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Untold Economics: The Royal Bank of Football

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The Royal Bank of Football

by Brent Peugh

Many people have commented on this site on why Arsenal receives such negative media attention on so many levels. For many of us it’s as though there’s a black cloud following the team around with every opportunity seemingly taken to criticize and undermine the confidence and character of Arsenal by media pundits, radio hosts, journalists and fans alike. Why is this?

It’s been said that xenophobia is to blame for this negativity; having a French coach and lacking an English spine and all that. But if that’s the case one should look no further than Chelsea seeing as they have had a multitude of foreign coaches including their new acquisition and at this time could (and probably should) field a team with Ashley Cole as its sole Englishman. Xenophobia, therefore, seems more of a distraction than a solution to the question. Xenophobia may be a contributing factor but for this paper I will assume that this is mostly limited to fans and not an overriding factor

Seeing as the current sentiment in some quarters is that Arsenal is run more like a business than a football club, I’d like to explore this issue from an economic standpoint.

  • But first a quick economics lesson:

In order to make this as short and painless as possible I want to focus on the interests and mechanics of modern money generation. That is to say, how our money is created and distributed and how understanding this practice can help us understand its influence in the things we love: like football.

Modern Money Mechanics:

The modern economic system operates and is perpetuated by the use of fractional reserve banking. This is the mode of currency creation currently used by the Bank of England, Federal Reserve Bank, World Bank, and virtually all Banks within the modern economic model.

To put it bluntly, banks are allowed to operate within a system whereby the value of all deposits may equal ten times that of the actual physical reserves. To visualize how this works imagine you deposit £100 at a local bank that’s just opened and currently has £0 in its reserves. Once you’ve made your deposit the bank is obligated to loan 90% of your deposit out to various other patrons at interest. The bank only keeps £10 of the initial deposit as reserves and then “creates” by way of bookkeeping entries the other £90 so that the whole £100 is available to be withdrawn. Essentially, even though the bank only has £10 of physical money they are allowed to state they have £100 which they can make fully available.

For more information on Fractional Reserve Banking see:

http://lisgi1.engr.ccny.cuny.edu/~makse/Modern_Money_Mechanics.pdf

http://www.centralbanksguide.com/fractional+reserve+banking/

http://www.econlib.org/library/Enc/MoneySupply.html

In order to understand how this has anything to do with football I want to pick a number between 1 and 2…billion. If you said 2 billion you just guessed how much only three countries spent on transfers in just one year.

  • £2 billion. That number represents the transfer expenditures of top flight teams from England, Spain, and Italy in just 1 year: 20111

Now unless a full 60 teams from three countries are run solely by billionaire benefactors, it’s safe to say most of that £2 billion was financed through big banks. And lets not pretend that the interests of billionaires are not tied to those same banks. We’ve just seen how financing can exponentially increase the money supply and also the profits for banks and international financiers. When you break down the major financial players in the world it will come as no surprise that big banks and finance houses such as Lehman Brothers and Deutsche Bank dominate 90% of the industry. It should also not be surprising then that a self-sustaining and economically viable business would be looked at with contempt by an industry built on big loans and high risk.

Arsenal FC, however, is not merely a self-sustaining enterprise struggling to stay a float in an ultimately doomed and corrupted business. We are one of the richest teams in the world, one of the most recognizable brands in football and until recently we were proving against all odds that big money loans and high risk gambling is not necessarily the only way to be a successful team in the modern era.

That’s not to say we should join the ranks of Man City and spend the GDP of a small nation just to win a trophy or two. I would, however, venture to bet that Wenger’s economics lessons taught him to be very weary of banking and financing and to live within his means..

Conclusion:

Which brings us back to the negative light with which the media portrays our Club.

I would suggest that the banking world takes football revenues very seriously. Seeing as it’s the world’s most popular sport and generates gargantuan profits they’d be crazy not to. I would also add that the banking world has ways of undermining trendsetters if they’re setting the wrong trend whether it be through smear campaigns in punditry or using their media influence to loudly denounce the efforts of the innovator for whatever reason.

Big money interests have ways of getting what they want and getting their message across. The fact that Arsenal are running a successful club within their means and managing to do so with style is certainly sending the wrong message. In a culture of big spending and high risk gambling, Arsenal’s innovative and progressive business model is definitely one to be weary of, and quite obviously someone’s paying attention as Arsenal’s model is one that has been attacked and criticized in virtually every section.

Bibliography

1 http://theoriginalwinger.com/2011-09-01-epl-news-clubs-in-europe-spend-  almost-2-billion-in-transfer-window-premier-league-spending-sets-recor

Untold Economics

Dream or nightmare: a European superleague

Are Spanish clubs fighting back at last against Barca and Real Mad?

Rangers like Everton are right on the edge

If we didn’t have world wide scouting we would be like Everton: at the edge of the world

Are Arsenal a selling club

Full index of posts: The Economics

64 comments to Untold Economics: The Royal Bank of Football

  • Chowdhury

    Great post. Like Clinton said “It is the Economics, you stupid”. Don’t want to sound paranoid or anything but usually “it” IS the usual suspect.

    For enthusiasts who wants to have a bit more understanding of the financial system or the making of it, can watch the “Ascent of Money” documentary. That is a 4 hour long documentary that goes in great detail about the “System” that is “Money”. Zeitgeist also takes a swing at it, but they also convolutes almost to the point of losing credibility. So try at your own liking.

