Arsenal Football Club: A Financial Blueprint for Global Investment
Business & Finance of Sport Portfolio: Arsenal FC
Arsenal Football Club is one of the world's largest football clubs with a rich history, devout fan base and an incredible brand presence. This portfolio is presented to major international investors looking to diversify their holdings. By looking at this portfolio, investors can decide whether their resources are worth investing in such a successful football club as Arsenal. The portfolio will break down and evaluate a couple of sections that will provide clarity on Arsenal's finances. To help persuade the investor's decisions, the portfolio will evaluate the club's financial health, business management strategies, and the financial contributions that Arsenal’s most valuable player, Bukayo Saka provides to the club.
First, we need to look at the Club's financial health. Club health is crucial to potential investors as it sheds light on the club's finances by providing in-depth data. Depending on where the club stands in financial terms will affect the probability of new external investment from abroad. A key aspect in looking at the club's health is reviewing its cash flow, balance sheet, and income statements to see what their current financial status is, and outlook for the future. There have been situations in which clubs were positive at the time of investment, yet external factors showed that the club was headed in a negative direction. That is why it is necessary to paint the complete picture for potential investors. A deep analytic dive into the club's revenue stream, expenses, profitability, debt levels, and cash flow will help determine how healthy Arsenal Football Club is.
Looking at the club's main sources of income from the 2023/24 fiscal year, broadcasting revenue was the most significant money maker for the club, bringing in a reported £262.3 million. This is a significant rise from the 2022/23 season numbers of £191.2 million in revenue (which is 37% less). This is primarily due to the club making its first appearance in the Champions League in six years. Since finishing in the top four last season, the domino effect of having greater success on the pitch has led to a substantial rise in commercial revenue of approximately £49 million. The Club made prominent business decisions like extending the renewal agreement with one of the club's most prominent sponsorships, Emirates Airlines. The airline company holds the naming rights to the stadium and shirt sponsorship These new agreements led to £218.3 million in revenue compared to last season's £169.3 million. Lastly, the club's matchday revenue saw an almost 28% increase compared to last year., from an impressive £102.6 million for the 2022/23 to a staggering £131.7 million for the 2023/24 season. From gate receipts, sales of merchandise, and food and drink sold in the stadium, the club excelled in all areas of matchday revenue for the 2023/2024 season. Record reported revenues of over £616 million is a significant increase from the previous year’s revenue of £466.7 million. Thanks to successful football played on the pitch, continued support from the fans, and successful partnerships with massive brands like Adidas and aforementioned Emirates Airlines, Arsenal was able to have its most successful financial year of all time.
With the improved performances on the pitch in comparison to the 2022/23 season, Arsenal increased their investment in players through more generous contracts for current players and new superstar signings, raising the club's expenses by almost 40%. The club also saw a rise in operational costs, with newly added staff to help manage the growth. The 2022/23 season, the club spent £234.8 million on wages and it ballooned to almost £328 million for the 2023/24 season.
Despite operating at a record-high revenue of £616.6 million, the club reported a loss of £17.7 million in the 2023/24 season. However, this loss marks a significant improvement from the £52.1 million loss in the previous season. The reduction of account loss can be attributed to the club's improved earnings from the Champions League and Premier League, indicating a positive direction for the club. Arsenal currently stands to lose millions of pounds each season. However the closer the club gets to £0 lost is a positive sign for what's to come. While the Club is not yet profitable, the overall consensus of the trajectory of the club's financial health are promising, offering potential for future profitability.
While the club does carry long-term debt linked to the financing of Emirates Stadium, Arsenal has implemented structured repayment plans to manage this financial burden. This strategic approach to debt management, along with the support from the company KSE UK Inc., owned by Stan Kroenke and operated by son Josh Kroenke, instills confidence in the club's financial stability and management among potential investors.
