Financial Foul Play
Welcome to part 2 of my double header. It’s another long one so please bear with. I want to explore the financial side of our club and why we aren’t paying big wages or big fees for big players.
I take no pleasure in seeing Arsenal fail to challenge for titles or having a silverware drought nor satisfaction in seeing Arsenal struggle to qualify for champions league football and unlike some, you know who you are, I do not want Arsenal to finish outside of the top four for some screwed up ideology that it will benefit the club into changing.
I don’t think we need to finish outside of the top four to get a kick up the arse. I think we had a kick up the arse with the 8-2. That would be more like kicking a man when he is down.
I don’t excuse our poor showing in the past few years and I don’t accept them either but I do understand that there are reasons outside of our control that influence them in some way.
Years ago Arsenal had probably the best scouting network in the world. So much so that Florentino Perez once said that Real Madrid’s scouting policy was to find out who Arsene Wenger was buying and bid more.
Even though this was a tongue in cheek comment it retrospectively had an element of premonition about it. Now when Arsene tries to sign a player he is easily outbid by other interested parties and even if he won the bidding battle he would lose the wages war.
I’ve tried to explain to a few people on Twitter that the landscape has changed but it is difficult to get that across in 140 characters.
In response to the worn out argument that the move to the Emirates was supposed to have made us financially stronger I tracked back through some old Peter Hill-Wood quotes on the Emirates move. There was one in particular that I remember but cannot find so will not include it as a proper quote but the general theme was that once the stadium debt had been repaid Arsenal would be on the same financial footing as Manchester United when it came to player registration and wages.
“We’re moving to Emirates Stadium in order to compete with top European sides, not only on a financial footing but from a footballing perspective”
“This Club is ambitious for success and I believe that the strong financial position which the Group has established, as confirmed by the results for the year, provides the best possible platform from which to deliver that success for the long-term.”
“We are committed to operating the Club as a business which is financially self-sustaining.”
“We strongly believe that to compete at the highest levels of professional football the Club has to have a viable business that can pay its own way. We strongly believe this is the only way in the long-term.”
The overall debt of the Group has increased and is now at a peak level. Is this an area of concern?
“This is not an area of concern and in order to appreciate why, one needs to look at and understand the two main components of the Group’s debt finance which operate independently and are ring-fenced from each other. Firstly, a bank loan of £133 million, which has been used to fund the construction and redevelopment works at Highbury Square and drawings on this loan have increased by some £70 million over the last year in line with the progression of the works on the site. Secondly, £250 million of bonds which represent the borrowings we took on for the construction of Emirates Stadium.”
You mentioned the £250 million of bonds used to fund the Emirates Stadium construction?
“Yes, that’s correct, we have £250 million of bonds in issue and as this is the financing used for the construction of Emirates Stadium, it can be looked at in a similar way to a mortgage. It is long-term debt which is repayable over 23 years and which is all at a fixed rate of interest of 5.3%. The repayments on the bonds together with the interest costs amount to £20 million per annum and this figure needs to be considered in the context of the significantly increased levels of income and profits that we are able to generate operating from Emirates Stadium as compared to Highbury.
It is important to recognise that the board has said all along that they want to run the club in a self-sustaining way and that will only benefit the club in the long term.
It was this strategy that led to David Dein’s departure. Dein had twice been overruled by Hill-Wood and Fiszman when it came to the move to Emirates, the first being considering the Ashburton Grove site which the rest of the board twice rejected whilst simultaneously looking into other sites and allowing Dein to pursue looking into renting Wembley with no intention to see it through which incidentally put the construction of the Emirates back a year and if avoided would have seen Highbury Square miss the 2007 housing crash and potentially would have cleared a larger portion of the stadium debt in a shorter amount of time. The second time was over the design of the stadium. Arsene and Dein wanted something more functional and Fiszman and Hill-Wood wanted something much more elaborately designed and a beacon of Arsenal’s history of modern design and architecture and I am glad that Dein lost out on that occasion as the Emirates is a glorious stadium.
