Arsenal final

Arsenal FC

The Beginning…

Arsenal Football Club was formed as Dial Square in 1886 by workers at the Royal Arsenal in Woolwich, south-‐east London, and was renamed Royal Arsenal shortly aCerwards.

In 1891, the club turned professional and changed its name to Woolwich Arsenal, and later joined the league in 1893. The Gunners moved to Highbury in 1993, as a second division side.

The Highbury

•  Investment of £ 357 million

•  Increased capacity to 60000

The Emirates(1/1)

•  Match day revenue increased from £37.4m to over £90m

The Emirates(2/2)

•  150 ExecuWve Boxes and 8 rows of Club Level seats – 9000 seats

•  ConverWng Highbury to residenWal units(£157million)

•  Appointed on1996 •  Achievements

– Emirates Stadium – The Invincibles –  Titles

•  3 Premier league •  5 FA cups •  5 FA community shield

The Professor

The most successful manager at Arsenal…

SWOT Strengths • Emirates stadium • CompeWWve league • Champions league • Puma deal £30 million/year • Giving back to community • Strong and balanced current squad • Loyal fan base

Threats •  Other clubs buying out good players •  Change in management •  Foreign investments in other clubs •  6 Premier league clubs in London

Opportuni1es • New markets – India, china, US • Homegrown players

Weaknesses •  Lack of trophies in past 10 years •  UCL success •  Lack of consistency

Let’s talk MONEY

Revenues

x £ 000 2014 2013 2012

Turnover 301.872 280.374 243.013 Profit 7.271 5.807 29.593

Revenue breakdown 2014

Future revenues

•  Match-day revenue: plans to increase the capacity of the stadium with 5.000 seats. At the moment 40.000 people on the waiting list for a season ticket.

•  Merchandising: Sell more outside the UK.

Future revenues

•  Sponsorships New 5-year sponsorship with Puma from 2015: £ 22 million per year more than former deal with Nike

Renewed 5-year sponsorship with Emirates from 2014: £ 30 million per year

Future revenues

•  Broadcasting revenues: increase of 70%!!!

Risk

Not participating in the Champion’s League: missing up to £ 6 - 30 million per year

Costs

2014 2013 2012 Total costs x £ 000

291.808 308.655 259.337

Wages/total costs 57,0% 50,0% 55,3%

Cost efficiency

£1350£1558£1677Marketing efficiencyWithout broadcast revenue

707379League points

£4050£4673£5031Marketing efficiencyrevenue/gate

£2.049£2.116£2.106Sporting efficiencywages/points

59,0%55,1%55,1%Wages/revenue

£857£822£759Fan loyaltygate/points

201220132014

£1350£1558£1677Marketing efficiencyWithout broadcast revenue

707379League points

£4050£4673£5031Marketing efficiencyrevenue/gate

£2.049£2.116£2.106Sporting efficiencywages/points

59,0%55,1%55,1%Wages/revenue

£857£822£759Fan loyaltygate/points

201220132014

Win-wage relationship win-wage relationship

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Profit margin 2014 2013 2012

Profit margin 2,41% 2,07% 12,18%

2014 (in %) Chelsea 5,64 Manchester United 4,62 Arsenal 2,41 Liverpool 0,16 Manchester City -‐6,63

ROA

2014 2013 2012

Return on assets EBIAT/total assets

6,53% 6,2% 14,48%

2014 (in %)

Liverpool 8,97 Arsenal 6,53 Manchester United 2,76 Manchester City -‐12,88

ROCE

2014 2013 2012 Return on Capital employed EBIAT/equity + interest bearing debt

3,52% 3,25% 7,62%

2014 (in %)

Arsenal 3,51 Liverpool 3,45 Manchester United 2,32 Manchester City -‐7,7

Return on equity

2014 2013 2012

Return on equity 2,34% 1,91% 9,95%

2014 (in %)