  • bejoy

    The financial system is truely corrupt with 33% gain for every trnsactions done.

    I am sure the Chelseas, ManUs have assets in paper (which are forked out as investment tools). Only citieh has the loose finances.. look at the world system.. Oil/Copper are key investment business which runs football, baseball and all.

    Think about BArcelona having financial crisis in 2010, the shirt sponsorship was shipped to Qatar… they invested additional 120M this year…
    MAnCity’s dubious shirt sponsorship of 400M.. this is a stumbling situation.. FAs and World Governing bodies will be quite.. its cash flow.. and TV sponsorship that makes them rich.. they would like to have another 10 clubs being bought.

    A sound system from any clubs are not going to be appreciated.

  • Great post, another thing to consider here is that media conglomerates such as Murdoch, have the power/weight to influence governments inside the countries that they operate. Could it be a sense of envy that whilst they have to look at new outlets to retain their newspaper sales (which have been dropping rapidly since the rise of popularity of the internet), Arsenal football club has essentially learnt from the mistakes of other clubs (now corporations), and self sustenance is something any business owner would like to achieve.

    Again, Wenger was completely right when he said “Don’t think the recession will not hit football clubs as well” back in 2008.They fucking hate him for it, and would never acknowledge this type of foresight.
    “Failing to plan is planning to fail”.

  • para

    Yes i have also said it, AFC are a threat to the money people, so they want no emulators, therefore trying hard to destroy or make AFC fail.

  • sahil

    Amazing post.

  • Brickfields Gunners

    Nice – let the rest play their shell game while our cup runneth over .
    Let us not deviate from chosen righteous path – we will prevail.

  • walter

    Well I sure have learned a lot today, Brent. Thanks for this article (and links) which sheds a new light on things.
    What an amazing world we have hidden behind the walls of the banks…

  • walter

    We do it our way, the Arsenal way!

    So just hold our head up high and be proud of the fact that we support a club who goes its own way.
    And remember the ones that don’t follow the rest are the ones that are attacked by the majority ‘thought’ police regulators.

    Strange an article about banks that makes me feel even more proud to be a Gooner. 😉

  • Byron

    Banks are in it for Profit, that’s there business so it makes sense that they would want to ensure that there is a steady supply of lending from the premier league clubs.

    We must not loose sight of the fact that banks also value savings as this is where their loan capital eminates , so our success will be making a certain bank very happy indeed!

    This article also undermines a common belief that Big spending clubs are heading to financial ruin. Banks don’t tend to just lend money(Some have first hand experience of this), they need to see a way that there investment will be secure, either through sufficient revenue or actual security.

    I doubt banks are bankrolling clubs that have no way or repaying their loans. There maybe one or two but don’t believe that the likes of Man U are about to unravel financially.

    Just my view, I am sure there are a bunch of you guys who can correct me and I look forward to your responses as this is THE blog for insightful, intelligent debate.

  • the font

    can any one borrow me a few quid

  • Notoverthehill

    Both Chelsea and ManSheikh are bolstered by the perceived paper value of the oil reserves of the owners. The value of the oil can go up as well as down, just like gold reserves. ManIOU are simply a very well run company with intrinsic value in the goodwill that generates excessive advertising revenue.

    Lower down the scale both the North London clubs do not spend money that they cannot afford. Fulham and West Ham are trying to balance the books with wealthy owners buying up the debt. This scenario covers most of the clubs in the English Premier league, which of course is named after a Bank!

    A very interesting theory, but the profits involved are way too small for the major banks to be really interested. The finite reserves of minerals and such like are much, much more valuable than any game of football. The profits generated worldwide by the game of football or sport in general, is mere petty cash for the major banks, IMHO!

  • menace

    Isn’t it just amazing that a £500 pot made of silver is competed for by billions of £s of investment!!!

    If the pot is so important just order a replica and p in it!!

    The game is my passion and not the trophies. The competition has lost its perspective and the game has been butchered for TV. The weekly Saturday 3pm game is now screwed to the point where league balance is now manipulated externally. The hounding of Arsenal is proof of Arsenals quality. The sad thing is that Arsenals football has lost some of its quality because of the money that is raping the sincerity of team players and contractual honesty.

    It is time early termination penalties were introduced into player contracts.

    It is also time to introduce competitive financial rewards to clubs. Clubs that have low investment get a higher share of the financial reward and vice versa. A little like catching a 50lb fish on 10lb tackle as opposed to a 10lb fish on 50lb tackle. A ratio of of reward to investment as a percentage will tip the blance back into sustaining an even financial playing field.

  • walter

    Something I received today and that could bring a smile on your face and is a bit on topic. Well it brought a smile on my face. But then again I was already smiling. 🙂

    SOCIALISM : You have 2 cows, so you give one to your neighbour.

    COMMUNISM : You have 2 cows. The State takes both and gives you some milk.

    FASCISM : You have 2 cows.. The State takes both and sells you some milk.

    NAZISM : You have 2 cows. The State takes both and shoots you.

    TRADITIONAL CAPITALISM : You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.
    BUMIPUTRAISM : You have two cows, the State takes one and gives it to your bumiputra neighbour. From the
    milk you sell from the remaining cow you buy a bull ! and mulitply your herd. The State takes 30 per cent of your herd as it grows and give them to your bumiputra neigbour. Your bumiputra neighbour has a kenduri each time they receive a cow.