The argument that led to Dein leaving was over billionaire investment. Dein saw the way the game was going and whilst he was not completely in favour of a benefactor supported club such as Chelsea or Man City he did think the self-sufficient model would count against us. David Dein favoured a model that was a hybrid in the sense that rich investors could invest in the club in the form of very long term bonds, rights management or infrastructure investment to allow more of the club revenue to go into strengthening the team. The board did not take kindly to this suggestion as they saw it as a relinquishing of power to an ‘outsider’ and moved to secure the lockdown agreement and force Dein out.
I personally agree with the self-sustaining strategy but I see no reason why someone like Usmanov cannot invest in the club by buying the clubs debt and deferring repayments for 5 years in order to allow Arsenal to not only compete on a financial level in the short-term but to also to allow Arsenal a payment ‘holiday’ whilst we wait for sponsorship deals to expire so we can negotiate better deals and future repayments would be covered by improvement sponsorship contracts.
The current sponsorship deals Arsenal have cost us at least £20m a year on top of the £20m we pay in debt repayments every year. That is a hit of £40m per annum that Arsenal has to suffer whilst trying to compete against benefactor teams like Chelsea and City and teams with insanely good commercial partnerships like Real Madrid, Barcelona, Manchester United and even Liverpool. Every year we are at a big disadvantage and that is down to the board underselling our brand and commercial worth in order to finance the stadium that could have been built much earlier and without the delay cause by rising costs caused by dawdling over sites and designs. To put things into perspective Arsenal’s shirt and kit deals are worth £13.5m a year combined, Liverpool’s combined shirt and kit deals are worth £45m.
Whilst match day revenue has increased, in real terms our commercial revenue has decreased as we have been tied into unfavourable long-term deals. As such we have had to rely on player sales to post a profit and we need to make a profit of at least £40m every year to “break even”. (Not actual break even).
The sales of Cesc, Na$ri, Ad€bayor, Clichy and Toure totalled £100m. £70m of that needed to go into the TPA (Transfer Proceeds Account. The TPA can only be spent on player registrations and wages. ) The other £30m was available to the club to spend as they saw fit. How it was spent I do not know, I personally hope that it went back into the squad but I don’t think it did.
It is clear from Arsenals revenues since the move to the Emirates that we could afford to spend £20-30m on a player but that would be the only player we bought that year. Arsenal’s main issue is the disproportionate wage bill. It should be noted that Arsenal went on a cost cutting exercise in 2001-02 which included drafting in a team of crack accountants to reduce the playing bill where possible. Our current wage issue started in 2007 in my opinion. Is it coincidence that this was the first summer that Wenger didn’t have Dein to handle negotiations? I don’t think so.
The big increases all seem to happen around the time Arsene signed a player or a player signed a new contract. It is a well known fact that Arsenal spends too much money on certain players wages. Some believe that will go down next year with the departure of Na$ri and Cesc in the summer but with all of our additions I think that it will have gone up by at least 9%. Manchester United for example pay Rooney £200k a week and Welbeck £15k a week. Arsenal pay Van Persie a reported £90k a week (or £70k according to some sources) whilst Bendtner gets £52k a week and Denilson gets £50k a week. All three of those don’t even total Rooney’s salary yet two of them don’t even play for us and the other has been better than Rooney this year.
Our weak commercial deals, stadium debt, less than anticipated revenue from property deals and disproportionate player wages hinder us when it comes to signing new players. It is not the transfer fee that holds us back it is the wages. If we brought in a top class talent on £150k a week Robin would want more or at the very least parity. Does he deserve it? Hell yeah he does but then Theo, Jack, Arteta, Song, Vermaelen, Koscielny, Sagna, Oxlade-Chamberlain and Gervinho would all want pay rises and so would the rest of the squad. Arsenal have built a wage structure that offers favour to no one player regardless of their ability or contribution and that is wrong and what holds us back.