Arsenal 2,34 Manchester United 1,18 Liverpool 2,32 Manchester City -‐22,1

Future costs

Will increase: •  Pressure from fans to win prizes •  Need to parWcipate in the Champion’s League •  Demand from players: no wage limits •  Financial Fairplay: restricWons •  More revenue => more wages to compete for players

How is the club financed Leverage raWos: 1. Debt-‐equity raWo: total liabiliWes equity

2013 2014 1.17 1.29

How is the club financed

2.  Debt raWo: total liabiliWes total assets

2013 2014 0.54 0.56


3.  Times interest raWo : EBIT Interest expense

2013 2014 -‐2,18 1.36


•  Liquidity raWo: 1. Current raWo: current assets current liabiliWes

Nov 2013 May 2014 Nov 2014

1.36 1.44 1.21


2.  Quick raWo: Current assets – inventory current liabiliWes

Nov 2013 May 2014 Nov 2014

212’787 = 127.04% 167’486

278’381 = 137.11% 203’032

225’092 = 113.59% 198’146


� Cash raWo: cash + short-‐term securiWes current liabiliWes

Nov 2013 May 2014 Nov 2014

123’123 = 127.04% 167’486

207’878 = 102.38% 203’032

161’546 = 81.52% 198’146

Who are the shareholders?

67%$

29%$

4%$

0%$

Kroenke$

RWH$

Others$

Stan Kroenke

1. Stan Kroenke à Kroenke Sports entreprises (KSE) à NBA, NHL, NFL, MLS à 66.76% of the share in Arsenal

2007 2008 2009 2010 2011

9,9% 20,5% 28,3% 29,9% 66,76%

Red and White Holdings

•  In September 2011, Alisher Usmanov and Fahrad Moshiri from Red and White Holdings bought the share of vice chairman David Dein and others minor shareholders to hold a 29.25% shares holding.

•  The rest of the part are owned by remaining minority shareholders of the club; these include those owned by former players as well as three shares owned by the Arsenal Supporters’ Trust.

Market share

Valuation

Enterprise value according to Forbes (May 2015): USD 1.307 million

Valuation: Free cash flow Conservative growth rate

Income Match day rev increase steady 4% "Broadcasting increase by 5% 2016 and stay steady with same revenue 2016-2019 " Retail and Commercial, player trade increase 2% each year Property dev decrease by 50% each year new puma deal will increase annual revenue by 22 million Costs all costs increase steady 2% each year Tax applied 20% (according to the annual report) no change in the future Discount rate Risk Free Rate 2.5% Risk Premium 5% Beta 1.3% Currency £/$: 1.54

Market Value (millions $) 1.149

Valuation: Free cash flow High growth rate

Income Match day rev increase steady 4% "Broadcasting increase by 70% 2016 and stay steady with same revenue 2016-2019 " Retail and Commercial, player trade increase 2% each year Property dev decrease by 50% each year new puma deal will increase annual revenue by 22 million Costs all costs increase steady 2% each year Tax applied 20% (according to the annual report) no change in the future Discount rate Risk Free Rate 2.5% Risk Premium 5% Beta 1.3% Currency £/$: 1.54

Market Value (millions $) 2.674

Valuation: Multiples Club millions $

EV (Forbes)

Revnues Opera1ng Income

EV/REVNUE

Man U 3.104 703 211 4,42 Man City 1.375 562 122 2,45 Chelsea 1.370 526 83 2,60 Liverpool 982 415 86 2,37 TH 600 293 63 2,05 Applied Mul1ple

Arsenal £'000 301.872 10.064 2,5

EV Arsenal: 754.680.000

£/$ 1,5470

EV Arsenal $ million 1.167

Conclusion Club with history, strong brand, loyal fan +

Increasing revenues ++

Increasing costs: stay compeWWve -‐

Stable sports performance +

Stable performance raWos +

Finance structure: debt coverage and liquidity +

LimWed opportuniWes to grasp shares for control -‐

Undervalued at the moment +

Arsenal final

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