Professional Documents
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Abstract
The economics of football are relatively simple so football is a good study if we are learning
accounting, and the first subject of this case study.is how well do the financial statements of a
football club describe what is going on?
Football is a famously difficult business to make money in. Football revenues are burgeoning, but
the money mostly finishes up in the pockets of the players. As a result, many of the worlds top
football clubs lose money, and very few earn what would normally be considered a decent return for
investors. Arsenal has been an exception. It had no choice it was a public company listed on a
stock market and lacked a rich owner with deep pockets. So the second subject of this case study is
whether, and how, Arsenal managed to make money from football.
This case was prepared by Professor Chris Higson with assistance from Julie Conder. The case study
was prepared in 2014 from publicly available information, as a basis for class discussion rather than to
illustrate either the effective or ineffective handling of an administrative situation.
Copyright 2014. All rights reserved. No part of this case study may be reproduced, stored in a
retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying,
recording or otherwise without written permission.
Real Madrid
FC Barcelona
Bayern Munich
Manchester United
Paris Saint-Germain
518.9
482.6
431.2
423.8
398.8
Manchester City
Chelsea
Arsenal
Juventus
AC Milan
316.2
303.4
284.3
272.4
263.5
The big football clubs have seen big increases in all three sources of revenue matchday,
broadcasting, and commercialisation in recent years. But most of this finished up in the pockets of
the players and what did not go on wages went on transfer fees. The overwhelming imperative for any
top football club is to stay at the top, so the surplus earned in a good year was likely to be immediately
earmarked for acquiring more talent. Top football stars may be paid 10m a year or more. These
people possess unique talents and are immensely valuable intangible assets to the clubs they play
for, so there is intense international competition for their services. The puzzle is the wages of the
players below that level; the journeyman players. In the English Premiership, most or all of the players
earn 1m a year or more, and around 70% of revenues go on player wages. In the English
Championship, which is the second-tier league, that number is over 100%.
So although the revenues of big-club football are booming, clubs have found it hard to make a profit
and even harder to earn an adequate return for investors. Many clubs only survive because of the
largesse of a sugar daddy a rich owner willing to make up the losses giving them an unfair
advantage over a club that didnt have one of these benefactors. Following a growing sense that
something needed to be done, UEFA issued its financial fair play rules in the 20112012 season.
These rules are trying to change behaviour by focussing on two numbers: losses and wages. The
financial fair play rules seek to limit the ability of clubs to be serial loss makers, and they put a cap on
wage bills. In principle, the rules will be tightened season by season, and backed up by sanctions.
Arsenal
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Arsenal
2
Arsenal
3
How much do the financial statements tell us about the value of the development properties?
How is the intangible asset number measured, and does it tell us what Arsenals players are
actually worth?
How much is Arsenal borrowing, net of cash? Does it have any off-balance-sheet borrowings,
for example, under operating leases?
The final question is, as of 2013, how have Arsenal managed the cost of financing its new
stadium?
A companys income statement measures its revenues and its costs, and thus its profit in the year.
Do we get a clear understanding of the various sources of income footballing and otherwise
at Arsenal?
How much of Arsenals financial performance came from football, and how much from its
other activities?
Overall, has Arsenal created value for its investors? Assuming equity investors have a
required return of, say, 10% and that the weighted average cost of capital (WACC) is 8%, has
Arsenals return on capital beaten that?
