Arsenal Depot

A depository for musings on Arsenal FC

Arsenal At Crossroads – Self Dependency Or Sugar Daddy

The fallout from Chelsea’s European Cup win continues on Arsenal blogs and Twitter timelines, debate raging about the merits and demerits of the Arsenal way in staying competitive at the top level.

I came across a wonderful article by Phil Wall yesterday about the boardroom battle between Stan Kroenke and Alisher Usmanov. An AST board member, the author presents a well-balanced view of the current issues facing the club in terms of majority ownership. He concludes with the opinion that while Kroenke’s involvement may not bring success in the short-term, it is better than ceding full control to Usmanov.

I agree that single ownership is fraught with danger. As we’ve seen with the Glazers at Manchester United, having a sole benefactor is not necessarily the best thing. The liabilities taken on board at United mean that while the Reds continue to be the most valuable club in England, a £500m debt noose is firmly tied around their necks. Unlike the stadium loan at Arsenal, United’s debt is not helping them achieve more revenue.

At Arsenal though, the discontent among many supporters has to do with the club choosing not to compete with the buying power of Chelsea and Manchester City. ‘Spend money to make money’ should be our motto too, is the growing feeling.

While City are still getting started with their project, I think there’s a fundamental problem with the way Chelsea have achieved success. This is often ignored amidst talk of transfer fees, but Chelsea have consistently posted losses since Roman Abramovich’s arrival at the  club. As the chart below shows (courtesy: @SwissRamble), operating losses have accumulated even in years of on-field success.

This throws up an interesting question – if Chelsea cannot be profitable in a year when they won the double (2009-10), what kind of success will it take for them to return a positive figure? While the £50m from their Champions League victory will help, it will still not be enough to post a profit next season.

For the long-term, growing on-field success will have impact on commercial revenue but matchday and TV income is unlikely to see any exponential rise – the Blues are unable to expand stadium capacity and there’s a fairly equitable division of TV payments in the Premier League. If Chelsea are unable to generate enough revenue in a Champions League winning season to cover expenses, they will have to consider cutting costs.

Because eventually, the only businesses that survive are the ones that make a profit – whether they are large football clubs or small grocery stores.

Actually, Abramovich did try to scale back his investments on new players between 2006-2009. But the Blues retained the high-paid players they signed between 2004-2006, so the wage bill continued to be the highest in England until City came along. With the emergence of Mansour’s Manchester, Roman has been forced into putting in more money with City raising the bar in terms of player salaries.

Forget FFP, I am sure the clubs will find ways to meet UEFA’s requirements. But the Russian cannot indefinitely fund the club at a loss. With revenue growth limited beyond a certain extent, the only way to return a profit will be to trim the wage bill, which forms 70% of the total expenses. As Arsenal fans know only too well, that usually means losing the best players to clubs that can pay more – which in turn makes the team that much less competitive. In the end, the Blues may be victim to a monster of their own making.

Undoubtedly, Chelsea’s commercial value will build if they continue achieving success on the pitch. Maybe this is what Abramovich is planning to do, sell the club on and capitalise on this added value. But who’s to say that the new owners will not adopt the Glazer approach to funding such a buyout? And even if he’s not planning to do this, what happens if he dies, as people tend to do no matter how rich they are? Will his successor share the same passion?

For Arsenal, regardless of whether Usmanov or Kroenke takes charge, the aim should be to continue with the policy of being self-sufficient because it is the only logical way to ensure long-term health. As fans, we have to be patient and appreciate that the current conditions make for an uneven playing field. While the alternative may bring some success (no guarantee) in the short-term, it has the potential to cause massive headaches in the future.

That is not to say we cannot be competitive on the pitch. In this respect, I  agree with Arsenal Vision that we aren’t a long way off the top. I know we’ve heard all of this before but it is true. A bit of hard work on the training ground and some tweaking of the squad will probably give us a better chance of succeeding than pursuing glory down a one-way street.

Do write in with your thoughts. Until tomorrow.


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22 thoughts on “Arsenal At Crossroads – Self Dependency Or Sugar Daddy

  1. This is a well written piece, agree pretty much with the conclusions, and thanks for the compliments on my own blog.
    Couple of small points: don’t call the Glazers benefactors – that would mean they’re giving money rather than sucking it out of Man U in management fees and interest on the debt they created. But Man U’s huge turnover allowed a debt-led takeover much more easily than other clubs would, because they are profitable enough to service debts and still compete. Anyone else in England would struggle with that.
    On Chelsea, you say Roman can’t fund losses forever. Well that’s probably true, but if he’s making money in other businesses he can probably last quite a long time. But either way, the global demand for the PL is still expanding, so increased revenue from that could eventually make his subsidy unnecessary. As long as he can contain costs, of course.

