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How Mr Usmanov wants to use a rights issue to take over Arsenal

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Publication on July 20th: Woolwich Arsenal, the club that changed football.

The book that re-writes the Arsenal story.

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By Shard

This is a continuation of yesterday’s  Untold Economics article: “Red and White are planning a takeover using non-dividend equity.  Beware!”

The first part related to the Red and White Open Letter, which is available here

So, to continue, we now ask, “What is this Rights Issue that Mr Usmanov wants Arsenal to have?”

And the answer is…

” A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. More specifically, this type of issue gives existing shareholders securities called “rights“, which, well, give the shareholders the right to purchase new shares at a discount to the market price on a stated future date. The company is giving shareholders a chance to increase their exposure to the stock at a discount price.

Troubled companies typically use rights issues to pay down debt, especially when they are unable to borrow more money. But not all companies that pursue rights offerings are shaky. Some with clean balance sheets use them to fund acquisitions and growth strategies. For reassurance that it will raise the finances, a company will usually, but not always, have its rights issue underwritten by an investment bank.”

http://www.investopedia.com/articles/stocks/05/062905.asp#axzz1zwV6AwCI

Ok, so it seems, generally (but not always) Rights Issues are done by companies who can’t finance their debts, and that too generally when they are unable to borrow more money. (This makes a Rights Issue seem the last option even for companies in trouble) However, some clean balance sheet companies use them to fund acquisitions and growth strategies. In addition, in order to ensure raising finances, companies get this rights issue underwritten by an investment bank. The bank presumably looks into what the value of your acquisition is, or how you intend to grow, and will back the sale of the rights, at a certain price, based on that.

So, we need to decide how much cash we need/want to raise, and then justify it in terms of the value it brings to the company. For that, let’s try and see what we can do with the money. We could pay off our stadium loan, which will allow us to use our profits for investment in the team. There is, however, a penalty for paying off the loan early. I don’t know how much this is, but it is said to be enough to make paying it an option that isn’t really viable.

We could also use the money to buy players, or increase our wage cap so we can keep hold of star players. I don’t know how we would justify that to a bank though.  Buying a player adds value to the club only for the length of his contract (the value is written down over that number of years). Players are assets, but their value is constantly depreciating. If you intend to hold on to a player (which after all is what the rights issue is about in the first place) then his value is only notional, in the sense that you aren’t going to get any money for keeping him at the club.

I find it difficult to understand, how from a business point of view, a Rights issue can be justified. It doesn’t help us pay off our debt, it doesn’t offer us growth, unless we use that money to invest in infrastructure I guess. So a Rights Issue might not even be feasible. But, I freely admit, I don’t understand these things completely, and let us say, we can get a Rights Issue underwritten by a bank (or even that we don’t need to get it underwritten because we are confident we’ll raise the money)

So..How much money do we want? £10 million?, 50? 100? What does £100million get you? A £32 million pound Hazard (pun unintended) + 180k p/w = a payment of 32 + 37.44 million commitment over 4 years. Which is a nearly a 70million pound commitment. But lets say, we only need one such player, and some extra funds for other players, and take a nice round figure of £100million pounds to be raised from sale of equity.

The prices of our shares on the market over the last few years are listed here .  The maximum share price paid on the market has consistently gone up, with the last figure available being for the 23rd of March 2012, where the share price was £16,800.

Arsenal have issued a total of 62217 shares. Of this, KSE UK Inc. owns 41,581 shares (or 66.83%) and Red and White Securities Ltd. owns 18,496 (29.72%) Which leaves a total 2140 shares (3.44%) owned by other parties.

At the price of 16,800 a share, to raise 100million will require the issuing of 5952 new shares (approx) However, Rights Issues  ” give the shareholders the right to purchase new shares at a discount to the market price”.   Which means the new shares will be offered to current shareholders at lower than the market price. How the price for the rights issue is set, is I’m sure fairly simple to some intelligent people, but I couldn’t quite carry out the calculations.

