In the next few days, Liverpool will put the finishing touches to a deal that will see Vigil van Dijk move to Merseyside from Southampton for a world record fee of $100M (£75M) for a defender.
The announcement set Twitter and other social media platforms into high gear. Liverpool supporters were in the main ecstatic; fans and some neutrals questioned the move and in particular, the cost involved.
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I received some Twitter messages from Arsenal supporters asking how Liverpool was able to spend at such a level while their club apparently was not.
Both Forbes and Deloitte in their rankings of “most valuable” and “revenue generation” have consistently ranked Arsenal higher although the gap has often not been that great.
In the last published rankings, Forbes ranked Arsenal 6th in the world of soccer in terms of “most valuable” and Liverpool 8th; Deloitte had Arsenal 7th and Liverpool 9th.
Forbes normally publishes in the late spring of each year while we can expect a new listing from Deloitte early in 2018.
Over this and one other article, I hope to provide readers with snapshots of Liverpool and Arsenal’s finances starting with 2014/15 and projecting through 2017/18.
As this is a comparison piece I have chosen to use £s as detailed in each teams’ financial reports rather than converting into US dollars.
In addition, transfer information varies considerably so some of the numbers will differ with information from various websites and media reports. Nonetheless, I feel that the comparison between the two teams is valid for the purpose.
Teams present their financial statements in slightly different ways. I have made some judgment calls in order to provide comparative information in as simple a way as possible.
An additional consideration applicable to Arsenal and not for Liverpool during the 2014/15 and 2015/16 seasons is a requirement for Arsenal to pay down the principal borrowed to build Emirates Stadium. From 2007 to 2016 that amounted to £92M and continues at a rate of around £8M a year.
Background
Both teams have faced significant financial challenges in this century. For Liverpool it was a case of digging out from the disastrous ownership years of Hicks and Gillet; Arsenal’s task has been to build Emirates Stadium in a time of financial uncertainty.
2014/15 marked a pivotal point in Liverpool’s recovery as the team generated a £59M profit before tax. The previous year Liverpool essentially broke even after 5 straight years of losses totaling £176M.
During these five years, Liverpool’s financial problems were systemic – the team was simply spending far more money than it generated.
On the other hand, Arsenal’s last loss came back in 2002. Arsenal’s dilemma was how to manage the construction of a new stadium in times of financial uncertainty and to find a way to repay the significant debt and interest costs attached to the new stadium.
The upside was that once completed Emirates Stadium did provide Arsenal with a massive jump in match day revenue as the crowd capacity jumped from less than 40,000 to 60,000 along with new revenue streams from a greater number of luxury and hospitality seats.
2014/15
The financial reports show Liverpool declaring a profit before tax of £59M – £41M more than Arsenal’s £18M.
| In thousands | Liverpool | Arsenal | Variance | Notes |
| Turnover | ||||
| Media | £122,641 | £124,844 | -£2,203 | |
| Commercial | £116,350 | £103,287 | £13,063 | 1 |
| Match day | £58,956 | £100,401 | -£41,445 | 2 |
| Share of joint venture | £0 | £762 | -£762 | |
| Property | £0 | £15,187 | -£15,187 | 3 |
| Total | £297,947 | £344,481 | (£46,534) | |
| Media (included above) | ||||
| UEFA | £27,937 | £29,820 | -£1,884 | |
| Premier League | £89,750 | £93,450 | -£3,700 | |
| Other | £4,954 | £1,574 | £3,381 | |
| Total | £122,641 | £124,844 | (£2,203) | |
| Expenses | ||||
| Salaries | £166,085 | £192,259 | -£26,174 | 4 |
| Redundancy | £0 | £0 | £0 | |
| Amortization and player w/off | £59,218 | £55,365 | £3,853 | |
| Depreciation | £3,308 | £14,618 | -£11,310 | 5 |
| Cost of sales | £28,265 | £28,265 | 6 | |
| Other expenses | £31,895 | £74,569 | -£42,674 | 6 |
| Total | £288,771 | £336,811 | (£48,040) | |
| Interest expense | £4,338 | £19,227 | (£14,889) | 7 |
| Profit on sale of players & loan fees | £54,238 | £29,749 | £24,489 | 8 |
| Profit / (Loss) before tax | £59,076 | £18,192 | £40,884 |
Ipad users, and likely all tablet users, can see the other columns by swiping right to left.
