Universit della Svizzera Italiana, Lugano

Faculty of Economics



The Decision Making Process
Behind the Choice of
Emirates Stadium



Masters dissertation


Authors: Gianluca Allevi
Andrea DellOlio
Supervisor: Prof. Balazs Kovacs
Second Reader: Prof. Nikolaus Beck
Academic Year: 2013/2014
Submission Date: 12
th
of June 2014

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Victory through harmony

(Arsenal F.C. Motto)








Our aim is to be a leading European club
and once we get into the new stadium,
we will be in that position.
It is very income-generous to us.

(Keith Edelman Finanaging Director Arsenal F.C from 2000 to 2008)



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TABLE OF CONTENTS

ACKNOWLEDGEMENTS 10
ABSTRACT 12
PREFACE 14
INTRODUCTION 15
1 ARSENALS OVERVIEW 17
1.1 ARSENAL F.C. MANAGERIAL ANALYSIS 17
1.1.1 English Football Industry Porters Five Forces Analysis 18
1.1.2 Arsenal F.C. and Main Domestic Competitors Strategy 22
1.1.3 Arsenals SWOT Analysis: a Comparison with Manchester United 28
1.1.4 Arsenals Porters Value Chain Analysis 34
1.1.5 Arsenals BCG Matrix 36
1.1.6 Managerial Analysis Conclusions 38
1.2 ARSENAL F.C. FINANCIAL ANALYSIS 39
1.2.1 Profitability Analysis 39
1.2.2 Liquidity and Efficiency Analysis 43
1.2.3 Cash Flow Analysis 45
1.2.4 Arsenals Possible Future Prospect and Conclusion 48
2 THE WAY TO EMIRATES STADIUM 50
2.1 OVERVIEW OF EUROPEAN STADIUMS 50
2.2 FROM HIGHBURY TO EMIRATES STADIUM 58
2.2.1 Highbury Re-Development And Property Segment 59
2.2.2 Emirates Stadium 65
2.3 EMIRATES FINANCIAL EVALUATION 74
2.4 JUVENTUS STADIUM CASE 80
3 DECISION MAKING: DATA ANALYSIS 87
3.1 EMIRATES STADIUM: COST, EVALUATION OF REVENUES,
PROBABILITIES AND FUTURE ESTIMATIONS 88
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3.2 NEW HIGHBURY STADIUM: COST, EVALUATION OF REVENUES,
PROBABILITIES AND FUTURE ESTIMATIONS 94
3.3 DECISION TREES 98
3.3.1 First Scenario: Standard Decision Tree 98
3.3.2 Second Scenario: Refocus Of The Strategy To The Top 101
3.3.3 Third Scenario: Clubs Financial Troubles 103
CONCLUSIONS 105
REFERENCES 107
APPENDICES 110


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FIGURES, TABLES AND GRAPHS

FIGURES

Figure 1 Porters Value Chain Analysis 34
Figure 2:Arsenals BCG Matrix 36
Figure 3: Revenue distribution by country (2009/10 season) 50
Figure 4: Key Stadium data of the top European Clubs ranked by stadium capacity
(season 2010/11) 51
Figure 5: Ownership map of stadiums in Europe in 2010 52
Figure 6: Revenue generation in the top European clubs stadium (2009/2010) 53
Figure 7:Development costs in recently built stadium 55
Figure 8: Highbury and Emirates Map 58
Figure 9: Emirates Mendelows power/interest matrix 69
Figure 10: First Scenario: Standard Decision Tree 100
Figure 11: Second Scenario: Refocus of Strategy to the Top 102
Figure 12: Third Scenario: Arsenals Financial Troubles 104

TABLES

Table 1: Revenues and Wages of Five Major Leagues 18
Table 2: Property segment from 2002/2003 to 2009/2010 64
Table 3:Revenues from Match-day Tickets 74
Table 4: Revenues from Match-day Tickets 83
Table 5: Ratio between Differential Revenues and Constructions Investment 84
Table 6:Emirates Season Attendances, 2006-2013 89
Table 7: Emirates Season Attendances and Main Drivers, 2006-2013 90
Table 8: Emirates Capacity, Annual Increase in Price, and Champions League
Qualifications Probability 91
Table 9: Estimation of High and Low Attendances Probabilities with or without
Champions League 92
Table 10:Emirates Forecasted Revenues until 2031 93
(
Table 11:New Highbury Estimation of Season Attendances and Main Drivers, 2006-
2013 95
Table 12: New Highburys Forecasted Revenues until 2031 96
Table 13: Juventus Stadium Data, Ratios, and Probabilities. 97
Table 14:Arsenal F.C. Income Statement 110
Table 15:Arsenal F.C.Balance Sheet 111
Table 16:Arsenal F.C. Cash Flow 112
Table 17:Estimated Revenues per Match 113
Table 18:Emirates Forecasted Revenues until 2031 (Second Scenario) 114
Table 19:New Highburys Forecasted Revenues until 2031 (Second Scenario) 115
Table 20: Emirates Forecasted Revenues until 2031 (Third Scenario) 116
Table 21:New Highburys Forecasted Revenues until 2031 (Third Scenario) 117

GRAPHS

Graph 1. Revenues trend 2011-2013 39
Graph 2: Profits trend 2011-2013 41
Graph 3: EBIT trend 2011-2013 42
Graph 4: Current and Quick Ratio 43
Graph 5:Debtor Collection Period; Stock Holding Period, Creditor Collection
Period, and Working Capital Cycle. 44
Graph 6: Operating Cash Flow 46
Graph 7: Free Cash Flow 47
Graph 8: Financing Cash Flow 47
Graph 9: Property segment from 2002/2003 to 2009/2010 64
Graph 10: Revenues from Match-day Tickets 75
Graph 11: Revenues from Match-day Tickets 83


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ACKNOWLEDGEMENTS

For us, this thesis is not a conclusion, but a starting point. The road to the
achievement of this goal has been hard and, often, uphill. We have been through
many difficult moments. For this reason, we would like to thank the people who have
always believed in us and accompanied us through this arduous, but wonderful
experience.

First of all, I would like to thank my travel mate, Dello, with whom I had an
amazing time, full of both fun and work. A classmate who became a brother.

Then, I would like to thank our relator, Professor Balazs Kovacs, who has been
always willing and ready to help us when we needed, both during the assembling of
this thesis and during his academic courses. A special thank also to Professor, and
Director of the Master of Management, Nikolaus Beck, who has kindly agreed to act
as second reader for our thesis.

A great thank to my parents, Daniele and Arianna; my sisters, Giada and Chiara; my
eight nephews, Rebecca, Blu, Anthea, Mos, Penelope, Ludovica, Agnese and
Virginia; my brothers in law, Andrea e Simone and my grandmothers, Nonna Marisa
and Nonna Chicca. They have always been able to give me comfort during those
times of troubles, by supporting me and helping me to never give up.

I would like to thank also Bordi, Nespo, Cielo, Michi and Jack, who are not just
classmates for me, but real friends, who have always been able to give me moments
of joy and happiness. Thank also to our University Fooball Team, Hajduk
Bancariellese.

Finally, but not least, I would like to thank the friends of a lifetime, those with whom
I share passions and fun, those that will not leave me ever. Thanks to Giulia, Gila,
Teino, Neno, Beppe, Teo, Mile, Cappa, Satu, Falco and Pech.
Gianluca
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First of all I would like to thank the person who shared this journey with me and
with whom I am proud to end my academic path, Gianluca. I will never forget all
these days spent together at work, which contributed to the development of our great
friendship that will bind us forever.

I would like to express my special appreciation and thanks to my relator, Professor
Kovacs. Without his guidance and consistent support this thesis would not have been
possible. I am most grateful to Professor Beck, for his extreme kindness and
willingness to act as a second reader and for his teachings, which have been very
useful in the drafting of this paper.

I am deeply grateful to my parents, Enzo and Rosanna, for their endless love,
support and encouragement throughout my life. Thank you for giving me the strength
to reach for the stars and chase my dreams.

I would like to express my gratitude to my Grandfather Riccardo. Even if you are no
longer with me, thank you, because in your own way you taught me many things.

Words cannot express how grateful I am to my girlfriend Giulia. Thanks for being
always next to me. Your support and contribution have been crucial. You are my
tornado, but also my shore.

To my classmates, Miky, Bordi, Cielo, Nespo, Jack, Liuk and all the guys of the
Hajduk Bancariellese, thanks for the fun and support. This two amazing years and
the victory of two tournaments are memories that I will carry with me forever.

Finally but not least, I am most grateful to the friends with whom I travelled through
life: Treka, Liuk, Passa, Dani, Silvi, Ele, Gian, Dea, Diego, Pitt, Franci and Fuga.
They have always supported me and helped me to strive towards my goal.
Andrea



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ABSTRACT

This research deals with the choice, made by Arsenal F.C., of building a new stadium
in a different area from where its home ground was. Our aim is to understand if, from
a financial perspective, this was the best decision that the Club could take or if the
reconstruction of a new structure on the same foundations of the old Highbury
Stadium would have been a better alternative. To make the analysis easier, we are
going to pretend that a new stadium has been built in the same place of the old one,
with the name of New Highbury. Concerning this scenario, we are going to make a
useful comparison with the new Juventus Stadium, which was built in the same
area of the old Delle Alpi. The research question we aim to answer is the
following:

Is the choice of building the new stadium in a new area, transforming the old one in
apartments, the best solution? Or the best decision would be the reconstruction of
the new stadium on the same foundations of the old Highbury?

In order to understand the underlying strategy of Arsenal as a whole, we start with a
Managerial and Financial Analysis. As a matter of fact, our aim is to identify which
choice would be better, with respect to the research question, according to the
strategy used. Thanks to these analyses, we can say that Arsenals strategy is long-
term oriented and it is a solid and healthy club.

The core of the thesis is represented by the data analysis and the forecasts of the
Emirates Stadium, which has a capacity of 60.335 seats, and the potential New
Highbury Stadium, with a maximum capacity of 48.000 seats. Through the use of
TreePlan Excel Tool, we developed three different scenarios in order to answer to
our initial purpose. The first scenario is the Standard one, in which we took into
consideration the actual strategy utilized by Arsenal. The results of this scenario
seem to indicate that the choice of building the new stadium in a different area was
the right one. The second situation that we simulated is about a possible refocusing
towards the top in strategy, by following the Manchester Uniteds model, and the
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result is the same as the previous one. Thus, building the Emirates has proven to be
the best solution. The last scenario concerns a possible financial crisis of the Club,
which would force Arsenal to downsize its goals. In this case the outcome would be
the opposite and the New Highbury Stadium would have been the better alternative.
Nevertheless, as long as the important financial virtues of the Club are concerned,
the latter option seems unlikely to happen. Thus it could be concluded that the
Emirates choice was the right one.


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PREFACE

We have always been fascinated by football and this great passion moved us to be
involved not only on the field, but also concerning the managerial, economics and
financial issues connected to it. As we both feel the strong desire and dream to work
in this world, we therefore decided to attend a course of Sport Management, some
months ago, during which the idea of writing this Master Thesis born. We hope that
this could be the starting point for our future career development.

Nowadays in this business, one of the biggest challenges that each club can face is
the Financial Fair Play. A way to overturn this situation could be to build an owned
stadium.

The reason why we chose Arsenal F.C. derives from the fact that the new Emirates
Stadium was one of the first stadiums thought not only as the place to play, but also
as a commercial hub, where supporters are provided with a range of additional
facilities, such as restaurants, coffees, an official store, a commercial center and a
team museum. It is our view that all these amenities are used as a way to involve not
only football fans, but also families and women. This is the only means to make a
stadium a profitable investment.

Arsenal F.C. is proactive in this situation; in fact the last economic performances
show how the revenues are enhanced from an innovative management of the assets
of the Club, like a stadium seen as a resource.



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INTRODUCTION

Arsenal Football Club is one of the strongest teams in the English Premier League
and it is also recognized as one of the most important clubs all over the world. It was
founded in 1886 by some workers of the Royal Arsenal in Woolwich, a district in
southeast London, with the name of Dial Square, but during the years the name was
changed in Woolwich Arsenal. After the bankruptcy in 1913 Henry Norris bought
the Club and he decided to rename it Arsenal F.C.
1
.

Arsenal F.C is one of the oldest football teams in the world. As a consequence, its
trophy cabinet increased over the time up to win a great number of honours. Arsenal
Holdings plc is the company, which controls Arsenal F.C. Arsenal Holdings plc has
a total of 62.219 shares in issues that are owned by KSE UK Inc. (wholly owned by
Stan Kroenke) for 66,85% and by RED and WHITE SECURITIES LTD for
30.02%
2
.

We chose to analyze the Arsenals situation because it was one of the first clubs to
build a modern stadium, which is thought to produce income, and thus, it is
revenues-oriented. The pathway, used to meet the research question and mentioned
in the Preface, begins with the managerial and financial overviews of Arsenal F.C.,
in order to better understand the overall situation of the Club. The subsequent stage
consists in an outline of the European stadiums context, to introduce the core of the
thesis, which is the Emirates Stadium and the decision making process.

In the first chapter we examine Arsenal from the managerial and financial point of
view. The framework of this part involves the English Football Industry Porters
Five Forces Analysis, the Arsenals strategy in comparison with its main domestic
competitors, the Arsenals SWOT Analysis compared with the one of Manchester
United, the Arsenals Value Chain Analysis and BCG Matrix. The second section

1
Arsenal Website, www.arsenal.com/history/laying-the-foundations/laying-the-foundations-overview. Accessed, 27 February 2014
2
Arsenal, Website, www.arsenal.com/the-club/corporate-info/the-arsenal-board. Accessed 27 February 2014
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deals with the financial analysis of the Club with Manchester United taken as a
benchmark.

The second chapter regards the description of the situation of the European stadiums,
useful to survey the main drivers of introits deriving from match-day. Subsequently,
we deepen the Arsenals context, firstly focusing on the move from the old Highbury
to the new Emirates Stadium and then describing carefully every Emirates feature,
such as its construction and its opening, its design, the transport, the benefits, the
stakeholders and the financing. We also include a Financial Evaluation, considering
both the direct and the indirect impact. Finally, we briefly analyze the Juventus
Stadium case in order to have a benchmark for the potential New Highbury Stadium,
which could have had similar characteristics.

The third chapter represents the essence of the issue and refers to the decision
making process, the data collection, the analysis and estimations (revenues, costs,
probabilities and projections) of the Emirates and the New Highbury. These data are
critical to build our decision tree by using the TreePlan Excel Tool. We develop
three scenarios that help us to find some potential answers to the research question,
trying to determine whether the Arsenals choice of building the Emirates has been
the right one.


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1 ARSENALS OVERVIEW


1.1 ARSENAL F.C. MANAGERIAL ANALYSIS

We chose to start our managerial analysis from the study of the English Football
Industry. As mentioned by a Deloittes analysis, the Premier League Clubs revenue
are increasing up to 25% for the season 2013-2014, after a record of 2,5 billion in
2012-2013 (Deloitte, 2013: 7). As Dane Jones, a partner in the Sports Business
Group at Deloitte, observed:

Despite operating in a challenging economic environment, English club football's profile,
exposure and increasingly global interest have continued to drive revenue growth for the top
clubs" (Deloitte, 2013).

Premier Leagues revenues come from different kind of sources that are:
Match day, which accounts for 23%;
Broadcast, which accounts for 50%;
Commercial, which accounts for 27%.

An additional number of Financial Fair Play rules have also been inserted into the
Premier League, independently from those created by UEFA. These rules have been
developed with the purpose to focus on the respect of the costs to avoid an excessive
debt
3
. Table 1 shows the revenues and the wages, in euros, for the top 5 European
Leagues in the season 2011-2012:


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BBC Website, http://www.bbc.com/news/business-22766638. Accessed 1 March 2014
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Premier League, England 2,9 bln 2 bln (70% of revenues)
Bundesliga, Germany 1,9 bln 1 bln(51% of revenues)
La Liga, Spain 1,8 bln 1,1 bln (60% of revenues)
Serie A, Italy 1,6 bln 1,2 bln (75% of revenues)
Ligue 1, France 1,1 bln 0,8 bln (74% of revenues)

Table 1: Revenues and Wages of the Five Major Leagues
Source: Deloitte Analysis, 2013

The most important requirement for the Financial Fair Play Regulation is the
UEFAs own break-even requirement, that will be applied for the first time to the
financial results of 2013-2014. In 2011-2012 the German Bundesliga and the Premier
League, has been the only two European Leagues to produce a positive operating
profit. The total operating profit of Premier League is 98 million, while the one of
the German Bundesliga 154 million. There are only 8 clubs in Premier League able
to generate a net profit
4
.


1.1.1 English Football Industry Porters Five Forces Analysis

An effective tool that can be used to make a more specific analysis of the industry is
the Porters Five Forces Analysis. We chose this framework in order to better
understand the competitive intensity and attractiveness of the English Football
Industry. In this way, we could find some possible strategies, which can make the
business more profitable.


Bargaining Power of Suppliers

The players themselves are the most important part of a football club. A football club
should be able to develop a team composed by a well-balanced roster of goalkeepers,
defenders, midfielders and forwards. Basically, a football team has several ways of
choosing its players. One of these possibilities is to purchase a player with the

$
BBC Website, http://www.bbc.com/news/business-22766638. Accessed 1 March 2014
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desired features from another club (in the UK or worldwide). This option is very
expensive, due to the fact that with the contract in force the club should pay an
unreasonable fee to convince the other club to sell the player. The second and more
profitable way consists into creating a youth sector with a huge investment in young
talent and scouting. Therefore, the club acquires young football players for lower
costs and has the chance to train them to become possible future champions. Arsenal
F.C. is at the forefront in this policy.

To conclude, the Bargaining Power of Suppliers could be both high and low,
depending on the strategy chosen by the football club that looks for human capital.


Bargaining Power of Buyers

Concerning the customers, we can divide them into different categories. As far as
profits are concerned, sponsors and Television Companies are the most important, as
they provide a high stream of revenues that allow the clubs to buy top players. In
return, football teams have to guarantee to the sponsoring brand a great visibility, for
example by wearing its logo on the football jerseys or giving its name at a stadium.
As we see it, clubs should try to tie the sponsor to them with long-term contracts in
order to gain more money. With regard to the Television Companies, teams have to
ensure them the TV rights so that they broadcast day matches.

Considering the revenues, also the supporters should be considered as potential
purchasers, as they could buy tickets for the games or for stadium and museum tours,
football jerseys and additional facilities that can be found across the stadium or in the
eventual official stores. Each club should be able to create a loyal bond with the fans,
making them changing from being only occasional supporters to season ticket
holders.

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Given this evidence, it can be seen that the Bargaining Power of Buyers depends on
the brand of the club. The stronger the brand is, the lower is the bargaining power of
the buyers.


Threat Of New Entrants

Nowadays, entering in this industry could be extremely hard. This is mainly due to
high initial capital requirements, some government policies (such as taxation) and the
economies of scales (in terms of catchment area).

Regarding the initial capital requirements, we have to consider that major clubs need
large stadiums and new top players. Considering this, setting up a football club out of
nothing that is able to be competitive from the start seems to be impossible and this
is the reason why we have not taken into consideration this choice. As a matter of
fact, the richest tycoons are more inclined to buy teams that are not yet renowned,
but are established since a lot of time and have high potentialities of growing. In
order to reduce the stadiums costs, the new owner could build the new house in a
region far away from the city, in a non-metropolitan area. The main trouble stands in
the fact that supporters are not likely to accept this situation and, thus, the choice of
the location becomes very critical.

Also the government policies could affect the profitability of an investment in a
football team. This is principally due to the difference in taxation between different
countries. For example, Spanish clubs take advantage from the fiscal law that allows
them to pay high wages without weighing it down with a high taxation.

Concerning the economies of scales, they refer to the catchment area that means the
number of potential supporters who can follow the club, granting additional profits to
the team. In order to explain this issue in a better way, we decided to focus the
attention on the French case. Recently, two tycoons acquired PSG and Monaco. As
we all know, Paris is the biggest city in France and thus has a greater number of
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potential supporters in comparison to Monaco. For this reason, in terms of
merchandising and revenues from tickets, PSG is without any doubts more
profitable.

In conclusion, we could assume that the Entry Barriers are very high and this implies
that only few rich people can enter and be part of this world, thus the Threat of New
Entrants is very low.


Threat Of Substitute Products

First of all, we need to clarify that we are going to consider the match-day as the
main product that clubs can offer. Indeed, the only way to gain direct revenues for a
football club is selling the tickets to watch a match live. However, not all the
supporters are willing to pay the tickets fees, since they may not afford it or they
live too far away from the stadiums. If these fans do not want to lose the match, they
can watch it on the TV or on their mobile phones, tablets and PCs. This could be
considered as an advantage for the clubs, as broadcasters pay them the TV rights,
which grant additional revenues. Nonetheless, the problem for the teams is that in
this way a substitute product comes into the market, taking away a certain part of
direct revenues deriving from tickets.