Although there is one point here.  The cost of Arsenal shares have been forced up by Mr Usmanov’s aggressive purchasing policy.  Before he put up his “will buy” notice the price was much lower.  The price Mr Kronke paid for the shares was much, much, lower.

Lets say Arsenal announce a 3 in 10 rights share issue with plans to raise 100 million dollars. This means, for every 10 shares owned, 3 new shares will be offered. So, of 62217 shares, we will add 18665 shares. Of these, 12,474 will be offered to Kroenke, and 5549 will go to R&W. Both will have to pay roughly, 66.83 million and 29.73 million respectively at a rights price of 100million divided by 18665 = 5357.62. So to give Arsenal a 100million increase through rights issue, it becomes incumbent on Mr Kroenke to pay for nearly 67 million of those, simply to keep his stake at the same level. A price we may note which is at the very high price it is because of the activities of Mr Usmanov.

Now you can look at it as Usmanov is willing to give Arsenal £30 million (if we raise £70 million from elsewhere) just to maintain the status quo, and Kroenke isn’t interested in putting up his share of the money, and thereby say Mr Usmanov cares about Arsenal and is willing to put up his money, and Kroenke is the greedy one who doesn’t want to invest into Arsenal.

Or you could think about it a bit more, not take what they say at face value, and conclude that the Rights Issue proposal has only been made because Mr Kroenke will not accept spending £67 million to own what he already has bought. Since they know Mr Kroenke will refuse, they know they will not have to spend any more money. But they can make Kroenke look bad in the process. This is how politics is played.

Also, let’s consider the 2140 shares with smaller shareholders. There will be an extra 642 rights on sale. Which will represent 0.79% of the total share. To purchase these shares, these people will have to stump up a combined £3.44 million pounds. In these current times, how many people will be willing and able to pay more than £5000 to keep their stake at the same level. A stake, they are mostly holding on to for emotional, rather than financial reasons. They could then either refuse their rights on those shares, or they could sell those rights on to anyone willing to buy. For anyone who wants to buy a 0.79% share at this moment at the current highest share price, they will have to pay, £8.27 million. Thus if anyone buys those rights from the smaller shareholders, they have a saving of nearly £5 million. If R&W buys that, they push themselves above the 30% limit, buying the only shares they are likely to ever be able to buy, at a discount. Thus R&W’s suggestion for a Rights Issue isn’t selfless.

And this is before we try and work out what happens to the Fanshare scheme, and how the shares owned by Arsenal Supporters Trust will be affected.  Mr Kronke and Mr Usmanov have said in public they support both AST and Fanshare – so how is it going to play out?  You might imagine that AST and Fanshare subscribers might like to know what happens to their money.

I think a Rights Issue could help Arsenal in terms of bringing in more money as a one time thing. But Kroenke is not likely to agree to this, quite reasonably, since he has no reason to. He’s already put in a lot of money in buying his stake in Arsenal. Mr Usmanov knows Mr Kroenke will not accept this proposal which offers him nothing, so Usmanov knows he stands nothing to lose by proposing the rights issue. He only stands to gain by sullying Kroenke’s reputation, and painting him as greedy, and putting himself in the role of the frustrated wannabe messiah. It is, in effect, a hollow proposal. If Usmanov is only interested in being a sugar daddy (though nowhere does he expressly say he’s willing to throw money at Arsenal), there is nothing stopping him from writing a 30million pound cheque right now to Arsenal. Status quo is still maintained, and Arsenal are £30million richer.

What R&W are doing, is trying to initiate a hostile takeover. We, the fans, (not to mention the AST and Fanshare fans) are pawns in this game. A means to achieve an end. They do not share our concerns, they do not have the Club’s or the fans’ interest in mind. They look primarily to their interests. I also don’t say that KSE or the board put the Club’s interests ahead of their own. That would be naive. Their interests, however, cannot lie in running the club poorly. But so far, the only reason given in favour of change (and revolution as some like to call it) in the ownership, is that Kroenke has failed (which is not conclusive anyway), and Usmanov is not Kroenke, ergo, they are.