Arsenal
4
Cash
Receivables
Stock
Development properties
CURRENT ASSETS
Tangible
Goodwill
Intangible
Investments
Other
LONG-TERM ASSETS
TOTAL ASSETS
Debt
Trade creditors
Accruals & deferred income
Other
CURRENT LIABILITIES
Debt
Deferred income
Other
provisions re player tfrs
other provisions
Provisions
LONG-TERM LIABILITIES
Share capital
Share premium
Retained earnings
SHAREHOLDERS FUNDS
TOTAL L&SF
2000
7,261
9,586
582
17,429
36,491
2001
42,502
25,407
638
13,987
82,534
42,024
2002
14,680
9,770
455
25,569
50,474
46,430
2003
1,351
23,148
808
30,745
56,052
124,770
2004
26,003
30,647
702
20,009
77,361
209,615
2005
71,629
26,449
711
28,125
126,914
314,822
2006
35,598
44,736
504
44,446
125,284
451,501
2007
73,857
31,028
11,166
100,080
216,131
455,300
2008
93,264
32,340
1,218
187,964
314,786
449,517
2009
99,617
45,981
1,751
167,007
314,356
440,369
2010
127,607
62,289
1,887
45,755
237,538
434,494
2011
160,229
27,435
1,114
33,460
222,238
431,428
2012
153,625
52,332
1,681
37,595
245,233
427,157
38,832
45,111
53,060
39,396
34,989
28,983
66,555
12,000
87,323
104,752
87,135
169,669
3,781
103,271
153,745
3,563
167,729
223,781
18,697
263,301
340,662
8,479
352,284
479,198
4,253
522,309
647,593
64,671
76
5,117
525,164
741,295
55,665
406
13,939
519,527
834,313
68,446
730
9,508
519,053
833,409
60,661
1,053
2,928
499,136
736,674
55,717
1,648
2,214
491,007
713,245
85,708
2,326
5,201
520,392
765,625
2013
153,457
88,484
2,131
12,987
257,059
421,539
1,924
96,570
3,031
8,287
531,351
788,410
0
740
17,111
16,144
33,995
14,438
1,851
9,460
0
839
34,513
17,260
52,612
14,438
3,906
3,841
0
5,728
32,005
20,817
58,550
14,438
2,051
3,382
47,180
29,317
40,121
9,011
125,629
14,438
815
2,383
23,715
6,843
54,579
18,400
103,537
143,556
2,439
2,584
3,930
3,930
29,679
56
237
40,785
41,078
104,752
3,073
3,073
25,258
59
26,699
65,041
91,799
169,669
3,121
3,121
22,992
59
26,699
45,445
72,203
153,745
4,305
4,305
21,941
59
26,699
49,453
76,211
223,781
4,183
4,183
152,762
59
26,699
57,605
84,363
340,662
19,572
9,491
59,748
18,433
107,244
205,388
27,739
5,579
2,192
8,400
10,592
249,298
62
56,696
65,898
122,656
479,198
22,816
15,747
100,031
29,109
167,703
274,926
35,471
10,843
10,702
17,390
28,092
349,332
62
56,696
73,800
130,558
647,593
4,122
15,723
100,933
29,239
150,017
336,090
68,680
11,350
12,126
19,658
31,784
447,904
62
56,696
76,616
133,374
731,295
142,835
7,844
142,045
41,528
334,252
268,502
31,782
9,919
12,116
18,642
30,758
340,961
62
56,696
102,342
159,100
834,313
134,102
13,698
121,092
45,204
314,096
263,195
20,319
9,234
8,204
24,031
32,235
324,983
62
56,696
137,572
194,330
833,409
5,248
11,079
110,800
27,708
154,835
257,998
14,680
11,205
6,272
36,362
42,634
326,517
62
56,696
198,564
255,322
736,674
5,583
10,324
84,001
31,196
131,104
252,473
13,500
9,939
5,057
33,217
38,274
314,186
62
56,696
211,197
267,955
713,245
5,937
10,983
86,812
41,427
145,159
246,606
12,699
8,761
13,103
41,749
54,852
322,918
62
56,696
240,790
297,548
765,625
6,310
9,191
98,842
35,588
149,931
240,368
21,614
12,739
11,195
49,208
60,403
335,124
62
56,696
246,597
303,355
788,410