The evidence seems to indicate that the Threat of Substitute Products is medium,
because on one hand TVs guarantee a high quality service by offering an excellent
view of the match, with also connections on the field edge and on the locker rooms.
However, on the other hand, the stadium gives to the supporter a particular feeling
that is definitely that cannot be experienced from the sofa.

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Rivalry Among Existing Firms

As we are analyzing the situation from the economic perspective, our study will
focus on the revenues produced by the loyalty of supporters that results into the
selling of tickets and merchandising. Rivals are the clubs that compete in the Premier
League and in the European Cups.

Supporters loyalty usually is very strong. Indeed, we suppose that if a person is fan
of certain team, he would not change it with another and, thus, rarely he would go to
watch another team playing. However, there are some exceptional reasons why
people may change their cheering, such as their moving to another area of the
country, excessive tickets prices and a low performance of the beloved team.

As a result, the Rivalry among Existing Firms could be enhanced, for the reasons we
mentioned above, it should be considered relatively low.

To summarize our Porters Five Forces Analysis on the English Football Industry,
we demonstrated that the Barriers to Entry are very high and, consequently, it is not
easy for new firms to penetrate the market. Nonetheless, with the right investments
and approaches, this industry could be very attractive. The best strategies that a firm
can pursue, in order to gain many profits and be competitive, are: focusing on young
talents and selling them when they reach the top; increasing match-day revenues and
signing the best sponsorship deals.


1.1.2 Arsenal F.C. and Main Domestic Competitors Strategy

In this section our aim is to describe the most important strategies of Arsenal and its
main domestic Competitors, which are Manchester United F.C., Manchester City
F.C., Chelsea F.C.. We are going to show them with respect to five different drivers:
Manager, Academy, Acquisition, Investment Strategy, and Stadium. The analysis
will focus on a comparison between Arsenals strategy and its Competitors in
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relation to each single driver. We will consider only Competitors with a crucial
feature concerning the driver analyzed.


Manager

Arsne Wenger is a French football manager, in charge at Arsenal F.C. since 1996.
The policy of Arsenal F.C. was trying to entrust the team to the right manager for a
long period of time, in order to provide continuity by focusing on the long-term.
Through to this decision, the Club put an exceptional authority in the hand of this
person, supporting him completely and fully. The reason that stands behind this
choice is due to the fact that Arsne uses an intellectual approach combined with
statistical tools in order to develop a sparkling game that has always been
appreciated by supporters. He is very skilled to develop abilities of youth players
5
.

Manchester United has always had the same philosophy of Arsenal. In fact, its
legendary former manager Sir Alex Ferguson has been in charge for 26 years until
season 2012/2013. His incredible self-confidence and resolution led the United to
win 28 trophies. He was also very careful to the academy and he had great
motivational and tactical skills. In particular, he was very good at managing players
expectations, lifting them up
6
.

Chelsea F.C., in contrast, has never had this mindset, but it has always depended on
the whims of its owner, Roman Abramovich, who was obsessed with the dream of
winning the UEFA Champions League. His short-term orientation brought him to
choose Jos Mourinho as Chelseas manager. Mourinho, differently from Wenger
and Ferguson, is very eccentric and squeezes the most out of his players. Moreover,
he is not very focused on discovering and training new young talents.


5
Bleacher Report Website,www.bleacherreport.com/articles/368521-the-arsenal-football-club-conundrum. Accessed 4 March
2014
6
Goal Website, www.goal.com/en/news/9/england/2013/09/11/4254424/sir-alex-ferguson-details-the-strategy-behind-26-years-
of. Accessed 4 March 2014
"$
The strategy of Arsenal is very similar to the one of Manchester United, but there are
some differences in the overall Clubs policies, which make the sports performance
of MU better. Nevertheless, Wengers approach has always perfectly reflected the
Arsenal Clubs philosophy, as he develops young talents and sells them at very high
prices when they reach the top.


Academy

Arsenal F.C. has always invested many resources in order to establish an excellent
youth players academy. First of all, the Club built advanced sport facilities, which
enables the youth players to train in the best conditions. Besides, the Team hired a
large networks of scouts with the intent of finding the most talented players all
around the world. Arsne Wenger continuously monitors the youth academy and
personally selects those who are ready for the first team
7
.

Manchester United uses the same strategy. As a matter of fact, it is the English club
that produces the highest number of players within the Europes top five leagues.
Thus, the focus on the youth academy of the MU is very significant, with 24 of its
academy athletes currently playing in the major European leagues. This is the great
result of the work made by both the Manager and the Club during the years. We can
compare this achievement with the Arsenals one, which, with 20 players, is the
second Club in England, with respect to this specific ranking
8
.

Analyzing Manchester City and Chelseas situation, it appears evident that they are
placed far behind Arsenal and United, as their policies do not really involve the
develop of young players. This context is very likely to produce a critical
competitive disadvantage, in the long-term.


'
Arsenal Website, www.arsenal.com/academy. Accessed 4 March 2014
(
Give Me Sport Website, www.givemesport.com/259483-manchester-united-best-youth-academy-in-england. Accessed 4
March 2014
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Acquisition

Concerning the acquisition process, Arsenal F.C. established its first team by
purchasing young professional players, but not yet famous, in order to make them
future champions, and, as we explained above, selecting the best talented players
from the youth academy.

Uniteds strategy is slightly different. It has certainly a great focus on the most
talented young athletes, but at the same time it mixed them with expensive purchases
of important and experienced players. This approach makes the good but unripe
players able to grow alongside of great champions and then replace them, without
being sold to other teams.

The policies of City and Chelsea, also in this case, are very different from the ones
implemented by Arsenal and United, as they are characterized by reckless
investments on already established players and without a well-defined technical
project. This attitude is proved by the huge amount of money expended in the
transfer campaign, which cost respectively !115 million for City and !78 million for
Chelsea
9
.


Investment Strategy

As mentioned before, according to Arsenal policy, the young players are sold when
they are at the highest level of their career and not when they are in decline, to earn
the maximum capital gain. Furthermore, we can say that this Club can very
effectively manage its distribution channel like its official stores, which sell the
merchandise of the team. In addition, Arsenal F.C. is also very smart in attracting the
most profitable sponsors (i.e. Fly Emirates and recently Puma)
10
.

)
Calcio Serie A 1 Website, www.calcio-seriea1.blogspot.ch/2013/09/calciomercato-soldi-spesi-campagna-acquisti.html.
Accessed 4 March 2014
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Arsenal Website, www.arsenal.com/the-club/sponsors-partners. Accessed 4 March 2014
"&
Concerning Manchester United, its main aim seems to be increasing the income and
the profits by extending the business a global level through the expansion of the
portfolio of sponsors, the intense focus on retail and merchandising and the
exploitation of the new opportunities offered on the Internet, mobiles and social
media. Another purpose is to create a complex strategy to raise its share of TV
rights
11
. This strategy is more profitable than Arsenals one, even if they are similar,
because the brand equity and awareness of MU is higher.

Manchester City and Chelsea, instead, focused their investment policy on the
purchasing of players, whereas sponsorships come mainly from the sources related to
the ownerships (Roman Abramovich and Mansour bin Zayed Al Nahyan).


Stadium

Before 2006, Arsenal F.C.s home was the Highbury Stadium, since 1913. The
new Emirates Stadium was inaugurated just in 2006. The investment for the new
stadium cost 470 million and it was financed mainly by three kinds of sources:
The transfer of the naming rights of the stadium to the airline company
Emirates (about 150 million);
A long-term bank loan (expiration in 2031) for 260 million;
Revenues deriving from the real estate site of Highbury Square (680
apartments) for the remainder.

The building of the Emirates doubled Arsenal F.C.s revenues deriving from the
stadium for some different reasons:
Increasing of available seating, from 38.500 to 60.335, with a fill rate of
91%;

**
Manchester United Website, http://ir.manutd.com/phoenix.zhtml?c=133303&p=irol-newsArticle&ID=1736054&highlight=.
Accessed 4 March 2014
"'
Increasing of the tickets costs, the highest between all the clubs of the
Premier League (this strategy can be pursued thanks to the extremely long
waiting list, which is about 37.000 persons every year);
The creation of 9.000 premium seats that represent 35% of stadiums
revenues themselves;
A very strong increase of the amount and quality of the services offered
within the stadium (catering, merchandising, stores and commercial center).

The Emirates is the second largest stadium in Premier League and one of the most
advanced stadiums in the world. It is provided with 450 HD LCD screens. Moreover,
in order to allow supporters to fully enjoy the wide range of services the stadiums
gates open 90 minutes before the match-day. It is also used as conference center or
for concerts. It has also been selected as the location for the Rugby World Cup in
2015
12
.

A similar strategy about the stadium was implemented by Manchester City, through
the development of City of Manchester Stadium (named also Etihad Stadium). This
is the fifth largest stadium in Premier League, with a capacity of 47.805 seats. It is a
very modern stadium, which produces huge revenues. Besides, its development costs
were much lower than Emirates (112.000.000)
13
, due to its lower capacity and the
lower costs of real estate in Manchester compared to London. Manchester City and
Arsenal are the only two clubs in Premier League, which grant the naming rights of
their stadiums. Indeed, City earns an amount of 18,23 million per year through
them. However, this sponsorship generated many suspicions since it could be
conceived as a way to circumvent the Financial Fair Play, as the pockets of the
sponsor firms and those of the owner of the Club are the same
14
.


*"
Tifoso Bilanciato Website, www.tifosobilanciato.it/2012/01/29/stadi-di-calcio-lemirates-stadium-ed-il-suo-impatto-
sullarsenal-un-perfetto-case-study/. Accessed 4 March 2014
*#
Wikipedia Website, www.en.wikipedia.org/wiki/City_of_Manchester_Stadium. Accessed 4 March 2014
*$
Calcio e Finanza Website, www.calcioefinanza.it/naming-right-suggli-stadi-della-premier-possibili-incassi-per-oltre-60-
milioni/. Accessed 4 March 2014
"(
Conversely Manchester United, although it owns the Old Trafford that is a very
important stadium, does not grant any naming right. The reason stands in the fact that
the historical image of this Stadium would lead to potential lower income for the
sponsorship firm
15
. The Old Trafford is the greater stadium of the whole Premier
League with a capacity of 75.731 seats. It was built in 1909, but several
modernizations made throughout the years converted it into a very up-to-date
stadium
16
.

On this basis it may be inferred that the Arsenal strategy is well-structured and
balanced, very similar to the policy of Manchester United from many perspectives.
Nonetheless, although Arsenal is more focused on long-term and financial stability,
if really wants to boost its sport performances, it should try to emulate even more the
model pursued by the United, especially retaining its best players and increasing its
brand awareness.


1.1.3 Arsenals SWOT Analysis: a Comparison with Manchester
United

In the Strategy Analysis section we determined that a possible Arsenals future
approach could be a leap in quality upward. For this reason, we developed a SWOT
analysis of Arsenal in comparison with Manchester United, since this Club may be
its touchstone if Arsenal really feels the need for reaching this goal. We chose this
kind of analysis as it allows us to examine in depth strengths, weaknesses,
opportunities and threats, and develop different smart approaches in order to gain a
competitive advantage. We are now going to analyze in detail these four elements.


*%
Calcio e Finanza Website, www.calcioefinanza.it/naming-right-suggli-stadi-della-premier-possibili-incassi-per-oltre-60-
milioni/. Accessed 4 March 2014
*&
Wikipedia Website, www.en.wikipedia.org/wiki/Old_Trafford. Accessed 4 March 2014
")
Arsenals Strengths

An important strength of Arsenal is its developed brand name that is very strong in
England and all over the world thanks to the fact that the Club was able to strengthen
it through marketing and merchandising. Concerning this perspective, the
construction of the Emirates Stadium, which is one of the most advanced stadiums in
the world, was particularly critical, as it enhanced the brand equity of the Club and
strengthened its supporters loyalty, not only in England but also in the rest of the
world. Therefore, the plant contributed to attract very important sponsor firms, such
as first of all Emirates Airline, but also Huawei, Nike and Puma starting from the
next season. This aim was also achieved through the great ability of a stable and
competent management in managing sponsors, which granted also a financial
stability in the short and long-term, with almost always-positive free cash flows.


Manchester Uniteds Strengths

The greatest strength of Manchester United is its extremely high brand awareness,
together with its incredible global recognition, which attracts a wide number of
sponsoring firms. As a matter of facts, the company concluded some agreements
with Audi, Nike, AON, AIG, Sharp, Vodafone, Airtel and Turkish Airlines. This is
also due to its superb marketing strategy, its global presence and its ability to
merchandise its products. Manchester United used this strategy in order to create a
strong brand loyalty between its supporters, which is supported by the fact of being
the most successful English football club. Its wonderful history is reflected by its
fantastic stadium, which is another strength of MU.


Arsenals Weaknesses

As long as weaknesses are concerned, we want to claim that the match-day tickets
are too expensive, the most high-priced of the Premier League. According to us, this
#+
policy is not fair at all, since the Team did not win any trophy during the last years
and its supporters are not stimulated by the strategy implemented by Arsenal
management, which is selling champions focusing on new young players. Moreover,
in order to finance the investments in the new stadium, the Club was forced to sign
long-term contracts with sponsors, penalizing commercial revenues. In this sense,
new trends are oriented towards the searching of new private investors and it is
emphasized by the fact that English football market reached the maturity phase.


Manchester Uniteds Weaknesses

Actually, Manchester United has not many weaknesses, but some of them are
fundamental. First of all, the Club faces the same problem as Arsenal, which is the
saturated football market. Nevertheless, the financial distress is the most serious
issue, because of the very high level of net debt, which in 2011/2012 was
366.000.000
17
. According to the Financial Times, in 2012 the Glazer Family, the
owners of Manchester United, had difficulties to refinance its debt
18
. Moreover,
Bloomberg sustains that the MU has to face a big challenge, which is represented by
the high wages
19
.


Arsenals Opportunities

There are several opportunities that Arsenal can pursue. First of all, there are new
emergent football markets, such as China, India and United States, in which the
penetration could be very profitable. This purpose could be achieved also through an
increase in marketing and advertising campaign, in order to reach not only new
domestic supporters, but also to create loyalty in the farther countries. Concerning

*'
The Guardian Website, www.theguardian.com/news/datablog/2013/apr/18/premier-league-club-accounts-debt. Accessed 7
March 2014
*(
Financial Time Website, www.ft.com/intl/cms/s/0/65b68d60-ff1b-11de-a677-00144feab49a.html#axzz33Taut66e. Accessed
7 March 2014
*)
Bloomberg Website, www.bloomberg.com/quote/MANU:US. Accessed 7 March 2014
#*
football segment, an important chance is represented by the creation of satellite
teams, which would be extremely useful to better develop the youngest and most
talented players. Furthermore, this strategy could help Arsenal to create coalitions
with other European important teams, in order to have preferential channels during
the negotiation periods. Besides, also the UEFA Financial Fair Play could be
conceived as a great opportunity, due to the fact that Arsenal has a strong financial
position compared to its main competitors.


Manchester Uniteds Opportunities

Generally, MUs opportunities are very similar to the Arsenals ones, especially
regarding the penetration of new emergent markets and the coalitions with other
clubs. Probably, an extremely important chance could be represented by the potential
expansion of its brand equity through more advertising and visibility. We cannot
assume the same in the matter of UEFA Financial Fair Play, as its debt position it is
not as strong as the one of Arsenal.


Arsenals Threats

There are some critical threats that Arsenal has to deal with. First of all, the Firms
strategy, which consists of selling the best players, could lead to a failure in reaching
the qualification in the Champions League and to a loss of interest from its
supporters. Nonetheless, the generational turnover in the Arsenal management could
put the leadership of the Club in the hands of less competent people, which may led
to future problems regarding the management of the players and the budget in an
efficient way. All these factors, combined with a challenging and dynamic
environment, could raise the possibility of financial risk.

#"
Manchester Uniteds Threats

The threats that Manchester United has to face are, in a certain way, different from
the ones of Arsenal, as MU competes with the richest clubs in the world, in order to
buy out the best players. The high level of the competition contributes to raise the
players transfer fees, and, thus, the financial debt, in which the Club incurs. The
increase in fees is accompanied by an increase in wages for all the other players,
which could lead to some problems between them and the management.

Through this SWOT analysis, we had demonstrated that the strategy implemented by
Arsenal is oriented towards the right direction, especially with respect to the
Financial Fair Play, which could be an important driver to exploit for the future
competitive advantage and to increase its stream of revenues. These profits may
derive from the new Stadium, but also from a careful policy of player management
which allows the Club to maintain a relatively restrained salary cap by focusing on
young and talented players and selling them at very high prices when they are at the
top of their careers. Furthermore, Arsenal can leverage on marketing and advertising
campaigns, by strengthening the brand awareness and increasing the brand equity.
However, a possible future development could involve a refocusing upwards in the
strategy about the sports performance. In order to make this scenario achievable, a
feasible solution may be to emulate the Manchester Uniteds model, which means
the retaining of the best players, the increase of the brand equity and being
competitive to the top levels. Nevertheless, to achieve this aim the Club should take
care of the financial position by finding additional sources of revenues, which are no
longer provided by player trading. For instance, they could come from the Stadium
or from new summer tournaments in emerging markets. In order to deeply
understand some possible future strategies we developed them in a crossed SWOT.

##

Internal

External

Strengths

Weaknesses




Opportunities
Penetrate new emerging
football markets (India, China
and USA) in order to
strengthen the Brand Name to
marketing and merchandising.
Financial stability in short and
long-term joint with positive
free cash flow and high quality
resources in order to fit with
UEFA Financial Fair play.
Importance of Emirates in
order to build a new supporter
base.
Stable and competent
management could allow the
creation of a long-term
coalition with other important
European clubs.
Penetrating new markets in
order to search better sponsors
given the great ability of the
club in managing them.

Increasing marketing and
advertising in order to support the
club strategy of high tickets cost.
Entering in new emerging markets
in order to overcome the maturity
stage faced by the English football
market, and at the same time
searching new private investors.
Fighting the tendency to not win
trophies and the club strategy to sell
its champions creating satellite
teams in order to improve the best
young players.
Signing long-term contract,
covering the investment in the new
stadium, in order to fit with UEFA
Financial Fair Play regulation.






Threats
Facing the challenging and
dynamic environment thanks
to the strong Brand Name
developed through
merchandising and marketing.
Strong revenues deriving from
the advanced Emirates
Stadium and from the ability
in managing sponsors can be
used in order to avoid the
financial risk due to the long-
term loan.
Relying on the high
supporters loyalty in order to
avoid to stop watching
matches although the selling
of the most important players.
Financial and management
stability, and the almost
always positive free cash
flows are important drivers in
order to avoid future problems
in to managing players and
budget, facing a challenging
and dynamic environment due
also to the financial risk.

Trying to win trophies and
qualifying to UEFA Champions
League in order to avoid the
financial impact on the performance
of the Club.
Searching new ways to grow in the
English football market in order to
face the challenging and dynamic
environment.
Trying to focus on very strong new
young talents in order to overcome
the problem of selling the best and
most important players, risking not
qualifying to UEFA Champions
League.
Searching new private investors in
order to avoid future problems for
management, financial risk and
challenging and dynamic
environment.


#$
1.1.4 Arsenals Porters Value Chain Analysis

Now that we have developed some of the possible strategies that Arsenal could
implement, we would like to focus on another decision support tool, the Porters
Value Chain. This is a chain of activities, divided in primary and support activities,
which the Club performs in order to create and distribute its products

(Michael
Porter, 1985).


Figure 1 Porters Value Chain Analysis
Source: Manage 12 Website

Primary Activities

Inbound Logistics: it refers to the purchasing of players and the hiring and
training of the Clubs staff.
Operations: it concerns the creation of a direct TV Channel specifically for
the Club, which is named Arsenal TV. Furthermore, it includes the
establishment of a Membership Club that can also be as a Credit Card, in
order to connect also the financial activities.
#%
Outbound Logistics: it consists of Official Stores where Supporters can buy
Arsenal F.C.s gadgets. In this primary activity are involved both the selling
of the day and the season tickets.
Marketing and Sales: the main way to promote the Club through the
supporters is to create a brand image, through which their loyalty is
strengthened. Other fundamental points are: merchandising, the selling of TV
rights and the attraction of new and profitable sponsors.
Service: All the facilities offered by the Emirates Stadium (i.e. restaurants,
coffees, the commercial center and the Premium Service) are connected to
this activity. Another important service is the official website, where all the
official communications are written.