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53 comments to How Mr Usmanov wants to use a rights issue to take over Arsenal

  • Just my regular reminder that I am blocking some comments where they are simply abusive to the writer. Standard Untold policy. Doesn’t mean that we won’t publish comments which are against the views of Untold writers, rather that if you want to argue against something on Untold you need to present an argument, rather than abuse.

    Just saying “you are ignorant, and know nothing” or words to that effect takes us nowhere. You need to explain if you want to be published on Untold.

    Most correspondents are perfectly reasonable in this regard, and it seems a basic common courtesy to me.

  • GunnerC

    Usmanov for Arsenal!

  • richard morgan

    This is a very well written piece and is right in its attempts to show that Usmanov is playing power games and mud slinging in the process. As for Kroenke tenure well he has sold key assets Nasri and Fabregas and possibly van Persie and most of the replacement brought in are cheaper meaning better profit going to keep the pot ticking over. Is this bad for Arsenal as a football club the next few years will tell. Would usmanov be any better?
    Well though a rich sugar daddy is always nice he does not seem to advocate the sustainable business model and this for one I believe to be crucial for a club to survive on its own merits.There are also concerns over how usmanov conducted his business to acquire his money would we want a situation like Pompey where brought by a russian mogul who then had all his accounts frozen whilst facing charges of fraud and corruption. the end result portsmouth ended up in administration and were relegated to league one. If this were to happen if usmanov brought arsenal the point deduction for going into administration would not put us out of the league but it would put us out of the champions league places on last years points. I wait and see what happens here but would say give Kroenke time to see if he has Arsenals best interests at heart. Whatever happens at this point in time we sit on a safe perch long may that continue.

  • potter

    But Kroenke is not likely to agree to this, quite reasonably, since he has no reason to. He’s already put in a lot of money in buying his stake in Arsenal.quote.

    This is of course the rub, yes he has spent the money but none of it went into the club just the pockets of our past custodians.

  • TERRY MANCINI HAIR TRANSPLANT

    Excellent stuff “Guru Shard”

    As you say, the proposal for a rights issue is a political move.I am not anti Usmanov, but am certainly anti infighting . It often leads to blood on the carpet and that worries me.

  • Exo

    Im not sure Silent Stan has put any money into the business, more that he’s borrowed the money from KPMG to purchase the shares against the value of his other businesses. As I understand it it’s Usmanovs intention to buy the Stadium debt from Arsenal and to continue to pay this without incurring penalties. Allowing Arsenal to use its direct income from match day revenues to fund player purchases and to recoup the stadium payments he would of been making from the income of increased sponsorship, which Usmanov has already stated will be greatly reduced “who wants to be associated with finishing second”

  • Gaz

    Thanks for posting this. It’s nice to see someone who puts the situation in terms I can understand, most of the shares/ownership issues go over my head.

  • rusty

    I don’t know how we would justify that to a bank though. Buying a player adds value to the club only for the length of his contract (the value is written down over that number of years). Players are assets, but their value is constantly depreciating. If you intend to hold on to a player (which after all is what the rights issue is about in the first place) then his value is only notional, in the sense that you aren’t going to get any money for keeping him at the club.

    Agreed, and thanks Shard for writing this piece! ‘Butbutbut trophies!’ the AAA stammer, ‘World class! Lost the plot!’ Given that so many people have difficulty understanding that football clubs live in the world of business entities, is it any wonder Usmanov has managed to stir the AAA up with his talk of a rights issue?

  • Stuart

    Excellent report Shard. Made me realise Usmanov must have paid well over the odd for those couple of shares to make it look more appealing for Fanshare holders to sell at a huge profit.

  • El tel

    Is it also correct that Kroenke actually had to borrow the funds he used to buy his share in arsenal? If so it is not likely that he would have funds available to reinvest in the likes of a rights issue. As yet it appears that he hasn’t used funds from his own personal fortune so why would he start now.

