons. Using the exchange rate from 5th July, the date the transfer was reportedly agreed, the initial fee is equal to £34.4m. Timber’s wages are set at £90k per week.
The total yearly cost of Jurrien Timber is therefore £12.2m, a much more reasonable amount than Arsenal’s other two permanent signings, although by no means a lesser player.
David Raya
After some fantastic negotiation, Edu and his team managed to secure David Raya on a season long loan with an option to buy. The loan fee for the deal is £3m while the buy option is valued at £27m. While the loan fee is entirely attributable to this season, the buy option will only begin to be amortised over the length of Raya’s contract once it has been exercised.
Given positive indications by Thomas Frank and journalists alike, it appears probable that Arsenal will exercise the buy option at some point during the season. I would expect the club to do this at the end of the season to allow them to exclude the amortisation cost from the current financial year.
David Raya’s wages (before signing a new contract prior to joining Arsenal) were reportedly around £25k per week. I have assumed that his salary has now increased significantly to £75k per week, to reflect his status as a top ten Premier League goalkeeper. This amount is still less than Aaron Ramsdale’sreportedly salary of £120k per week having signed a new contract himself in May.
In this scenario, David Raya’s yearly cost to Arsenal is £7.2m.
By comparison, if Arsenal had signed David Raya permanently for £30m (i.e. loan fee plus value of buy option), the yearly cost this season would be £10.5m, a difference of £3.3m. This is the amount that structure of the deal has saved for Arsenal in the current financial year.
That concludes the incomings so far, but Arteta has not ruled out further incomings by the end of the window.
The sales
Note: I have calculated player’s book values (transfer fee less accumulated amortisation) based on their reported purchase prices and agent fees of 10%, taking into account all contract renewals. I have assumed that clubs to which players were loaned last season covered those players wages in their entirety.
Pablo Mari
Arsenal’s first sale was Pablo Mari. An obligatory purchase clause in his loan agreement was triggered when Monza were confirmed to have not been relegated from Serie A before which he had already made the necessary number of appearances also included in the clause. He was ultimately sold permanently for £6m having made little impact on the first team during his time at Arsenal.
The total positive impact (profit on player sale plus salary and amortisation savings) of Pablo Mari’s sale on Arsenal’s finances this season compared to last season is £5.8m.
Granit Xhaka
A player who completed one of the greatest “remontadas” in club history from the low of Crystal Palace (H) in October 2019 to the high of the club’s title charge last season, having arrived at the club in 2016, Granit Xhaka was sold for £21.3m (€25m) in July. This constitutes a healthy profit due to his cost having been amortised to a minimal value after his many years of service.
The total positive impact of Granit Xhaka’s sale on Arsenal’s finances is £27.3m.
Auston Trusty
The first of two Americans to be sold by Arsenal this summer, Auston Trusty joined Sheffield United after a successful season on loan at Birmingham. Sheffield have paid £5m for his services, a healthy premium on the $2m Arsenal paid Colorado Rapids for a player who never made a competitive first team appearance.
The total positive impact of Auston Trusty’s sale on Arsenal’s finances is £4.7m.
Matt Turner
The second American to leave this summer was Matt Turner. After several cup and European appearances last season, he has left to join Nottingham Forest for an initial £7m (potentially rising to £10m) as Arsenal seized a market opportunity to sign David Raya from Brentford to fight out for the number 1 spot with Aaron Ramsdale.
The total positive impact of Matt Turner’s sale on Arsenal’s finances is £5.7m.
Folarin Balogun
The last sale, which has yet to be finalised, will take one of Ligue 1’s top scorers last season back to feast in the Uber Eats. Folarin Balogun has been developed through Arsenal’s academy, and while some fans may be sad to see him go, the reported €30m fee (with €10m of add-ons) should soften the blow. Football academies serve two purposes to a club, to provide players to the first team and to provide funds through sales to support expenditure on the first team. Arsenal have taken the decision that, in this instance, the latter purpose is more pertinent than the former.
The total positive impact of Folarin Balogun’s sale on Arsenal’s finances is £25.8m.
Net impact
Despite having spent £128m more in transfer fees than they have received, the net impact on Arsenal’s accounts of the club’s transfer business so far this summer is only (£7m). Moreover, Arsenal still have players such as Nuno Tavares, Rob Holding, Nicolas Pepe, Cedric Soares and Albert Sambi Lokonga who the club are actively looking to offload which could move the dial into the green. That said, the club may yet make further additions.
The club’s finances have been boosted by loan fees for Marquinhos and Kieran Tierney, the receipt of a sell-on fee for Konstantinos Mavropanos’ move to West Ham, and are likely to be aided further by a sell-on fee for Matteo Guendouzi’s prospective move to Lazio.
This sounds great, Arsenal have bought in four top players with only minor impact on the accounts. But of course, it’s not that simple…
The annual recurring impact of Arsenal’s business is (£62.9m). The players they have brought in are on higher wages and will incur greater amortisation charges than those they’ve sold. The one-off impact of player sales and loans of £55.9m is the only reason the club aren’t in a much larger net deficit this summer. That means next season (2024/25), in order to maintain the Kroenke’s sustainable model, the club will need to offset this season’s transfer business with an additional £62.9m of revenue.
While some clubs (e.g. Chelsea) have relied on player sales on a regular basis in the past to offset operating losses, Arsenal have not traditionally been a selling club. The club will instead hope that their investments this summer generate success and lead to increased revenue.
It remains to be seen whether Arsenal’s summer business will be deemed a failure or a success, from a footballing perspective and a financial one. While the club have not blown the bank in this financial year they have burdened themselves with increased costs in future years. They must now hope that their investments yield significant returns on and off the pitch.