SUPPORT ACTIVITIES

Firm Infrastructure: there are two kinds of infrastructures: the Emirates
Stadium and the new luxury apartments arisen out of the old Highbury.
Human Resources Management: the two main sources for this category are
represented by the creation of a network of talent scouts around the world and
by the employment of expert managers, such as Arsne Wenger, who are able
to identify and acquiring the right players. Another fundamental source is the
youth players academy.
Technology: the selling of official gadgets is extended also to the web
through the Clubs official website, which exploits the new trend of e-
commerce. A statistical analysis of each match is also published online.
Procurement: is the ways in which are managed all the operations connected
to acquisitions of players, merchandising and sponsorships.

It is clear therefore that the Firm Infrastructure and the Human Resources
Management are the most critical activities, as they lead to sustainability of the
business in the long run. Consequently, the Stadium and the managerial abilities to
recruit and retain the best resources are important sources of revenues. As well as
#&
Marketing and Sales, since it may increase the brand equity and the money deriving
from TV rights.


1.1.5 Arsenals BCG Matrix

BCG Matrix is a strategic planning tool, which could be useful to study the business
opportunities in term of Relative Market Share and Market Growth Rate

(Henderson,
Bruce D., 1968). In our analysis, we are not going not consider the product lines, but
we will focus on geographical markets: England, Asia, India and America.



Figure 2:Arsenals BCG Matrix
Source: Manage 12 Website and Personal Elaboration

England

In this moment the core market is the UK, which contributes for the 95%

(Arsenal
Holdings plc, 2013) of the total revenues, including day-match, membership,
sponsorship and TV rights. Therefore, the English Market is the more profitable one,
which is sustaining the entire society, as the market share is very high. Nevertheless,
#'
it is a relatively mature market with a very low growth, due to the fact that it has an
established customer basis with low chance of change (supporters loyalty).


Asia

The Asian market is potentially the best one to penetrate, as its growth rate is the
highest. In this market the Arsenals position is very strong, due to the creation of
coalitions with some important Asian companies, such as Bodog, which operates in
the online gaming. This partnership has been arranged during the Asian pre-season
tour to Indonesia, Vietnam and Japan made by the Club in 2013
20
. These features
make the increase in market share with a great Asian fan base and popularity post-
tour possible. Asia represents a strategically important region, since it gives the
opportunity to develop marketing initiatives and consumer promotions, by seeing the
team playing and by providing a further engagement for future perspectives.


India

The current population of India in 2014 is estimated to be 1.27 billion
21
. Therefore,
thanks to the fact that a wealthy target audience pertaining to the middle class is
becoming increasingly interested in football, this industry has a great potential of
growth. The opportunities in this market are represented by the potential commercial
partnership with local companies, the chance to improve the Indian football and
strengthen the image of the Club through the Corporate Social Responsibility.


20
Arsenal Website, www.arsenal.com/news/news-archive/club-welcomes-bodog-as-official-partner. Accessed 11 March 2014
21
India Online Website, www.indiaonlinepages.com/population/india-current-population.html. Accessed 11 March 2014
#(
The USA

The growth of the American market is fairly low, since the American customers are
keener on other sports: NBA, MLB, NFL and NHL. For this reason, the Major
League Soccer (MLS) is not really popular. Nevertheless, there are some ways that
may be used to enhance the number of the supporters, such as through pre-season
tournaments and Clubs megastores in the major cities.

Concluding the Arsenals BCG Matrix analysis, we can assume that the crucial
market is the England one, as it represents the most important source of revenues
with the greatest part of market share. However, we had demonstrated that the best
market opportunities can be exploited in Asia, since this area has a very high Market
Growth Rate, through partnerships and pre-season tournaments, which could be used
to increase supporters fan base.


1.1.6 Managerial Analysis Conclusions

At the end of this managerial analysis we can draw some conclusions. First of all, we
can affirm that Arsenal F.C. owns some critical assets, such as Management and the
Emirates Stadium, which in the long-term can lead to a competitive advantage. As a
matter of fact, its strategy is focused on the long-term, with financial solidity, and on
the development of young talented players, trying, at the same time, to remain
competitive on the field. Another central point is the exploitation of new
opportunities, such as emerging markets and a significant attention on marketing and
advertising in order to increase the supporters fan base and the brand equity.

#)
1.2 ARSENAL F.C. FINANCIAL ANALYSIS

In this section we are going to focus on the financial evaluation of Arsenal Holdings
plc, which is, as we mentioned above, the holding of Arsenal Football Club. There
are two main segments in which the holding operates: the football business and the
property segment (associated with the sales of the flats and the apartments of
Highbury Square, Drayton Park and Queensland Road). Even in this case, we found
necessary to perform a comparison with Manchester United. An important premise
we have to state is that Manchester United plc has not a property segment, but only a
football one. The aim of this analysis is to understand how strong and solid the
financial health of Arsenal is, with respect to the milestone of the English football.


1.2.1 Profitability Analysis

We are going to start from the Profitability Analysis, taking in consideration
Revenues and Profits before Taxes and Interests of Arsenal and Manchester United
from 2011 to 2013.



Graph 1: Revenues trend 2011-2013
Source: Annual Reports Arsenal Holdings plc, 2011-2013, and Manchester United plc, 2011-2013
-
50.000.000
100.000.000
150.000.000
200.000.000
250.000.000
300.000.000
350.000.000
400.000.000
2011 2012 2013
Arsenal vs. MU's Revenues
Arsenal's Revenues
Manchester United's
Revenues
$+
Graph 1 reveals that the revenues had a variable trend both for Arsenal and
Manchester United, due to the different impacts of the main drivers of income.
Concerning Arsenal, from 2011 to 2012 revenues had decreased, as the level of sales
activity in the property business was reduced, with Highbury Square almost
completely sold. The group commercial capabilities were enhanced in the recent
year, thanks to the huge investments of the owners, but the revenues deriving from
the commercial activities in 2012 were not enough to cover the decline into the
property segment. Whereas in 2013 the growth in the commercial revenues increased
and, at the same time, the property segment had a revival thanks to the construction
of new buildings, such as the three towers of market residential accommodations in
the northeast section of Queensland Road. For these reasons the total Group
Turnover raised from 243.013.000 in 2012 to 280.374.000 in 2013

(Arsenal
Holdings plc, 2013).

Manchester Uniteds revenues were very high with 363.189.000 (Manchester
United plc, 2013) in 2013. The decrease of income from 2011 to 2012 was mainly
due to broadcasting and match-day revenues, whose decline exceeded the increase in
commercial revenues. The increase from 2012 to 2013 derived almost entirely from
the commercial boom, about 30% (Manchester United plc, 2013) of change from
the previous year (thanks to several new sponsorship partners).

By comparing the two clubs, it appears evident that Manchester Uniteds revenues
were higher than Arsenals one. As a matter of fact, although Arsenals revenues
were enhanced by the property segment, Manchester United could rely on a huge
brand awareness, which can attract much more sponsors.

$*

Graph 2: Profits trend 2011-2013
Source: Annual Reports Arsenal Holdings plc, 2011-2013


Graph 2 shows the EBIT of the Group for financial years 2011, 2012 and 2013. The
Blue bar represents the profit before interests and taxes, the red one the EBIT
without player trading and the green one the EBIT except the disposals of player
registrations.

As we can observe, the nature of the profits has dramatically changed in the last
years. As a matter of fact, in 2011, the influence of the property segment was very
high, involving the final phase of the sale of the apartments in Highbury Square. In
this year the player trading, which concerns all the income deriving from selling
players, the amortization of them and the costs of player registrations, had a negative
impact on the profit. This was due to the fact that increasing revenues deriving from
commercial and broadcasting partnership were not enough to cover the huge amount
of wage costs. Neither the profits of disposals coming from the player registrations,
which regard the transfer income of the sold players, were able to overcome these
expenses.

From 2012, the profits of the firm became more dependent on the player trading, in
particular on the profits deriving from disposals of player registrations. In fact, the
transfer window strictly influenced the increased profit before interests and taxes
-40.000.000
-30.000.000
-20.000.000
-10.000.000
-
10.000.000
20.000.000
30.000.000
40.000.000
50.000.000
60.000.000
2011 2012 2013
Arsenal's Profits Trend 2011-2013
Profits before taxes/
interests
Without player trading
Without disposal of
player registration
$"
with the major contributions coming from the sale of Cesc Fabregas, Samir Nasri and
Gael Clichy. This income made the Club able to cover the considerable increase in
the wage costs and the shortage of revenues deriving from property segment.

From the Chart is evident that in 2013 profits decreased. The main reasons stand in
the fact that the profit on disposals of player registrations (46.986.000) was lower
than the previous year (65.456.000)

(Arsenal Holdings plc, 2013). Furthermore, the
costs of the player contracts were increased. The major contribution derived from the
transfer out of Robin Van Persie and Alex Song. In this year, the wages rose by
7,70%

(Arsenal Holdings plc, 2013) and also the other operating expenses are
extremely large, representing a great share of total revenues. An important issue is
that the player trading did not deeply affect the profits, since, as we stated before, the
property segment had a new development. Nevertheless, EBIT is still positive, thus
profitability is a strength of the Club.



Graph 3: EBIT trend 2011-2013
Source: Annual Reports Arsenal Holdings plc 2011-2013, and Manchester United plc, 2011-2013


Considering MU, as you can see from Graph 3, EBIT sharply decreased, due to the
huge growth of operating expenses, especially in football player and staff
compensation. Instead, in 2013, the boost in commercial revenues was able to
-
10.000.000
20.000.000
30.000.000
40.000.000
50.000.000
60.000.000
70.000.000
2011 2012 2013
Arsenal vs. MU's Profits
Arsenal's Profits before
Taxes and Interests
Manchester United's
Profits before Taxes and
Interests
$#
compensate for this increase in costs. In general, during the contemplated period, we
can assume that Manchester Uniteds profits were higher than the Arsenals ones,
with the exception of 2012. As a matter of fact, in this year, Arsenal had an
extraordinary income due to some of its best players selling.

It must therefore be recognised that MU has a higher capacity to produce income,
although its costs are massive. The main reason of this ability is the awareness of the
club, which allows to generate an incredible stream of commercial revenues. On the
contrary, Arsenal is strictly dependent on the player trading, which granted a less
stable stream of revenues, as well as income deriving from the property segment.


1.2.2 Liquidity and Efficiency Analysis

We are going to undertake the Liquidity Analysis for both Arsenal and Manchester
United, in order to measure the availability of cash to repay the debts. We are going
to make the Efficiency Analysis only for Arsenal, to highlight the property segment,
which Manchester United does not have.



Graph 4: Current and Quick Ratio
Source: Annual Report Arsenal Holdings plc 2011-2013, and Manchester United plc 2011-2013
0
0,2
0,4
0,6
0,8
1
1,2
1,4
1,6
1,8
2
2011 2012 2013
Arsenal vs. MU's Current and Quick Ratio
Arsenal's Current Ratio
Arsenal's Quick Ratio
Manchester United's
Current Ratio
Manchester United's
Quick Ratio
$$
The Current Ratio measures ability of the company to pay short-term obligations
with short-term assets
22
. You can notice that this ratio is greater than 1 for Arsenal,
in all the three years that we analyzed, thus Arsenal Holdings plc had enough
liquidity to meet its current debt and its capital expenses. These results could be
reached also without taking into account their inventories. Therefore, we calculated
also the Quick Ratio, whose trend is illustrated in Graph 4. As you can see, also this
ratio is greater than 1. The values of the Current Ratio and the Quick Ratio did not
diverge too much; therefore, this demonstrates that the company is not dependent in
their inventories.

Manchester Uniteds situation was different. As a matter of fact, the Current Ratio
and the Quick Ratio were very low, smaller than 1. This means that Manchester
United had problems covering its short-term liabilities with cash. These values were
very similar and the explanation for this could be that MU does not have a property
segment and, thus, has a very small inventory.

Concluding, we can assert that Arsenal, in contrast to United, being able to cover its
debts, is always more cautious in the short-term.



Graph 5: Debtor Collection Period; Stock Holding Period, Creditor Collection Period, and Working Capital Cycle.
Source: Annual Report Arsenal Holdings plc 2011-2013

22
Investopedia Website, www.investopedia.com/terms/c/currenratio.asp. Accessed 14 March 2014
0
10
20
30
40
50
60
70
80
DCP SHP CCP WCC
DCP, SHP, CCP and WCC
2011
2012
2013
$%
The Working Capital Cycle (WCC) measures the amount of time between the
moment in which a business starts to invest and the moment in which the business
get paid
23
. Arsenal Holdings plc was not able to manage efficiently the cash flows.
As a matter of fact, WCC is quite high. In 2011 and 2012, this is mainly due to the
Stock Holding Period (SHP), that is an index, which measures the average time that
an item is on stock
24
. The main part of the stocks consists of the property segment. In
2013, SHP dropped dramatically, as almost every property of Highbury Square had
been sold. In spite of this, WCC in 2013 was not reduced. This is due to the Debtor
Collection Period (DCP) that increased fivefold from 2011. DCP is an index that
measures the average time taken to collect trade debts
25
. The reasons of this growth
stand in the fact that clubs, which buy players from Arsenal F.C., are not able to pay
them in a short range of time. The Concerning Creditor Collection Period (CCP)
26
,
which is the average time taken to pay off trade creditors, is relatively low because
Arsenal Holdings plc is quite fast in its payment. Nevertheless, in general, the trend
is negative and the Club is losing efficiency.


1.2.3 Cash Flow Analysis

A Cash Flow Analysis is needed as it describes the movement of the money in a
specific business during a certain period of time. It could be an important driver in
order to understand the long-term capacity to invest of the Clubs. Even in this case,
we decided to make a comparison between Arsenal and Manchester United.


23
Divestopedia Website, www.divestopedia.com/definitio/1234/working-capital-cycle-wcc. Accessed 14 March 2014
24
Investopedia Website, www.investopedia.com/terms/h/holdingperiod.asp. Accessed 14 March 2014
25
Investopedia Website, www.en.wikipedia.org/wiki/Debtor_collection_period. Accessed 14 March 2014
26
Wiki Answers Website, www.wiki.answers.com/Q/What_is_Creditors_Collection_Period? #slide=3. Accessed 14 March
2014
$&


Graph 6: Operating Cash Flow
Source: Annual Reports Arsenal Holdings plc, 2011-2013, and Manchester United plc, 2011-2013

You can notice from Graph 6 that Arsenals Operating Cash Flow is always positive,
thus there is enough cash-in, in order to cover cash outlays in the long run. The
reduction in 2012 was mainly due to the lack of sales in the property segment.
Whereas, in 2013 there was an increase. The principal reason of this growth lies in
the sales of the new buildings in the northeast section of Queensland Road. Property
segment plays a crucial role in the Arsenal ability to repay its liabilities.

Manchester Uniteds Operating Cash Flow from 2012 had a continuous increase due
mainly to the Commercial revenues that were primarily sponsorship firms, thus
money in. Manchester United was able to recover from the difficulties faced in 2011.
However, Arsenals position was more stable from the financial point of view.

-60.000.000
-40.000.000
-20.000.000
-
20.000.000
40.000.000
60.000.000
80.000.000
2011 2012 2013
Arsenal vs. MU's Operating CF
Arsenal's Operating Cash
Flow
Manchester United's
Operating Cash Flow
$'


Graph 7: Free Cash Flow
Source: Annual Report Arsenal Holdings plc 2011-2013, and Manchester United plc 2011-2013

The Arsenals trend of Free Cash Flow follows the one of Operating Cash Flow, with
a strong decrease in 2012 (first negative FCF since 2004), and an increase in 2013.
Manchester United was very good into reduce damage, with a very little amount of
loss in 2013.



Graph 8: Financing Cash Flow
Source: Annual Report Arsenal Holdings plc 2011-2013, and Manchester United plc 2011-2013


Concerning Financing Arsenals Cash Flow is almost constant and negative in all the
three years. The drop in Cash Flows in the last years is affecting the current capacity
-80.000.000
-60.000.000
-40.000.000
-20.000.000
-
20.000.000
40.000.000
60.000.000
2011 2012 2013
Arsenal vs. MU's Free CF
Arsenal's Free Cash
Flow
Manchester United's Free
Cash Flow
-50.000.000
-40.000.000
-30.000.000
-20.000.000
-10.000.000
-
10.000.000
20.000.000
30.000.000
40.000.000
50.000.000
60.000.000
2011 2012 2013
Arsenal vs. MU's Financing CF
Arsenal Financing Cash
Flow
Manchester United's
Financing Cash Flow
$(
to invest. Manchester Uniteds Financing Cash Flow in 2012 was negative due to the
repurchasing of senior secured notes in open market transaction and the payment of
dividends.

However, in general, Arsenal Holding plc has a strong financial position with
positive Cash Flows in order to cover liabilities, but it should develop new future
strategies in order not to comprise its future ability to invest. In contrast, Manchester
United has not the same solidity although it is trying to recover from this situation.


1.2.4 Arsenals Possible Future Prospect and Conclusion

Arsenal is becoming more influenced from the football segment, because the great
part of the apartments in Highbury Square is already sold. Nevertheless the property
segment is, however, critical. In fact the development of new constructions in the
surrounding area could lead to a further increase of revenues. Moreover, in order to
remain in a competitive position Arsenal has to manage in a smart way the
broadcasting and commercial revenues. In this direction Emirates and Arsenal F.C.
recently announced a new partnerships deal (150 million) for 5 years. They
renewed also the naming right agreement of the Stadium that will be called Emirates
Stadium until 2028. Concerning the technical sponsor Arsenal F.C. signed Puma as
replacement kit supplier for Nike with a 150 million five-years kit deal (the largest
in Premier League History).

The new FIFA Financial Fair Play regulation could strengthen the Clubs
competitive position, because it is a healthy society from the financial point of view
as opposed to other important Football Clubs (i.e. Manchester United). The main
risks stand in:
The sports performance of the team, concerning especially the participation
in the UEFA Champions League (granting visibility and huge revenues);
$)
The new football trend of private investors investing a lot of money into
clubs, increasing acquisition costs of players and wages. However, Financial
Fair Play regulation is going to mitigate this risk.

Concluding, we can say that, in the long-term, Arsenal has a good potential derived
from its financial solidity and strong bases for the development of enlightened future
strategies. However, a refocus in strategy toward the top, through the retaining of its
best players should be handled with some care. In fact, although could lead to better
sports performances, may also result into a position of financial distress that would
produce the opposite outcome. These are the basis on which we have decided to
develop the last two scenarios of the Decision Making Analysis.

%+
2 THE WAY TO EMIRATES STADIUM

Football business is a growing industry, even if it is now reaching the maturity phase.
The success of the clubs has attracted fans and sponsors, but, at the same time, it
created new challenges (i.e. the increased costs of players acquisitions, wages and
financial pressure due to the new FIFAs rules). For these reasons, the clubs have to
search new opportunities, in order to gain additional revenues. In this regard, a
critical role could be played by an owned stadium.


2.1 OVERVIEW OF EUROPEAN STADIUMS

As we mentioned in the first chapter, there are only few clubs, which have the power
to control the football market. 10% of clubs gain about 70% of the total income
(KPMG, 2011: 6). These clubs belong to the top-five leagues in Europe: Premier
League (England), Bundesliga (Germany), Liga (Spain), Serie A (Italy), and Ligue 1
(France). The main reason of this feature stands in the dimension and consumer
power of these countries.


Figure 3: Revenue distribution by country (2009/10 season)
Source: UEFA, KPMG Analysis, 2011

There are three sources of revenue: match-day revenues, broadcasting revenues and
other sources, such as the commercial one. Looking at Figure 3, we can assume that,
%*
on average, 21% of the incomes of the big-five leagues are generated by the match-
day revenues. In general, this data are highly influenced by the quality of the
stadiums. Therefore, the building of an up-to-date stadium is a crucial factor for a
team, which should choose the right strategy in order to satisfy the market needs with
the correct size and design.


Figure 4: Key Stadium data of the top European Clubs ranked by stadium capacity (season 2010/11)
(1) Manchester Uniteds stadium was rebuilt after being bombed during the WWII.
(2) Hamburger SVs stadium was rebuilt in 1998 at the same location where the previous one stood.
(3) In 2010/2011 Juventus F.C. the Stadio Olimpico as a temporary home whilst building the new 41.000-seat stadium.
Source: Clubs Homepages, KPMG Analysis, 2011

The field performance is deeply influenced by the financial one and a stadium is a
significant element if the club wants to have a competitive advantage over the others.
As a matter of facts, the old stadiums are not developed with the right features to
generate profits, since evidences demonstrate that the construction of a new owned
stadium, with modern design and facilities, improves the chance for the clubs to gain
money

(KPMG, 2011: 10).

%"


Figure 5: Ownership map of stadiums in Europe in 2010
Source: UEFA, KPMG Analysis, 2011

At this moment, the majority of the stadiums ownership in Europe is held by public
entities, although the new sectors trend goes towards privatization. Therefore, the
most important clubs are trying to build their own stadium to retain all the revenues
deriving from the match-days. These top clubs manage this asset through
professionals, producing very huge revenues in comparison with the ones that do not
own a stadium.