    UMNOPUTRAISM : The State takes 30 per cent of your herd and parks them in Switzerland in the name of some UMNO
    official or close relatives, friends and sons-in-law.

    MALAYSIAN GOVERNMENT LINKED CORPORATION : You have two cows. You employ mainly bumiputras to milk them. But both cows have been sent to the kenduri, so the State gives you more cows and write off the
    losses of the first two. After several kenduris later, you invite an American or German Corporation to turnaround the losses. The Japanese have however already taken their two original cows back home to Japan .

    AN AMERICAN CORPORATION : You have two cows. You sell one, and force the other to produce the milk of four cows.Later, you hire a consultant to analyse why the cow has dropped dead.- hehehe

    ENRON VENTURE CAPITALISM : You have two cows. You sell three of them to your publicly listed company, using letters
    of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more. Sell one cow to buy a new president of the United
    States , leaving you with nine cows. No balance sheet provided with the release. The public buys your! bull.

    A FRENCH CORPORATION! : You have two cows. You go on strike, organise a riot, and block the roads, because you want three cows.

    A JAPANESE CORPORATION : You have two cows. You redesign them so they are one-tenth the size of an ordinary cow and produce twenty times the milk. You then create a clever cow cartoon image called ‘Cowkimon’ and market it worldwide.

    A GERMAN CORPORATION : You have two cows. You re-engineer them so they live for 100 years, eat once a month, and milk themselves.

    AN ITALIAN CORPORATION : You have two cows, but you don’t know where they are. You decide to have lunch.

    A RUSSIAN CORPORATION : You have two cows. You count them and learn you have five cows. You count them again and learn you have 42 cows. You count them again and learn you have 2 cows. You stop counting cows because you’re
    sobering up and open another bottle of vodka.

    A SWISS CORPORATION : You have 5,000 cows. None of them belong to you. You charge the owners for storing them.

    A CHINA CORPORATION : You have two cows. You have 300 people milking them. You claim that you have full employment, and high bovine productivity, and arrest the newsman who reported the real situation.

    AN INDIAN CORPORATION : You have two cows. You worship them

    A BRITISH CORPORATION : You have two cows. Both are mad.

  • menace

    @the font – to borrow is to get; to lend is to give. So if you want to borrow, you ask for a loan by saying ‘can any one lend me a few quid’.

    The education system in England is pathetic!!!

  • Leaving aside the paranoia aspects, clubs like Madrid/Barcelona/Chelsea/ManCity are all prone to failure in their own way.

    Madrid could fail because the Spanish government can no longer afford to bail them out. Barcelona because their TV rights holder goes bankrupt and the new holders won’t match the existing deal. Both highly likely in the current circumstances.
    Chelsea would fold like a house of cards if Abramovich displeases Putin and has his assets seized by the Russian government – unlikely but it has happened.
    Man City are an Arab spring away from a “republic of the Emirates” with no interest in a football club in a rainy corner of England.

    Just because big banks have an interest in keeping these clubs afloat doesn’t mean they cannot fail.

  • menace

    The real balance tipper will be the storm that removes a few satellites. Bang goes the blood line.

  • Jitty

    A clear problem with the industry is that it’s twin engines are media and gambling.

    It is virtually impossible to separate the product of football from its coverage.

    Secondly the value of information within the game can be monetised outside of the legitimate business.

  • Simon Bailey

    Big football money doesnt want to see us succeed because our business model doesnt fit with their vision of the game. The whole big money thing is spiralling out of control, and its going toget worse before it gets better.

    The fact is, is that there is a breakaway group at the top of the premier league. the two manchesters are in it, and chelsea of course. the big question is, are we going to be the fourth team in this group, or are we going to be leading the chasing pack?

    If this question had been asked last year, I would have definitely said that we would have been not just in the breakaway group, but fighting for honours within it. Now though, I am not so sure. city have managed to get themselves a world class team that seems to actually enjoy playing together, united seem to have built a whole new team without anyone really noticing, chelsea have also made some good signings and have strengthened their squad, although of the three, I reckon chelsea is the weakest.

    I accept that the larger than usual amounts being spent at the moment can be explained by the new fairplay rules coming in and teams trying toget their money spent before UEFA start counting it, but with the likes of united already sidestepping these rules, I dont think the big spending is going to stop.

    Leaving us where?

    I’m sure arsene has it worked out.

  • mark

    It does seem that much of the criticism of Arsenal has been that they have not been spending money. And that the assumption is that spending money will buy success. If one looks at the MLS we see that the Red Bull team has spent a lot of money but are not winning. This is often the case. One club spends 10 million and the player does not produce but another club spends 10 thousand and the player produces! Arsenal is right to not accept the assumption that spending money is all that is needed.
    But the vast sums that Man City and Chelsea have been brought into those clubs have distorted reality and in many ways make it harder for the Evertons, Westhams, AV and so forth to continue. It distorts the cost of players, it distorts salaries of players, and thus make it harder to continue. Fulham have a bit of success in Europe but can not sustain it because they don’t generate enough income to pay players. Chelsea can’t pay their players from revenue but are sustained by the Russian Oil. On a cost basis Fulham is better than Chelsea because they produced more results with less investment.
    If there is more distortion to the market by vast sums coming in from outside the quality of football in the EPL will decline as the more and more clubs find that they can not compete. It seems that is already starting to take place.
    American Baseball has the rich teams that spend to by the best players like the Yankees. Then they have they poor teams that can never compete because of salaries that are unaffordable! Yet it is always a joy to see one of the poor teams beat those damn Yankees!

