Football finance is a tremendously difficult subject to understand. For the average football fan who cares mostly about how their club performs on the pitch, it is seldom of much interest until the transfer window opens. Even then, the only number that matters is how much money their club has to spend on the open market. In the modern mega-money age we now find ourselves in, the correlation between transfer expenditure and success on the pitch is increasingly difficult to ignore. This leaves fans desperate to see their clubs strive to improve their squad as much as possible during these hectic transfer periods, and any window without significant investment is seen by many as a wasted opportunity to improve the team.

As many fans are already aware, all clubs in Europe are subject to UEFA Financial Fair Play Regulations (FFP), and indeed compliance with these rules is required for any club wishing to compete in UEFA’s lucrative club competitions, the Champions League and the Europa League. Simply put, clubs are limited in how much money they are allowed to lose over a rolling three year period. Clubs are allowed to spend up to 5% more than they make during each period, but any losses greater than a pre-prescribed limit during said three year period are required to be covered by the club’s investors or through increased revenue in other areas like sponsorships and match day revenue.

Unfortunately, it doesn’t stop there for many, as fans of the Premier League have an even more difficult job when trying to figure out their club’s financial health because the league has its own set of financial rules that clubs must follow. These rules are further broken down into two separate sets of regulations, Profitability and Sustainability Rules (PSR) and Short Term Cost Control (STCC). Each of these regulations is calculated separately, with the main difference being in which streams of revenue are factored into each rule. PSR is essentially a Premier League specific version of UEFA’s FFP rules, which is intended to keep clubs from spiraling into uncontrollable debt, with clubs at present only allowed to lose £105m over a three year period.

Meanwhile, STCC is what prevents clubs from spending enormous amounts each season on player wages, inflating the wage bill to unsustainable levels. At present, clubs are only allowed to increase their wage bill by £7m per season, far from a massive allowance with wages over £100k per week increasingly becoming the norm across the entire league. However, clubs are able to increase this figure by growing revenue elsewhere, including match day revenue, players sales and increases in commercial revenue. Crucially, however, television revenue, one of the most lucrative revenue streams for all Premier League clubs, is excluded from this calculation.

What does this have to do with Arsenal?

When it comes to compliance with these complicated sets of financial regulations, each club’s situation is different. Though increasingly rare in the Premier League given the massive financial advantage its clubs share in the world’s most lucrative league, PSR can be a major concern (as it was for Liverpool in the years leading up to Fenway Sports Group assuming control of the club). However, for Arsenal, a club who has cleared a pre-tax profit every season but one since 2002, this is not a concern. Instead, their two-season drop into the Europa League and relatively static sponsorship revenue (due largely to being at the end of long term agreements with major sponsors Emirates Airlines and Puma) has made STCC their biggest hindrance to free-spending in the transfer market.

Since falling into the Europa League for the 2017/18 season, the Gunners have been in something of a difficult position. With one of the largest wage bills in the world of football and the 5th largest in the Premier League, the loss of revenue from Europe’s more lucrative Champions League has been painful. Missing out on the extra revenue of the Champions League has served to offset any gains from other revenue streams that factor into the STCC calculations, leaving the Gunners rather close to the standard wage growth cap of £7m per season (the exact amount they are allowed for this season is still unclear until the club publishes its financials for 2018).

Unwilling to fall too far behind their rivals and eager to return to the Champions League, the Gunners have found themselves forced to spend handsomely on wages over the last 12 months, with a new contract for Mesut Ozil, high wages for both January 2018 arrivals Henrikh Mkhitaryan and Pierre-Emerick Aubameyang and a summer window that saw five new players arrive at the club. Despite this growth being offset by the expiring contracts of Jack Wilshere, Santi Cazorla, and Per Mertesacker, the Gunners are operating tight to their allowance for yearly growth. This has drastically limited their ability to spend but this January on players without requiring the sale or loan of players already in the side.

So why do our rivals seem unaffected? Should I blame Stan Kroenke?

Arsenal supporters have been irked by their rivals’ apparent lack of such financial restriction this January, and sadly one statistic, in particular, has done much to add to this confusion: investment by ownership. As has been represented elsewhere, other clubs in the Premier League have seen their owners contribute vast sums of money to the club’s coffers while Arsenal’s Stan Kroenke has not. However, these contributions do not have the same effect on STCC as they do on PSR.