%#

Figure 6: Revenue generation in the top European clubs stadium (2009/2010)
Source: Deloitte Football Money League 2011, KPMG Analysis, 2011

Figure 6 reveals that there are several clubs that are able to gain a greater share of
their total revenues from the match-day than others. They are successful in affecting
the prices of the tickets, the sponsorship policy and the sport performance. Arsenal
F.C. is the first ranked team, as it generates 42% of its income from match-day. This
result is strongly dependent on the construction of the Emirates Stadium. As a matter
of fact, the ownership structure of the stadium, the performance of the club, the size,
age and the design of the structure are critical factors in terms of revenues generation

(KPMG, 2011: 12).

The analysis in Figure 6 shows that there is an opposite trend between English,
German and Spanish clubs, which usually have the ownership of their stadiums. On
the other hand, Italian and French clubs do not possess the stadiums and, as a result,
they gain less money. Stadiums owned by private entities, produce more income
mainly because they have been built recently, so the clubs focused more on the
business needs. In contrast, the ones owned by public entities are extremely old and
designed without taking into account the current needs of the market, but tailored for
specific events (Olympic Games). New stadiums should be thought by calibrating the
%$
right capacity and utilization in order to fill them, but also keeping high the ticket
price.

The English Premier League and the German Bundesliga have an extremely high
capacity utilization (relatively 92% and 88%). As we already mentioned, the quality
of a stadium is critical to attract supporters and not only for the performance of the
team on the field. In contrast, the Italian Serie A, in spite of a very high quality of the
played football, has a very low utilization rate (61%), due to the fact that the
stadiums are obsolete

(KPMG, 2011: 15). The main features to built a modern
stadium, which can grant the generation of further income, are: all covered seats, a
corporate box, a loge box, premium seating, exclusive corporate tier, restaurants and
bars, high-end catering, official stores, museum, hotels and a retractable roof. As a
matter of fact, there are some rules, for reasons concerning safety and security, which
require that all the supporters have to be seated. Moreover, the presence of premium
seats grants higher ticket prices and restaurants, bars, stores and the museums lead to
additional revenues. Furthermore, there is a strong source of commercial revenues
deriving from the naming rights of the stadium. The construction of a stadium is
highly capital intensive, as it requires an investment of 20 millions of Euro at least.
Obviously, the costs can vary as they depend on the size, the quality and services that
the Club wants to offer. The bigger the size, the higher is the cost per seat. Larger
stadiums need more services, such as parking space and premium offerings

(KPMG,
2011: 19).

%%

Figure 7:Development costs in recently built stadium
Source: UEFA, SportBusiness Group, Clubs homepages, KPMG analysis, 2011

The main match-day revenue sources are the ticket prices. Figure 7 shows an inverse
relationship between the cost per seat and the size of the stadium, whereas there is a
direct relationship among the size of the stadium and development costs. For these
reasons clubs have to tailor the size and the facilities on the needs of the local market
and the corporates customers, in order to make the investment profitable.

The financing of a new owned stadium is a critical step for a club. The starting point
is the development of a business plan, in order to identify in advance the
opportunities, the risks, the potential costs and the revenues. The choice of the way
in which a club decides to raise finance depends on: stable sources of income, a
strong management and a solid cash flow position. The main two kind of financing
are:
Equity financing: this is a public offering through issuing shares. It could be
initial (IPO) or additional, in case the club is already quoted;
Debt financing, it is itself divided into two types:
%&
o Bank loan (Juventus Stadium case): in this situation the stadium is
financed by bank loans contracts, which are secured by the mortgage of
the stadium itself;
o Bond issue (Emirates Stadium case): the club uses bonds as a tool in
order to refinance its debt

(KPMG, 2011: 19).

After the financing of the project, the next crucial step is the securitization
27
. In this
stage, a club sells a portion of its prospective earnings, such as those deriving from
the naming rights, the sponsorships and the licenses, in order to raise the money
needed for the stadiums building.

As we mentioned above, the majority of the European stadiums were built without
matching the demands features, as, very often, they were built in account of the
peak demand (excess of supply). Their underutilization implies that the revenues
deriving from the match-day are reduced, since a single match-day ticket is preferred
than the annual one due to the regular availability of the first category. Moreover,
seeing the teams playing in a middle blank stadium is not so tempting for the
supporters. Therefore, modern stadiums should be developed taking into
consideration the average demand. Even if the stadium is a long-term asset, a club
should consider the short-term impact. An example of this behavior is the opening of
the new Juventus Stadium with 24.000 (Juventus FC S.p.A., 2012) season tickets
sold (more than the average presence of the season before).

The concomitance of some important international events, such as the FIFA World
Cup or the UEFA European Championship, may drive the clubs to the planning of
building new stadiums. This is a crucial growth opportunity for every country in
order to improve their football business position. At the same time, this state has to
take care of the legacy issues. As a matter of fact, there are some minimum
requirements that should be respected. The main trouble is that sometimes the
standards required by FIFA or UEFA do not match the market needs. For this reason,
the development of stadiums should be managed in a careful and professional way.

"'
Investopedia Website, www.investopedia.com/terms/s/securitization.asp. Accessed 22 March 2014
%'

Clubs have to face some challenges to create a sustainable business model. There are
three main factors that influence the success prospects: the quality of play; the social,
economic and demographic factors and the modernization of the stadium
infrastructure (KPMG, 2011: 30). The first two elements highly affect this latter
element, as it is a way in which a club can exploit the opportunities created by the
quality of play and the social, economic and demographic factors.

Taking into account part of these considerations, Arsenal undertook the Emirates
stadiums project in order to be proactive and visionary in the long-term, leaving its
old home, Highbury Stadium, and gaining a competitive advantage.

%(
2.2 FROM HIGHBURY TO EMIRATES STADIUM

The Arsenal Stadium, also known as
Highbury, has been the home of the
Club from 1913 to 2006. It was
located in the north of London and in
2006 was replaced by the new
stadium, Emirates Stadium, built
nearby at Ashburton Grove in
Islington. There are several reasons
why Arsenal Holdings plc decided to
build a new stadium. First of all,
Highbury had a smaller capacity than
the other top clubs. As a matter of
fact, due to Hillsborough disaster in
1989, the UK government decided to
introduce new tighter rules concerning
sport safety
28
. For this reason, in the
90s, Arsenal was forced to reduce the
capacity of its stadium from 57.000 to fewer than 40.000.

Initially, Arsenals management planned a re-expansion, but they immediately
understood that a re-extension of Highbury would have been extremely difficult. The
main problem was that the physical ground available around the area, which
regarded also the ways of transports and the residential facilities, restricted this
project, which would have been capable of not more than 48.000 seats
29
. As a matter
of fact, the rebuilding of Highbury would have required the demolition of 25 houses
and this encountered the disfavor of the local residents. Highbury was also unable to
host adequately guests, VIPs and corporate partners from which benefit to raise
financial capital. Another reason why a new stadium was needed was the increase of

"(
Arsenal Website, www.arsenal.com/history/arsenal-stadium-highbury/arsenal-stadium-a-history. Accessed 27 March 2014
")
Wikipedia Website, www.en.wikipedia.org/wiki/Emirates_Stadium. Accessed 27 March 2014
Figure 8: Highbury and Emirates Map
Source: Arsenal Website
%)
the fan base and, consequently, the huge unsatisfied day-match demand. This
potential revenue wasted undermined the future investments of the club. For all these
reasons, Arsenal decided to develop a new stadium, named Emirates Stadium, in
order to provide first class facilities.

As we stated before, the position of the new structure was about 500 yards from
Highbury, in Ashburton Grove. Before this decision, this area consisted in rubbish
process plant and industrial estate. Thus, the Emirates was also conceived as a
solution in order to modernize this district from an urbanistic point of view.
Obviously, the Club had to pay some existing residents and decided to construct new
real estate properties. To finance this project, the sale of the land assets of the
Holding was necessary. As a consequence, the Highbury Stadium turned into a
residential complex, named Highbury Square. Residential complexes for resale
included not only Highbury Square, but also Drayton Park and Queensland Road
30
.


2.2.1 Highbury Re-Development And Property Segment

Highbury was demolished and rebuilt into a residential complex, as we already
explained. For the development of the plan a tender between Taylor Wimpey and Sir
Robert McAlpine ltd as main contractors was issued. The winner of the tender was
the second firm that was awarded the contract to develop the Highbury project. This
is the leading UK building and civil engineering company
31
.

The cost of the complex was about 130 million and contemplated the construction
of 655 flats (Luca Marotta, 2011). The great part of the structure of the Highbury
remained almost the same, as the marble halls and players tunnel were retained,
whereas the grass playing was turned into a garden. It was officially inaugurated in
2009 by Arsne Wenger.


#+
U.K. Essays Website, www.ukessays.com/essays/construction/emirates-stadium.php. Accessed 29 March 2014
#*
U.K. Essays Website, www.ukessays.com/essays/construction/emirates-stadium.php. Accessed 29 March 2014
&+
Now we are going to explain how the real estate segment has been developed over
time starting in 2002/2003 from the financial and urbanistic point of view. In the
balance sheets of the Arsenal Holdings plc there is an unusual item for a football
club: Stock development properties. Properties intended for resale are stated at
the lower value between construction cost and net realizable value. Basically, this
item mainly concerns the inventory of real estate held for resale, concerning the
residential complexes. The real estate project Drayton Park (the east side of Emirates
Stadium) impacted on the financial statements of the group until 2006/2007.

During season 2002/2003, the real estate segment led to a turnover of 14 million.
The majority of the revenues was realized with the first sale to the Newlon Housing
Trust, which operates in the social housing sector, for 13,8 million. The inventories
increased from 25,6 million to 30,7 million pounds. The operating margin for the
real estate sector was positive for 5,8 million. The net financial position in
2002/2003 became negative, registering a net debt of 60,3 million, while at the end
of May 2002 it was positive for 242.000 pounds.

In season 2003/2004, the real estate segment led to a turnover of 41,8 million on a
total turnover of 156,9 million, with an operating profit of 16,1 million. At the end
of May 2004, the item Stock development properties amounted to 20,1 million
pounds, while net debt amounted to 141,3 million.

During season 2004/2005 sales of real estate amounted to 23,3 million on a total of
138,4 million, with an operating profit of 12,4 million. At the end of May 2005,
net debt stood at 153,3 million pounds. The sales involved two properties in Drayton
Park. After the moving to the Emirates Stadium, managers hoped to go ahead
quickly with the sale and the development plans for the residential complex
Highbury Square. At the end of May 2005, the item Stock development
properties was equal to 28,1 million.

In 2005/2006, the sales in the real estate sector fell to 5,1 million, with an operating
profit of 300.000 pounds. At the end of May 2006, the net debt totaled 262,1
&*
million. Actually, the completion of the sale in Drayton Park, which was originally
planned to be included in the results of 2005/2006, was not completed until the end
of June 2006 and it was expected a residual turnover of approximately 23,5 million
to be included in the results of 2006/2007. Moreover, in 2005/2006 the designing of
Queensland Road and construction of Highbury Square were started, which led to an
increase in inventories. In fact, the item Stock development properties, at the end
of May 2006, amounted to 44,4 million.

In season 2006/2007, the sales of real estate increased to 23,8 million, with an
operating profit of 9 million. At the end of May 2007, the net debt rose to 268,2
million and Stock development properties amounted to 100,1 million pounds.
This season saw the completion of the sale of the Drayton Parks properties complex
for around 23,5 million and the investment in the other two complexes. The largest
was Highbury Square, where the construction and the development work to convert
Highbury Stadium into apartments was funded through a separate structure of bank
loans, contracted specifically for that purpose. Managers predicted as total value for
the sale of Highbury Square and Queensland Road an amount larger than 300
million, and expected that this would help management with a positive net cash flow
for approximately 90 million in the next three years.

Arsenals net debt at the end of May 2008 touched the record figure of 318,1
million (the point of maximum debt exposure of the group), which was expected to
decrease from the following season, after the completion of Highbury Squares sales.
The main cause of the reached indebtedness resided precisely in the contraction of an
additional loan for the construction of residential complex Highbury Square. The
debt allocated to this project amounted to 133,5 million pounds (in 2007 it was 62,9
million). This loan, which was expected to last 2 years, had to be repaid with the
proceeds of the property sales. Stock development properties stood at about 188
million pounds, with an increase of 87,81% compared to the previous year.
Essentially, this item mainly concerned the inventories of Highbury Square. The
turnover of the real estate segment in this year fell to 15,3 million, with an
operating margin equal to zero.
&"
In 2008/2009 the sale of the apartments of Highbury Square, built on the same
ground where the old stadium was, began. This project won the prestigious Special
Jury Award at MIPIM. In 2008/2009 the real estate business contributed with a
turnover of 7,8 million pounds, with a percentage of 28,18% of the total turnover of
the group. At the end of 2008/2009 only 208 of the 655 apartments were sold. The
economic crisis and difficult conditions to access to mortgage credit slowed the pace
of sales. After the end of May 2009, all the remaining construction works were
completed, including the central garden. The number of the apartments rose to 445
with a cumulative turnover of the sales value of 172 million and the bank debt
contracted for the building was reduced to 47 million pounds. In any case, the loan
agreement with the Barclays Bank plc, which original maturity date was scheduled
for the end April 2010, was refinanced, by extending the deadline to December 2010.
At the end of the season 2008/2009 the total net debt of the group was reduced to
297,7 million pounds. On July 2009, the real estate project called Queensland
Road received the go-ahead. This project, which took its name from the street that
bounds the south side of Emirates Stadium, involved the construction of a new six-
storeys building to the south of the road with the same name, consisting of 213
residential units to be allocated to affordable housing, as well as to be allocated to
local businesses. A second building was planned in the north of the same road, with
516 residential units, an indoor sports center run by the club and some parking lots.
The inventories manufacturing for resale amounted to 167 million pounds, with a
reduction of 11,15%, as a result of sales made.

At the end of May 2010, thanks to a significant sale, inventories relating to real
estate goods passed from 167 million pounds to 45,8 million, with a decrease of
72,60%. The managers of Arsenal Holdings plc believed that the net realizable value
of this inventories was higher than the their book value. In 2009/2010, the sales of
real estate segment exploded, increasing by 77,73%, raising to 156,9 million pounds,
with an operating profit of 15,2 million and a net debt equal to 135,6 million
pounds. In that year, 372 apartments of the Highbury Square were sold. This sale
generated a turnover of 133,6 million pounds. The total number of apartments sold in
this periods rose to 570 on a total of 655. The profit margin for the sale of Highbury
&#
Square apartments increased, and the loan agreement for the building project was
extinguished. Therefore, the sales of the remaining apartments would have
represented only revenues, which would have generated liquidity. Concerning
Queensland Road, the turnover was 23,2 million pounds. The first sale was made in
February 2010 to the purchaser Newlon Housing Trust, which made a cash payment
of 11,9 million, which covered the costs of demolition and remediation of the entire
site. In accounting terms this sale did not result in gains or losses, but it has allowed
a group company, the Ashburton Trading Limited (a subservient of Arsenal Holdings
plc, created in order gain access to a 200 million bank loan) to fully repay its bank
loan. The elimination of the debt meant that any future sales activity would allow
achieving excess liquidity. In the six months ended on 30
th
of November 2010,
Arsenal completed the sale of other 50 flats in Highbury Square, generating a
turnover of 22,5 and an operating profit of 3,3 million pounds. This meant that in
this date 620 of the total 655 apartments in the building project were sold. At the
same date, the net debt amounted to 147,3 million.

Summarizing, it is evident that the property segment from 2002 to November 2010
was critical in order to enhance Arsenals financial position, by providing new funds
used to build its future. As a matter of fact, the residential business in this period
generated a total turnover of 391 million, with an operating margin of 69,9 million
pounds.

&$
Season Turnover
Operating
Profit
Stock -
Development
Properties
Net Debt
2002/2003 14.000.000 5.800.000 30.700.000 60.300.000
2003/2004 41.800.000 16.100.000 20.100.000 141.300.000
2004/2005 23.300.000 12.400.000 28.100.000 153.300.000
2005/2006 5.100.000 300.000 44.400.000 262.100.000
2006/2007 23.800.000 9.000.000 100.100.000 268.200.000
2007/2008 15.300.000 0 188.000.000 318.100.000
2008/2009 88.300.000 7.800.000 167.000.000 297.700.000
2009/2010 156.900.000 15.200.000 45.800.000 135.600.000

Table 2: Property segment from 2002/2003 to 2009/2010
Source: Appunti di Luca Marotta, 2011. Gli appartamenti dellArsenal. Ovvero il business delledilizia residenziale.



Graph 9: Property segment from 2002/2003 to 2009/2010
Source: Appunti di Luca Marotta, 2011. Gli appartamenti dellArsenal. Ovvero il business delledilizia residenziale.

Graph 9 reveals that the trend of Stock development properties follows the trend
of the net debt, since the development of properties is financed by debts. The peak is
common for both the items and it was reached in 2007/2008. In that moment, the
turnover starts to grow in an exponential way, due to the sale of the majority of the
properties, especially the apartments of Highbury Square. The operating profits
trend is very similar to the turnovers one, but less marked and smoother.
0
50.000.000
100.000.000
150.000.000
200.000.000
250.000.000
300.000.000
350.000.000
Property Segment
Turnover
Operating Profit
Stock -
Development
Properties
Net Debt
&%
2.2.2 Emirates Stadium

Construction and Opening

The construction works started in February 2004. Also in this case the tender was
won by Sir Robert McAlpine ltd. as main contractor and the design was
commissioned to Populous, an architectural firm specialized in sport facilities and
convention centers, which has a prominent role in designing stadiums all over the
world. The project involved also Arcadis, as consulting firm, and Buro Happold, as
engineering company. The demolition was concluded in 2004 and in the same year
two bridges were built in order to connect the new stadium with Drayton Park. The
structure of the Emirates, including an external glazing power and a water tank
installation, has been finalized at the end of 2005. The design and the building of the
football pitch were entrusted to DD GrassMaster, the same firm used for the
Highbury. The stadium was officially inaugurated on 26
th
October 2006
32
.


Design

The Emirates Stadium is seen as the milestone of the new generation stadiums, both
in UK and Europe. Its design represents a breaking point with the traditional British
style, as it tries to focus on the supporter, especially for what concerns the
experience. The structure of the stadium was thought by Christopher Lee in order to
frighten the opponents and it is considered one of the most beautiful all around the
world. The stadium has three levels of stands and the roof is made in translucent
polycarbonate placed over the stands and it does not cover the playing field. The
reason that stands behind this choice is mainly due to allow the light to enter into the
stadium, enlightening the pitch. The external structure is made of glass and steel
which confers to it brightness both during night and day.


#"
Wikipedia Website, www.en.wikipedia.org/wiki/Emirates_Stadium. Accessed 7 April 2014
&&
In 2006 was open also the arsenal museum located in the north side of the Emirates,
in which are stored the most important marble statues and busts, previously
displayed in Highburys marble halls. A critical issue that has been discussed was a
potential expansion of the stadium. As a matter of fact, there is a ticket waiting list of
about 40.000 fans, which means a huge amount of missed revenues. At the moment,
this hypothesis is not likely to happen, due to the safety rules and important
upheavals to the Emirates structure, such as the roof and the seats.
To conclude, Populous tried to match the supporters needs through an
environmental friendly structure. An example of this is the presence of a natural
passive ventilation system around the Emirates, in order to reduce the energy
consumption necessary to power an artificial ventilation system. For this purpose the
stadium also includes a solar power system which enhances the power-saving, and
thus the money-saving, making Emirates a sustainable investment in the long-term.

The playing field has a length of 105 meters and a width of 68 meters. Also in this
case the environmental impact was considered. As a matter of fact, other innovations
were made in the maintenance of the turf. Below the pitch there is a ducted system
under vacuum and with air under pressure, which can perform several important
operations, such as:
To provide air and oxygen to the soil where the grass grows, in order to
promote its natural growth, especially in the sensitive areas;
To withdraw the water during precipitation allowing the teams to play on a
grassy always in a perfect condition.

The playing field is made up of Desso GrassMaster, which is the latest generation
surface, composed by natural fibers combined with the artificial ones. This type of
pitch avoids problems in the growth of the grass, if it is not exposed to the sun
properly and sufficiently
33
.


##
Wikipedia Website, www.en.wikipedia.org/wiki/Emirates_Stadium. Accessed 7 April 2014
&'
Transport

There is a huge number of means of transport, which allows to reach the Emirates
from all the areas of London, such as the London Underground station and some bus
routes. The access by car is very difficult, as there are match-day parking restrictions
made in order to avoid traffic congestion and favor public transportation
34
.