Notes – significant differences
- Liverpool edged ahead of Arsenal in sponsorships by £13M.
- The extra capacity enjoyed by Arsenal helped the team pocket £41M more in match day revenue.
- Arsenal was able to record £15M from the development of its former Highbury home.
- Liverpool had made a concerted effort to reduce salaries and incentivized contracts in the years previous and it meant that Liverpool spent £26M in salaries.
- With the new stadium comes a higher depreciation charge – Arsenal charges £11M more than Liverpool to its respective books.
- Liverpool charge “cost of sales” (the cost of providing sponsors with certain entitlement benefits) directly against revenue. Arsenal does not. I have moved this Liverpool cost to operating expenses. The effect is Arsenal paid out $14M more “other expenses” than Liverpool.
- Arsenal’s stadium debt incurs interest cost – an additional cost of nearly £15M.
- Liverpool sold Luis Suarez to Barcelona and this was the primary driver of the profit made on the sale and loan of players. Liverpool generated a profit of £54M, £24M more than Arsenal’s £30m.
Summary – The difference of £40M is down to Arsenal incurring more in interest costs and Liverpool generated more profit through the sale and loan of players.
How transfer fees paid and received are recorded in financial statements is different than each season’s net transfer spend. Fees paid are amortized over the life of a player’s contract (generally reduces in net value each season) while fees received are measured against the net value and a profit or loss is recorded in the statements.
Transfer spend (in millions)
| 2014/15 | Spent | Received | Net Spend |
| Liverpool | £132 | £86 | £45 |
| Arsenal | £107 | £25 | £82 |
| Variance | £25 | £61 | (£37) |
Liverpool signed the likes of Lallana, Lovren, Markovic, Balotelli, Origi and Can while selling Luis Suarez was the major transaction.
Arsenal signed Alexis Sanchez, Chambers, Welbeck, and Debuchy and sold Thomas Vermaelen to Barcelona.
2015/16
The financial reports show Liverpool declaring a loss before tax of £19M. Arsenal generated a profit of £3M – an overall difference of £22M between the final positions of the two teams.
| in thousands | Liverpool | Arsenal | Variance | Notes |
| Turnover | ||||
| Media | £123,636 | £140,579 | -£16,943 | 1 |
| Commercial | £115,680 | £106,907 | £8,773 | 2 |
| Matchday | £62,449 | £99,907 | -£37,458 | 3 |
| Share of joint venture | £0 | £1,004 | -£1,004 | |
| Property | £0 | £2,916 | -£2,916 | |
| Total | £301,765 | £351,313 | (£49,548) | |
| *Media (included above) | ||||
| UEFA | £33,236 | £39,779 | -£6,543 | |
| Premier League | £90,400 | £100,800 | -£10,400 | |
| Other | £0 | £0 | £0 | |
| Total | £123,636 | £140,579 | (£16,943) | |
| Expenses | £359,798 | £340,350 | £19,448 | |
| Salaries | £208,258 | £195,387 | £12,871 | 4 |
| Redundancy | £15,669 | £0 | £15,669 | 5 |
| Amortization and player w/off | £72,415 | £59,257 | £13,158 | 6 |
| Depreciation | £3,978 | £14,258 | -£10,280 | 7 |
| Cost of sales | £29,871 | £29,871 | 8 | |
| Other expenses | £29,607 | £71,448 | -£41,841 | 8 |
| Total | £359,798 | £340,350 | £19,448 | |
| Interest expense | £3,879 | £13,373 | (£9,494) | 9 |
| Profit on sale of players & loan fees | £42,133 | £5,277 | £36,856 | 10 |
| Profit / (Loss) before tax | (£19,779) | £2,867 | (£22,646) |
*reallocation made after original posting – does not impact totals
Notes – significant differences
- Arsenal generated £11M more than Liverpool from participation in European competition and £10M more from the Premier League TV deal.
- Arsenal reduced the gap to £9M in terms of sponsorship with Liverpool generating £116M.
- Matchday receipts was again a differentiator with Arsenal pocketing £37M more than Liverpool.