Arsenal cannot compete with the wages on offer at the oil clubs or the likes of United, Barca and Madrid and have been forced to carry on trying to pick up bargains to use the saved transfer funds in the wage pot. The thing is though that Arsenal no longer has the edge with their scouting network and picking up bargains is difficult. Players like Kompany, Cabaye and Cisse were all bargains but would they all have been as good for the Arsenal? Kompany yes and he is someone that should have been on Wengers radar but who knows, maybe he was and maybe Wenger decided that we couldn’t match the wages on offer at City so he pulled out.
When I mention these things to by regular debaters on twitter I get told that we should sell the ‘dead wood’ but it is not as easy as that. Firstly we need to find buyers for these players and those clubs need to be attractive to the player and able to match their wages demands that we have skewed. I’ve been told that we should just give them free transfers but that would be almost impossible. We would have to pay them enormous amounts of money to get rid which would wipe us out and leave us nothing to recruit better replacements with. We would also need the players to accept such an arrangement which they probably would not and even if they did it sends the wrong message to our players and potential recruits. It makes us look ruthless and impatient and you also need to consider the relationships your best players have with the guys you are trying to get rid of.
Some of you may have heard the rumours that Arsenal tried to sell Diaby in the summer of 2011 and there were interested parties but no-one wanted to pay £60k a week plus for a player with his injury record and can you blame them? The same with Denilson and Bendtner. Diaby earns way more than Modric and who is arguably the better player?
Almunia and Squillaci are both on £60k but thankfully both are out of contract in the summer. Ramsey and Wilshere are both on £55k. Neither deserves it. Ramsey has been maligned this season for good reasons and bad but regardless of his performance this season he is not worth £55k a week at 21 years of age and not one full EPL season under his belt. Wilshere had a break-through year but so is Welbeck at United after a great season at Sunderland and he is on £15k. Wilshere and Rambo should both be on a max of £30k a week in my opinion.
Hopefully in 2014 our renegotiated commercial deals will help the club compete and in the mean time a restructuring of the wage bill starting with a clear out where possible and only slightly improved contracts for the likes of AOC, Jenks and Ryo and a great tip in balance towards Robin should be the priority.
The board’s idea of self-sufficiency will hopefully start to come into its own over the next few years now that a large part of the stadium debt has been paid back and with UEFA introducing Financial Fair Play (FFP) Arsenal should be in a great position to challenge for the types of players that will get us challenging on the pitch.
FFP won’t favour the likes of Chelsea and Man City and hopefully UEFA will try to close every loophole as and when these clubs try to use them such as commercial deals vastly above market value.
The board always made it clear that the move to the Emirates would allow us to compete with the Manchester Uniteds of the world eventually but I don’t think anyone ever saw the landscape changing quite so drastically with the arrival of Abramovich and the Sheikhs.
UEFA are doing their bit to counter-act this but whether or not they can enforce it or not remains to be seen.
For the time being Arsenal supporters need to accept our position as a top 4 club rather than title challengers and support the team positively. It’s not ideal and it certainly isn’t where we would like Arsenal to be but it is no more than we deserve. Our position is dictated by the way the club is run and how the club competes with other clubs off the field in order to facilitate competing on it. We’ve beaten the two ‘richest’ clubs in the country this season with a team of disproportionately paid cheap buys and to be fair it’s not a bad starting 11.
But even with FFP Arsenal may still not be able to compete with big wages for a few more years.
Arsenal are to blame for not adapting to the situation and for paying silly wages to average players but they cannot be blamed for the doubling or tripling of wages that City and Chelsea offer. When it comes purely down to wages we will never be able to compete with them without a rich benefactor.
Arsenal need silverware and we’ve waited long enough to see a decent team built without being dismantled a few seasons later actually challenge and win and we may have to wait a while longer unless we sell out to a billionaire.
I guess the question is: Do you want Arsenal to be self-sufficient and model club or join the oil clubs in promoting financial foul play?
Thanks for reading! Please comment on this post, share with friends and follow me on twitter (@thedanielcowan)
Advertise your business here! Click here for details .