  2. big tone on said:

    “tweaking the squad”?????..are you really that deluded. We finished 20 points from the mancs and without RVP (who surely wont stay with this joke club) we would probably have been 30 points or more behind them.
    The clubs ethos is to make profit, not to be self-sustaining…that much surely is obvious and confirmed by wenger when he announced “all businesses desire to make a profit, we are no different”.
    Compare man city and chelsea all you like, the fact is we are not competitive at the top level on the football field and we have a management that doesnt really care about it

    • Thank you for your comment BT, although do try to remain calm when you post the next time.

      You’re not suggesting that football clubs shouldn’t make profits, are you? Because football is a business in the modern age, like it or not, and all clubs endeavor to make money. The problem this last decade has been that the game’s appeal has spread very quickly around the globe. This has brought new entrants who’ve pursued instant results and are willing to invest large sums and wait reasonably long periods for the returns. Eventually though, the idea of buying football clubs by these owners is for the club to run on it’s own without any more handouts, and make money for the owners as any profit-making business.

      I think what you meant was that the Arsenal board are pocketing all the profits. Well, this is not true either because the club has not paid dividends for decades. The only money they make is the Directors remuneration they receive, which are not huge amounts. You can accuse them of lack of ambition, but certainly not greed.

      It’s still possible that Kroenke will sell out and Usmanov will obtain total control. Let’s assume this happens and also assume the Russian invests more money via bonds – or we change policy and take bank loans – to supplement the playing squad. But for how long? At some stage in the future, Arsenal will be forced to revert to running without owner support – same as Chelsea and Man City will be forced to as well. At that time, AFC may have a few more trophies in the cabinet but the club would be straddled with debt owed to Usmanov and/or the banks.

      The reason I used Chelsea’s example is that worryingly, their investment has not earned them a return EVEN during and after trophy winning seasons. This is inspite of their commercial revenues being quite good. Should Arsenal go down the same route? My opinion is no, we shouldn’t.

      Of course, there is the possibility that with the growing popularity of football around the world, revenue growth will cover additional expenses, as pointed out by Phil. But one can also argue that if that happens, it would entice even more billionaires to enter the arena and this would again set new benchmarks for player wages – Anzhi Makhachkala being a prime example. So continueth the cycle.

      • chris from Cambridge on said:

        Indeed Correct. And you must have looked up the Annual report too. It’s a pity more fans don’t. It’s nothing to fear, is it. Then we would have less nonsense about Directors lining their own pockets ….. whereas they have been strongly but conservatively developing the club without driving it to bankruptcy.

      • a few points. shareholders want to make a profit.
        it doesn’t have to be in dividends
        the value of the share should rise over time ( dein bought shares for 300k and sold them for millions)

  3. Solid article, totally agree, we have to be patient, the wins we get from here on in will come with an ever greater sense of moral victory and long may we all as #afc fans, stand by that.

  4. chris from Cambridge on said:

    Concerning the choice between sound Self Suffiiciency or a Usmanov ? It would be good to be able to succeed as we are. BUT ….. if we do NOT have the monopoly money of a Qatar and / or an Abramowicz … then we must get everything right.

    This means : –

    > A LESS egalitarian wage structure

    > NO mismanagement of the transfer market and transfer windows

    > A properly drilled balance between ATTACK and DEFENCE

    > The introduction of a thing called match winning TACTICS – according to
    opposition and circumstances. Rather than the same purist style at all times …
    for which ALL opponents know how to prepare.

    No … I don’t expect it to happen either !!

  5. pchomo on said:

    Nice piece. Very objective too. It goes to buttress what some of us have been sounding for a long time for which we continue to receive a lot of bashing from the ‘Away with Arsene’ group.

    The point being made is that it is wise and only natural to spend that which you have. You can’t spend what you don’t have. And if you have to spend to acquire ‘better players’, you’ve got to do it wisely with your eyes and ears wide open.

    The way forward is definitely not a sugar daddy, even though this might appear very appealing to a lot of us gooners. We need trophies. Yes. But we’ve got to win them standing on high moral ground. Then, the victory will be sweeter and much more satisfying.

  6. canukiwi on said:

    Good article. Interesting point above about the club not paying out dividends as not a day goes by without the Board being only interested in lining their own pockets. I like the way Arsenal is run and accept the fact that we are what we are — a club that will always compete at the highest level and play attractive football but will need a whole lot of luck to win either the PL or the CL. That luck will come some season and it’ll be a whole lot sweeter than winning it with a bunch of mercenaries.

  7. Stone Face on said:

    G0od article! The problem is that the club is haggling over players transfer fee for too long and that frustrated the fans and they are not spending enough of what they make. I am not naive to hear for 7 seasons that we are not far from a major trophy.

    Fans are also not happy with the increased in season tickets price. This move shows that the management is very pathetic and inconsiderate when comes to fans sentiment.

    We have too much problems on and off the field that is not addressed.

    • Some good points there. There are areas where the club can improve, for sure – and there should always be introspection of how to make things better even when we’re winning. But I also think some of the problems are amplified by not having anything to show for our efforts these past 7 years.