Take, for example, two clubs who have recently dealt with large amounts of debt: Chelsea and Liverpool. Chelsea have racked up a staggering net debt of around £1 billion since Roman Abramovich purchased his ownership stake, while Liverpool’s current ownership group, FSG, have paid down a significant amount of debt racked up under the previous regime since their purchase of the club in 2010. In these cases, the clubs were in more danger of running afoul of PSR than STCC and short of increasing revenue elsewhere, the club’s investors were obligated to invest further in the clubs to avoid failing to remain within the allowable debt limits of PSR.

With STCC, these investments are irrelevant. In order to increase the standard annual £7m boost to their wage bill allowance, clubs are only allowed to use revenue from match day income, sponsorship income, or profits from player transactions. This means that any ownership investment into the team can help with PSR but does nothing to increase their allowance for STCC. Given Arsenal are in a healthy financial state, including extremely bountiful cash reserves, they are in no need of increased investment from Stan Kroenke to remain FFP compliant. To put it simply, even if the American deposited £100 million into the club’s accounts, it would have no practical effect on their spending power this January.

What about Manchester City? How have they got away with spending so much?

Oh Manchester City. The club everyone wants to catch up to both on the pitch and off, despite numerous credible (and evidence-supported) allegations of the Cityzens gaming the system. Owner Sheikh Mansour is a member of the royal family of Abu Dhabi, whose global investment reach and estimated collective spending power are over £1 trillion. As an owner or shareholder of a massive portfolio of companies across the world, Mansour is in a slightly unique position where he is able to use one of his other businesses to sponsor the club, as he has done with the Etihad Airline to the tune of a massive £80 million per season. While the Premier League is required to look into any sponsorship deal that involves such self-dealings, this is usually deemed perfectly acceptable as long as the sponsorship deal is considered to be of fair market value. If it is deemed to have an artificially inflated value, the Premier League requires that the club’s financials are calculated with the lower fair market value in mind.

Combined with the team’s recent on-pitch success and growing global profile, City has been able to increase their player wages massively during City Group’s ownership tenure as sponsorship revenue is factored into STCC. Inflated or not, the Sky Blues undeniably have a lot more money coming into the club, allowing them near limitless increases over recent seasons.

Does this mean Arsenal are finished as a top club?

With rivals all around them growing revenue at an alarming rate and with owners willing to help make up for any losses on the back end, some fans are genuinely worried that Arsenal will fall away from their fellow rivals in the top six. However, the Gunners will soon have far more money to play with in the summer, and should they return to the Champions League after two years in the Europa League, the job becomes even easier still.

Those long term sponsorship deals that have seen the Gunners’ commercial revenue level off while their rivals’ increased are coming to an end in 2019. A new five year deal with the Emirates Airline for both shirt sponsor and stadium naming rights will kick in this summer, with an estimated value of over £200 million, spread out over a five year period. Additionally, the club’s five year deal with kit manufacturer Puma that has netted them £30 million a season will be coming to an end, with Adidas set to take over for next season. The new deal will be worth an estimated £60 million per season. All told, the Gunners will immediately have more than £50 million extra to play with under STCC, and this will give them much needed breathing room to expand their wage bill and compete with their top six rivals on a spending front.

Additionally, the Gunners will see the wages of Laurent Koscielny, Aaron Ramsey, Petr Cech, and likely Stephan Lichtsteiner come off their books in June, saving the Gunners nearly £500k per week in wages, which stands to increase their spending power even further this summer. With new Director of Football Operations Raul Sanllehi espousing the need for the Gunners to build their squad efficiently, and the apparent end of Arsene Wenger’s and Ivan Gazidis’ controversial socialist wage structure that had helped the club hold on to talented young players for longer during the lean, post-stadium build years, the Gunners should see their financial freedom only grow in the coming year.

Arsenal’s recent financial restrictions have been the result of a near perfect storm: reduced revenue due to dropping out of the Champions League, a ballooning wage bill, the uncertainty around Arsene Wenger’s future causing players to run their contracts down more than expected while waiting to see what direction the club would take going forward, largely flat commercial revenue over a five year period, and some poor decision making by the club’s hierarchy on the transfer market. However, the club have totally reshaped its football operations over the last 18 months, and the new team of Raul Sanllehi, Sven Mislintat, Vinai Venkatesham, and contract negotiator Huss Fahmy is dedicated to improving the club’s situation both on and off the pitch. It may take a few years to see how they plan to reshape the future of Arsenal Football Club, but for the first time in many years, fans have confidence in the club’s ability to adapt.