Arsenal Could See Short-Term Pain After Wenger's Reign Concludes

(Bloomberg) -- The soccer world may be wondering who will replace Arsenal’s legendary manager Arsene Wenger when he steps down at the end of the season. But first the team could use a good accountant.

Arsenal Football Club, which has gone more than 100 years without being relegated from top-flight English football, may see its short-term financial performance become more volatile than its results on the pitch while it searches for Wenger’s successor, according to Fitch Ratings. Over the long-term, the ratings agency expects a neutral to positive performance by the London-based club, as Arsenal is likely to replace the longtime coach, who managed more Premier League matches than anyone in history and won the league three times, with an experienced manager.

For the fiscal year ended May 31, 2017, Arsenal reported a more than 20 percent increase in revenue to 422.8 million pounds, with pretax profit rising to 44.6 million pounds from 2.9 million pounds the year before, buttressed by the lucrative Premier League TV rights packages.

Fitch’s declining outlook for the club has precedence. Rival Manchester United, run by the U.S.-based Glazer family, went through its own transition after its longtime manager, Alex Ferguson, left in 2013. The team churned through two successors and an interim manager with middling success, before finally stabilizing when it made Jose Mourinho boss last season. Still, the club has yet to reach the highs it did under Ferguson, having taken only two major trophies since last winning the league in 2013.

In the 2016-2017 season, United saw its league-leading revenue increase 12.8 percent to 581.2 million pounds, with pretax profit of 56.6 million pounds. But to understand the financial difference between the rival clubs, you really need to look at their debt.

Arsenal Could See Short-Term Pain After Wenger's Reign Concludes

United’s net obligations dwarf those of Arsenal. At the end of the 2017 calendar year, its net debt was 328.6 million pounds with cash balances of only 265.7 million pounds. The debt, which comes from the Glazer family’s purchase in 2005 and its reliance on external financing measures to run the club, is down from its 2010 peak of 716.5 million pounds.

In contrast, Arsenal’s net debt at the end of the 2016-2017 season was just 47 million pounds, with about 180 million pounds in cash and short-term deposits in the bank and a further 42.7 million pounds owned on transfers.

However, if Arsenal is forced to spend its way back to the top like United has, its healthy finances could very well deteriorate. And if it doesn’t take those steps, the club’s place among English football’s elite may continue to decline. It’s a question only Arsenal’s leadership can answer: What’s more important, the balance sheet or the standings?

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