Benefits

The Emirates Stadium brought many benefits to the Club itself. Below we provide a
list of the most important:
The increased capacity enlarging the supporter fan-base;
Increased revenues deriving from match-day tickets;
Strengthened brand-image as world class leader club;
Increased comfort due to further premium services (i.e. commercial center,
museum, restaurants, bars, official stores) in order to involve also women and
children;
Better services for disabled people with up to 250 seats and up to 100 parking
spaces thought for them;
Improved rail network during match-day with enhanced steward service;
Potential use of the stadium for non-football events, such as concerts.

The Club is not the only one who benefits from the construction, also the community
does. These advantages are:
The potential of attracting visitors from all around the world in the
neighborhood;
The availability of new houses;
The creation of new jobs;
The increased healthcare quality with the institution of new hospitals;

34
Wikipedia Website, www.en.wikipedia.org/wiki/Emirates_Stadium. Accessed 7 April 2014
&(
The regeneration of the area, both from economical and environmental point
of view;
Huge work in terms of public transport, underground stations, pedestrian
facilities, environmental traffic management systems, parking services
35
.


Stakeholder Analysis

Basically, a stakeholder may be defined as someone (intended as a group or an
individual) who can influence or be influenced by the actions and the goals
undertaken by a specific business or firm
36
.

Concerning this organizational perspective, there were several important issues that
had to be examined, regarding the Emirates Stadium. As a matter of fact, there was
an urgent need for the Club to identify who were the different stakeholders.
Moreover, there was also a need for the club to manage them by creating strategies
that could have engaged them, in order to establish a sustainable competitive
advantage.

We are now going to illustrate an analytical model based on two different tools
combined together: the Mendelow Power/Interest Matrix (Mendelow, 1991) and the
Low and Cowton Stakeholder Engagement and Participation Framework (Low and
Cowton, 2004). The power/interest matrix clusters stakeholders basing its analysis on
two different variables: the level of interest and the level of power. On the contrary,
the stakeholder engagement and participation involves a different approach between
different groups of stakeholders. As a matter of fact, stakeholder engagement implies
a mere consulting and information exchange among stakeholders and the Club, while
the stakeholder participation implies a concrete involvement into the decision-

#%
Arsenal Website, www.arsenal.com/emirates-stadium/community-and-regeneration/emirates-stadium-benefits. Accessed 7
April 2014
#&
Investopedia Website, www.investopedia.com/terms/s/stakeholder.asp. Accessed 10 April 2014
&)
making process

(Walters and Kitchin, 2009: 4). The matrix below shows the different
stakeholders divided in four different categories:


Figure 9: Emirates Mendelows power/interest matrix
Source: Adapted from Mendelow (1991) and Low and Cowton (2004), Birkbeck Sport Business Centre, 2009.

Minimal Effort

As revealed from Figure 9, this stakeholder group ranks low in both level of interest
and level of power. An effective management should take care about each one of the
groups, which interacts in a certain way with the organization, in this case with the
Emirates. Nevertheless, due to the fact that in such a complex environment it is tough
to be careful of every stakeholder. As a result, a selection on which concentrate the
efforts is necessary. In this situation (Emirates Stadium), this group is characterized
by the presence of the Premier League and the Broadcasters (Walters and
Kitchin, 2009: 9).


Keep Informed

In this quadrant, the stakeholders score high in level of interest and low in level of
power. For this group an engagement strategy is required in order to provide a right
'+
flow of information concerning everything that is about the stadium. In this category
are included supporters, shareholders, banks, lower and upper tier sponsors and
partners (i.e. Delaware North Companies), London Borough of Islington and local
community residence. As a matter of fact, it is important to preserve the relationship
with banks, because of the huge need of financing required by the building of the
stadium. Furthermore, the Stadium Management Plan was constituted in order to
grant some guidelines useful for both the London Borough of Islington and the local
community residence, by keeping them informed on important related issues, such as
traffic, litter and road closures

(Walters and Kitchin, 2009: 10).


Keep Satisfied

This category groups those stakeholders, who have a high level of power but a low
level of interest. Even in this context is required an engagement strategy, which
imply maintaining them informed on all the stadiums related issues. This type of
stakeholders differs from the previous one mainly in one feature: the level of power.
Therefore, they need to be satisfied, not just informed. Some examples of this
category are the Metropolitan Police and the Transport for London (TFL).
Concerning Transport for London, it plays an important role, as we mentioned
before, as fans usually go to the stadium by the public means of transport, but at the
same time TFL is not so interested in the Emirates stadium, since London is full of
attractions

(Walters and Kitchin, 2009: 10) which can grant a great amount of money.


Key Players

This category represents the most important stakeholders, who have both high level
of power and interest. Undoubtedly, they have to be involved into the decision-
making process through a participation strategy. This group includes the directors of
the Club, as they have a great decisional power, and the shareholders, who associated
hold the majority of the Clubs shares. Also the Emirates Airlines is a key player in
'*
this situation, since it pays a huge amount of money in order to finance the project,
obtaining naming rights and shirt sponsorship

(Walters and Kitchin, 2009: 11).

Now we are going to focus deeply on four different types of stakeholders that we
mentioned in the matrix, but we have not analyzed yet. They are: London Borough of
Islington, local community residents, supporters and disable supporters.

As we claimed before, London Borough of Islington requires to be aware of
everything that concerns the Emirates stadium. In this regard, Arsenal Holdings plc
decided to establish a subsidiary named Arsenal Stadium Management, in order to
carry out the Stadium Management Plan. Through this project, Arsenal F.C.
maintains the relationship with London Borough of Islington on the most important
issues concerning the stadium (public safety, crime prevention and local transport).
There are three crucial parts incorporated into the Stadium Management Plan, which
are: the Local Area Management Plan, the Stadium Travel Plan and the Monitoring
Program. The first one concentrates on reducing the environmental impact, the
second one is about the traffic management and the last one involves an independent
entity that evaluates if the environmental policy is really effective

(Walters and
Kitchin, 2009: 12).

Regarding local community residents, the Stadium Management Plan is still used in
order to exchange information also with this group of stakeholders. In this regard, the
most important section of the plan is the Local Area Management Plan. As a matter
of fact, its principal aim is to keep the community informed about the cleaning of the
area, the waste collection and the traffic congestion after the match-day, through an
accurate information flow (i.e. newsletters, flayers and website)

(Walters and
Kitchin, 2009: 12).

Concerning the supporters, the engagement strategy adopted by Arsenal may be
divided in three categories. First of all, there is a communication program which
involves the Emirates website, the Arsenal magazine and the program of the match-
day. Furthermore, the supporters forum was renewed in order to adapt it to the
'"
increase in fan-base due to the new capacity of the Stadium. The Club also organizes
meetings in order to give the supporters the possibility to express their opinions
about the most important topics, such as the price of the tickets. Finally, Arsenal
created some comment boxes around the Stadium in order to give to the supporters
the chance to give their own opinions

(Walters and Kitchin, 2009: 13).

The last group of stakeholders that we want to deepen is the disabled supporters.
Arsenal set up a Disability Liaison Officer (DLO) to be able to interact with them
and assist them in the entire experience

(Walters and Kitchin, 2009: 13).

Concluding, we want to acknowledge that supporters interest are not always the
same, due to discrepancies in football ideas. As a matter of fact, the match is
perceived as a personal experience and it varies for the supporters, who are often
divided into different fan clubs. Thus, the directors are required to segment and
target these different kinds of fans (included the disabled ones), to deeper understand
their needs. For this reason, Arsenal has recently analyzed its young supporters, by
subdividing them into three groups. This method may be very useful in order to
enhance the commercial value of the Emirates, gaining increasing revenues,
maximizing profits the making this experience unique (Walters and Kitchin, 2009:
15).


Financing

Regarding financing, firstly we can affirm that Arsenal Holdings plc was not
provided with government public subsidy. As a consequence, the company had to
find by its own the money, which it needed to carry on the stadiums project. As we
explain and deepen before, an important source of financing has been retrieved
thanks to the property segment. Arsenal appealed also to the sponsorships, such as
Nike and Emirates Airlines, in order to fund the plan. Moreover, Arsenal Holdings
plc yielded the naming rights of the new stadium, switching its name from the
original one Ashburton Grove to the actual Emirates Stadium.
'#
The naming rights are an important factor in the financing of a new stadium. As a
matter of fact, despite it is very hard to find a sponsor that wants to pay to give his
name to the structure, it could potentially be a critical resource for any club, which
decides to develop this type of project. We use the adverb potentially because this
solution is rarely used, thus this market right now is underdeveloped. There is a
glaring example for this: the Juventus Stadium. Therefore, after three years from the
inauguration, no sponsor has been found
37
.

On the other hand, Arsenal was able to create this type of agreement raising an
important capital with a first deal, which yielded 100 million from 2004 to 2019,
including also the shirt sponsorship. In November 2012, a new agreement, of about
150 million, was made in order to renew the previous one. It will last until 2028 for
the naming rights and until the season 2018/2019 for the shirts
38
.

Another way that Arsenal chose to finance the project was the purchasing of young
players at low transfer fees to resell them when they became top players for a huge
amount of money. Some examples of this policy could be Nicolas Anelka, Patrick
Viera, Thierry Henry and Marc Overmars.

Nevertheless, the greater part of the financing structure was represented by the 260
million loan retrieved from several banks, among which the Royal Bank of Scotland
was the most important. This deal was signed in April 2003. Initially, the risks
inherent to the development of the new stadium were extremely high and, for this
reason, Arsenal borrowed the money needed from banks. However, the project
proceeded smoothly and the Club realized that the cost of the bank loan was too
high. Therefore, the management decided to refinance the debt launching a bond
issue for 260. This choice was taken in July 2006, as this kind of financing way was
cheaper, and led to a reduction of the finance costs from 32 million to 20 million
per year. The deal contemplated a fixed-rate part of 210 million pounds with a spread

#'
Tifoso Bilanciato Website, www.tifosobilanciato.it/en/2013/05/12/da-sporttrade24-stadi-il-naming-right-in-europa-non-
funziona/. Accessed 13 April 2014
#(
Tifoso Bilanciato Website, www.tifosobilanciato.it/2012/11/23/arsenal-fc-ed-emirates-un-rinnovo-da-185-milioni-di-euro-in-
5-anni/. Accessed 13 April 2013
'$
of 0,52% on UK government bonds and a variable part of 50 million with a spread
of 0,22% on Libor. The effective interest rates were relatively of 5,14% and 5,97%.
The first tranche would last 13,5 years, whereas the second one 7,1 years. The
interests should be paid over a 25-year period, with a deadline in 2031
39
.


2.3 EMIRATES FINANCIAL EVALUATION

Direct Impact

In this section we are going to analyze the match-day revenues of Arsenal F.C. (those
deriving from stadium) from season 2001/2002 to season 2012/2013, which are the
last years that we had information about.

The first five years contemplated refer to revenues generated by the old stadium, the
Highbury, whereas from 2006/2007 are considered the income produced by the
Emirates Stadium.

SEASON
REVENUES FROM MATCH-DAY
TICKETS
2001/2002 24.553.000
2002/2003 27.907.000
2003/2004 33.765.000
2004/2005 37.397.000
2005/2006 44.099.000
2006/2007 90.613.000
2007/2008 94.580.000
2008/2009 100.086.000
2009/2010 93.929.000
2010/2011 93.108.000
2011/2012 95.212.000
2012/2013 92.780.000

Table 3:Revenues from Match-day Tickets
Source: Annual Report Arsenal Holdings plc, 2002-2013


#)
Wikipedia Website, www.en.wikipedia.org/wiki/Emirates_Stadium. Accessed 14 April 2014
'%


Graph 10: Revenues from Match-day Tickets
Source: Annual Report Arsenal Holdings plc, 2002-2013


Analyzing the first five years (in Highbury) we can assume that there was a constant
and substantial increase in the revenues due mainly to the huge enhanced fan base.
This was achieved thanks to the market expansion and marketing, but, especially,
thanks to the important results on the field obtained in the beginning of the
millennium, as the team won three Premier Leagues. As the Highburys capacity was
not enough to sustain this supporters extension, the managers decided to move in a
new stadium, as we explained before.

Graph 10 reveals that during the period of transition from Highbury to Emirates,
which took a single year, the revenues increased more than twice. This exceptional
outcome was principally due to a greater capacity of the new stadium, the creation of
9.000 Premium seats (35% of total revenues)
40
, the increase in ticket price
(sustainable through the extremely long waiting list of 37.000 seats)
41
and last but

$+
Il Solo Calcio Giocato Website, www.ilsolocalciogiocato.wordpress.com/2012/03/13/stadio-di-proprieta-emirates-stadium/.
Accessed 20 April 2014
$*
Il Solo Calcio Giocato Website, www.ilsolocalciogiocato.wordpress.com/2012/03/13/stadio-di-proprieta-emirates-stadium/.
Accessed 20 April 2014

0
20.000.000
40.000.000
60.000.000
80.000.000
100.000.000
120.000.000
2
0
0
1
/
2
0
0
2

2
0
0
2
/
2
0
0
3

2
0
0
3
/
2
0
0
4

2
0
0
4
/
2
0
0
5

2
0
0
5
/
2
0
0
6

2
0
0
6
/
2
0
0
7

2
0
0
7
/
2
0
0
8

2
0
0
8
/
2
0
0
9

2
0
0
9
/
2
0
1
0

2
0
1
0
/
2
0
1
1

2
0
1
1
/
2
0
1
2

2
0
1
2
/
2
0
1
3

Revenues from Match-Day Tickets
Revenues from Highbury
Stadium
Revenues from Emirates
Stadium
'&
not the least the innovative services offered through the commercial center and the
other facilities, such as the restaurants, the coffees, the stores and the museum that
supporters can find inside the Emirates.

As the bar chart shows, from the inauguration, Emirates revenues remained almost
constant. Their variability depends strongly on the number of home matches that
Arsenal F.C. plays during a season. Moreover, we can presume that the most
important driver to maintain a high attendance and thus more revenues is the
qualification to the UEFA Champions League that Arsenal always reached. As a
matter of fact, in addition to a loss of money due to a lack of sponsorship deal, TV
rights and UEFA awards (we are not taking them into account in our match-day
revenues analysis) there would be also a lack of revenues deriving from the reduction
in audience at the stadium. We know that, on average, UEFA Europa Leagues
matches led to a lower attendance of supporters, than Premier League and UEFA
Champions League.

In order to demonstrate this last statement, we are going to examine as benchmark
the last season 2012/2013 of two important Arsenals competitors in the Premier
League, Chelsea and Liverpool, which that year participated to the UEFA Europa
League. Both clubs had a substantial average attendance during the Premier Leagues
home-matches, with a filling percentage of respectively 99,20% for Chelsea and
98,4%
42
for Liverpool. These data collapsed dramatically if we consider only the
Europa Leagues home-matches. As a matter of fact, during this season Liverpool
had, on average, a filling percentage of attendance of 88,3%, while for Chelsea it was
even smaller (82,2%)
43
. Both of them played four home-matches in this competition
and, in the remainder of this analysis; we are going to assume that on average the
UEFA Europa League home-matches (in the eventuality that Arsenal will not qualify
to Champions League but to Europa League) are four.


$"
Soccer Stats Website, www.soccerstats.com/attendance.asp?league=england. Accessed 20 April 2014
$#
World Football Website, www.worldfootball.net/attendance/europa-league-2012-2013/1/. Accessed 20 April 2014
''
Nonetheless, in the last seven years, from the opening date of the Emirates stadium,
Arsenal always achieved this goal, as we already mentioned. On average, the
revenues per game remained almost constant during all the seasons. As a matter of
fact, the revenues deriving from Emirates do not depend so strictly on the sport
performance (although it is an important variable, as we are going to explain
afterwards), as the improvement of the offer brings, as consequence, the stabilization
of match-day revenue. In a modern stadium, as the Emirates, the supporters can
experience an atmosphere that would make them more incentivized to pay a
premium price to watch the match, but also less sensible to the sport performance
trend of the team and to the importance of the match. In fact, the more the
supporters interest is tied to the performance, the more uncertain will be the future
revenues. The Club should be able to make the sport performance only a part of the
overall quality of the game day experience (which involves the quality of the view,
the stadium atmosphere, the museum and the commercial stores). In this way, the
customers are more likely to buy the match-day ticket, even if the performance of the
teams is not brilliant.

Nevertheless, as clarified above, the variability of the annual match-day revenues
depends on the number of games that the team plays, and thus on the success in the
various competitions (UEFA Champions League, FA Cup, and League Cup). This
consideration does not involve the Premier League, as the number of games played is
fixed.

We would like to explain this variability by analyzing the path made by the Club
starting from the season 2006/2007. In this year, the revenues from the Emirates
reached the lowest peak, about 90.613.000, in the period in question. This was
probably due to the fact that it was the first year that the plant was working, but also
to the relatively small number of games played at home (27). In this season, in
fact, Arsenal was eliminated in the fifth round of FA Cup, in the round of sixteen of
the Champions League and reached the final of the League Cup.

'(
During the following year, 2007/2008, the numbers of the games played at the
Emirates increased by one (28), but the revenues underwent a sharp rise
(94.580.000) due to the longer path in the Champions League (quarter-finals), with
a stop in the semi-finals of the League Cup and in the fifth round of the FA Cup.

2008/2009 was the season in which the Emirates revenues reached the maximum
peak. In this year Arsenal reached the FA Cup and UEFA Champions League semi-
finals, while it was eliminated in the quarterfinals of the League Cup. The number of
games played this year was exceptionally high (32), and, consequently, the revenues
were about 100.086.000 pounds.

In the following year the performance on the field worsened. As a result, the
revenues decreased (93.929.000). Arsenal reached the Champions Leagues
quarterfinals, but was eliminated in the fifth round of the League Cup and at the
fourth round of the FA Cup, playing 27 games at Emirates.

In 2010/2011 Arsenal had a similar performance (93.108.000) with 28 games
played. It lost in the round of sixteen of the UEFA Champions League and in the
sixth round of the FA Cup. The team reached the final of the League Cup, but it was
not enough to compensate the lack of income deriving from the failure in the other
competitions.

During the season 2012/2013 the revenues rose slightly (95.212.000) as the team
played more games than the previous year (29). Arsenal reached the quarterfinals of
the League Cup and the round of sixteen of the UEFA Champions League, but it was
eliminated in the fifth round of the FA Cup.

As long as the number of games is concerned, the last year was the worst (26). This
led to a decline in the revenues (92.780.000), which represents the second worst
economic performance from the Emirates opening. In this year, Arsenal reached the
quart-finals of the League Cup, but it was eliminated in the round of sixteen of the
UEFA Champions League and in the fifth round of the FA Cup.
')
To conclude, the Emirates belongs to a new generation of stadiums, since it was
planned with the aim of producing profits. Therefore, it can be classified as a
revenue-stadium. Whereas, the old Italian stadiums, for examples, can be classified
as cost-stadium. As a matter of fact, as we explained, the public ownership and the
obsolete facilities do not allow the clubs to focus on the potentiality of income.


Indirect impact

To carry out the previous analysis, we took into account only the revenues that
derive directly from the match-day. Nonetheless, we are aware of existence of other
kinds of revenues coming from the stadium, which indirectly impact the balance
sheet of the club. They can be divided into three main categories: brand equity,
naming rights and sponsorships. It is extremely tough to make a precise financial
analysis concerning the indirect effects of the stadium, especially concerning the
brand equity. As a matter of fact, in our final decision tree we are not going to
consider these types of revenues. Nevertheless, we found essential to explain how a
stadium can impact the performance of the club in ways, which differ from the mere
match-day revenues.

First of all we want to focus on the brand equity. One of the effects of the stadium
consists in repositioning the brand upward by giving it the connotations of
entertainment brand without losing its sports features. In this way, the brand becomes
more attractive for both traditional partners and additional sponsoring firms. The
BrandFinance analysis shows that Arsenals brand equity sharply increased with
opening of Emirates Stadium. In 2006 the Clubs brand equity was estimated about
134 million, whereas in 2007 there was a huge increment and it was about 201
million

(BrandFinance, 2008). This placed Arsenal F.C. at the fourth position in this
special ranking (from ninth). The significant boost in the income deriving from
match-day tickets generated from Emirates made an enormous contribution also to
the brand equity.
(+
Emirates airline bought the naming rights of the stadium for a period that goes from
2004 to 2028 for 150 million. As a matter of fact, the first deal of about 100
millions was changed with a new longer one. We are going to consider this stream of
revenues in our final decision tree, although it includes also the sponsorship of the
shirts, as it is directly correlated with the stadium.


2.4 JUVENTUS STADIUM CASE

In this section we are going to analyze the Juventus Stadium case, in order to
compare it with Emirates, by creating a benchmark. Therefore, our aim is to
understand the costs that Arsenal would have to pay in case it decides to build a new
stadium over the foundations of the old Highbury by observing the behavior of
Juventus F.C., which constructed the Juventus Stadium in the same place of the old
Delle Alpi.