    It’s actually getting boring trying to second guess what both of them are going to do and whether they are putting their own interests above those of the fans.

    Usmanov seems to want some sort of open forum where they put their cards on the table which could be his way of manipulating the situation as described above

    Kroenke on the other hand appears to be mute, no one actually knows what his plans are either which could be viewed as him being a shady character only interested in his own potential gain

    Who knows what will happen but please let it happen soon and please let it be in the best interest of the future of Arsenal Football Club, the fans, the manager and the players

    This is getting so F*CKING annoying

    COYG

  • Arsenal1Again

    @Exo If Usmanov did that with the stadium, AFC would have only 20 Million extra per annum, this will not dramatically empower Arsenal to buy players, increase wages, etc. We pay 20 Million per year to the bank.

    I enjoyed this article, it clarified something for me.

  • Claver

    Butbutbut…if Stan Kroenke had any intention of bolstering the team he would have put up his own money to make a signing like say Hazard.

    Personally, I am of the view that both Kroenke and Usmanov should hold equal shares with Wenger being the kingmaker.
    Wenger is more invested in the club than both these two.

    Since Stan, we have lost our best players. His(Stan) history in sport informs me that this policy will continue. Almost all his teams are a pitiful average.

    I am convinced that Wenger would never have let RVP leave. He said as much about Cesc and Nasri.

    Wake up people. Pitiful commercial perfomance, pitiful team-building. We need some fire to Stan’s demoralizing ice.

  • insideright

    Re the ‘who wants to be associated with finishing second’ quote – I believe the most expensive shirt sponsorship bought in England was Liverpools. When was the last time they even managed second?
    It’s got nothing to do with that otherwise only the champions would ever go into the next season with anything on their chests other than vapour rub. It’s got to do with TV coverage.
    And the last figures I saw quoted show that Arsenal are only outsold on replica shirts worldwide by Real, Barca, Man Utd and the aforesaid Liverpool (based presumabaly on past glories).
    If you want to understand why this ‘share issue’ smacks of desperation read up the stories about Man Utd’s attempts to raise funds to pay off their (now admitted) unsustainable debt. As was said at the AST meeting on Monday – Arsenal have no debt problem – so this suggestion is politicking and scaremongering.

  • Woolwich Peripatetic

    Kroenke and the Glazers see the turnover of “soccer” clubs and think they can reduce costs to make them profitable in a way that will make their US assets seem like chicken feed. Once you accept this you then have to accept something else – they aren’t stupid. There are ongoing costs they have to accept until such time as they can reduce those costs, till then, no dividends can be taken out of the club.
    Usmanov, as I’ve repeatedly said, probably wants to own a massive asset that can’t be “stolen” from him by Putin or whoever replaces him. He’s still going to want dividends, once the club can reduce its costs and increase its revenue.

    I for one doubt that anyone will manage to reduce the costs of running a football club, you’ll always have people who are into the game for reasons that aren’t sensible – first you have to beat them, then you have to do so whilst making a profit.

  • Shard

    Thank you all for your comments.

    Another thing not mentioned, because I haven’t bothered to check, is that a rights issue might not be allowed to be used to fund player purchases under the FFP, whose rules have officially come into effect now I believe. If this is true, it would mean that if we want to play in Europe, the only thing the money from such a thing could be used for is for building infrastructure, or perhaps paying off the stadium debt.

    We’ve already built the stadium, the training grounds, new medical centre. So we don;t need more infrastructure.

    The stadium debt is very well manageable anyway. It’s in the range of 15-20m pounds per season that needs to go for that. Why should we incur the financial penalties of paying it early, when in 2 seasons time, the big commercial deals will be signed. We’re also been increasing our commercial partners the last year or two, to reduce the strain of the 20million anyway.

    So I don;t see why a rights issue makes sense. I mean, yes, it’ll bring us a cash injection. But that cash won’t get us a whole lot.

