How Arsenal will pay for the 'Emirates Stadium'

Cash from Nike and Granada as well as the proceeds from land disposal at Highbury and a £260m loan from a consortium of banks headed by The Royal Bank of Scotland (the group comprises The Royal Bank of Scotland PLC, Espirito Santo Investment, The Bank of Ireland, Allied Irish Banks PLC, CIT Group Structured Finance (UK) Limited and HSH Nordbank AG. ) has secured the largest club development in history.

The term of the bank loan is 14 years and Arsenal intends to renegotiate the term once the stadium is up and running to a term more appropriate to a long term property financing.

It seems, however that the stadium could technically be paid for within the term, from sponsorship deals alone - an outstanding feat of cash flow generation which means that operating revenues from game-day operations, television revenue and merchandising would be available for staff (player) acquisition and salaries.

Starting with the £357 "headline" cost of the stadium , we can immediately take off Granada's £30m investment which was conditional on structuring a new stadium deal. Nike's shirt manufacturer's sponsorship deal, secured earlier in 2004 raised £55m over 7 years (with an extension option) . Around £70m is available from the development of the existing Highbury site less costs already incurred on the stadium of around £50m leaving a loan requirement of £260m

The value of the recently announced Emirates sponsorship is £90m ( The £100m "headline" figure is the "present value" ) covering stadium naming rights for 15 years and shirt rights for 8 years from 2006.) This leaves a figure of £170m under the loan. The remaining sponsorship opportunities to be realised over the 14 years of the loan are the shirt manufacturer sponsorship of 6 years which could be as high as £70m (based on Nike's £55m in 2004 for 7 years plus inflation ), and the shirt sponsorship for 4 years ( probably £30m). Realistically the shirt deal would be for a longer period for more money. This leaves a capital sum outstanding of £70m. The interest on the loan could be as much as £175m however this amount plus the shortfall in capital repayments, could well be financed by the second stadium naming rights deal in 2019.

As the stadium loan is probably to be refinanced over, say,30 years, the annual cashflow of stadium costs and sponsorship revenue would be:-

Capital Repayment £8.7m

Interest (equal repayment) £3m

Stadium Sponsorship -£5m

Shirt Sponsorship -£5m

Shirt Manufacture Sponsorship -£5m

The media rights associated with the Granada deal have come as an investment into the club rather than a revenue item so these have been excluded. The cashflow benefit from sponsorship less stadium repayments could be as much as £3m per season and means that match revenue, prize money, television money and merchandising would be available for staff (player) acquisition and salary. Additionally , this would mean the entire stadium project being "depreciated" over 30 years - an extremely prudent accounting practice giving "free" stadium use after the initial 30 years. Highbury , of course will have given over 90 years service by the time the final match is played.

The Arsenal board appear to have got this huge capital investment, and its financing, exactly right. Despite the fact there will be confidential clauses which will affect the figures above ( a number of sponsorship bonuses will apply) , the ability to create and manage such a structure is one of the outstanding deals in sport.

A statement in 2003 by Arsenal directors Ken Friar and Danny Fiszman, the two men in charge of the project, said: "We are totally and utterly committed to Ashburton Grove……(this will) give us the ability to deliver a stadium for the 2006/2007 season. "If gambling is doing something without a 100% guarantee of success, then yes, there is a gamble. Are we gambling with the club? The answer is no, …..Ashburton Grove is going to be our new home."

We are lucky to have been driven forward by men of such confidence and conviction. It is certain that Arsene Wenger's imminent contract extension will have been an easier discussion given the resources (speculatively an extra £30m in annual revenue alone) that North London's new super stadium will bring. Wenger's astute transfer dealings and the financing of the new stadium could bring a return to the saying of the 1930s that Arsenal was "The Bank of England" Club.