Our final goal is to estimate the potential costs generated by the rebuilding of the
Highbury. The capacity of the Highbury was very similar to the Juventus Stadium
one and this comparison can offer a smart opportunity to draw some useful insights.

Juventus F.C. overview

Juventus F.C. was founded in 1897 in Turin. It is the most successful club in Italy
and one of the most important all over the world. Juventus F.C. had played its home
match-day in different stadiums. From 1933 to 1990 its house was the Stadio
Comunale. Then, the club moved to the Delle Alpi, built for the 1990 FIFA
World Cup
44
. Although it was recently built, this structure exemplifies all the major
problems of the Italian stadiums, intended as a cost-stadium

(Teotino and Uva,
2012). As a matter of fact, it was not thought to gain huge profits and to offer to the
supporters a unique experience, as it lacked premium seats, restaurants, coffees,
official stores, museums and commercial center. For these reasons, in July 2003, the

$$
Wikipedia Website, www.it.wikipedia.org/wiki/Juventus_Football_Club. Accessed 23 April 2014
(*
Club bought the property of the Delle Alpi area from the Turin Municipality. The
project was delayed of some years, due to the legal proceedings of Calciopoli and
to the non-allocation of the 2012 UEFA European Football Championship to Italy. In
spite of all these obstacles, also linked to the image and economic damage deriving
from the relegation of Juventus to Serie B and the impossibility of financial aid from
FIGC, the Club developed a project for the building of the new stadium on the ashes
of Delle Alpi. At the end of 2008 the demolition work of the old stadium began. The
team temporarily played the home matches at Olimpico Stadium, the old
Comunale. In July 2009, the construction of Juventus Stadium started. Initially, the
construction costs were estimated about !105 millions, but then they were appraised
greater (a precise estimation could about !146.112.000 euros)

(Carlo Gazzeri, 2013:
7).

Costs were covered almost entirely in ways that did not damage the budget intended
for the sports segment:
!60 millions found thanks to ICS (Istituto per il Credito Sportivo) loan;
!75 millions obtained from the transfer of naming rights to SportFive, which
is an intermediary that has the rights to further transfer naming rights);
The remainder derived from the selling of areas adjacent to the stadium to
NordConad, which afterwards built the commercial center

(Carlo Gazzeri,
2013: 8).

The works were concluded in August 2011 and the inauguration took place on
September 8
th
, 2011. As we mentioned before, the Italian Football is a negative
context and Juventus F.C. was the first that had the strength to emulate the English
and German models and to build an owned stadium according to the revenue-
stadium

(Teotino and Uva, 2012) standards.



("
Juventus Stadium

Juventus F.C. is the first, and so far the only one, team in the Serie A, which owns
the stadium where its team plays. Juventus Stadium has 41.254 seats with 64
Skybox. Inside the structure there are some shops, the Juventus Museum, 21 bars and
8 dining areas. There are about 4.000 car parks and an infrastructure, which will
connect the stadium to the public services, has already been implemented

(Diego
Tar, 2013: 2).

The Juventus Stadium was conceived as a multi-purpose stadium, able to increase
and diversify the match-day revenues by attracting visitors and customers during
every day of the year. As a matter of fact, this stadium offers a clear example of
diversification strategy, which consists in increasing the value perceived of the
product by the customers, in comparison with the competitors, in order to gain a
competitive advantage and charge a premium price

(Francesco Favotto, 2007: 91).
Thanks to this approach, the enjoyment of the show does not depend just on the
sports performance, but also on the overall experience lived at the stadium (which is
a surplus than watching the match on TV).

The differentiation strategy could be based on product, service, personnel, channel or
image, by offering a premium quality. Juventus Stadiums differentiation is focused
on the product, the service and the image. Concerning the product, a better visibility
may be achieved without the athletics track, with more comfortable seats, an
involving atmosphere, with safety standards observed and a unique design.
Regarding the service, 34.000 square meters of commercial area and, as we listed
before, 24 coffees, 2 baby park, 3 official stores and 4.000 car parks were built

(Carlo
Gazzeri, 2013: 12). It appears clear that the Juventus Stadium was able to increase
the brand perception of the Club, to strengthen its image and to restore it after the
Calciopolis sentence.



(#
Juventus Stadiums Direct Financial Impact

Table 4 and Graph 11 reveal that the match-day revenues constitute the most evident
impact of the Juventus Stadium, with a significant increase from 2010/2011 (last
season played at Stadio Olimpico) to 2011/2012.

SEASON REVENUE FROM MATCH-DAY TICKETS
2009/2010 16.990.120
2010/2011 11.552.155
2011/2012 31.824.261
2012/2013 38.051.069

Table 4: Revenues from Match-day Tickets
Source: Annual Report Juvents FC, 2010-2013




Graph 11: Revenues from Match-day Tickets
Source: Annual Report Juvents FC, 2009-2013

The revenues in 2011/2012 are almost threefold. This is a very notable enhancement,
especially because in this season the matches played were only two more than the
previous year. Thus, this raise in revenues is not attributable to the number of home
matches. Furthermore, these data are not due to the satisfaction of a high demand that
the previous stadium was not able to meet. As a matter of fact, the data concerning
0
5.000.000
10.000.000
15.000.000
20.000.000
25.000.000
30.000.000
35.000.000
40.000.000
Revenues From Match-day
Revenues from Stadio
Olimpico
Revenues from
Juventus Stadium
($
the old plant, with an average filling rate of 78,5% (Carlo Gazzeri, 2013: 13), shows
that the main aim of the Juventus F.C. was to create the demand and not to satisfy it.
This is a crucial difference between the politics implemented by Juventus and
Arsenal. The increase in the quality of the offer led to the creation of a demand and,
as a consequence, to an increase in the revenues. However, taking into account only
the differentiation strategy could be a constraining approach. Therefore, as we said
before for Emirates, the stability of revenues is also critical.

Actually, the Juventus Stadium could not be used as an example to demonstrate the
importance of a stadium conceived as a whole experience and not just the place to
play. As a matter of fact, from the first official game in the new stadium up to now,
the team has always been in the first two positions of the Serie A. Nevertheless, there
are other evidences that may be used to support this argument, such as the Emirates,
as we illustrated with a deep analysis in the previous section. An empirical evidence
is given by the fact that from the opening of the new stadium, Arsenal F.C. has not
yet raised a trophy, but the attendance at Emirates has never decreased.

The Juventus Stadium may be included into the elite of the Europeans new
generation stadiums. Furthermore, it has recorded the highest percentage ratio
between differential revenues and constructions investment at the end of the first
year. This is illustrated in Table 5:

Club
Year of
inauguration
Investment
Revenues from
the last year of
the old stadium
Revenues from
the first year of
the new stadium
Differential
revenues
Ratio
Arsenal F.C. 2006 470.000.000,00 44.099.000,00 90.613.000,00 46.514.000,00 10%
Juvents F.C. 2011 ! 146.112.000,00 ! 11.552.155,00 ! 31.824.261,00 ! 20.272.106,00 14%

Table 5: Ratio between Differential Revenues and Constructions Investment
Source: Annual Report Arsenal Holdings plc, 2007, and Annual Report Juventus FC, 2012

These data prove the validity of the choice made by the Club. These results may be
improved by maximizing the potential of the stadium. In this way a quantitative
increase of the offer is critical, which concerns the organization of summer friendly
matches and important matches of the Italian Selection. Moreover, a better
(%
management of the season tickets could represent another important factor, when
they are not used for all the matches. As a matter of fact, some supporters buy the
season ticket aiming to have a seat guaranteed for the most important matches, but
they do not go to see the others. A possible solution could be an efficient system of
temporary transfer of the title of subscribers to other users. Benefits can be achieved
both through the additional income deriving from the ticket itself and the additional
components of the offer (i.e. the merchandising). Another way to increase the
revenues is the organization of extra-football events, such as concerts.


Juventus Stadiums Indirect Financial Impact

In this passage we are going to study the indirect impact that Juventus Stadium had
on the financial results of the entire group. Like with the Emirates Stadium analysis,
we have to examine the three main variables, which are the brand equity, the naming
rights and the sponsorships tied with the stadium.

The brand value had a huge enhancement from the season 2010/2011, with a brand
equity of !115.000.000, to 2011/2012 with !160.000.000 (BrandFinance, 2012). This
increase can be attributable, mostly, to the Juventus Stadiums effect.

Concerning the naming rights, although the strengthened brand image, nobody has
bought them yet. This does not represent a problem for Juventus from the financial
point of view, because, as we mentioned before, the Club sold the naming rights to
SportFive S.p.A. for !75.000.000. Nevertheless, this situation affects negatively the
reputation and the appeal of the company. In reality, the reasons why no one has
bought these rights may be different. Firstly, the price required by SportFive is too
high. In second place, the Serie A lost its appeal and it is far behind the top European
leagues. Finally, there are doubts on the fact that the naming rights can ensure a
greater return on image and money than other kinds of sponsorship.

(&
The last aspect that should be taken into consideration is the advantages granted for
partners and sponsorship firms by the Juventus Stadium. The Club designed it also
aiming to maximize the return from sponsorships. Thanks to the absence of the
athletics tracks, the position of television cameras was studied in a way that makes
the billboards on the sideline always visible.

('
3 DECISION MAKING: DATA ANALYSIS

As mentioned in the Abstract, the research question of this thesis is:

Is the choice of building the new stadium in a new area, transforming the old one in
apartments, the best solution? Or the best decision would be the reconstruction of
the new stadium on the same foundations of the old Highbury?

This chapter represents the core of our analysis. It consists in the gathering and
estimation of all the data that we need in order to establish the best decision that
Arsenal F.C. could have taken when the Club decided to build the new stadium. We
are going to examine all the match-day attendances of the Emirates from the
inauguration in 2006 up to the last season, 2012/2013. Furthermore, we are going to
use the data that concern the Emirates annual revenues that we have already analyzed
in the previous financial evaluation. Thanks to these data we estimated the average
ticket price through the consideration of the match-day attendances and the number
of the annual games that the team played. This time frame represents the stream of
certain revenues, the profits deriving from the property segment, the naming rights
and the overall costs of the developing of the stadium. Afterwards, we are going to
compute some probabilities regarding the qualification in the Champions League and
in the Europa League. For each one of these events we are going to calculate the
probabilities concerning a high or low attendance. Finally, we are going to make
some projections of the revenues deriving from the match-days, up to 2031. We
chose this date, as it is the deadline of the debts repayment. For each year we
forecast revenues with both high attendance and low attendance, taking into account
the increase in the ticket price and the interest rate of the Royal Bank of Scotland
(the Bank that initially granted the loan to Arsenal). Our final aim is to assess the Net
Present Value (NPV) of the future potential revenues.

We are going to use the same process for the fictitious New Highbury Stadium. It
could have been the Arsenal Stadium if the Club had chosen the second solution,
which regarded the rebuilding of the new stadium on the same foundations of the old
((
one, with an expansion of the seating capacity to the maximum number (48.000).
The Juventus Stadium benchmark was fundamental in order to appraise the costs of
the initial investment, accounting the exchange rate GBP/Euro, the real estate ratio
U.K./Italy and the capacity ratio New Highbury/Juventus Stadium.

At the end, we are going to include this collected data in a decision tree, developed
through the TreePlan Excel Tool, which will help us to identify the best solution. We
are going to generate three different scenarios, starting from the standard one, which
concern the actual Arsenals strategy. In the second one we will add the eventuality
of a refocus of the strategy towards the top, as Manchester United politics, by
retaining the Clubs best players. In the third scenario we are going to explore the
opposite hypothesis. This will involve the financial problems of the Club, which is
forced to change its strategy and to sell the best players losing competitiveness.


3.1 EMIRATES STADIUM: COST, EVALUATION OF
REVENUES, PROBABILITIES AND FUTURE ESTIMATIONS

As mentioned above, we are going to start from the Emirates analysis. We collected
all the season day-match attendances from the season 2006/2007 to 2012/2013. We
calculated the Average Attendance and the Standard Deviation both for every year
considered and for the entire period. Table 6 reveals that the Total Average
Attendance is 59.661. This data is very similar for all the years taken into
consideration and this is demonstrated by the very low values of the Standard
Deviation (total Std. Dev. is 1.298). Moreover, the table shows the Number of the
Home Matches for each year and the Total Average, that is 28. Furthermore, as we
already have the Total Annual Match-Day Revenues, we are able to get the Annual
and Total (56,30) Average Ticket Price, through the ratio between the Revenues
and the product between Average Attendances and Number of Home Matches:

Avg. Ticket Price =
!"#"$%"&
!"#!!""#$%&$'# ! !"#$ !"#$!!"


()
Furthermore, we estimate the Revenues per match, not only on an annual base and on
the overall, but also by creating another apposite table with the predictions of the
revenues of each match, considering the Annual Average Ticket Price and the Real
Attendance of that match. To conclude, we are going to compute also the Annual
Filling Rate, which is given by the ratio between Average Attendance and Emirates
Capacity.



EMIRATES SEASON ATTENDANCES
Home
matches 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013
1 60.023 60.093 60.071 60.049 60.032 58.159 60.078
2 58.418 60.114 59.583 59.962 59.876 60.090 60.097
3 60.007 58.462 60.067 59.103 59.412 60.087 58.351
4 59.912 60.114 56.632 56.592 60.025 46.539 60.101
5 59.117 59.843 60.037 59.712 60.070 59.727 60.034
6 60.018 60.122 59.623 59.431 60.002 59.667 60.049
7 60.047 60.004 60.064 60.082 60.086 60.078 60.103
8 58.942 60.098 60.043 60.004 60.059 59.671 60.093
9 60.110 59.442 60.003 60.103 60.102 56.628 60.111
10 60.058 58.887 60.106 60.012 59.525 59.961 59.760
11 59.213 60.161 59.665 59.496 60.049 60.091 60.098
12 60.115 60.126 60.047 60.067 59.612 59.531 60.083
13 60.037 59.781 59.374 60.048 60.112 60.043 60.087
14 59.913 60.139 59.317 60.006 60.085 60.028 60.107
15 60.057 60.087 60.094 60.056 59.520 60.062 58.359
16 60.128 60.102 60.092 60.053 59.552 59.686 60.081
17 59.778 53.136 59.424 59.084 59.387 60.067 60.089
18 55.872 60.037 60.068 60.091 59.375 59.615 59.872
19 60.049 60.046 60.109 60.045 60.014 60.093 60.070
20 56.761 60.127 57.237 60.083 60.050 60.019 59.974
21 60.132 60.049 60.104 60.043 59.927 59.643 60.079
22 59.987 60.082 60.003 59.661 60.041 60.106 60.082
23 60.098 60.097 60.102 60.077 59.361 59.973 60.095
24 60.101 60.084 57.454 60.097 60.081 60.095 60.071
25 59.913 60.041 60.091 60.067 60.087 60.108 60.112
26 60.043 60.111 55.641 60.086 60.029 60.096 60.068
27 60.102 60.109 60.097 60.039 60.107 60.060
28 60.123 58.233 60.023 60.111
29 60.089 60.092
30 60.123
31 60.075
32 60.082

Table 6:Emirates Season Attendances, 2006-2013
Source: ESPN Website Arsenal Fixtures & Results, 2006-2013
)+

2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 Total
Average attendance 59.591 59.701 59.492 59.783 59.879 59.315 59.927 59.661
Std. Dev. of attendance 1.042 1.345 1.151 703 273 2.559 469 1.298
Home matches 27 28 32 27 28 29 26 28
Revenues 90.613.000 94.580.000 100.086.000 93.929.000 93.108.000 95.212.000 92.780.000 660.308.000
Average ticket price 56,32 56,58 52,57 58,19 55,53 55,35 59,55 56,30
Revenues per match 3.356.037 3.377.857 3.127.688 3.478.852 3.325.286 3.283.172 3.568.462 3.351.817
Filling Rate 0,987665166 0,989485492 0,986031118 0,990855992 0,992435686 0,983089246 0,993239031 0,988835853

Table 7: Emirates Season Attendances and Main Drivers, 2006-2013
Source: Personal Elaboration from several sources

As pointed out before, a crucial data that we have to take into account is the Emirates
Capacity, which is 60.335 (Table 8). We found that there is an Annual increase in the
Ticket Price, in line with the inflation of 3%
45
. Moreover, we estimated the
Champions League qualifications Probability as 80%. The evidence is the historical
trend in the last twenty years, where Arsenal F.C. reached 16 times this goal,
whereas the other 4 times it reached the qualification in the UEFA Cup/Europa
League
46
.

In the subsequent analysis, due to the fact that the team was able to reach the
Champions League during all the seasons, we assumed that the values of the Total
Average Attendance and the Standard Deviation have to be considered as high
attendance. In order to estimate an average value for a low attendance we supposed
that matches with less than 57.000 supporters would be included in a low attendance
trend. Table 6 shows that we counted 6 low attendance matches, which are indicated
with the grey cells. The total number of the analyzed matches is 197, thus we can
assume that the Probability of Low Attendance in case of the qualification in the
Champions League would be 3%. We obtained this data through the ratio between
Number of Low Attendance Matches and Total Matches. Therefore, the Probability
of High Attendance would be 97%.


$%
Arsenal Website, www.arsenal.com/news/news-archive/club-announces-ticket-prices-for-2014/15. Accessed 3 May 2014
$&
Wikipedia Website, www.en.wikipedia.org/wiki/Arsenal_F.C._in_European_football. Accessed 3 May 2014

)*
Concerning the estimation of Low and High Attendances Probabilities in the case of
the qualification in the Europa League, we can gain some useful insides from the
financial analysis of the Emirates that we made before. There we hinted a benchmark
analysis on Chelsea F.C. and Liverpool F.C. in the previous year. We know that the
filling rate collapsed from the Premier League matches to the Europa League.
Therefore, we can say that, on average, the number of home games that are played in
the Europa League is 4, the same average as in the Champions League. Considering
an Average Number of Total Annual Matches of 28 and a 3% of low attendance in
Champions Leagues conditions, we can assume that, on average, one match per year
of low attendance always happens in this situation (3% of 28 = 0,84 " 1). If we
substitute the average number of 4 Champions League matches that Arsenal plays
every year with the average of 4 Europa League matches (which would be conceived
as low attendance, thanks to the benchmarking analysis that we made before), the
total number of low attendance matches per year in the European League conditions
would be 5 (1 + 4). Thus, without the Champions League, the Probability of Low
Attendance would be 18% (5/28) and Probability of High Attendance would be 82%.

Basing on the average attendance of the 6 matches with less than 57.000 supporters,
we calculated the Low Attendance on Average (54.074) with a Standard Deviation of
3.909, which is considerably greater than the High Attendance one. The table below
reveals the Filling Rate of Low Attendance would be 89,6%, which is in line with
those of Chelsea and Liverpool, as we mentioned before.

Emirates Capacity 60.335
Increase in ticket price
(in line with inflation)


0,03
Probability of
Champions League
Qualification (last 20
years)

0,8

Table 8: Emirates Capacity, Annual Increase in Price, and Champions League Qualifications Probability
Source: Personal Elaboration from several sources


)"
Estimation with Champions League
Low attendance matches (supposed less
than 57000)
6
Total matches

197
Probability Low Attendance 0,03
Probability High Attendance 0,97


Estimation without Champions League
Probability Low Attendance 0,18
Probability High Attendance 0,82
Low Attendance on Average

54.074,67
Std. Dev. Low attendance


3.909,24
Filling Rate Low Attendance


0,896240

Table 9: Estimation of High and Low Attendances Probabilities with or without Champions League
Source: Personal Elaboration from several sources

The last part of the Emirates data analysis consists in the projections of revenues
from the season 2013/2014 to the season 2030/2031. We estimated the revenues in
both high and low attendances cases. In order to make a precise forecast we used
data regarding the High and Low Average Attendance, the Average Number of
Annual Matches and the Average Ticket Price (considering for every year an
increase of 3% in line with the inflation rate). All of that capitalized with an interest
rate of Royal Bank of Scotland (0,5%)

(The Royal Bank Of Scotland Group, 2014),
to find the Net Present Value of the future potential revenues:

NPV =
!"#"$%"&
!
!!!!!
!
!
!!!


where:
Revenues are represented by the Average Ticket Price in each year multiplied
with the Average Number of Matches and the Average Attendance in both
low and high attendances cases;
(1+r)
n
is the capitalization of the interest rate r;
N is the total number of years taken in consideration;
n is the single year considered.
)#

From the results emerging from the Excel spread sheet, it can be concluded that
the revenues increase each year both for high and low attendance, as the effect of
the increased ticket price overbears on the effect of the capitalization on the
interest rate. According to our analysis, in the event of high attendance the Net
Present Value would be 2.166.384.580,76, whereas in the case of low
attendance it would be 1.963.522.514,54.