- Any cost control by Liverpool flew out the window with an increase of £42M over the previous season and Liverpool outspent Arsenal by £13m in salaries.
- It was the season when Liverpool fired Brendan Rodgers and replaced him with the Jurgen Klopp project. The cost of cutting loose Rodgers and his team – nearly £16M.
- Liverpool’s additional spending on players also had a negative impact on the team’s finances. Liverpool had to book £13M more than Arsenal with respect to amortization.
- New stadium – larger depreciation charge for Arsenal – net difference £10M.
- Similar to the previous season – additional cost of £12M for Arsenal.
- The cost of interest dropped by £6M for Arsenal reducing the difference between costs incurred by the two teams by £5m.
- It was another bumper year for Liverpool selling Raheem Sterling to Manchester City. Arsenal sold Podolski. Advantage Liverpool £37M.
Summary – Arsenal generated £49 more revenue than Liverpool. Liverpool incurred £19m more in expenses mainly through salaries, a redundancy charge, and the amortization charge. Arsenal spent more in the area of miscellaneous expenses and depreciation.
Interest cost Arsenal (£9.5M) more but Liverpool made a much bigger profit selling and loaning players – £37M.
Transfer spend (in millions)
| 2015/16 | Spent | Received | Net Spend |
| Liverpool | £109 | £78 | £31 |
| Arsenal | £24 | £2 | £22 |
| Variance | £85 | £75 | £10 |
Liverpool signed the likes of Benteke, Firmino, Clyne and Danny Ings.
Arsenal signed Petr Cech and Mohammed Elneny.
Summary 2014 to 2016
Arsenal generated £96M more in revenue over the two years than Liverpool – TV £19M, Matchday £79M, Property development £18M offset partially by Liverpool generating £21M more from commercial activity, primarily sponsorship and merchandise.
Arsenal’s operating expenses exceeded those of Liverpool by £28M. The primary drivers were depreciation £21M and miscellaneous expenses of £26M, offset by Liverpool absorbing amortization charges for players that were £17M greater than Arsenal.
Both clubs would have reported a cumulative loss over the two years if not for player sales although Arsenal was less reliant on that source. Liverpool reported a profit of £96M on player transactions against Arsenal’s £35M – a difference of £61M.
The last significant point of divergence was interest expense with Arsenal incurring a cost of £32M against just Liverpool’s £8M.
The difference between profits before taxes recorded by the two teams was £18M in favor of Liverpool. Arsenal posted a surplus of £21M against Liverpool’s £39M.
Major differences
| In millions | Liverpool | Arsenal | Difference |
| Revenue | £96 | (£96) | |
| Expenses | £28 | £28 | |
| Interest expense | £24 | £24 | |
| Profit on players | £61 | £61 | |
| £113 | £96 | £17 | |
| Profit before taxes | £39 | £21 | £18 |
Difference in rounding
Transfers (in millions)
| 2014/16 | Spent | Received | Net Spend |
| Liverpool | £241 | £164 | £77 |
| Arsenal | £131 | £27 | £104 |
| Variance | £110 | £137 | (£27) |
Arsenal outspent Liverpool over the two years by £27M. Although Liverpool spent £110M more than Arsenal, the Merseyside club also recouped $137M more. There is a similar pattern in the costs relating to transfers within the financial statements.
Deducting the profit generated from player sales and loans from amortization costs Liverpool incurred a net cost of £35M (Amortization £131M less player profit £96M). In Arsenal’s case, the “net cost” was £79M (Amortization £114M less player profit £35M).
This seems to be counter to what might be expected. Essentially, Liverpool showed better overall financial results by being willing to sell players to fund a bigger transfer pot. The downside to this is the amortization costs will climb into the future and necessitate either a greater level of core profitability and/or the continued sale of players.
Liverpool’s strategy is built on two key assumptions – transfer values will continue to escalate as will revenue.
Selling players can boost short-term profit; buying players allows costs to be deferred over a number of years.
Note: One piece that is not considered is the repayment by Arsenal on borrowing made to build Emirates Stadium. Over the two years, Arsenal would have paid out around £18M in payments that are not reflected in the revenue and expense statements.
Coming up next – Can Liverpool stay ahead of Arsenal in terms of profitability and a look at 2016/17, this current year and what the future might hold for both Liverpool and Arsenal.
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