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United’s Debt Dwarfs Arsenal’s Debt

Earlier this week the sage of the financial world Alex Ferguson made a pronouncement on the financial situation at Arsenal.  His claim was that Arsene had very little money to spend and it will be tough for Arsenal this season.

This comes from the club who are £800million in debt and have annual interest payments of £45million.  This year Ferguson sold Ronaldo for £80million and has spent £19million on players.  The Glazers need to not only service the interest payments, but will also be required to repay the debt.  The Glazers have already increased season ticket prices at Old Trafford, now it is the time for the playing staff to be attacked.

Despite knowing for two years what the asking price for Tevez was, United were reluctant to meet the £25million fee as that would have eaten into the money required by the Glazers.  The spin coming out of Old Trafford is that there are not players out there who want to fight for United, so Fergie is not buying anyone.  Tevez certainly used to fight or United, but he would have cost money and if it is a case of fighters, I have not seen any fight from Berbatov. 

Clearly United are undergoing a financial squeeze and Fergie wants to deflect attention away from United and on to Arsenal.

Arsenal have debt and that is well known.  Our debt is broken into two elements, the £135milion used to develop Highbury and the £232million used to build the Emirates.  It is the first of these loans that is concerning the club and the directors are trying to renegotiate a loan extension as the housing market has collapsed and the club will find it difficult to pay this loan by April 2010.  Our annual interest payment is £17million, whilst our profits before interest is £48million.  This is adequate cover and does not in any way necessitate Wenger having to sell players to finance the interest payments.

The press have not yet looked into the United finances and the fact that Fergie has not spent the transfer fee received from Ronaldo, but if they dig a little they will find a club in deep financial quagmire.

Money Inhibits Transfer Activity

Arsene has for the first time broken his self imposed purdah on Arsenal’s transfer budget or money available for transfers.

“I am fed-up with people who think I have £100million in the bank yet don’t want to spend it. How can people think that? The pride of the club is in having moved to a new stadium while maintaining the club at the top level.

“The policy of the club is that they have backed me in what I do and the way I do it. We now have to be strong enough to stick to that. We cannot pump £100m into it, so we must keep faith in what we are doing.”

This is true, even though the club has in the region of £100 million in the bank, this money needs to be held back to cover our loans.  The club needs to repay the loan on the development of Highbury Square by April 2010.  The club has been trying to renegotiate the £135 million loan repayment, but as yet there appears little movement on this.  The only source to repay this loan is through the sales of flats, once again the club has given us any updates on the number of flats sold.  This situation will be clarified once the financial results for the year have been announced; this should be in early September.

In addition to the Highbury Square loan, the club needs to ring-fence £20million of cash as part of the loan agreement for the Emirates Stadium.

This is why Wenger states we have little or not as much money as people think and the situation will remain the same until the Highbury Square loan has been repaid.  The club have refused to accept the offer from Alisher Usmanov to repay this loan, as he would increase his shareholding in the club.  This is a classic case of cutting off your nose to spite your face.  The small shareholders who control the club are refusing to allow one of the big shareholders to increase his stake and assist the club in improving it indebtedness.

It is time the Fiszman and Hill-Wood either put their hands in their pockets and pay off the club’s debt or move aside and allow people who are both prepared and able to do so save the club.

Usmanov Offers to Repay Arsenal Debt

Having seen Stan Kroenke increase his stake by two shares yesterday, our loveable Russian has once again entered the fray and gone straight to the heart of our problem.  The massive debt mountain we have, but more particular the £135 million loan that is associated with the Highbury Square development.

 The club is in talks with the banks to re-finance this loan which is due for repayment next April.  At the moment the club does not have the funds to repay this loan as the housing market has stagnated and the sales of the flats at Highbury Square have turned into a trickle.  The lack of funds will have an impact on Wenger’s transfer budget, despite the protestations of the board.

Alisher Usmanov has held out an olive branch (thorns removed) to the board.  He has offered to make funds available to repay this loan.  His rationale is that with this debt cloud looming over the club we will fall further behind our competitors.  He has left it for the board to contact him and take him up on his offer.

It will be a bitter pill for the board to accept this offer from Usmanov especially as it will be an admission of defeat.  The plan to redevelop Highbury was a sound financial plan at the time; nobody could have envisaged the world economic crisis.  The board must swallow their pride and open discussions with Usmanov to ascertain what his terms are for repaying a massive loan.  Certainly he will not be doing it for nothing. 

 The possible terms will be to issue convertible loan stock at nominal interest, say ½%, but allowing Usmanov the ability to convert the loan stock into shares in the club.  This would allow him to increase his stake club, with the money that he would have paid outside shareholders going to the club and it can use it to reduce a big portion of the debt mountain.

 For this to go ahead Stan Kroenke will also have to give his blessing, knowing that such an arrangement could see his 28.3% share in the club dwindle 25% to 21%.

 This “offer” from Usmanov should not be dismissed by the board, they need to be big enough to look into the matter and see it as a way of introducing new capital into the club that will reduce the club’s debt and free up valuable resources for Arsene Wenger’s squad rebuilding this summer.

The board must act in the best interests of the club and not concern themselves about their own pride.