Arsenal’s “£50m budget” explained

The talk still continues. “Arsenal have a £50m transfer war chest”. As blogged about recently, the £50m war chest is nothing but a figure to add weight and clicks to articles.

Recently big Dave Ornstein mentioned a pre-sales budget of ~£50m. The reliable BBC man is the only journalist I have seen get closer to the truth in what we have to spend, as he discusses “pre-sales”.

In Arsenal’s history, we have only had a net transfer spend above £50m twice. So if the new manager is given £5 to spend, that is not the bad starting point that many make up.

The key point that very few journalists make is that Arsenal have around £50m to spend this summer. Not a £50m transfer budget.

“Arsenal hand manager £50m transfer budget” will get more hits than “Arsenal have £50m to spend on wages & transfer fee amortisation”. And then for the majority of gossip red tops, where journalists are paid to create hit garnering articles for advertising revenue, they do not have time to go into the truth. As the truth won’t sell.

So Arsenal do have around £50m to spend this summer – before anyone is sold. But this does not mean we have £50m to spend on players (ie it’s not as simple as a £30m goal keeper, a £10m centre back and a £10m midfielder).

We know Arsenal will have around £50m to spend based on club accounts, which have shown a consistent £40-£50m profit before player sales for the last few years. You can not spend money you do not have – unless you want to go into debt or be a rich mans play thing.

So basically, Arsenal can increase their costs of running the business, or the expenditure if you like, by about £50m and still break even as a business. What it does not mean is that we have £50m for transfers.

From this £50m budget, the club will have to to cover any increase in yearly wages, increase in agents fees and the amortisation of transfer fees.

Any increase in wages has to come out of it the £50m. They are part of the overall budget.

Salaries are a cost. If you increase salaries and keep income the same, profits reduce. So any increase in salaries needs to come out of that £50m.

That mean’s Aaron Ramsey’s new contract has to come out of that £50m. Also out of this budget will come the wages of any new players we sign.

Say we buy the 5 players we need – a goalkeeper, centre back, defensive midfielder, attacking midfielder & winger – and Ramsey signs his new deal, our wage bill will rise by about £30m. That £30m comes out of the £50m budget.

But then this increase in wage bill will be offset by outgoing players.

The likes of Mertesacker and Cazorla. Potentially Ospina, Perez, Campbell & Jenkinson. Maybe Jack Wilshere.

Wilshere aside, the 5 cost in the region of £15m a year in annual salary. So that means our net increase in salaries next year will be about £15m.

This £15m is above the £7m yearly salary increase laid out by the Premier League, but Arsenal can prove where the additional funds have come from so are able to circumnavigate the rules.

So we increase the yearly wage bill by about £15m. That leaves us with about £35m to spend on players.

“A £35m transfer budget, that is even worse” you scream loudly into Twitter. You are wrong.

We do not have £35m to spend on transfers, we have £35m to spend on amortised transfer fees.

At this point please note I have excluded agents fees as I imagine they will be at a similar level to previous years, so the cost does not increase and impact the budget.

Football clubs are allowed to amortise the cost of a transfer fee over the length of his contract. In layman’s terms, this basically means “spread out”.

So take Mesut Ozil. He cost the club about £45m, and signed a 5 year deal. So his transfer fee was spread across 5 years, resulting in his yearly cost impacting on the budget by just £9m.

This summer that original 5 year deal comes to an end. Ozil is paid up. That would actually give us an additional £9m a year within our current accounts to spend on a player. But we spent that £9m in January on Pierre-Emerick Aubameyang.

Aubameyang cost £50m, signing a 3 and a half year deal. This will cost Arsenal £14m a year, but with the saving on Ozil transferred across, Aubameyang actually only increases our costs by about £5m a year. Good deal.

With then have the Mkhitaryan / Sánchez swap deal. Sanchez’s transfer fee will be written off in the next accounts, Mkhitaryan cost us nothing. That is a saving to the club in amortised transfer fees of about £9m a year again (Sanchez cost less than Ozil, but had just a 4 year contract).

So we fast forward to this summer. We have established that we can increase the clubs outgoing by about £50m. £15m will be take up by wages, so what does the remaining £35m get you?

Straight off the bat, we could buy a £20m centre back on a 4 year deal – that is the figure quoted for Borussia Dortmund’s Sokratis (I am not going to attempt to spell his surname). £20m over 4 years will cost the club £5m a year.

We could then sign Jean Michael Serri. He reportedly has a £40m release clause. Hand him another 4 year deal. That works out at £10m a year I the accounts.

So we have “spent” £60m in two players, yet the impact on the budget is just £15m. Still leaves us with £20m.

We could then go big. £50m on a goalkeeper. Give him a 5 year deal. True cost is £10m.