The club's cash flow is the final aspect of analyzing its financial health. Cash flow is the movement of money coming in and out of a business. In this context it is based upon a few factors which include: Incoming and outgoing players, wages, ticket sales, operational costs, commercial money, sponsorships, participation in significant competitions and merchandise. All these aspects of cash flow directly affect the club's liquidity level, which is how easy it is to turn an asset into cash. In the 2022/23 season, the club had a respectable cash flow of £42.8 million. Like the other components of the club's overall health, 2023/24 saw an increase of 56% in the club's cash flow, growing to almost £67 million.
For an estimation on the Club's value, we use three primary methods. The revenue multiples approach is the first method used when determining a valuation. The club's total revenue is multiplied by 4-6 times known as the industry multiples to determine the value. These multipliers depend on market conditions, profitability and growth prospects. Applying the club's reported revenue of £616.6 million from the 2023/24 season and using the revenue multiples approach, the club can be valued in the range of £2.47 billion and £3.7 billion.
Asset-based valuation is the second method that can be used for the club's valuation. This method assesses all the club's tangible and intangible assets, including brand value and stadium infrastructure, and puts a price tag on it. The tangible assets under the club's ownership are the Emirates Stadium and Sobha Realty Training Centre. Operating at maximum capacity, the Emirates holds 60,000 fans. Considering the location in London and the revenue-generating potential, the club can base their valuation somewhere between £400 million and £600 million. Looking at the club's intangible assets, the Arsenal brand is one of the biggest in world football. It is recognized across the entire globe and that stature contributes significantly to its value. According to Forbes' 2024 valuation, the brand is worth around £542 million. This value reflects the club's strong commercial activities like brand and commercial partnerships. Combining the tangible and intangible assets and accounting for the minimal amount of debt and liabilities, the valuation closely aligns with the revenue multiples estimate, suggesting a valuation of somewhere between £2.5 billion and £3.7 billion.
The third and final method used to determine the club's value is a market-based comparison. Using as a benchmark to other similar-sized clubs that have been sold recently, we can determine a value based on those acquisitions. Using this theory, we can look at Chelsea FC's £4.25 billion acquisition by Todd Boehly and Clearlake Capital in May of 2022. Chelsea's valuation stemmed from the club's recent on-field successes, the large wage bill, and the Chelsea brand. Comparing the two clubs, we can see that there are similarities in brand size, but Arsenal’s wage bill and competition success over the past few years are not comparable to crosstown rivals Chelsea. Since Arsenal has not been as strong on-field in recent years, we can stick with the general lower valuation of between £2.5 billion and £3.7 billion.
After considering all three methods and reviewing the current circumstances of the Club, we can estimate the valuation to be in the region of £2.5 billion and £3.7 billion. This valuation has been determined by the portfolio that the club has in its current possession, like the robust revenue generation, the club's tangible assets and the club's strong position in the market, being one of the largest football clubs in the world.
To keep Arsenal headed on the right track, a few strategies need to be implemented to keep the Club financially strong and viable.. The first strategy is cost control. There needs to be a strong, forceful oversight on cost control to ensure the club stays competitive with other clubs of similar stature. The best way to keep up is by being smart in the transfer market with sales and acquisitions, optimizing the wage bill, streamlining stadium operations and administration to reduce the overhead costs. With wage optimization, the structure needs to stay intact with perks like performance-based contracts rather than large sums of money just for appearances. They need to make sure that the expenditure of good and bad contracts stays balanced. With a large focus on scouting and development among academy players, it could reduce the reliance upon spending millions of pounds to purchase players from other clubs. Not only is the club spending that money on a non-home-homegrown player, but those funds are also being sent to clubs that will use it to strengthen their own squad, eventually facing our club in a competition. The Club should lean towards giving their own players big contracts. Even if players are not performing well, they get paid. Protocols should be set up to ensure a way to balance the overspending of one player to an underspending of another.