  • A very good thread.

    ”It is virtually impossible to separate the product of football from its coverage.”

    Spot on. Xenophobia enters here and reaches its purest expression in the World Cup when the assembled racks of pundits, all these experts, reckoned England were a good bet to win the World Cup in 2010 at 5-2.

  • Adam

    @Brent, I do believe you are onto something here but maybe are looking at it a bit differently from myself. Most banks would welcome a club such as Arsenal onto there books, As then they would be able to use Arsenal as an asset to generate more income for themselves, Maybe its the competitors of Arsenals bankers you should be looking at. Also i do believe fractional reserve banking is how it is surposed to work and use too, But not anymore. As for the federal reserve that is a private bank in America unlike the bank of England. Also please remember that our chaiman and vice chaiman both come from banking backgrounds.

  • “If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” – Jean Paul Getty

  • Arsenal is a veritable cash generating machine of a club, any bank would chew their own arm off to lend us money, as Adam points out.
    I suspect the club has no interest in taking out any further loans because they have a very clear understanding of the nature of football finance. We would in essence be better off buying out some of our competitors, which is against FIFAs rules but also very difficult to police when A) you have jurisdictions like Jersey where the true owners do not have to publicly disclose ownership and B) FIFA officials are probably corrupt.

  • Charlie

    Whatever the reason i have one thing to say. May this adversity and negativity make us stronger. I am starting to see some real passion in the crowds and long may it continue. I find this article far-fetched to be honest, i think the media just like making villains as they did with Beckham and Graham Taylor but when the whole world seems to be against us it’s the time to pull together.

  • Sammy The Snake

    Linking the banking system to Arsenal’s negative media attention is a major stretch.
    We are who we are, and we’re proud of being Gooners.

  • bob

    Notoverthehill,
    You dismiss this article with the cocksure allegation that football is too small to matter to the mega-banks. Well, have a look at jitty at 11:40 who states “the value of information within the game can be monetised outside of the legitimate business.”

    Charlie sez,
    “I find this article far-fetched to be honest,” it’s just the media being nasty as ever. Charlie, you missed the last two months – it’s been at a fever pitch against one coach and one team to the point of a national pastime. Business as usual?

    Mark,
    US Baseball has a luxury cap above which teams like the Yankees (and there’s only the Yankees – ManUre’s strategic partner – and the next closes, the Boston Red Sox – Liverpool’s new owners) which go over that line. However, there is a penalty called a luxury tax for crossing the line (about $200M) which is large and is distributed by the League to the other teams, which winds up helping them. And many of these poorer teams have owners who have them for the prestige and as tax write-offs against their other profitable businesses.

  • bob

    Woolwich,
    I’ll wager the farm that Barca and Madrid will not be allowed to fail, because there is more than profitability at work there. There’s politics, national prestige, and entire league and UEFA’s credibility. Your pronouncement on this, like mine, remain to be seen. But I think your frame of analysis – purely economic – is not adequate. Too big to fail is a reality and, in the end, it’s the taxpayer that is coerced to keep them afloat, even at the cost of life’s real essentials.

  • bob

    p.s. meant “an entire league” above

  • bob

    Brent Peugh,
    Extending your analysis, would/couly you know of ANY interlocking directorates (specific common directors, everyone) between: certain large banks, certain large clubs (ManUre, Chelsea, ManShitty), and certain leading media outlets (BSkyB, The Sun, The Mirror, ESPN, Fox Soccer, etc.) It’s easy to research: each board member of a business entity usually sits on multiple boards. If bank Director X (Joe Blow) also sits on team 1 and/or media outlet 2, that’s an interlocking directorate, or combination of interests. If Director Y of the same bank sits on team 1 and/or media outlet 2, it’s the same strategic alliance. (The people’s names are less important than the institutional linkages). If you or anyone has any of this at hand, that could add further substance to your/any analysis.

  • Colkski

    God save us all from the conspiracy theorists. Lehman Brothers went broke in 2008 by the way so I don’t know how they along with Deutsche Bank control 80% of the banking industry and I think you might find HSBC and Barclays are both a triffle bigger than the German bank. As has already been pointed out football in the UK on it’s own is far to small to bother the banking industry overmuch. The football clubs in the UK are mostly in such a parlous financial state – see Tony’s previous recent articles on Everton and Rangers – that the banks are concerned with only getting their money out if anything, a situation they have been in for years. Most banks (probaly all) have football on their ‘don’t want to do business with list’in any case. As for conspiring against the Arsenal – don’t make me laugh. The conspriracy if ever there is one is among the hacks in the media and is down to lazy journalism and it goes no further than that.

