Analysis: How Arsenal will pull off a financing feat at Emirates
Feature by Steve Cameron
Updated Tuesday, 20th December 2005
Who can build a major-league level stadium entirely with private money and make it pay off? - At first blush, you'd say: "Nobody."
Times have changed, though, in case you haven't noticed. John Q. Citizen apparently has grown weary for chipping in to make rich sportsmen and other entertainment idols even richer.
Ask the Florida Marlins, who can't get a stadium deal past the state legislature – even though they're really not begging for much. Ask anybody in Minnesota, where the Twins and Vikings each have been shot down so often on various stadium proposals that they're getting beat up like crash dummies.
In the current era, which for this discussion we'll stipulate is post-1990, only the San Francisco Giants have scrounged around for enough money to build a ballpark on their own.
The breathtaking gem that was christened Pac Bell Park – now SBC Park – might be the rare large American venue that can pay for itself, though it's worth noting that the city of San Francisco did chip in for the necessary land, the Giants had to crawl on their hands and knees finding a bank willing to take a risk and, most critical for the long haul, the ball club now must compete with publicly assisted opponents who don't have to worry about starting every season with a $20 million tab for debt service.
Industry analysts and squinty-eyed financial consultants give the Giants credit for their chutzpah, but reserve judgment on whether the math on SBC Park will hold up for long term.
So what possible set of circumstances must be in place to make a hugely expensive, privately funded stadium viable – or more than that, a huge fiscal winner which makes such a staggering investment worthwhile?
Well, come to England. Visit north London and you can eyeball the one in a million, the building that flies in the face of normal marketplace logic.
It's called Emirates Stadium, it's costing Arsenal Football Club's owners $630 million-plus of their own money and it seems an impossible notion in a country where teams, cities, venue developers and so forth all qualify for the exact same amount of public financial help.
In fact, Arsenal not only has to foot the cost of this new colossus which opens in the summer of 2006, the club also must pay for upgrading at least one subway station, relocation of a huge waste treatment plant and several other expensive improvements to two neighborhoods – Highbury, home to its current ground since 1913, and Ashburton Grove, the site a quarter-mile down the road where 60,000-seat Emirates Stadium is being completed.
So how on earth does this make sense? Even the mainstream British press, while noting that Arsenal is a world-class club with too little seating capacity at Highbury (38,000) for its huge international following, has trashed the plan since its inception.
The common thread in all the criticism seemed to be that Arsenal would leave itself so cash-poor in the two or three seasons prior to moving and then be saddled with such a monstrous debt of $420 million that, well.... The team would have be stripped of its higher-priced stars -- meaning a drop out of the top league with its fat TV income, almost no chance of qualifying for European championships with their huge revenue streams, etc.
In short, a terrible tumble.
And it's happened in Britain, recently. Ipswich Town had to halt a stadium improvement project – with its increased revenue projections – when the team fell out of the Premier League. Leeds United spent so much in such a short period of time that when the club didn't win titles immediately, everyone had to be offloaded and the team went bankrupt.
Ah, but there are always exceptions – in America, in Britain, anywhere. And Arsenal apparently is ready to prove that very, very sharp financial calculations can provide immense windfalls if you know when and how to pull the trigger.
The club recently released all the prices it will charge for various types of seating in the new building – everything from luxury suites to nosebleed country way up in those top corners.
Because Arsenal has a large and loyal following that makes it certain that Emirates Stadium will sell out and that well-heeled fans will fall over themselves in the rush for season tickets – think of the Green Bay Packers when they added extra seats and suites – it's possible to work out what game-day revenues will be.
An unofficial fan Web site called Arsenal-World did just that, and came up with some astounding numbers that have shocked even the cynical British press.
The assessment broke down revenue into five categories: club level seating, box seats, the membership-only Diamond Club, normal admission (upper and lower tiers) and finally, catering and program sales.
Projecting income for a full season – assuming 25 games, which would be 19 regular league contests and various cup competitions – it turns out that Arsenal will rake in $32.9 million from the club level, $24.4 million from the boxes, $1.6 million from the Diamond Club, $85 million from all regular seating and $17.3 million from catering, programs and other concessions.
Even the study of concessions was calibrated carefully. Emirates' four restaurants will hold 3,200 diners with the top meals costing around $115. Arsenal-World placed the average meal cost at $53, assumed that regular fans would spent about $9 each on fast food and estimated that there would be 36,000 programs sold at $5.25 each – figures based on program sales at Highbury.
When you total up all the game-day revenue and exclude a Value Added Tax imposed in Britain, Arsenal figures to take in something slightly more than $160 million for the season – a leap of a cool $100 million over declared revenue of $59.8 million for the 2003-04 season.
When the team moves into Emirates Stadium, the construction loan will be refinanced to a 25-year note at an interest close to 5% -- or $31.8 million per year.
The study projects about $21 million in additional costs for increased staff and other items necessary in the bigger building, but even after paying the debt service and that extra operating cost, Arsenal would be left with a net profit of $49 million per year.
But wait: Arsenal-World also notes correctly that there will be other jumps in non-match day income with the move to the new stadium – things like the $190 million naming rights deal with Emirates Airlines, an increase in secondary sponsors, corporate outings, non-soccer events such as concerts and so forth.
Staying conservative, they peg that profit number at $15 million more than was available at Highbury, meaning that after all costs, loan payments, etc., the club can expect to haul in somewhere close to $65 million in annual profit.
Anything near that would make Arsenal the richest soccer club in the world in terms of revenue and profit, and the only team even close – Malcolm Glazer's Manchester United – was just saddled with $1 billion in new debt without many options for increasing cash flow.
Obviously this formula, which clearly vaults Arsenal into sports' financial stratosphere, won't work for just any team. In fact, given the demographics of the club's posh north London home and several other factors, it's probably fair to say that getting rich by building your own stadium is only slightly more plausible than winning a lottery.
But the point is that it can be done.
American and European taxpayers who are interested in throwing a few hundred million into some sports and entertainment palace might want to keep a picture of Emirates Stadium on their refrigerator doors.
They'll want to remember Arsenal when they hear that it's impossible to build a venue entirely with private money.
(This article was originally published in Amusement Business Magazine, and is reproduced by kind permission of the author - A member of the Arsenal Scotland fan club)