EMIRATES FORECASTED REVENUES UNTIL 2031 (DEADLINE OF BANK LOAN FOR EMIRATES)

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
High Attendance 96.880.214,17 99.290.169,74 101.760.074,46 104.291.419,60 106.885.733,52 109.544.582,61
Low Attendance 87.808.269,79 89.992.555,11 92.231.175,88 94.525.483,74 96.876.863,93 99.286.736,17
Average price tickets
(considering the
annual increase of
3%) 57,99 59,73 61,52 63,37 65,27 67,22
Capitalization of
interest rate
1,005 1,010025 1,015 1,02015 1,025 1,030377509

2019/20 2020/21 2021/22 2022/23 2023/24 2024/25
High Attendance 112.269.572,23 115.062.347,66 117.924.595,11 120.858.042,75 123.864.461,73 126.945.667,24
Low Attendance 101.756.555,48 104.287.813,07 106.882.037,28 109.540.794,43 112.265.689,81 115.058.368,66
Average price tickets
(considering the
annual increase of
3%) 69,24 71,32 73,46 75,66 77,93 80,27
Capitalization of
interest rate
1,036 1,040707044 1,046 1,051140132 1,056 1,061677812

2025/26 2026/27 2027/28 2028/29 2029/30 2030/31
PRESENT
VALUE
High Attendance 130.103.519,66 133.339.925,62 136.656.839,20 140.056.263,06 143.540.249,70 147.110.902,68 2.166.384.580,76
Low Attendance 117.920.517,14 120.853.863,33 123.860.178,34 126.941.277,30 130.099.020,52 133.335.314,56 1.963.522.514,54
Average price tickets
(considering the
annual increase of
3%) 82,68 85,16 87,71 90,34 93,05 95,85
Capitalization of
interest rate 1,067 1,072321132 1,078 1,083 1,088486507 1,094

Table 10:Emirates Forecasted Revenues until 2031
Source: Personal Elaboration from several sources

)$
3.2 NEW HIGHBURY STADIUM: COST, EVALUATION OF
REVENUES, PROBABILITIES AND FUTURE
ESTIMATIONS

The second solution of our decision tree is the New Highbury Stadium. As indicated
before this is a fictitious stadium, that could have been the new Arsenal Stadium if
the Club had chosen to reconstruct the new building on the ashes of the old one,
rather than preferring another location. The maximum possible capacity for the new
stadium would be 48.000 and in the further analysis we are going to assume that this
would be the New Highbury capacity.

Consistent with our previous analysis on the Emirates, we have estimated the
attendances and the revenues for each season, from 2006/2007 to 2012/2013, starting
from the Emirates value of the Filling Rate, the Home Matches, the Average Ticket
Price and the Total Averages. In order to estimate the attendances, we have adjusted
the Filling Rate of Emirates (assuming that it would be equivalent in the case of a
new stadium on the same base) in the same years, in function of the New Highbury
capacity. We decided to omit the attendance of each match, since we figured out that
trying to forecast every single day-match attendance would have been unrealistic.
Thus, we estimated the season average attendance in the following way:

Estimated Attendance = !"#$%&'( !"##"$% !"#$ ! !"# !"#!!"#$ !"#"$%&'

Assuming that the Number of Home Matches and the Average Ticket Price would be
the same of the Emirates Stadium, we were able to estimate the seasons revenues by
multiplying the Estimated Attendance per the Home Matches and the Average Ticket
Price.

Even though we are aware of the fact that this is a risky assumption, we supposed
that sports performance would not changed from the Emirates to the New Highbury.
Therefore, we decided to maintain the found value of attendance as the High
Attendance. In order to estimate the Low Attendance, we considered the Filling Rate
)%
of Low Attendance calculated in the case of the Emirates (that is about 90%),
adapting it for the New Highbury capacity

New Highbury Capacity

48.000



SEASON ATTENDANCE
Home matches 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 TOTAL
Filling Rate 0,987665166 0,989485492 0,986031118 0,990855992 0,992435686 0,983089246 0,993239031 0,988835853
Estimated Attendance 47.408 47.495 47.329 47.561 47.637 47.188 47.675 47.464
Home matches 27 28 32 27 28 29 26 28
Average ticket price 56,32 56,58 52,57 58,19 55,53 55,35 59,55 56,30
Estimated Revenues 72.087.909 75.243.888 79.624.231 74.725.980 74.072.827 75.746.681 73.811.884 525.313.400


Filling rate low
attendance

0,896240
Estimated Low
Attendance

43.020

Table 11:New Highbury Estimation of Season Attendances and Main Drivers, 2006-2013
Source: Personal Elaboration from several sources

Also for New Highbury, we replicated the estimation of revenues from the season
2013/2014 to the season 2030/2031. As explained before, we used the values of High
and Low Attendances estimated in the previous section. We kept the Average
Number of Annual Matches, the Average Ticket Price, with an increase of 3% per
year, and the capitalization of the interest rate, set, by using the same data of the
Emirates projections. Even in this case we found the same NPV of the New
Highburys future revenues:

NPV =
!"#"$%"&
!
!!!!!
!
!
!!!


where:
Revenues are represented by the Average Ticket Price in every single year
multiplied with Average Number of Matches and Average Attendance in both
low and high attendances cases;
(1+r)
n
is the capitalization of the interest rate r;
N is the total number of year taken in consideration;
n is the year considered.

)&
According to our estimation, the Net Present Value in the event of high
attendance would be 1.723.484.874,06 and in the circumstance of low attendance
would be 1.562.096.307,25.


NEW HIGHBURYS ESTIMATED REVENUES UNTIL 2031 (DEADLINE OF BANK LOAN
FOR EMIRATES)

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
High Attendance

77.073.842,38

78.991.102,14

80.956.054,93

82.969.887,14

85.033.814,68 87.149.083,71
Low Attendance

69.856.583,24

71.594.309,19

73.375.262,16

75.200.517,43

77.071.177,07 78.988.370,53
Average price tickets
(considering the
annual increase of
3%) 57,99 59,73 61,52 63,37 65,27 67,22
Capitalization of
interest rate 1,005 1,010025 1,015 1,02015 1,025 1,030377509



2019/20 2020/21 2021/22 2022/23 2023/24 2024/25
High Attendance

89.316.971,36

91.538.786,57

93.815.870,81

96.149.598,94

98.541.380,01 100.992.658,12
Low Attendance

80.953.255,37

82.967.017,94

85.030.874,11

87.146.069,98

89.313.882,67 91.535.621,04
Average price tickets
(considering the
annual increase of
3%) 69,24 71,32 73,46 75,66 77,93 80,27
Capitalization of
interest rate 1,036 1,040707044 1,046 1,051140132 1,056 1,061677812



2025/26 2026/27 2027/28 2028/29 2029/30 2030/31
PRESENT
VALUE
High Attendance

103.504.913,30

106.079.662,38

108.718.459,96

111.422.899,26

114.194.613,17 117.035.275,19 1.723.484.874,06
Low Attendance

93.812.626,54

96.146.273,97

98.537.972,33

100.989.165,67

103.501.333,97 106.075.994,02 1.562.096.307,25
Average price tickets
(considering the
annual increase of
3%) 82,68 85,16 87,71 90,34 93,05 95,85
Capitalization of
interest rate 1,067 1,072321132 1,078 1,083 1,088486507 1,094

Table 12: New Highburys Forecasted Revenues until 2031
Source: Personal Elaboration from several sources

The last step was using Juventus F.C. as a benchmark, in order to estimate the
potential development costs of the New Highbury. As a matter of fact, we started
from the Juventus Stadiums cost in Euro and we adjusted this data using three
different parameters. First of all through the Exchange Rate GBP/Euro of 2006
47
, we
converted the amount in pounds. Secondly, we utilized the Real Estate Ratio
U.K./Italy
48
in order to take into account the different costs of a square meter of land.
Probably, in this way, we underestimated it, as in London the real estate cost is

$'
Exchange Rates Website, www.it.exchange-rates.org/currentRates/E/GBP. Accessed 7 May 2014
$(
Business Community Website,
www.businesscommunity.it/m/Luglio_2013/economia/Il_mercato_delle_case_in_Europa_Londra_la_citt_pi_cara.php.
Accessed 7 May 2014
)'
higher than in the rest of U.K. Finally, we adapted the capacity of the Juventus
Stadium with the supposed capacity of the New Highbury, through the Capacity
Ratio New Highbury/Juventus Stadium. The following formula can summarize these
proceedings

!"# !"#!!"#$ !"#$%&#'( !"#"$%&'"() !"#$# !" !"#
! !"#$%&"' !"#$%&' !"#$# !" !"#$
! !"#!!"#$ !"#$
!"#
!"#$
! !"#$ !"#$#% !"#$%
!! !!
!"#$%

! !" !"#$% !"#$%
!"# !"#!!"#$
!"#$%&"' !"#$%&'


The final costs that we forecasted would be 126.650.449. This value is in line with
the City of Manchester Stadium (also known as Etihad Stadium for naming rights
reasons), which cost 112.000.000 and has a capacity of 47.805 seats
49
.

GBP/Euro 0,6829
Juventus Stadium capacity 41.254
Juventus Stadium cost (in Euro) 146.112.000
Juventus Stadium cost (in GBP) 99779884,8
Real estate ratio U.K./Italy 1,090909091
Capacity Ratio New Highbury /
Juventus Stadium
1,163523537
Estimated Development costs
New Highbury (in GBP) 126.650.449
Probability naming Rights 0,1

Table 13: Juventus Stadium Data, Ratios, and Probabilities.
Source: Personal Elaboration from several sources

The last cell shows the Probability Naming Rights. We found this value extremely
useful in the New Highburys branch of the decision tree, as we cannot assume with
certainty that Arsenal would be able to sign an agreement with a sponsorship
company for the naming rights also in this eventuality. Thus, we calculated this

$)
Wikipedia Website, www.en.wikipedia.org/wiki/City_of_Manchester_Stadium. Accessed 7 May 2014
)(
probability being aware of the fact that in the Premier League only two stadiums out
of twenty (precisely Emirates and Etihad) hold this title
50
.


3.3 DECISION TREES

As we already stated, the main aim of our thesis is to build a decision tree in which
we want to make a choice between the construction of Emirates Stadium or New
Highbury. We are going to use the TreePlan Excel tool in order to be helped in this
decision.


3.3.1 First Scenario: Standard Decision Tree

Concerning the Emirates Stadiums branch, we start with the consideration of the
certain stream of money deriving from the Emirates Revenues, the Operating Profits
of the Property Segment and the Naming Rights, minus the Development Costs of
the Stadium. This datum represents the amount of money gained up to 2013. Then
we evaluate future revenues by considering probabilities and estimations of the data
analysis made before. The following node regards the eventuality of the team
qualification in the Champions League or the Europa League. Both of them have two
additional branches that are event nodes, too. In this case events consists in High
Attendance and Low Attendance, with different probabilities if it would concern the
Champions or the Europa League. As a matter of fact, in the first case (which occurs
with a probability of 80%) High Attendance is very likely to befall (97%) and,
consequently, Low Attendance is very unlikely (3%). This is due to the great
importance of the competition that attracts a lot of supporters. Whereas, in the
second case, which occurs with probability of 20%, the likelihoods of High
Attendance and Low Attendance have a smaller gap, although the first one is 82%
and the second one is 18%. At this stage, for both branches, the outcomes are

%+
Calcio e Finanza Website, www.calcioefinanza.it/naming-right-suggli-stadi-della-premier-possibili-incassi-per-oltre-60-
milioni/. Accessed 11 May 2014
))
represented by the revenues projections made for Emirates in the event of High
Attendance and Low Attendance up to 2031.
Regarding the New Highburys branch, we have to consider the estimated stream of
revenues up to 2013 again, in which we take into account both the Estimated
Revenues and the Estimated Development Costs. However, we omit operating Profit
of Property Segment and Naming Rights. As a matter of fact, the first event node
regards the case that the Stadium would be sponsored selling naming rights. The
probability associated to this event is 10%. The other part of the New Highburys
Stadium branch is similar to one of the Emirates, as, also in this case, we have the
branches the Champions and the Europa League, with the same probabilities as
before, and the High and Low Attendances branches (with Emirates probabilities
again). At the final stage, the outcomes are represented by the forecasts of the High
and Low Attendances Revenues, up to 2031, made for the New Highbury.

The following decision tree reveals that the best solution, which maximizes the
profits deriving from the Stadium (including the property segment and the naming
rights), is the expected value of the Emirates (2.581.320.847,39) that is
considerably higher than the New Highburys expected value (2.127.462.891,05).
Thus, the result that emerges from the Standard Decision Tree is the one taken by
Arsenal F.C., the Emirates Stadium

*++


LEGEND CALCULATION PROBABILITIES
Best Solution
Revenues from 2006 to 2013 + Naming
Rights + Operating Profits Property
Segment - Development Costs
(Emirates)
Champions League 0,80
Probabilities Champions League U High Attendance 0,97
Certain stream of Profits Emirates Champions League U Low Attendance 0,03
Forecasted Revenues until 2031 Emirates
Estimated Revenues from 2006 to 2013
- Estimated Development Costs (New
Highbury)
Europa League 0,20
Total Profits until 2031 Emirates Europa League U High Attendance 0,82
Certain stream of Profits New Highbury Europa League U Low Attendance 0,18
Forecasted Revenues until 2031 New
Highbury Naming Rights (New Highbury) 0,10
Total Profits until 2031 New Highbury No Naming Rights (New Highbury) 0,90

Figure 10: First Scenario: Standard Decision Tree
Source: Personal Elaboration from several sources

*+*
3.3.2 Second Scenario: Refocus Of The Strategy To The Top

The scenario is about a possible refocus of the Clubs strategy to the top, by retaining
its best players. As a logical consequence of this policy, we figure out a huge
increase in the sport performances, especially in the European competitions and in
the Premier League. As a matter of fact, we suppose that the average number of the
home matches would increase from 28 to 30, thanks to the fact that the team
achieved the semi-finals of the European competitions, instead of stopping at the last
sixteen. Moreover, we assume, on average, a better rank in the Premier League,
through the increase of the Probability of Qualification in Champions League, from
80% to 90%. We also suppose the rise of the New Highburys average price in 2013
of 15%, due to the boost of the waiting list, which is higher than the one of the
Emirates, since its capacity is lower. Whereas for the Emirates the price would
remain the same, as the tickets cost is already very high. Nevertheless, in both cases,
the likelihoods of High and Low Attendance remain the same of the Standard
Scenario.

The Emirates Estimated Revenues would increase due to the effect of greater
number of games played and the Expected Value would be enhanced by the increase
in the Probability of Qualification in the Champions League, which has a larger
expectation of high attendance. The New Highbury takes advantage of the same
factors to increase its projection of revenues, with the adding of 2013s increase in
price.

The following decision tree reveals that the final choice is equal to the one made in
the Standard Scenario. As a matter of fact, the expected value of the Emirates
Stadium (2.726.720.768,70) is still higher than the one of the New Highbury
(2.517.559.940,02). It is clear therefore that, also in the case in which Arsenal had
pursued a strategy toward the top, the Emirates would be the best solution.


*+"


LEGEND CALCULATION PROBABILITIES
Best Solution
Revenues from 2006 to 2013 + Naming
Rights + Operating Profits Property
Segment - Development Costs
(Emirates)
Champions League 0,90
Probabilities Champions League U High Attendance 0,97
Certain stream of Profits Emirates Champions League U Low Attendance 0,03
Forecasted Revenues until 2031 Emirates
Estimated Revenues from 2006 to 2013
- Estimated Development Costs (New
Highbury)
Europa League 0,10
Total Profits until 2031 Emirates Europa League U High Attendance 0,82
Certain stream of Profits New Highbury Europa League U Low Attendance 0,18
Forecasted Revenues until 2031 New
Highbury

Naming Rights (New Highbury) 0,10
Total Profits until 2031 New Highbury No Naming Rights (New Highbury) 0,90

Figure 11: Second Scenario: Refocus of Strategy to the Top
Source: Personal Elaboration from several sources



*+#
3.3.3 Third Scenario: Clubs Financial Troubles

In this scenario we suppose a crisis that leads to some financial troubles for the
Club, which is forced to sell all its best players. As a consequence, Arsenal focuses
more on the young athletes, but loses its competitiveness at a high level. In this way,
it would become a middle-ranking club. For this reason, we hypothesize that the
season goal would be the qualification in Europa League, but a salvation achieved
well in advance could be seen as an acceptable result. Nevertheless, the possibility of
going in the Championship could be an eventuality to consider as well as a
qualification in the Champions League.

In the decision tree, in order to simplify, we suppose that the two branches are
represented by the Premier League, with 70% of likelihood, and by the
Championship with a low probability (30%). Concerning the Premier Leagues
branch, we are going to consider as values of High and Low Attendance those of the
Europa League, as goal of the season and most likely placement. Regarding the
Championships branch we cannot know in advance the effect of such a failure on
the supporters, thus we assume a 50% of Probability for both High and Low
Attendance. However, we can guess that Arsenal would lose a certain following and
we decide to quantify it with a filling rates reduction of 50%. Moreover, the
Average Price of the Emirates would decline of 30%; whereas the one of the New
Highbury would have a more moderate decrease, just by 10%, thanks to its lower
capacity.

In both cases, the Estimated Revenues and the Expected Values of Profits deriving
from the stadium would have a drastic decline, but the effects on New Highburys
Revenues would be less intense. Thus, in this scenario, the evidence seems to
indicate that the best solution would be the construction of the New Highbury. As a
matter of fact, the expected value of the New Highbury Stadium (1.169.186.684,33)
would be slightly higher than the one of the Emirates Stadium (1.165.746.127,67).


*+$


LEGEND CALCULATION PROBABILITIES
Best Solution
Revenues from 2006 to 2013 + Naming
Rights + Operating Profits Property
Segment - Development Costs
(Emirates)
Premier League 0,70
Probabilities Premier League U High Attendance 0,82
Certain stream of Profits Emirates Premier League U Low Attendance 0,18
Forecasted Revenues until 2031 Emirates
Estimated Revenues from 2006 to 2013
- Estimated Development Costs (New
Highbury)
Championship 0,30
Total Profits until 2031 Emirates Championship U High Attendance 0,50
Certain stream of Profits New Highbury Championship U Low Attendance 0,50
Forecasted Revenues until 2031 New
Highbury

Naming Rights (New Highbury) 0,10
Total Profits until 2031 New Highbury No Naming Rights (New Highbury) 0,90

Figure 12: Third Scenario: Arsenals Financial Troubles
Source: Personal Elaboration from several sources


*+%
CONCLUSIONS

Our starting point was the research question:

Is the choice of building the new stadium in a new area, transforming the old one in
apartments, the best solution? Or the best decision would be the reconstruction of
the new stadium on the same foundations of the old Highbury?

We come to the conclusion that the best solution for Arsenal was to build the
Emirates Stadium. As a matter of fact, after a detailed analysis in which we have
considered some managerial and financial aspects of the Club and the stadium itself,
we built the final decision tree.

We collected and estimated a huge amount of data on the stadium and we attempted
to make some projections about the future revenues, the estimation of costs and the
potential gains. The hardest parts has been the section in which we try to estimate the
development costs, the future and the past projections about the match-day revenues
and the evaluation of the probabilities for the decision trees for the fictitious stadium,
that we called New Highbury. At this point we made very strong assumptions,
such as we supposed that the cost of the real estate in London is equal to those in the
other parts of the U.K. Moreover, we assumed that Arsenals sport performances and
Ticket Prices would not changed from the Emirates to the New Highbury and that the
Probabilities of the Champions League qualification would be based on some past
results. Furthermore, we considered that the Ticket Price would increase of an annual
3%, that below 57.000 supporters is considered Low Attendance and that, on
average, the Europa League and the Champions League annual home matches are 4,
etc. These suppositions were necessary to simplify the analysis, but we did our best
to make them as realistic as possible, in order to get truthful results.

In the first scenario we developed the decision tree trying to assess the best solution
according to the actual strategy implemented by Arsenal. In the second one, we
figured out a refocus of the Clubs strategy towards the top, following the model
*+&
adopted by Manchester United, to strengthen the brand and retain the best players.
Differently, the last situation concerned a hypothetical financial crisis of the Club,
which would push it towards a sharp decline. For these scenarios we used TreePlan,
a powerful Excel tool.

The results of our research clearly indicate that building the Emirates was the right
solution. Only the last scenario could lead to some doubts. As a matter of fact, in the
latter case, the New Highbury would be slightly preferable, as its reduced capacity
would made the prices less likely to decrease, even in the presence of a negative
performance by the team. However, financial evidence about Arsenal demonstrates
that it is an extremely solid club, with large revenues, always-positive profits and a
sufficient liquidity to cover its short-term debts. Furthermore, thanks to the great
managerial skills of its human resources, it has some very important assets that are a
starting point for a long-term strategy focused on the development of the quality of
the players.