  • bob

    Colkski, UM, all
    Your arrogant denuciation of “conspiracy theorists” is only surpassed by your evidence-free presentation. As for proof that the banks are fleeing football, please provide links and evidence as to which banks have pulled out of which clubs, and which leagues, and which privately owned league associations. Evidence is what matters to help everyone/anyone understand what is going on. Your snorting is really bullying. Facts, not know-it-allism, is what we all need. So go ahead, please educate the readership here with something we can learn from each other. As for your lazy journalism – single point of explanation – I would say that you have been asleep or unable to think about or understand what has been transpiring against Arsenal in the media for a solid 3 months and certainly not reading what Untold Media has been producing for the last month to document the extensive, non-stop, feverish, multi-leveled “lazy journalism” that you call it. There’s a lot more smoke than fire from your comment, sir, so please do begin with some details on the banks – all? some? any? – abandonment of football – all clubs? some clubs? any clubs? – so that I can (and would gladly) make an informed apology.

  • bob

    p.s., God save us from those too blind to see beyond their bullying.

  • bob

    Colkski,
    Specifically, which banks are pulling out of which aspects – lending, directorships, strategic alliances with – of their business with MU, Chelski, MC, EPL, FIFA, UEFA, Arsenal, La Liga, Bundesliga, any national FAs? And, where they are abandonments and withdrawals, if any, is there some or any pattern to the pullbacks, so that some are allowed to survive whilst others are left to expire? Let’s have it, then. God and the devil are in the details.

  • bob

    Sammy the Snake,
    Yep, “we are who we are” – uninformed, unwilling to see what’s in plain sight, proud of drawing the line and sticking the head in the stand. I too love Arsenal, so let’s not equate unwillingness to consider what doesn’t fit your comfy view of reality with being a true fan of the Arsenal.

  • Tigergunner

    Its like the inverse universe with the British press..
    Kevin Davies has to apologise to Tom Cleverly for tackling him too hard.
    But for Arsenal, when Stoke breaks Ramsey’s leg, its … “Wenger’s team is too soft!”

    Lets admit it, the press have their favourites.

  • critic

    damn damn damn!! I was thinking the whole same thing for past 5-6 months. It’s actually banks that are indirectly responsible for negetive outlook towards arsenal. This makes perfect sense. With money anything and everything can be bought. Which leads to corruption.

    A great article and theory.

  • Colkski

    Bob,

    The problem is that bank’s tend not to publicly disclose too much about football club’s problems/finances or any customers for that matter so I doubt that I could ever produce the list you want. I doubt that any real evidence of a conspiracy could be produced either.

    However, it cannot be in doubt that for many/most football clubs in this country their finances are in a pretty poor state, just check out Swiss Ramble for details, he is someone who knows how finance operates. Bank’s will look to profitable relationships and (as much as possible) a certainty that they will be repaid at some time in the future. Making a loss, as most clubs are, can be sustained on cash flow for a certain time but long term it cannot hence my assertion that if a bank thinks a football club will not be able to meet it’s obligations it will seek repayment and try to withdraw. Not always easy without a buyout to clear the debt. Where there is no big benefactor a bank will try to get repayment without bringing the team down because of the, funnily enough, bad press and impact on its relationship with other customers in the (mostly) local community. The big one where a bank was about to pull the plug was Liverpool before their buy out. Tony commented many times on RBS running the club (which would not be entirely accurate (check out the Insolvency Act, 1986 on shadow directors) but there was general consensus that RBS wanted to be repaid and could see a deal being cut to do so. Unlike many clubs Liverpool had a viable set up many clubs don’t. Usually when clubs are in trouble the banks leave the dirty work to HMRC who are never bothered about upsetting anyone. Portsmouth, Plymouth, Cardiff and Leeds less recently – it’s not a short list – are evidence that had the bank’s been willing to support them then HMRC would not have tried to/or put them into liquidation.

    It is no big secret that banks will have industries which they will view with various levels of appetite for business. Football falls into one where they have a limited appetite and would rather be out than in. That doesn’t mean to say that they will try to exit the business of a well run club like Arsenal, far from it, but a Leeds in their troubled days, probably, and I have no idea who Leeds banked with then, or now, for that matter. Who knows how many other (old) Leeds there are but my hypothesis is based on knowledge, deduction and fact and not pure speculation based on spurious information gleaned from the internet. To align the negative comments in the media to a banking conspiracy based on the ‘massive’ amounts that banks make from clubs in the transfer market is stretching belief to breaking point. The amounts in the overall scheme of banking are very small and often non-existent if a club goes into liquidation. On financing transfers you will recall that it is often the selling club that effectively finances the transfer deal by receiving the fee in instalments from the buying club. Barca on Henry and Hleb are just two examples and you can probably add the Fabregas deal to that list. I am sure specialist banks do finance transfers but it would not look like attractive lending to most banks in most cases.

  • bob

    Colkski,
    Thanks for acknowledging you don’t have the evidence to support your bashing of conspiracy, which, by the way, simply means doing business (or anything) between more than one party without making it public. Get real, mate. It’s like oxygen to con-spire (i.e., in Latin, to breathe together).

    Banks in general are not lending to nearly the same degree because the general economy is so messed up that very few loans are comparatively safe. You could then make the banks would rather be out of football than in for almost any other sector in an economic downturn. But, then again, there’s a few other aspects to consider:

    Will it still be called the Barclay’s EPL next week? month? year? I would think so.
    Or, perhaps, the Super Banks are backing the emerging(?) Super League where financing has a bigger bank for the buck, without the mess and bother of the pesky little failing clubs? Do you think that’s too conspiratorial?

