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Can Arsenal spend enough this summer to close the gap to the top?


How much will Arsenal spend on the transfer market in the summer of 2019? This question has been burning in the minds of fans since the end of 2018 when the club’s meagre budget for the January window was the subject of much debate. With the club only able to sign players on loan, many fans were left wondering just what exactly had happened to the transfer war chest that estimates had once suggested reached £200m not so long ago.

In the media, the spread of estimates has been a veritable chasm, with some claiming a budget of a paltry £40m, others a more competitive £100m and up. What is so peculiar about the club’s accounts that leaves such a disparity between these estimates? And is there any way that Arsenal can spend enough this summer to close the gap between itself and the top of the table?

The Europa League Problem

The longer Arsenal has stayed out of the Champions League, the more it has played a role in kneecapping transfer market spending power and flexibility. The club had a net spend of £92.4m in 2016/17, the most recent season of Champions League football. In Arsenal’s first season of Europa League play, 2017/18, it paradoxically recorded a club record pre-tax profit of £70m. However, that figure is misleading due to the £120m it made from player sales, resulting in a net spend on player transfers of +£3m. This was in spite of an 8% decline in revenue, from £423m to £388m that was mainly due to decreases in broadcast, matchday and commercial revenue as a result of their drop out of the more lucrative Champions League.

This season (2018/19), without the luxury of record income from player transfers, the financial picture will be far less rosy when eventually published. The club is expected in some circles to post an operating loss between £40m and £70m. This will eat tremendously into the club’s current cash or cash equivalent balance of £231.3m. 

Arsenal’s net spend for the 2018/19 season across both transfer windows was -£67.59, leaving this figure as the primary factor in the club’s expected operating loss, assuming similar revenue levels to the 2017/18 season. This is not an unreasonable expectation, with the club participating in the same competitions as the season prior, with little change to commercial revenues apart from a sleeve sponsor and other minor partnership agreements.

The squeeze

Taken in isolation, this season’s expected hit to the club’s finances could be seen as disastrous to its transfer plans going into next season. However, relief is expected to arrive in the form of new sponsorship agreements with Adidas (~£60m per annum compared with the £30m of the expiring Puma shirt deal) and fresh terms with the Emirates Airline that should see a sizeable bump from the previous deal.

Additionally, a wage bill that climbed from just under £200m to £223.3m (excluding “exceptional costs”, the £17.2m paid in compensation to Arsene Wenger and his departing staff) in 2017/18, and was again increased slightly this season due to the arrival of five new signings in the summer 2018 transfer window, should see relief arrive in the form of expiring contracts this summer.

Between the departures of Aaron Ramsey, Petr Cech, Stephan Lichtsteiner, Danny Welbeck, Nacho Monreal and Carl Jenkinson, the club could trim approximately £33m from their 2019/20 wage bill, according to publicly available data. Given the club’s allowance under current rules to increase the wage bill by £7m each season before factoring in non-TV revenue increases that could see that figure rise even more, the club could conceivably increase the wage bill by £40m for the 2019/20 season, though this number could be reduced slightly by the return of loanees like Calum Chambers and Krystian Bielik.

The club may be hesitant to inflate wages to this degree, but considering that increase would be enough to fund around four players on £200k per week, it should be more than enough breathing room for the club to improve the quality of the squad.

However, the temporary problems the club has had this season with wage bill growth aside, the real question on fans’ minds for this summer is how much the club can spend on transfer fees, a real issue in the current market that has seen transfer costs balloon in recent years. Over the last five seasons, the total net spend of teams in the Premier League has increased from £410.5m in 2014/15 to just over £1 billion in 2018/19, figures that have a direct correlation with the massive increase in television revenue that has exponentially increased the purchasing power of teams in the richest league in the world.

The reward of a Champions League return

Setting aside all other factors, including Champions League qualification, sponsorship increases and player sales, a starting transfer budget between £50m and £70m can be reasonably expected. Most estimates on this figure tend to fall within this range. However, should Arsenal qualify for the Champions League this season (something the club is currently in a position to achieve, touch wood), this budget could be heavily bolstered.

In prize money alone, the Champions League winner can expect to earn nearly four times as much as the Europa League champion, with figures from 2017/18 showing a maximum prize pot of €57.2m (£49m) in the former versus €15.7m (£13.5) in the latter. Simply qualifying for the group stage of the Champions League netted each club €12.7m (£11m), just €3m less than the winner of the Europa League made for their participation in the entire competition.

Between 2017 and 2018, Arsenal lost £18m in broadcasting revenue, a discrepancy largely explained by the drop down into the Europa League. A top-four finish and/or a Europa League victory would ensure the club recover as much if not more than that £18m, which is sure to help the club’s transfer budget.

The summer budget

Given the myriad of factors the club must weigh when setting its transfer budget, it is near impossible from the outside to accurately predict what that figure might be. The preceding assessment in this piece relies heavily on figures from previous seasons, as the club will not publish their accounts for the 2018/19 season until after the season is complete. There will certainly be a variation in the wage bill figures and UEFA competition payments once the official records become public, but working just from what we have learned, it is possible to make a rough estimate of how much the club can spend this summer.

Even within the realm of estimation, there are two separate figures that must be accounted for: transfer expenditure and net spend. Technically speaking, the club could spend over £200m in transfer fees this summer so long as it is supplemented by offsetting player sales. Realistically, however, Arsenal is highly unlikely to exceed £100m in net spend. Over the last five seasons, the club has an average net spend of £52.14m, leaving them trailing only Manchester City and Manchester United over that same five year period. 

Given the abnormally high number of expiring contracts, improved sponsorship agreements kicking in and the hopeful return to the Champions League, fans can expect the club to register a net spend this summer that exceeds their current five-year average. I fully expect the club to spend somewhere between £110m and £130m on transfer fees this summer, subject to change, of course, based on target availability and the rapidly changing picture that transfer windows tend to provide.

This would fall in line with Unai Emery’s optimism that the club will be prepared to invest in the squad this summer should the right opportunities arise. It would also give the club ample capital to play within their bid to close the gap with the top teams in the Premier League table, while still practising the financial discipline and efficiency preached by Director of Football Raul Sanllehi in the autumn. 

In spite of this, I equally expect the club the recoup some of this expenditure through player sales, with Shkodran Mustafi’s name frequently popping up on such lists of possible departures. It is difficult to predict which players might be sold in addition to the planned departure of players on expiring contracts, but the Gunners should be able to generate between £30m and £50m from such sales. This would put the club’s net spend between £60 and £100m; far from the dreams of many supporters who cast jealous glances toward Chelsea and Manchester City and their mega-rich, money is no object owners. However, given the improvement we have seen in the squad this season under Unai Emery, as well as perhaps the most talented group of youngsters to have come through the Hale End academy in years, it should be more than enough money to improve and refresh a squad still very much in the image of Arsene Wenger. 

Ultimately, that is the key to Arsenal’s summer transfer plans. As we have seen with the £2m acquisition of Rob Holding two years ago and the £7m fee paid for emerging star Matteo Guendouzi last summer, it’s not how much a club spends, but rather how intelligently it spends. Four of the five new arrivals from last summer have made an instant impact on the team and have become vital members of Unai Emery’s squad. If the club manages a similar hit rate this summer, not only will the team be better for it, but Unai Emery should have a squad even more to his liking and capable of executing his philosophy. For a club desperate to return to its rightful place, battling for Premier League supremacy, this can only be a good thing.

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