  • While I appreciate the link to my blog for the share price info, and indeed other previous links to other blog posts I’ve done, I would like to point out that I did a piece on rights issues myself very recently.
    I’m afraid it’s not logical to say ‘there’s no point in a rights issue because what can you do with £100m anyway?’ (admittedly I’m paraphrasing slightly) because in that case you may as well say ‘What is the point of commercial deals for kit?’ ‘What is the point of stadium naming rights?’ ‘What is the point of charging people to watch matches?’ It really should be obvious that whatever money can be raised can benefit Arsenal. More money gives you more choice, in football as in life.
    There are also plenty of ways of making a rights issue work so that small shareholders aren’t disadvantaged and the status quo between Kroenke and Usmanov is maintained, if that’s what both parties want. You can read my blog on it here: http://wp.me/p1I44P-dd
    However, Kroenke doesn’t want a rights issue. It’s of no benefit to him as long as Arsenal can remain competitive without him having to spend more money. He was ‘sold’ the idea of Arsenal as a club where he wouldn’t need to put more in once he’d bought a majority stake, and that’s what he’s sticking to.

  • Anne

    @Shard:

    Very well written. One other point I would like to make here is to invite everyone to put a little bit of extra thought into exactly what the phrase “abandon the self-sustaining model” actually means.

    If Arsenal can no longer “sustain” itself as a business, I believe the technical term for that would be “bankrupt.” Or “insolvent.” Take your pick.

    Basically, it sounds to me as if this Red and White agenda, far from advocating for a mere hostile takeover, is actually advocating for a hostile takeover by means of stripping Arsenal of all its financial assets, leaving us in debt slavery.

    This would effectively destroy Arsenal, leaving our Club in an operable condition only until our “sugar daddy” lost interest in his new play thing.

    So, should Arsenal “abandon the self-sustaining model” and opt for the “sugar daddy approach?” Should Arsenal “bankrupt itself” and continue to operate only as someone else’s “debt slave?” They mean the same thing, it’s just a matter of phrasing it one way which sounds much nicer than the other.

    But one thing’s for certain. If this were to happen, there would be no need for a formal hostile takeover. Arsenal would be dead in the water and an empty shell, and from that point forward, the existing Board would be forced to take direction from the party that was “sustaining” us.

  • TERRY MANCINI HAIR TRANSPLANT

    Shard, under FFP cash raised from a rights issue can not be used to fund transfers or wages. It is a capital injection which goes into the balance sheet, not the profit and loss account. It can be used to reduce debt though. Thats why Usmanov bangs on about reducing debt. The knock on effect of course is that will reduce costs by 15 million a year which would be available to the club to buy players or pay wages.

  • colario

    @Phil. And by pursuading Kroenke to be the majority share holder it would stop any future take over. As far as we know Kroenke is not taking money out of the club. So for the board members with shares for sale he was/possibly is, the best option.
    So its stay as we are, steady was we go. With this in mind surely the then board taking thier millions they received could assure themselves and the fans that they had the clubs best interest at heart.

    We know Kroenk’s background. What do we know about Usmanov or some other billionaire takeover wanter.

    As they say never ask a billionaire how he made his first million.

  • Shard

    Phil,
    Excellent Article. I wish I’d read that before. It would have helped me understand Rights Issue better, and easier.

    My focus here was more on R&W’s letter. In my view the Rights Issue is their only contribution as to how to proceed. (and your article showed that this was actually originally demanded by the AST) For the rest, their letter was more of an attack on the board than anything. As I said, I think they knew Kroenke will refuse it, because he feels there is no need for it, and thus, it is just a play to the galleries.

    Will it help Arsenal? Perhaps. A 100 million does help. If I gave the impression that it won’t, then that is a mistake on my part. I think it was more a warning against thinking it the panacea to all our problems (which was, in a sense, suggested in the letter) And much as it is a genuine way to raise money in business, there is a reason the FFP has restrictions on it. It is after all, just a more roundabout way to get a billionaire to fund the club. Or in this case, two. (With admittedly, much less risk to the club)

  • Shard

    And just as I say that, I was reminded of one article here on the Untold archive..

    http://blog.emiratesstadium.info/archives/18117

    maybe a rights issue has some other aspects to it too. As regards motives for its demand 🙂

  • bjtgooner

    Great article Shard and very educational. I always look for the motive in proposed investments/takeovers and with Usmanov’s reported background I cannot think it is for love of AFC or indeed the beautiful game.