  • Adam

    @Colkski, A theory for you, A bank lends a football club 100million what would the club use as collateral for the loan, possibly the club itself, the loan is then defaulted and the bank takes control of the club valued at 300million. The bank can then add an asset to their safe that could potentially (using the fractional reserve system) earn them BILLIONS. In the mean time they find a buyer for the club at 100million and cut out hoping that the new idiot in charge of the club wants to borrow some money.
    Its the use of the club as an asset that the bank is after, then get rid of it once its served its purpose. Please dont just see the printed monetary value. see the projected unprinted value that fractional banking offers.

  • Woolwich Peripatetic

    @bob,
    Let’s assume the majority of Madrid’s spending is funded by a currently unstable Spanish bank. Now so long as that bank is Spanish owned they won’t call in their debt. Now the Spanish economy tanks and that bank collapses under the weight of bad debt. A buyer is found but they aren’t Spanish and they start exercising their financial muscle to raid the Madrid piggy bank. End result Madrid get shafted, the more the bank cripples them, the more power the bank has until Madrid is either sold or asset stripped into oblivion. The Spanish economy is in the toilet right now, the banks are just waiting for the chain to be pulled. That’s the dark side of football finance.

  • brentCPH

    @Colkski, It’s interesting that you bring up Barclays (the name of our league and indeed one of the biggest banks in the world.) In fact the day after Lehman Brother went bankrupt Barclays purchased the NA investment and international banking devisions further consolidating their control of the financial markets. Lehman Brothers was of course just an example as was Deutsche Bank but perhaps you should look at this research as it’s very interesting and should give you a wider picture of which financial institutions fall into that 90% range I gave you

    http://planetsave.com/2011/08/28/who-runs-the-world-network-analysis-reveals-super-entity-of-global-corporate-control/

    Also if I can use central banking as an example…and international political economy as a backdrop…Central banks have their liabilities guaranteed by tax payer income which is why central banking is such a good business model. If the government can’t pay you back the people will. Case in point: the USA. In the US all income taxes are immediately absorbed into the national deficit. That is to say they pay off the debt the government incurs by borrowing from the central bank. Furthermore if banks were only interested in lending to people they new would pay them back how did we get the into the mortgage crisis and predatory lending that led to worldwide financial meltdown? Through litigation it becomes very clear that banks would make loans to parties they new wouldn’t pay them back in order to then bundle them and resell them.

  • Marc

    Brent – Mostly a good piece – but football makes gargantuan profits? Arsenal make healthy profits, ManU’s recent profits were very very good (not sure I believe the numbers without knowing what’s hidden behind the scenes), who else in the PL is genuinely profitable? I’d love to see a list of the profitable clubs vs loss making clubs and I’d bet money on the losses made by some clubs out weighing the profits made by others. If this is the case in the world’s richest league that tells you the entire economic model is buggered (a technical term). We are having to live through the results of a populist, ridiculous bubble. Football is living on borrowed time, the Man City’s of the world will survive unless UEFA grow a pair, but what of the other professional clubs who don’t have a rich benefactor?

  • Waleed

    Have to agree with Colkski. Football clubs aren’t big businesses. 2 billion sounds like a lot but it actually isn’t. Big corporations deal with 100 times that amount.

    I think a simpler explanation of the negativity against Arsenal is that we go against conventional wisdom, and if people don’t understand something it’s automatically wrong.

  • Anne

    @Brent:

    I can’t even begin to tell you how impressed I am with this article, if for no other reason than your audacity in attempting to introduce monetary policy and fractional reserve banking as subjects of discussion on a football blog 🙂 In fact, you’ve given me so much to say that I’m going to have to spread it out over several comments.

    First, on fractional reserve banking generally. Personally, I think that the Austrian school has really done the best work in terms of breaking down this concept for consumption by a general public audience. So, for anyone who is interested in more info on the topic of money supply and fractional reserve banking in general, I would recomend this:

    http://mises.org/daily/4499

    I don’t know if you’re an Austrian generally, Brent, (referring to the Austrian school of economics, for anyone who is unfamiliar), but even if you’re not, I also think the following article by Murray N. Rothbard is worth a read. It describes the history of fractional reserve banking and the role of central banks in more detail, and specifically what Rothbard refers to as “the cartelization” of the commercial banking industry through central banks (including the Bank of England).

    I would recomend this article for anyone who is looking for some more detailed info on some of the implications of fractional reserve banking:

    http: SPACE //lewrockwell. SPACE com/rothbard/frb. SPACE html (btw, I added spaces in that link where indicated to avoid moderation of this comment)

    Particularly worth noting in the context of Arsenal is the following sidenote from Rothbard’s article:

    “The problem with the investment bankers is that one of their major fields of investment was the underwriting of government bonds, which plunged them hip-deep into politics…Hence, the powerful…political influence of investment bankers in the nineteenth and twentieth centuries: in particular, the Rothschilds in Western Europe…”

    Just thought it was worth noting that, unless I’m very much mistaken, it was actually Rothschild who acted as advisor to ARSENAL in the club’s recent acquisition by Stan Kroenke. Deutsche Bank as well, I believe.

    Not sure of the implications of that, honestly, but it does prove that powerful and politically connected banking interests are, indeed, VERY closely involved in the business end of football in the EPL, and with Arsenal in particular Obviously, their role as an advisor in this particular context shouldn’t be read into TOO much).