  8. I agree with that we aren’t a long way off the top. But we aren’t a long way off the mid-table too.

    We’ve set back so much that we’re almost on par with Sp*rs.

    The most successful clubs don’t sell their best players one by one. Losing them is one thing, but reinvesting is the key.

    Arsenal brand name has hit a rock, with little growth due to poor footballing ambitions and results. There is a lot of potential here and yes not far from the top, just 3 more quality signings and key players staying will put Arsenal right up there with the best again.

  9. Well written &logical piece.
    However i think loading the team with quantity rather than quality especially if you pay them above the going rate compromises the self sustainability agenda, arsenal still has a wage bill comparable to man utd, chelsea. Probably higher than a team like bayern. I thnk our wage structure is flawed. Also we shld consider what happens to profitability when the global appeal of the club plummets, &its attractiveness to new/young fans drops

  10. The chelsea plan is to move into a new stadium thus increasing matchday revenue (roman can pump his money without ffp restrictions).
    Compete for titles and cup thus expanding the fan base and commercial revenue.
    Move into the elite group of teams Real, Barca, Bayern, AC, United etc within a few years.
    That should balance the books increase the value of the club and become self financing.

  11. A group of Arsenal fans delude themselves by thinking we will be debt free in a few years and all will be rosy thereafter.
    United were debt free until Glazer came along and loaded the club with debt. The same could happen to Arsenal if K decides to sell to the highest bidder.

  12. i believe we should have been more bold in trying to achieve Cat A status rather than being in a dog fight year on year for 4th.

  13. Milo on said:

    I became an Arsenal fan because of the kit, when I was 9 years old. Now at 23 I have long realized that I love the fact that we run our club with a sense of morality. I’m not saying that spending a whole bunch of money on players is immoral, but doing so at the expense of our future and what our children and grand-children will have to cheer for, is. What I’m saying is this, we might not be around in 80-100 years if we spend like Manchester City and Chelsea. If we are still a football club by then we could be hit with all manner of catastrophic consequences like relegation, liquidation, bankruptcy, administration, and all that stuff that I don’t know much about.

  14. the club do not pay dividends coz its more worthwhile to increase the value of the shares and them sell them. less rate of tax. its all about profit and tax.

    • Excellent points Abs, and all fundamentally correct. It also opens up the debate a little more, so here goes:

      1. Chelsea/City masterplan – of course they intend to grow value by attaining success on the pitch. My contention is that it is not working at present. Even after 8 years, Chelsea expenses continue to far outstrip revenue, regardless of success or failure. Chelsea have massive problems with regards to stadium expansion on the current site. And while there are talks of moving into the old Battersea power station, it’s a project that is likely to cost close to a billion pounds and will take another 6-8 years minimum to come to fruition. It would be very interesting to see at that point how much squad investment Roman will make to try and compete, especially as breakeven is nowhere in sight presently. Also, for all of Chelsea’s success under Mourinho, the Blues have not developed an attractive enough playing style, something which is required to lure new supporters to the club – an area Roman is acutely aware of as he’s tried unsuccessfully and at enormous cost to develop this style over the last 4 years. In addition, there is an inherent danger in chasing fans whose only interest is in winning trophies – if you don’t have a connect with the club’s history or playing style or way of running, you are more likely to be wooed by that new chick in town. Hence the jokes about Chelsea/City fans being caught between a rock and a hard place this season.

      2. Glazers at Arsenal – you are absolutely right that what happened at United could happen at Arsenal – although as Phil pointed out, this would be more difficult with us as we don’t have the revenues of United to stay in the game despite a leveraged buyout. But the danger is there, which only goes to prove my point that we should look to avoid being dependant on one owner – Glazers, Abramovich, Kroenke or Usmanov. You are right, it may still happen – but as Phil states in his article, it’s a one way street once we are down that path. I think the board were forced to sell to Kroenke in order to ensure no one shareholder could garner 100% of the shares. Read Phil’s article for more insight into this.

      3. Shareholders and Value – again, you’ve called it right with regards to shareholders of football clubs placing a heavier emphasis on value building rather than yearly dividends. But it’s the same with multiple shareholders or a single owner, isn’t it? If I were a Chelsea fan, I would be wary of when Roman might tire of his plaything, especially when the bottom line keeps flashing red despite success on the pitch and decide to cash in on the value that he’s added to the club.

      4. Dog fights – we have been in title dog fights in 3 of the last 7 seasons until Jan or Feb. As Chris stated in previous comments, there are things we can do without fundamental changes to the club’s financials that would positively affect our performance – defensive drilling, concluding transfers on time, modifying tactics to suit the opposition etc. There is also the opportunity to develop our commercial revenue, which remains an area of weakness.

      Look, in the end we may not have a choice and Kroenke may sell out to Usmanov. I am just not convinced of the merits in the long term, and these are my arguments in support of that view.

      Only the distance of time will provide the depth required to judge right from wrong. At present, I remain unconvinced that sugar daddies are good for football clubs.

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