That leaves us with £10m to play with. For that we could go out and get 2 £25m players and hand them a 5 year deal. Or sign someone like Max Meyer on free, leaving us able to spend another £50m spread over 5 years.

So let’s list what Arsenal could actually sign within their £50m budget

1x £50m player on a 5 year deal

1x £40m player on a 4 year deal

1x £25m player on a 5 year deal

1x £25m player on a 5 year deal

1x £20m player on a 4 year deal

£160m outlay on players, yet it will only increase our yearly outgoings by £50m. It is within the budget.

Of course, the club won’t want to be bang on break even, as this leaves little wiggle room in future transfer windows. Although as previously signed players transfer fees become fully amortised, this frees up cash.

And this does not even include any profit we make from players sold. We could easily raise a further £20m just in the sale of Ospina, Jenkinson, Perez & Campbell.

The reality is, once fully explained, having a pre-sales budget of £50m is actually more than sufficient.

Have a good weekend. Enjoy the Royal Wedding. Up the Harry.

Keenos

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16 thoughts on “Arsenal’s “£50m budget” explained

  1. kelsey

    I understand your fugures but if the players don’t live up to expectations as has happened before many times we are paying over 3 or 4 years for someone who is either loaned out or is a squad player.Now with 9 players approaching the final year of their contract, Ramsey is the biggest monetary player we have who as yet hasn’t agreed a new deal.
    We will hopefully get a keeper a CD and a leader in defence with a physical presence,not 8 new players.It will take several seasons to get back consistently into the top 4. We will have to sell to supplement the finances available if they are 50 + million, as we always have done.
    Biggest mistake ever was appointing Kroenke so let’s see if the new backroom boys can install first and foremost a solid defence that plays as one, then midfield.Attack looks alright.Be it Arteata or not the club is now being run as a committee with a head coach not manager IMO

    Reply
  2. Pingback: Arsenal’s “£50m budget” explained - TACTICS FC

  3. Cillian Duffy

    Fantastic article. Well explained in ordinary language. Heres to the 5 world class players we get for our £50 million “budget”.

    Reply
  4. genetik

    Good article but there’s one part I’m unsure of.

    You said we could buy 5 players with an outlay of £160m and on the books it’ll be an annual player cost of £50m. But assuming we’re paying the cash upfront as is commonly done, we’d need that £160m available to spend now no?

    Reply
    1. Drew

      ‘Cash’ and ‘cost’ in the accounts are not the same thing.

      Ozil could have been fully paid upfront, but cost would still be amortised over the 5 years of his contract.

      So whilst the player ‘cost’ in the summer could be £50m in the books, it’s correct that the cash figure required could be significantly higher (or lower). Amortisation is merely an accounting principle to represent the value an asset gives over time, and shouldn’t be confused with actual cash.

      Reply
  5. What up?

    but what happens with the amortizations that are already being paid and will also be needed to pay this summer?
    Where does that money come from? Shouldn’t those amortizations also come from this transfer kitty?

    Reply
    1. Ant

      The “amortisation” that is already being payed for previous signings is already allocated to the overall budget of the club. The club doesn’t operate at an overall budget of £50m. £50m is just the amount available to INCREASE the clubs expenditure this year without having to sell players. Technically sales increase the available funds. So that fee is an increase that is not dependent on any other factors

      Reply
  6. Okome O'tega

    Brilliant article.
    But what this explains basically is how these funds are carried in the books following accounting principles/rules as the case may be.
    Depending on the contract agreement with the clubs for new players, we might actually cough out the 160m you mentioned.
    Question is, do we have that amount to payout upfront?

    Reply
  7. Alejandro Guilmant

    Neine, mein freund genetik… neither your, nor (some of) keenosafc’s premises, account for a) any sign-on fees (to the player, if at all), b) agents’ fees (a necessary evil, as stated by keeno), c) transfer fees (“down payment” to the OtHeR club vs yearly accorded transfer fees), d) any immigration/relocation/housing fees, e) sponsorship fees (like that of the Puma deal last year, which ALSO **could** be included in the transfer war chest) AND f) the NEW MANAGER’S CONTRACTUAL FEES… while keeno’s premises were mostly on-the-sniffer, he DID forget a couple important factors when tallying that warchest…

    Reply
    1. keenosafc Post author

      I did not forget. Majority of that is mentioned. The article was about amortisation of wages and how complicated budgets are. It is not as easy as syaing “we have a £50 war chest”

      Reply
  8. gunnerbear

    And of course, just as we ‘spread the payments’ to other clubs when we buy players, other clubs spread their payments when they buy from us…..so, usually, we don’t get a huge chunk o’ cash up front either when we sell player ‘A’ to team ‘Z’.

    Reply
  9. Pingback: Lichteiner and Meyer on a free, then invest that £70m in two positions & get excited - Suburban Gooners

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