  • Anne

    @Brent:

    I think you might have read my mind 🙂 Reading some of the comments above (particularly Colkski’s), I was just about to point out that the EPL is, in fact, known as “the BARCLAY’S permier league,” which would tend to indicate some level of banking interest in the administration of the league as a whole.

    (Incidentally, I think that ManU’s past relationship with AIG is worthy of some similar attention, but that’s a whole other issue.)

    But moving on, I was surprised that you were seemingly unaware of the Lehman Brothers bankruptcy in 2008 (which you apparently weren’t unaware of), and I was planning to mention it to you, along with the fact that it was, in fact, Barclay’s who absorbed Lehman’s operational divisions. But again, you beat me to it 🙂 I wonder if it was this relationship with Barclay’s that made you think of Lehman to begin with?

    As for your points about central banks and their relationship with government, the Rothbard article I linked to above gives a good explanation of some of the particulars of that. Also, I took a quick look at your “global network” link and I’m looking forward to analyzing it in more detail in the future. So thanks for that as well.

  • Anne

    @Brent:

    Ok, finally, getting into the main point of your article…:) I’m happy enough that you introduced this topic in the first place that I’m not inclined to nitpick your conclusions too much.

    However, I’m not sure that banks wanting Arsenal’s business just as a means to create more “money” is a sufficient motive to explain all this. That being said, I do think you’re definitely looking in the right direction.

  • Anne

    @Woolwich Peripatetic:

    I’m interested in your comment about “jurisdictions like Jersey where the true owners do not have to publicly disclose ownership.”

    Was there some reason in particular that you mentioned this issue about companies incorporated in New Jersey in relation to Arsenal?

  • Anne

    @Jitty:

    Interesting comments once again. I do like it when you jump in and contribute on these issues 🙂

  • RedGooner

    I think you have a point.
    However I still think the media are against us for the ammounts we spend in the transfer window.
    We do not give them the BIG headlines they crave to sell their daily drivel no mega bucks signings, we leave them guessing and looking silly grasping at straws for headlines.
    Big name signings promote the EPL sell headlines for sky and the rest of the media …
    Since we do not conform they are on our backs pure and simple.
    It was amazing to see how many of them were delighted we finaly spent on transfer day deadline and filled a few colums for them it didnt matter who we bought it was the sheer numbers.
    They dont care who wins or looses its all about the stories.

  • Domhuaille

    The economics of the world banking industry are beyond a simple bloke like me but there are a few issues that, to my mind, are the elephant in the room:

    1)The impact and control organized crime (gambling,match-fixing,money-laundering, etc.) seems to be developing across the world. If you ponder it abit, you realize how attractive such shadowy criminal syndicates would find legitimate Football Clubs.
    2)The politicians desire to intervene in Football, through HMRC and the British sports Ministry to name a few. This intervention is far more advanced in Spain,Italy and Greece than in Britain-so far.
    3)The fact that Football Clubs often have two prized assets that Banks love; their facilities(including land) and their fanbase (sometimes called ¨goodwill¨, makes an FC more valuable than your average business, since it can, as described in another post, be flipped easily and cheaply.
    4)The obvious and increasingly egregious corruption at almost every level of the game but particularly at the EUFA-FIFA-FA triumvirate’s level. Watching the incestuous, fratricidal circus that was so enterprisingly displayed by FIFA’s Executive committee during the recent Presidential elections is proof of the pudding.
    5)Finally, the greed, avarice and insane indifference player’s agents (and their charges) have shown towards respecting contracts and the subsequent surrender of their contractual legal rights by the Clubs frightens me.

    What does all this have to do with the media bias Arsenal face week-in and week-out? Is it a conspiracy or it is simply opportunism of the most salacious and despicable kind that the tabloids, the media and the pundits resort to when dealing with a Club of Arsenal’s stature, class and ethical grandeur?
    If Barcelona were subject to such journalistic mayhem in Spain, I can assure you that 100,000 enraged Catalans would burn the tabloid offices down, threaten to separate from Spain and castrate anyone who dared try such tactics again.

  • bob

    Woolwich,
    Yes, Spain is going down fast, but Madrid is worth more to them insolvent than it is dismembered and sold into oblivion because without Madrid, La Liga is a one-team league – Barca and, hence, not a league at all. Your logic is fine, but this one will defy your logic because killing Madrid will thereby kill the League and I don’t believe that a number of players will not come in and find a way to rescue Madrid in their own interest (not Madrid’s). We shall have to see how it plays out, but I cannot believe they will kill La Liga in the short term because it destroys the league for good, and with it Spain’s two-team place in the Champions League and possibly a Super League, etc. I think that your one-bank model is logical but does not take enough factors into account for why Madrid will not be allowed to die.

  • bob

    RedGooner,
    Many sections of the media do care if one team wins or loses and that is ManUre. This is the year of the Rednose XX and the price of ignoring that will be your failure to see it unfold right before your very eyes. It is a big party to come, which the EPL will revel in, and Don Fergus will have program after program anointed him toward that happy day when he is named Lord Football and enters the House of Lords for his service to a grateful nation and to the Barclay’s League which is honored to have ManUre as its flagship transnational enterprise. Surely you think this is overstated; that said, I’ll take any wager you wish to propose that this is the outcome as of next year at this time. Any takers?