On this basis it may be inferred that the decision to build the Emirates was the best
choice Arsenal F.C. could have made. As a matter of fact, the stadium will be a
critical asset that allows the club to have more stable revenues, and, consequently, a
financial solidity even greater than the current one. The UEFA Financial Fair Play
could be seen as an opportunity to exploit, rather than a challenge to face.
Furthermore, the evidence seems to indicate that it will be a useful driver to attract
new sponsors and increase the brand value, which can make Arsenal more
competitive not only from the economic perspective, but also from the sports
performance one. Therefore, the stadium could be seen as a starting point to restore
one of the most powerful world footballs Club and to win again some trophies,
which by now have been missing for too long from the display cabinet of Arsenal.

*+'
REFERENCES

TEXTS

Micheal Porter, 1985. Comptetitive Advantage: Createing and Sustaining
Superior Performance. New York, Free Press
Henderson, Bruce D., 1968. The Product Portfolio. Boston, Boston
Consulting Group
Low, C., & Cowton, C., 2004. Beyond stakeholder engagement: The
challenges of stakeholder participation in corporate governance. International
Jurnal of Business Governance and Ethics
Mendelow, A. L.,1991. Environmental Scanning: The impact of the
stakeholder concept. In Proceedings from the second international
conference on information systems. Cambridge, MA
Teotino, G., Uva, M., 2012. Il calcio ai tempi dello spread. Bologna, Il
Mulino
Favotto, F., 2007. Economia aziendale: modelli, misure e casi. Milano,
McGraw-Hill. P. 91

ACADEMIC PUBLISHING

Geoff Walters, Paul Kitchin, 2009. Stakeholder Management and Sport
Facilities: A Case Study of Emirates Stadium. Birkbeck, University of
London
Carlo Gazzeri, 2013. Lo Stadio-Ricavo : Il Caso Juventus Football Club.
Universit degli Studi di Padova

ANNUAL REPORTS

Annual Report Arsenal Holdings plc, 2002
Annual Report Arsenal Holdings plc, 2003
Annual Report Arsenal Holdings plc, 2004
*+(
Annual Report Arsenal Holdings plc, 2005
Annual Report Arsenal Holdings plc, 2006
Annual Report Arsenal Holdings plc, 2007
Annual Report Arsenal Holdings plc, 2008
Annual Report Arsenal Holdings plc, 2009
Annual Report Arsenal Holdings plc, 2010
Annual Report Arsenal Holdings plc, 2011
Annual Report Arsenal Holdings plc, 2012
Annual Report Arsenal Holdings plc, 2013
Annual Report Manchester United plc, 2011
Annual Report Manchester United plc, 2012
Annual Report Manchester United plc, 2013
Annual Report Juventus FC S.p.A., 2009
Annual Report Juventus FC S.p.A., 2010
Annual Report Juventus FC S.p.A., 2011
Annual Report Juventus FC S.p.A., 2012
Annual Report Juventus FC S.p.A., 2013

MARKET ANALYSIS

KPMG, 2011. European Stadium Insight 2011
Appunti di Luca Marotta, 2011. Gli appartamenti dellArsenal. Ovvero il
business delledilizia residenziale
Diego Tar, 2013. LImpatto dello Juventus Stadium sul Futuro del Club
The Royal Bank of Scotland Group, 2014. Interest & Exchange Rate
Forecast
BrandFinance, 2008. Most Valuable Football Club Brands 2008
BrandFinance, 2012. The to 20 Most Valuable Football Brands
Deloitte, 2013. Annual Review of Football Finance - Highlights

*+)
WEBSITES

www.arsenal.com
www.bbc.com
www.manage12.com
www.cleptestreview.com
www.bleacherreport.com
www.goal.com
www.givemesport.com
www.calcio-seriea1.blogspot.ch
http://ir.manutd.com
www.tifosobilanciato.it
www.en.wikipedia.org
www.calciofinanza.it
www.theguardian.com
www.ft.com
www.bloomberg.com
www.indiaonlinepages.come
www.investopedia.com
www.divestopedia.com
www.wiki.answers.com
www.ukessays.com
www.ilsolocalciogiocato.wordpress.com
www.soccerstats.com
www.worldfootball.net
www.it.wikipedia.org
www.it.exchange-rates.org
www.businesscommunity.it
www.espnfc.com

**+
APPENDICES


APPENDIX A: Arsenal F.C. Income Statement

INCOME STATEMENT
2011 2012 2013
Operations
excluding
player
trading
Player
trading
Total
Operations
excluding
player
trading
Player
trading
Total
Operations
excluding
player
trading
Player
trading
Total



Turnover of the Group including its
share of joint venture

257.107.00
0
735.000 257.842.000 242.577.000 2.901.000 245.478.000

281.176.00
0
1.598.000 282.774.000
Share of turnover of joint venture -2.150.000 - -2.150.000 -2.465.000 - -2.465.000 -2.400.000 - -2.400.000
Group turnover

254.957.00
0
735.000 255.692.000 240.112.000 2.901.000 243.013.000

278.776.00
0
1.598.000 280.374.000
Operating expenses
-
212.128.00
0
-21.658.000 -233.786.000 -217.018.000 -42.319.000 -259.337.000
-
261.634.00
0
-
47.021.000
-308.655.000
Operating profit (Loss)
42.829.000 -20.923.000 21.906.000 23.094.000 -39.418.000 -16.324.000 17.142.000
-
45.423.000
-28.281.000
Share of joint venture opereting result
822.000 - 822.000 952.000 - 952.000 945.000 - 945.000
Profit on disposal of player
registration
- 6.256.000 6.256.000 - 65.456.000 65.456.000 - 46.986.000 46.986.000
Profit on ordinary activities before
finance charges
43.651.000 -14.667.000 28.984.000 24.046.000 26.038.000 50.084.000 18.087.000 1.563.000 19.650.000
Net finance charges
-14.208.000 -13.496.000 -12.996.000
Profit on ordinary activities befoe
taxation
14.776.000 36.588.000 6.654.000
Taxation -2.143.000 -6.995.000 -849.000
Profit ater taxation retained for the
financial year
12.633.000 29.593.000 5.805.000

Table 14:Arsenal F.C. Income Statement
Source: Annual Report Arsenal Holdings plc 2011-2013


***
APPENDIX B: Arsenal F.C. Balance Sheet

BALANCE SHEET
2011 2012 2013
ASSETS 713.245.000 765.625.000 788.410.000

Fixed assets 488.793.000 515.191.000 523.064.000
Goodwill - - 1.924.000
Tangible fixed assets 431.428.000 427.157.000 421.539.000
Intangible fixed assets 55.717.000 85.708.000 96.570.000
Investments 1.648.000 2.326.000 3.031.000

Current assets 224.452.000 250.434.000 265.346.000
Stock - development properties 33.460.000 37.595.000 12.987.000
Stock - retail merchandise 1.114.000 1.681.000 2.131.000
Debtors - due within 1 year 27.435.000 52.332.000 88.484.000
Debtors - due after 1 year 2.214.000 5.201.000 8.287.000
Cash and short-term deposits 160.229.000 153.625.000 153.457.000

LIABILITIES AND EQUITY 713.245.000 765.625.000 788.410.000

Current liabilities 131.104.000 145.159.000 149.931.000
Creditors:
Amount falling due within 1 year 131.104.000 145.159.000 149.931.000

Liabilities and provisions 314.186.000 322.918.000 335.124.000
Creditors:
Amount falling due after more than 1 year 275.912.000 268.066.000 274.721.000
Provisions for liabilities and charges 38.274.000 54.852.000 60.403.000

Capital and reservers (Equity) 267.955.000 297.548.000 303.355.000
Called up share capital 62.000 62.000 62.000
Share premium 29.997.000 29.997.000 29.997.000
Merger reserve 26.699.000 26.699.000 26.699.000
Profit and loss account 211.197.000 240.790.000 246.597.000
Shareholder's funds 267.955.000 297.548.000 303.355.000
Total assets less current liabilites 582.141.000 620.466.000 638.479.000
Net assets 267.955.000 297.548.000 303.355.000
Trade debitors 10.032.000 20.394.000 48.076.000
Trade creditors 10.324.000 10.983.000 9.191.000
Redeemable preferred shares 49.998.000 49.998.000 49.998.000

Table 15:Arsenal F.C.Balance Sheet
Source: Annual Report Arsenal Holdings plc 2011-2013

**"
APPENDIX C: Arsenal F.C. Cash Flow

CASH FLOW STATEMENT
2011 2012 2013
Net cash inflow from operating
activities (Operating Cash Flow) 53.142.000 27.694.000 53.359.000
Player registrations -1.528.000 -1.785.000 -25.915.000
Returns on investment and servicing of
finance -17.220.000 -13.071.000 -12.356.000
Taxation 13.664.000 -4.624.000 -47.000
Capital expenditure -9.546.000 -8.610.000 -6.496.000
Acqusition on subsidiary - - -2.164.000
Net cash inflow before fininancing (Free
Cash Flow) 38.512.000 -396.000 6.381.000
Financing Cash Flow -5.890.000 -6.208.000 -6.549.000
Management of liquid resources 49.340.000 -79.633.000 36.811.000
Change in cash in the year 81.962.000 -86.237.000 36.643.000
Change in short term deposits -49.340.000 79.633.000 -36.811.000
Increase in cash and shot-term deposits 32.622.000 -6.604.000 -168.000

Table 16:Arsenal F.C. Cash Flow
Source: Annual Report Arsenal Holdings plc 2011-2013


**#
APPENDIX D: Estimated Revenues per Match from 2006 to 2013

ESTIMATED REVENUES PER MATCH
Home matches 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013
1
3.380.379 3.400.059 3.158.117 3.494.313 3.333.804 3.219.203 3.577.449
2 3.289.988 3.401.247 3.132.462 3.489.251 3.325.141 3.326.087 3.578.580
3 3.379.478 3.307.777 3.157.907 3.439.265 3.299.373 3.325.921 3.474.611
4 3.374.128 3.401.247 2.977.319 3.293.147 3.333.415 2.576.016 3.578.818
5 3.329.355 3.385.914 3.156.330 3.474.703 3.335.914 3.305.995 3.574.828
6 3.380.097 3.401.700 3.134.565 3.458.351 3.332.138 3.302.673 3.575.722
7 3.381.731 3.395.023 3.157.749 3.496.234 3.336.803 3.325.423 3.578.937
8 3.319.499 3.400.342 3.156.645 3.491.695 3.335.304 3.302.895 3.578.342
9 3.385.279 3.363.225 3.154.542 3.497.456 3.337.692 3.134.459 3.579.414
10 3.382.350 3.331.823 3.159.958 3.492.160 3.305.649 3.318.947 3.558.513
11 3.334.761 3.403.906 3.136.773 3.462.134 3.334.748 3.326.143 3.578.639
12 3.385.560 3.401.926 3.156.856 3.495.361 3.310.480 3.295.146 3.577.746
13 3.381.167 3.382.406 3.121.474 3.494.255 3.338.247 3.323.486 3.577.984
14 3.374.184 3.402.661 3.118.477 3.491.811 3.336.747 3.322.655 3.579.175
15 3.382.294 3.399.719 3.159.327 3.494.721 3.305.371 3.324.537 3.475.088
16 3.386.292 3.400.568 3.159.221 3.494.546 3.307.148 3.303.725 3.577.627
17 3.366.581 3.006.432 3.124.103 3.438.159 3.297.985 3.324.814 3.578.104
18 3.146.603 3.396.890 3.157.960 3.496.757 3.297.319 3.299.795 3.565.182
19 3.381.843 3.397.399 3.160.115 3.494.081 3.332.805 3.326.253 3.576.972
20 3.196.669 3.401.982 3.009.125 3.496.292 3.334.804 3.322.157 3.571.256
21 3.386.518 3.397.569 3.159.852 3.493.964 3.327.973 3.301.345 3.577.508
22 3.378.352 3.399.436 3.154.542 3.471.735 3.334.304 3.326.973 3.577.687
23 3.384.603 3.400.285 3.159.747 3.495.943 3.296.541 3.319.611 3.578.461
24 3.384.772 3.399.549 3.020.534 3.497.107 3.336.525 3.326.364 3.577.032
25 3.374.184 3.397.117 3.159.169 3.495.361 3.336.859 3.327.084 3.579.473
26 3.381.505 3.401.077 2.925.219 3.496.466 3.333.638 3.326.419 3.576.853
27 3.384.828 3.400.964 3.159.484 3.493.732 3.337.969 3.324.427
28 3.401.756 3.061.488 3.333.304 3.327.250
29
3.159.064 3.326.198
30 3.160.851
31 3.158.328
32
3.158.696

Average Revenues
per match 3.356.037 3.377.857 3.127.688 3.478.852 3.325.286 3.283.172 3.568.462
Std. Dev. Of
Revenues 58.660,87 76.079,50 60.525,54 40.905,60 15.179,06 141.639,95 27.951,22

Table 17:Estimated Revenues per Match
Source: Personal Elaboration from several sources


**$
APPENDIX E: Emirates Forecasted Revenues Second Scenario


EMIRATES FORECASTED REVENUES UNTIL 2031 (DEADLINE OF BANK LOAN FOR
EMIRATES)

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

High Attendance 103.273.324,75 105.842.312,93 108.475.206,28 111.173.594,50 113.939.106,80 116.773.412,94
Low Attendance 93.602.724,14 95.931.150,11 98.317.497,13 100.763.206,02 103.269.753,43 105.838.652,77
Average price tickets
(considering the annual
increase of 3%)
57,99 59,73 61,52 63,37 65,27 67,22
Capitalization of interest rate
1,005 1,010025 1,015 1,02015 1,025 1,030377509

2019/20 2020/21 2021/22 2022/23 2023/24 2024/25

High Attendance 119.678.224,21 122.655.294,46 125.706.421,19 128.833.446,59 132.038.258,69 135.322.792,49
Low Attendance 108.471.455,08 111.169.749,98 113.935.166,64 116.769.374,77 119.674.085,58 122.651.052,89
Average price tickets
(considering the annual
increase of 3%)
69,24 71,32 73,46 75,66 77,93 80,27
Capitalization of interest rate
1,036 1,040707044 1,046 1,051140132 1,056 1,061677812

2025/26 2026/27 2027/28 2028/29 2029/30 2030/31
PRESENT
VALUE
High Attendance 138.689.031,11 142.139.007,01 145.674.803,20 149.298.554,53 153.012.448,92 156.818.728,74 2.309.343.969,34
Low Attendance 125.702.074,10 128.828.991,37 132.033.692,65 135.318.112,86 138.684.235,07 142.134.091,67 2.093.095.066,26
Average price tickets
(considering the annual
increase of 3%)
82,68 85,16 87,71 90,34 93,05 95,85
Capitalization of interest rate
1,067 1,072321132 1,078 1,083 1,088486507 1,094

Table 18:Emirates Forecasted Revenues until 2031 (Second Scenario)
Source: Personal Elaboration from several sources


**%
APPENDIX F: New Highburys Forecasted Revenues Second
Scenario


NEW HIGHBURYS FORECASTED REVENUES UNTIL 2031 (DEADLINE OF BANK LOAN FOR
EMIRATES)

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

High Attendance 94.483.923,53 96.834.269,89 99.243.082,57 101.711.815,97 104.241.960,64 106.835.044,24
Low Attendance 85.636.369,81 87.766.627,77 89.949.877,21 92.187.436,35 94.480.656,16 96.830.921,24
Average price tickets
(considering the annual
increase of 3%)
66,69 68,69 70,75 72,87 75,06 77,31
Capitalization of interest rate
1,005 1,010025 1,015 1,02015 1,025 1,030377509

2019/20 2020/21 2021/22 2022/23 2023/24 2024/25

High Attendance 109.492.632,40 112.216.329,73 115.007.780,72 117.868.670,78 120.800.727,27 123.805.720,49
Low Attendance 99.239.650,62 101.708.298,65 104.238.355,83 106.831.349,75 109.488.846,01 112.212.449,15
Average price tickets
(considering the annual
increase of 3%)
79,63 82,02 84,48 87,01 89,62 92,31
Capitalization of interest rate
1,036 1,040707044 1,046 1,051140132 1,056 1,061677812

2025/26 2026/27 2027/28 2028/29 2029/30 2030/31
PRESENT
VALUE
High Attendance 126.885.464,78 130.041.819,62 133.276.690,76 136.592.031,32 139.989.843,05 143.472.177,45 2.112.799.985,21
Low Attendance 115.003.803,61 117.864.594,74 120.796.549,83 123.801.439,13 126.881.076,92 130.037.322,62 1.914.955.625,38
Average price tickets
(considering the annual
increase of 3%)
95,08 97,93 100,87 103,90 107,01 110,22
Capitalization of interest rate
1,067 1,072321132 1,078 1,083 1,088486507 1,094

Table 19:New Highburys Forecasted Revenues until 2031 (Second Scenario)
Source: Personal Elaboration from several sources


**&
APPENDIX G: Emirates Forecasted Revenues Third Scenario


EMIRATS FORECASTED REVENUES UNTIL 2031 (DEADLINE OF BANK LOAN FOR
EMIRATES)

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
High Attendance 33.908.074,96 34.751.559,41 35.616.026,06 36.501.996,86 37.410.006,73 38.340.603,91
Low Attendance 30.732.894,43 31.497.394,29 32.280.911,56 33.083.919,31 33.906.902,38 34.750.357,66
Average price tickets
(considering the annual
increase of 3%)
40,59 41,81 43,06 44,36 45,69 47,06
Capitalization of interest rate
1,005 1,010025 1,015 1,02015 1,025 1,030377509

2019/20 2020/21 2021/22 2022/23 2023/24 2024/25
High Attendance 39.294.350,28 40.271.821,68 41.273.608,29 42.300.314,96 43.352.561,60 44.430.983,54
Low Attendance 35.614.794,42 36.500.734,58 37.408.713,05 38.339.278,05 39.292.991,43 40.270.429,03
Average price tickets
(considering the annual
increase of 3%)
48,47 49,92 51,42 52,96 54,55 56,19
Capitalization of interest rate
1,036 1,040707044 1,046 1,051140132 1,056 1,061677812

2025/26 2026/27 2027/28 2028/29 2029/30 2030/31
PRESENT
VALUE
High Attendance 45.536.231,88 46.668.973,97 47.829.893,72 49.019.692,07 50.239.087,40 51.488.815,94 758.234.603,27
Low Attendance 41.272.181,00 42.298.852,17 43.351.062,42 44.429.447,06 45.534.657,18 46.667.360,10 687.232.880,09
Average price tickets
(considering the annual
increase of 3%)
57,87 59,61 61,40 63,24 65,14 67,09
Capitalization of interest rate
1,067 1,072321132 1,078 1,083 1,088486507 1,094

Table 20: Emirates Forecasted Revenues until 2031 (Third Scenario)
Source: Personal Elaboration from several sources


**'
APPENDIX H: New Highburys Forecasted Revenues Third
Scenario


NEW HIGHBURYS FORECASTED REVENUES UNTIL 2031 (DEADLINE OF BANK LOAN
FOR EMIRATES)
2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
High Attendance 34.683.229,07 35.545.995,96 36.430.224,72 37.336.449,21 38.265.216,61 39.217.087,67
Low Attendance 31.435.462,46 32.217.439,14 33.018.867,97 33.840.232,85 34.682.029,68 35.544.766,74
Average price tickets
(considering the annual
increase of 3%)
52,19 53,76 55,37 57,03 58,74 60,50
Capitalization of interest rate
1,005 1,010025 1,015 1,02015 1,025 1,030377509
2019/20 2020/21 2021/22 2022/23 2023/24 2024/25
High Attendance 40.192.637,11 41.192.453,96 42.217.141,87 43.267.319,52 44.343.621,00 45.446.696,15
Low Attendance 36.428.964,92 37.335.158,07 38.263.893,35 39.215.731,49 40.191.247,20 41.191.029,47
Average price tickets
(considering the annual
increase of 3%)
62,32 64,19 66,11 68,10 70,14 72,24
Capitalization of interest rate
1,036 1,040707044 1,046 1,051140132 1,056 1,061677812
2025/26 2026/27 2027/28 2028/29 2029/30 2030/31
PRESENT
VALUE
High Attendance 46.577.210,98 47.735.848,07 48.923.306,98 50.140.304,67 51.387.575,93 52.665.873,84 775.568.193,33
Low Attendance 42.215.681,94 43.265.823,29 44.342.087,55 45.445.124,55 46.575.600,29 47.734.197,31 702.943.338,26
Average price tickets
(considering the annual
increase of 3%)
74,41 76,64 78,94 81,31 83,75 86,26
Capitalization of interest rate
1,067 1,072321132 1,078 1,083 1,088486507 1,094

Table 21:New Highburys Forecasted Revenues until 2031 (Third Scenario)
Source: Personal Elaboration from several sources