Arsenal
5
Table 3 Arsenal income statements (figures in 000, year end 31 May), profitability and financial structure
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
61,260
-29,692
-22,628
-52,320
-10,172
22,216
0
90,967
-54,233
-44,648
-98,881
-17,681
2,873
-512
117,831
-52,419
-42,593
-95,012
-18,774
1,370
-165
156,887
-61,322
-58,903
-120,225
-26,406
2,282
-67
138,395
-56,606
-49,158
-105,764
-14,993
2,894
204
137,237
-68,929
-56,846
-125,775
-15,401
19,150
499
200,843
-77,650
-81,035
-158,685
-18,782
18,467
435
222,970
-88,258
-86,222
-174,480
-21,757
26,458
469
313,339
-90,690
-160,260
-250,950
-23,876
23,177
455
379,856
-96,652
-222,620
-319,272
-25,033
38,137
463
255,692
-109,578
-102,550
-212,128
-21,658
6,256
822
243,013
-123,298
-99,237
-222,535
-36,802
65,456
952
280,374
-135,483
-131,823
-267,306
-41,349
46,986
945
20,984
243
-12
21,215
-7,105
14,110
62,911
-31,631
-32,636
-64,267
-15,145
25,121
-834
20,000
27,786
1,853
-238
29,401
-5,145
24,256
-23,234
1,087
-196
-22,343
1,781
-20,562
5,250
168
-889
4,529
-521
4,008
12,471
105
-1,999
10,577
-2,425
8,152
20,736
1,601
-3,072
19,265
-10,972
8,293
15,710
2,306
-2,131
15,885
-7,983
7,902
42,278
2,688
-39,393
5,573
-2,757
2,816
53,660
4,037
-21,029
36,668
-10,942
25,726
62,145
2,714
-19,347
45,512
-10,282
35,230
74,151
697
-18,880
55,968
5,024
60,992
28,984
566
-14,774
14,776
-2,143
12,633
50,084
955
-14,451
36,588
-6,995
29,593
19,650
1,124
-14,120
6,654
-849
5,805
EBIAT
13,948
23,126
-21,186
4,513
9,478
9,323
7,780
28,510
37,960
47,206
74,084
22,863
39,580
15,682
Debt
less Cash
Equity
CAPITAL EMPLOYED
Average equity
Average capital employed
14,438
-7,261
41,078
48,255
14,438
-42,502
91,799
63,735
66,439
55,995
14,438
-14,680
72,203
71,961
82,001
67,848
61,618
-1,351
76,211
136,478
74,207
104,220
167,271
-26,003
84,363
225,631
80,287
181,055
224,960
-71,629
122,656
275,987
103,510
250,809
297,742
-35,598
130,558
392,702
126,607
334,345
340,212
-73,857
133,374
399,729
131,966
396,216
411,337
-93,264
159,100
477,173
146,237
438,451
397,297
-99,617
194,330
492,010
176,715
484,592
263,246
-127,607
255,322
390,961
224,826
441,486
258,056
-160,229
267,955
365,782
261,639
378,372
252,543
-153,625
297,548
396,466
282,752
381,124
246,678
-153,457
303,355
396,576
300,452
396,521
METRICS
Return on Capital Employed
Return on Capital Employed, after tax
Return on Equity
Economic Profit
49.6%
41.3%
36.5%
18,646
-34.2%
-31.2%
-25.1%
-26,614
5.0%
4.3%
5.4%
-3,825
6.9%
5.2%
10.2%
-5,007
8.3%
3.7%
8.0%
-10,742
4.7%
2.3%
6.2%
-18,968
10.7%
7.2%
2.1%
-3,188
12.2%
8.7%
17.6%
2,884
12.8%
9.7%
19.9%
8,438
16.8%
16.8%
27.1%
38,765
7.7%
6.0%
4.8%
-7,407
13.1%
10.4%
10.5%
9,090
5.0%
4.0%
1.9%
-16,040
Gearing
-44.0%
-0.3%
44.2%
62.6%
55.6%
66.8%
66.6%
66.7%
60.5%
34.7%
26.7%
24.9%
23.5%
SALES
wages & salaries
other operating expenses
Operating Expenses
Amortisation of players
Profit on disposal of players
Share of Joint Venture
Exceptional: profit
EBIT
Interest income
Interest expense
EARNINGS BEFORE TAX
Tax
EARNINGS
Arsenal
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