  • bob

    Domhuaille,
    Now there’s a concluding sentence I can warm to! Barca does have a passionately loyal fanbase that is the envy of football. It’s another mode of total football that’s worth aspiring to as we regroup and re-integrate after their x-Cesc (and someone in AFC’s enabling them to do so).

  • Anne

    @Domhuaille:

    Very good points, I think.

  • Anne

    @bob:

    Off topic, but I sent you an email 🙂

  • Anne

    @Byron:

    “This article also undermines a common belief that Big spending clubs are heading to financial ruin. Banks don’t tend to just lend money…they need to see a way that there investment will be secure, either through sufficient revenue or actual security.

    I doubt banks are bankrolling clubs that have no way or repaying their loans. There maybe one or two but don’t believe that the likes of Man U are about to unravel financially.”

    I think that this is a very interesting point… what means do you think that EPL clubs COULD be using to secure their debts and repay the value of certain loans to their creditors?

  • Anne

    @Adam:

    “A theory for you, A bank lends a football club 100million what would the club use as collateral for the loan, possibly the club itself, the loan is then defaulted and the bank takes control of the club valued at 300million. The bank can then add an asset to their safe that could potentially (using the fractional reserve system) earn them BILLIONS. In the mean time they find a buyer for the club at 100million and cut out hoping that the new idiot in charge of the club wants to borrow some money.”

    Adam,

    Either you have some serious misunderstandings about fractional reserve banking, or you understand it MUCH better than I do… :)Could you please clarify this comment from an economic standpoint?

    Also, didn’t you say in your first post that you don’t believe that fractional reserve banking even occurs anymore? Sorry, completely confused here 🙂

    “Its the use of the club as an asset that the bank is after, then get rid of it once its served its purpose. Please dont just see the printed monetary value. see the projected unprinted value that fractional banking offers.”

    Again, I’m confused. Based on current government statistics, isn’t FRB directly related to the M1 and M2 money supplies…? When you mention “the projected unprinted value that fractional banking offers,” are you referring to the M3? 🙂

    But anyway, for everyone here who isn’t a complete dork (like I am), let’s just focus on the practical aspects:

    If it is really “the use of the club as an asset that the bank is after, then get rid of it once its served its purpose,” then why don’t we see more clubs in administration? HMM…?

    Why do we see terminally indebted clubs being continuously propped up as we do now? It would seem to me that creditors obviously have SOME sort of financial interest in keeping these “debt slaves” alive that extends beyond just throwing them into admininstration…

    Am I wrong about that? And if I AM wrong, could you please explain to me what’s stopping these creditors from just cutting their losses and liquidating?

    If you have answers, I’m listening 🙂

  • Mahesh

    http://en.wikipedia.org/wiki/Bank#Size_of_global_banking_industry

    The size of the global banking is ~$100 trillion (that was in 2008-09 for top 1000 banks) The size of business generated by top clubs in EU was GBP 2 billion ( ~$4 billion). That is *.004%*!! Not a huge amount I would say. Banks certainly would have higher priorities than Football. This does not mean that banks will not focus on it. They will, but with the banks that can change governments to suit their agenda, I would say Football is one small fish!
    For media conglomerates like Murdoch et al, football may hold a bigger interest. But, then again, thats just my view!

  • Adam

    @Anne sorry the comment was not directed at yourself. My understanding of the fractional reserve system comes from research over the last couple of years (curiosity) trying to get my head around why the Americans do not control their own money. I have been led to believe that the fractional reserve system is a never ending mathmatical equation which is ok in itself but when used to aquire money or rather the time of peoples lives then this will collapse. You I presume are working on the presumption that banks work the fractional system honestly with deposits only and not using aquired assets as cash. As for my comment on the system being outdated, I believe the current economic climate is proof that the monetary system is flawed. As for your queries you seem to answer your own questions?

  • Anne

    @Adam:

    Are you under the impression that people outside of America DO control their own money?

    And I’m actually not working on the assumption that banks use the fractional reserve system “honestly,” without using acquired assets as “cash.” However, I would be interested in understanding the logistics of how that works.

    Like I said, either you don’t understand it, or you understand it better than me… 🙂

  • Adam

    @Anne, Im actually in Slovakia at the moment but, If you like, when I return to England and my own pc and library I can forward to you links and tittles of what I have been reading. Some if not all will be very boring. Most of what I have been reading recently is to do with the formation of the Bilderbergh group through to why British MPs are meeting with foreign business owners behind closed doors whilst in public office. Now please dont peg me as a conspiracy theorist, Im just someone who reads alot.

  • rohde14

    For those who know about about economy history and conspiracy theory will agree with AW philosophy…again the the stream…pity for those who being provoke by media..

    “All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”
    Arthur Schopenhauer
    German philosopher (1788 – 1860)

  • finsbury

    Yet again this post by Untold Arsenal was right on the money.

    Skimming threough the same articles by respected non-sociopathic politician/economist types,(the kind I imagine that AW might read when he’s in the mood) the unravelling of the Eurozone is not really a surprise to anyone who thought that policies that would deliberately decrease Greece’s GDP over the last 12 months were possibly not the smartest idea. If you are not a bankster that is.

  • Adam

    Well im not really one for “I TOLD YOU SO”. so for my next prediction. The reinstatement of the Deutsche mark.