Recently the Financial Times published an article by Simon Kuper who is a regular FT columnist and also co-author of ‘Soccernomics’.
The article is called Arsène’s austerity: Has football’s economist got it wrong when it comes to the game’s finances?
The question asked was rhetorical – for the answer was an resounding “Yes: Arsène‘s approach to football finance is wrong.”
As far as I know, no one has really argued against this view – which is interesting because normally speaking if you put three economists in a room you quickly end up with five economic theories to explain the point under discussion.
So could it be that simple: Mr Wenger is wrong, and everyone can see it except him?
This of course is the AAA vision; although thankfully Simon Kuper goes a little further than believing that all one has to do to improve Arsenal is to say “Wenger Out” rather a large number of times on Twitter.
But, with no one else taking up the mantle, I am going to have a go. Now I must say I do this with some trepidation, as the last time I argued finance with a respected writer (The Swiss Ramble in that case – a source quoted lovingly by Mr Kuper) I received more vitriolic response than usual, much of it of the “you are not fit to lick his boots” type.
However, the whole point of a blog is to develop the debate, so here I go.
Mr Kuper’s argument is that “Wenger and Arsenal [claim] that the football economy is a bubble: clubs are spending beyond their means and risking collapse. The argument is at bottom one about the football business. Has Wenger, almost the only actual economist in football, called the football economy right? Will Arsenal’s prudence finally pay off one day?”
But then, curiously, the article spends quite a bit of time talking about the Emirates Stadium, which was surely the riskiest business venture that the club has been involved in since Henry Norris leased land in Gillespie Road and moved Woolwich Arsenal to Islington, 100 years ago.
The building of the Emirates was a unique enterprise in modern football. Yes, other clubs have moved before (one thinks perhaps of Middlesbrough, Coventry, Northampton Town and Bolton) but nothing has been done on such a scale in such a built up area before.
The sheer size of the enterprise was incredible. The new ground is not just 157% the size of the old ground, the experimentation with the Club Level was dramatic and different. Was it possible to sell all the club level and boxes at such incredible eye watering prices? Was it possible to sell 40,000 or so season tickets, and keep the waiting list topped up? Was it possible to sell another 20,000 tickets for each and every match?
And was the phenomenal risk of rebuilding Highbury as flats, and then after that re-working the old industrial areas around the ground, actually a viable proposition?
The risk was incredible, and yet, because it doesn’t fit with the profile that the author wants to present of Mr Wenger and the Board, it is skated over, as the writer moves on instead to say, “Arsenal’s ticket prices are the highest in English, and probably global, football”.
Oh dear – if only he read Untold he would know that on a like for like basis this isn’t true. All you have to do is take into account the fact that us season ticket holders actually get a load of cup tickets with our electronic card (I shall be popping along to see Arsenal v Bayern Munich shortly, and it won’t be costing me an extra penny. Same with games against Milan and Barcelona in recent years) to see that Take that we are certainly not the most expensive club.
Now the other day someone berated me on this blog along the lines that because I could not spell one particular word, my entire argument was obviously false. I would never go that far, but it does seem to me when we spot a journalist trotting out a tired old cliche which is untrue, that at that moment we certainly can say, “just how much research was done here”.
But he’s right on one fact. Arsenal “earn £3.3m per home match, about double the amount of their London rivals Spurs. Their total revenues last season were £243m, sixth in European football.”
Simon Kuper also admits that “moving stadiums was scary. Most of the £430m required was borrowed. Suddenly, this most conservative English club was drowning in debt. Things got scarier when the financial crisis hit in 2008, just as Arsenal were raising revenue by selling converted flats at their old Highbury stadium.”
But then he makes an assertion “Every season, Wenger had to sell players partly to pay off the Emirates mortgage.” Was that true?
Now I fully admit I don’t have access to Arsenal’s innermost accounting system, but my notes show that throughout that period the income from the stadium was more than enough to pay the mortgage. Mr Wenger might not have been able to buy Ronaldo or Messi, but he didn’t have to sell in order to keep the stadium open.
Indeed, time and again this site has shown the brilliance of the selling policy. Henry going to Barca and ending up costing them £250,000 a game. Hleb going to Barca and costing them double that per game. The list goes on and on right to the present day. Song going to Barca and then being voted the worst buy of the summer in the Spanish League.
Even players going on a free transfer like Flamini saved the club money, because of the huge wage demand he put in when he came to the end of his contract. Flamini took a step down (Milan were not in the Champions League at the time) and found himself something of a bit player, being a sub much of the time. Indeed so low did his stock fall that Milan couldn’t sell him, and at the end of his contract they opted to release him. Eventually he re-signed at a much, much lower salary.