Over the past few seasons, the Club's strategy around revenue growth has achieved exponential growth. In the 2023/24 season, the club saw commercial revenues rise to a record high of £218.3 million. To ensure the club continues its exponential growth, it must continuously explore new sponsorship expansion opportunities . The best way to execute this plan is by reaching out to new global brands to help the Club emerge in new markets so as to grow in popularity and help facilitate additional sponsorship deals. With the new partnerships and sponsorships, the club can capitalize upon the social media and digital content opportunities that it creates. Leveraging media for the club will expand the fan base and increase engagement which will increase potential revenue. The last area in which the club's revenue can grow is stadium utilization. Emirates Stadium is a top football stadium capable of hosting events like concerts, football matches, parties, etc. On the rare summer occasion, the Emirates will host a couple of concerts for top artists, but apart from welcoming fans to watch the Arsenal once a week, the stadium sits empty, making money just from stadium tours and club store sales. The revenue that the Emirates stadium generates can be enhanced if there is a push to host more non football-related events. Clubs like West Ham and Tottenham are perfect examples of how they diversified their revenue by hosting large events that are not related to football. From hosting concerts, to NFL (National Football League) games and even MLB (Major League Baseball) games, these two clubs are utilizing their stadiums to make millions of extra pounds to help the club grow, ultimately leading to better performance on the pitch.
The final strategy that is to be assessed is analyzing the risks presented by the clubs' on-field performance. Since the club's re-entrance to Champions League football, it has been presented with significant revenue opportunities not just for the prize money that the club will receive for simply competing in the competition. However, the risks that come with the revenue boost are that the club may be more susceptible to taking considerable financial risks to improve the squad. These financial risks are made in the hope that their performances capitalize on the significant investments made into the squad.
For the player performance analysis of this portfolio, the club has chosen Bukayo "Starboy" Saka as their player to analyze. In the 2023/24 season, Saka performed exceptionally well for his club and country (England), having a G/A (Goal/ Assist) of 34 in 47 matches across notable competitions like the Premier League and Champions League. In the first half of the 2024/25 season, Saka was on pace to have his best season yet, with a G/A of 23 in just 24 matches in all competitions. Unfortunately, a serious thigh injury requiring surgery had him out of action for over 3 months. In Saka's absence, it was clear how vital he was to the club's success; the club has struggled to keep up with league leaders like Liverpool in challenging for the Premier League title.
Saka’s financial value to the club is massive, having the most named jerseys sold compared to his teammates. His marketability and popularity comes with a great value to the club. With almost seven million followers on Instagram and as a brand ambassador to New Balance and Burberry, Saka is proving his worth on and off the pitch. Based on the Human Capital theory (Investment into an individual leading to their output and will enhance their capital) Saka's high wages are justifiable due to multiple factors including having one of the largest transfer values in the world, the money he brings in from merchandising, marketability and global recognition. This offsets his high wages, proving the investment in the player's wages to have clearly paid off. The club will continue to reap the rewards of their "Starboy" Saka. The return on investment (ROI) for a player like Saka, is massive as he’s a big money maker to the club and helps the revenue grow exponentially and will continue to grow for years to come. Despite his injury setbacks, the club is confident that Saka will remain the most valuable asset to the club.
This portfolio aims to provide valuable insight into Arsenal Football Club's financial health, an overview of strategies used when managing the business, and an in-depth player performance analysis of Bukayo Saka and the value he provides to the club. These 3 topics were dissected and summarized to persuade international investors to invest their money for financial gain and to help facilitate success on the football pitch. With little to no debt, improved cash flow, and record year for revenue, the club is in a prime position for investment to reach new heights, build upon its success, and make great strides towards winning major trophies. A few strategies have been implemented to ensure the club continues to grow by implementing strategies that increase revenue while maintaining current expenses. Making sure there is cost control on the wage bill and a need for additional focus on academy development to decrease the amount of money spent on players from rival clubs. Another strategy emphasized is that the club strives to create new sponsorship and partnership opportunities which would benefit the club from a revenue growth perspective and reach new untapped markets, which leads to more fans. Lastly, the portfolio has provided insight into the performance analysis of the club's star player Bukayo Saka. Regardless of what the club pays him, his ROI is astronomical, as he attracts new fans to the game, which will pay off in the long run for Arsenal. If foreign investors use this portfolio as guidance to help Arsenal reach new heights, the success on and off the pitch will continue to grow for years to come.
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