Arsenal: Taking substantial loss still makes financial sense

Arsenal have a slew of players that they would like to sell but will have to do so for pence on the pound. It is hard to swallow, but it still makes financial sense to do so.

From all of the reports, it seems plain and simple: Arsenal will need to sell to buy. Arguments about whether that should be the case for a top-six team can be made until the cows come home. But right now, the fact of the matter is that the club will be run in a self-sustainable manner, and that limits the spending they can conduct in the transfer market.

Find the latest episode of the Pain in the Arsenal Podcast here — Death, Decay, Despair

This need to sell to spend does not just pertain to transfer fees, though. Arsenal also have an extremely high wage budget. They dished out a series of high-end contracts over the past two years. Allied with their longstanding preference to pay depth players handsomely and you have a wage structure that is breaking at the seams.  For big-money signings, there must be some big-wage departures.

More from Pain in the Arsenal

• 3 standout players from 1-0 victory over Everton
• 3 positives & negatives from Goodison Park victory
• Arsenal vs PSV preview: Prediction, team news & lineups
• 3 talking points from Arsenal’s victory at Goodison Park
• Mikel Arteta provides Gabriel Martinelli injury update after Everton win

The retirement of Petr Cech (approximately £90,000) and departure of Danny Welbeck (£100,000) will undoubtedly help, but there is still a ways to go for the club to alleviate their salary spending. At this stage, this is the greatest prevention of substantial spending on new signings. The club cannot rival the wages that the Manchester clubs, Liverpool and many of the elite European clubs are willing to pay.

As a result, some key sales must be made, both to raise funds for transfer fees and make room in the wage budget. That letter motivation for sales may mean having to take significant losses on certain assets becomes a financial necessity. Let me explain through three different examples, the three players who are most routinely mentioned as what American sports would recognise as ‘cap casualties’, that being players sold because of their wages: Shkodran Mustafi, Mesut Ozil and Henrikh Mkhitaryan.

Arsenal are reportedly shopping each of the trio this summer. But the fees they are likely to receive are far below what they would want. Mustafi might fetch £15 million, a massive £20 million less than what was paid to sign him three years prior, Mkhitaryan and Ozil may reach £20 million, but their roughly £200,000-a-week and £350,000-a-week wages will make selling very difficult indeed.

In Arsenal’s eyes, because of the £35 million they paid to sign him, Mustafi’s market value is not close to £15 million. Ideally, they would be looking to get close to the spending outlay to sign him. Moreover, under normal circumstances, Mkhitaryan’s market value would be north of £30 million while Ozil might reach close to £50 million. And yet, none of these players will be sold for those figures. Substantial losses will have to be taken on each of them.

You may argue, then, why would you sell for figures that are far below either the club’s valuation or the normal market value? How can that make financial sense? The answer, sadly, is very simple: Wages. If Mustafi, Mkhitaryan and Ozil were all sold, that alleviate the wage bill by more than £400,000 per week. Suddenly, the financial sense is easy to see.

Taking major losses on assets is not a wise way to run a business. But at some point, there is a need to cut your losses free, take what you can get for your assets, and reinvest what you raise in other areas. Arsenal, with Mkhitaryan, Ozil and Mustafi, have reached that point. It is a bitter pill to swallow, but swallow it they must.