    It also looked as if R&W were using other groups to canvass for a rights issue and/or the inviting of Usmanov (or his nominee)onto the board. This action unfortunately, by accident or design, has increased discord among part of the fan base and has really energised the AAA!

  • Kieran

    @ Anne “This would effectively destroy Arsenal, leaving our Club in an operable condition only until our “sugar daddy” lost interest in his new play thing.” This is the scariest potential reality we now need to face.

    It’s interesting to see that structurally the heavy weight EPL clubs are moving to a point of no return.

    What happens to City or Chelsea when their principal no longer has an interest in the team? There would be no viable succession plan to maintain their status quo.

    Arsenal will have to choose a “price point” in the market where they are able to compete on their terms. My biggest concern is that FFP is bastardised to the extent it is toothless; ie if the city stadium sponsorship is allowed.

    Will the fans stick around if we are competing for the cups. not the title? I for one would rather do that knowing I still have a team to follow.

    As for the political machinations in the mean time…..

  • goonergerry

    @ Anne
    The only problem with your argument is your premise: that the club have a self sufficient business model.

    >The Usmanov letter is right to point out that self sufficiency was not planned when the stadium debt was incurred. What this club has is a debt of between 15m and 20m per year for the foreseeable future-which has to be paid every year. It is paid for by this administration by , amongst other things by selling the club’s footballers and buying cheaper ones. That is why when the club sells a player they always buy a replacement for substantially less-thats if they buy a replacement at all. That is also why last season the club made in the region of 19m profit in player trading.

    If the young player development policy had been more successful you might have a stronger case-but Swiss Ramble’s data has demonstrated how important revenue from player sales has been and is to Arsenal’s balance sheet.

    This is equivalent to a business selling one of its best assets each year in order to pay the mortgage-eventually it runs out of assets it can make a profit on. This would not be regarded by any business as constituting self sufficiency-because at that point you have nothing others want to buy and you have to look at other options to pay the mortgage like putting prices up-and Arsenal have not got a lot or room to move in that area. Are the club going to increase commercial revenue substantially when they are selling the best players each year and buying inferior ones?

    In reality what you are doing in supporting the continuation of this policy-is consigning Arsenal to be a selling club-which it currently is.

  • Johan Greening

    I have a friend in the US who is a RAMS supporter and season ticket holder. He is always telling me to be worried, be very worried about Stan. This year they are losing their best game so the RAMS can take it to London.

  • Sammy The Snake

    Good points, Shard.
    I just want to highlight that paying off our debt shouldn’t be as costly as the board make it out to be. There usually a 1% fee for early payment of debt, which is usually quite worth it. I think as much as Usmanov has his political issues, so does the board.

  • Shard

    Hi TMHT,

    I wasn’t sure if that is ALL it can be used for, but I did make the point in the comments I think. This concerns Sammy the Snake’s point as well, but we know that there are penalties involved in paying off the debt early. PHW said heavy (or huge) penalties. Sammy seems to think it is 1%. But I doubt it’ll be that low. Arsenal got a very favourable loan with a fixed rate of interest (of 5% if I remember correctly). It stands to reason that Arsenal would have conceded something in return, and that would probably be a heavy early release clause. We don’t know how much the penalty is, but I think it is likely to be substantial.

  • Shard

    Johan Greening,

    People everywhere worry about their sports teams I guess. Rams moving their home game affects the fans, yes, but it also brings the team more money, and in the long run can be beneficial to the team. Moving the game to Arsenal’s stadium has long been mooted. I’m not sure what the point is about worrying about Kroenke. US sports do this moving games about. He can’t do that to Arsenal, and he won’t. It would be stupid to.