In short, Arsenal sold players at top prices or removed others who were demanding insane wages – and continued to pick up players to do the job at lower prices. It is true that the selling process did not start when the Ems came along, rather it started much earlier as players left once buyers came in willing to pay more than the player was worth. Even thought, most recently, we were all sad to see RVP go, we are scoring more goals without him, and Man U appear to be stuck with paying him an insane salary well into his 30s.
But let’s come back to the FT article. Simon Kuper continues, “The wilder side of Wenger’s nature was Dein, but he left Arsenal amid board ructions in 2007 and, since then, Wenger has been freer to be himself.”
Now does no one else see something odd in that statement? Dein was the one board member who was utterly against Arsenal moving to the Emirates, and running the whole show itself. Dein wanted the more cautious approach of going to Wembley on a ground share operation. It was the rest of the board who wanted to move around the corner.
And then, from there, within a sentence, we jump in the FT article, into, “Austerity is in Arsenal’s culture. Once known as the Bank of England club, it has been cautiously run for decades.”
So how can the huge risks and astounding gamble of the Emirates become set aside in the white space between paragraphs and become an example of “austerity”?
Ivan Gazidis is quoted in a way that sums the matter up. “We don’t spend more than we have. In football that is seen as conservative. That tells you a little bit about the environment we’re in.” Arsenal’s “policy of sustainability,” Gazidis adds, “should be familiar to more people given the economic state of the world, but football has continued to be a little bit of a bubble.”
Thus we have a club that has taken a huge gamble with the stadium, but it not taking gambles with players. Is that better than taking a gamble with players but leaving us in the old stadium? I think so, for two simple reasons. First because the stadium earns money to pay the players while the reverse is only true if you already have the stadium. Second because just because football clubs have been making losses for years and getting away with it, it doesn’t mean that will always be the case.
So far there have only been two great collapses of top division clubs: Portsmouth and Leeds. But what happened to them is enough to suggest that this is something to be avoided rather than risked. As Michel Platini, said, “If this situation goes on, it will not be long before even some major clubs face going out of business.”
The argument in the FT is that “that moment never came” rather than “it hasn’t come yet.” It hasn’t come yet because the government has allowed the football creditors rule to continue and the courts have found in its favour. One move by the Coalition government, desperate for every penny it can find, would change the world. Likewise the rules allow Chelsea and Man C to take the benefactor model to previously unknown heights (or depths depending on your viewpoint).
In many ways it all comes down to this. If the benefactor model has its wings clipped and/or the government changes the football creditor rule, the landscape changes utterly. And in such a situation every club has to decide – do we live day by day with this gamble, or do we make provisions. Most businesses with any sense, make provisions.
Arsenal could go into the make-believe world and pay 114% of their income on player wages – but ultimately that bubble has to burst either because the benefactor pulls out, or there is a revolution in his country, or the price of gas or oil drops, or because Uefa changes the rules, or because… there are a hundred reasons.
I have to say that if I ever said to my fellow directors in my business, “don’t worry, it won’t happen” there would be more than mutterings of discontent. The fact that people in football take that risk doesn’t make such decisions make sense.
There is of course more in Arsenal’s future. The liberation of the process of running youth academies will help simply because Arsenal’s academy has such a stunning reputation, compared with many of its rivals. And we are now in the era when the old marketing deals made in order to reduce the stadium debt are ending, and new ones are coming on stream at much higher levels of income. Interest on the stadium debt is declining all the time.
But I have left the oddest hole in the FT argument until last. They say, “other clubs are finding new revenues too, as countless Asians and Americans start switching on to the Premier League.” Yes indeed, and that is why Arsenal is in there as well. It is suggested (although not argued through) that whatever progress Arsenal makes in terms of reducing debt and increasing revenue, it won’t be enough because other clubs are getting more money. But Arsenal are entering these territories. I remember at the AISA AGM hearing the mantra of China, the Far East and America said over and over again. Arsenal is pushing as hard as anyone to bring in these new markets.
Overall I don’t think the FT article works. Arsenal have weathered the storm, and are set for the future with a wonderful stadium, high income levels which are growing, a wonderful reputation overseas (where the AAA rarely operate), and will happily pick up any bounty that comes their way as a result of FFP. When necessary Arsenal have proven themselves to be great risk takers – now we can see if the endless risks of other clubs will be as remotely successful as Arsenal’s great leap forward.
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