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Wednesday, January 24, 2018

Can Arsenal Afford Ozil, Wilshere, Mkhitaryan (And Auba



 






The deal is done and Alexis Sanchez is now a Manchester United player and Henrikh Mkhitaryan is an employee of Arsenal.
As negotiations progressed over the last week or so both clubs would have had a bevy of finance experts modeling how the arrangements might impact the position of each club in respect to UEFA Financial Fair Play and its lesser-known relation, the Premier Leagues Short Term Cost Control regulation.

It is strange that the Premier League measure gets so little attention as it has a far greater impact on all twenty Premier League teams than does UEFA Financial Fair Play. The latter only impacts the six teams that qualify for the two European competitions each season.
UEFA Financial Fair Play is a relatively low hurdle for both profitable teams to clear and Manchester United should have more than enough wiggle room to stay on the right side of Premier League regulations.

In the case of Arsenal, it is not so straightforward. (I suspect that the reason Manchester City did not try to outbid Manchester United for Alexis Sanchez was on account of sailing to close to the Premier League cost control limit.)
The Premier League first adopted the “Short Term Cost Control” regulation in 2013/14 for a three year period.
Early in 2016, the league extended the initiative for another three years starting with 2016/17 – it can be found on page 121 sections E18 to E20.
The excellent Financial Fair Play website has a very good explanation and graphic covering the process.
The summary version is the measure is designed to control wages through a cap that limits increases for bigger clubs to £7M ($9.8M - exchange 1.4 to pound) per season. Newly promoted clubs are granted more leeway as are lower spending teams.
If a team increases its payroll by more than that amount it must show that it has done so through the generation of money beyond that provided by the Premier League TV contract.
E.19. Where the Club has elected to be assessed on the ‘Prior Year Basis’, the Club must satisfy the Board of any of the following:
E.19.1. that the sum of the Club’s Player Services Costs and Image Contract Payments has not increased by more than £7m when compared to the previous Contract Year;
E.19.2. that the excess increase, over and above the £7m referred to at Rule E.19.1, arises as a result of contractual commitments entered into on or before 31 January 2013, and/or has been funded only by Club Own Revenue Uplift as compared to the previous Contract Year and/or Averaged Three Year Player Trading Profit;
Whether this was intentional or not a team that qualifies for the UEFA Champions League one season but not the next can find itself in a financial quandry and that is what is happening to Arsenal.
On account of missing out on the UEFA Champions League for the 2017/18 season, Arsenal has dug itself a financial hole given the contract situation with the likes of Ozil, Wilshere, Mkhitaryan and possibly Pierre-Emerick Aubameyang should he move from Borussia Dortmund.
Could Henrikh Mkhitaryan and Pierre-Emerick Aubameyang reunite at Arsenal after playing together for Borussia Dortmund? (Photo by Alexandre Simoes/Borussia Dortmund/Getty Images)
The first stop is Arsenal’s salary costs from the base year of 2016/17.
The financial accounts show salary costs £199M ($278.6M) and although that amount is not totally players’ costs it is good enough for this spitball estimate. Arsenal will be permitted to spend £206M ($288.4M) on salaries for this season (2017/18) and £213M ($298.2M) for 2018/19.
After accounting for the ins (Kolasanic, Lacazette, Mavropanos, Mkhitaryan and potentially Aubameyang) and the outs (Oxlade-Chamberlain, Walcott, Coquelin, Gabriel Paulista, Gibbs, Perez on loan, and Sanchez) the net increase comes in around £7M ($9.8M).
Former Arsenal striker Theo Walcott on his Everton debut (Photo by Tony McArdle/Everton FC via Getty Images)
That would put Arsenal right on target at £206M ($288.4M) and it is just as well as the “Club Own Revenue Uplift and Averaged Three Year Player Trading Profit” is not a lifejacket for Arsenal.
After excluding Premier League TV money and including an average of three-year player trading profit Arsenal’s 2016/17 "baseline" revenue is estimated at £294M ($411.6M).
In 2017/18 that number is likely to be more like £279M ($390.6M) on account of a Europa League check arriving from UEFA rather than a Champions League payout.
Without a top-four Premier League finish or winning the Europa League this season it is pretty much impossible for Arsenal to beat the adjusted income of £294M ($411.6M) from baseline 2016/17 in 2018/19 either.
What this means is that if Arsenal fails to grab a Champions League spot for 2018/19 it will have to start robbing some Peters to pay their Pauls if the team is going to meet the Premier League salary "target" of £213M ($298.2M) next season.
The annualized salary savings (from transfer activity in 2017/18 to date) from departed players is estimated at £26M ($36.4M).
Annualized increases on account of new arrivals (including Aubameyang or similar) is estimated at £35M ($49M).
The net increase of £9M ($12.6M)would mean salary costs would rise to £208M ($291.2M) for 2018/19 - £5M ($7M) to the good.
But……if Arsenal really wants to resign Jack Wilshere and Mesut Ozil then that is going to require another £10M ($14M) or so which puts Arsenal offside by £5M ($7M).
So who are the Peters that are going to help balance the books?
For starters, we know Per Mertesacker is retiring at the end of this season so there is a saving of £3.6M ($5M).
Per Mertesacker is set to retire as a player and move into a role with the Arsenal youth academy in July. (Photo by Stuart MacFarlane/Arsenal FC via Getty Images)
Sadly, it seems unlikely that Santi Cazorla is unlikely to play again after multiple ankle surgeries.  Cazorla is out of contract in June and would generate a saving of around £3.6M ($5M).
These two reductions would be enough to align salary costs with the target number.

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