    Oh, Rams fans will probably not like Kroenke anyway, because there seemed to be an attempt by him to move the Rams out of St. Louis and (back) to Los Angeles.

  • Shard

    And actually, if Kroenke had succeeded in buying the LA Dodgers baseball team, and then moved the Rams to La (which I believe was his plan), it might have been better for Arsenal. We could have a tie up in a very high profile market in the US.

  • Khumalo Ndumiso

    really nice post! And then your opinions raise certain questions about the way u tend to think on behalf of arsenal fans. Siding with Kroenke suites you and the board because you benefit from it with the financial card played under the table of closed doors. As for a Club with a huge ticket hike, the fans deserve better. Not a bully responses from Ivan and Peter. We are tired of people like Kroenke who only fill their pockets and not investing in the Club. This is proof of where his interest is layed. We are talking about a man who would take his wife to the movies than watch ARSENAL. This shows that My ARSENAL our team is like a Jersey cow which is bought for milking, It is even better than Arsenal sice production is determined health and feed input. Here at Arsenal there are no investment but profit will always be available. Mxm poor Arsenal loyalist.

  • Shard

    Siding with Kroenke suites you and the board because you benefit from it with the financial card played under the table of closed doors

    I’m sorry Khumalo, I don;t understand what you mean there. I am more favourably inclined towards Kroenke because he hasn’t looked to upset the applecart, but I certainly don’t side with him. There is no simple duality of USmanov vs Kroenke. The fans, as you say, are another interest group, and much more important than either.
    On ticket prices I’m afraid I can’t agree. I mean, who wouldn’t like to pay less for whatever you want. We all would. But there is huge demand for Arsenal tickets, and the prices, in relative terms to some other clubs aren’t really as high as is made out. I bet you they could charge a whole lot more and still fill out the stadium. What they did wrong was raise it 6% at one go, rather than raise it year on year. It seems to lead to more outrage to do it in a flash, rather than gradually.

  • Stuart

    @ Goonergerry
    ref : July 12, 2012 at 1:30 am

    We have an academy which is at early stages of having players coming through to fruition. This will become a conveyor belt of produced players popping out who can either be played or sold and as the expense of this is all included in the £15 to £20 Million per year, yes we are self sufficient unless of course people stop having children who want to play football.

  • Stuart

    Sammy the snake

    Only the board and creditors know the penalties involved but still, I reckon having a surplus of cash in reserve allows us to offset some of the interest (whilst not earning any our selves) and make the loan cheaper. I don’t honestly think the board are going out of their way to make things more difficult for the fun of it, that is a bit paranoid.

  • Stuart

    and further to Shard @ July 12, 2012 at 6:58 am

    It stands to reason that as we have managed to secure the long term debt at favourable rates for our circumstances, the creditors condition of the arrangement was that any early repayment would require the interest for the original agreement to be paid in full any way.

  • Brickfields Gunners

    Nice work Shard .I ‘ve a better grasp of the situation from all of your and others input .Thanks .
    Do hope we maintain the status quo at least up to 2014 and that things considerably brighten up financially for the club.
    Up the Gunners !

  • Timmy

    I don’t just know what some fans want. They seem to be insatiable, their ego must always be rubbed by whoever they think should always accept their opinions. They are not on the board, neither are they even a steward in AFC and yet ‘Wenger must do this, Wenger must do that’, ‘Stan this, Stan that’, Gazidis this PHW that’. Upon all the factual presentations on this site and some others, they still go about spilling their guts with utmost display of IGNORANCE.

  • robl

    @ Timmy, it’s the playstation effect, where you can buy who you want and compete on a level playing field. If all the football games were actually weighted properly and everytime you tried to buy a player you were trumped by City et al everyone would soon give up.

    As it is, if you can win the Premier league with Accrington Stanley, some people feel they are entitled to tell Mr W what to do.

    On top of that people believe what they see, read and hear in the media, without realising most stories are just opinion not journalism, and most have an agenda or bias, or are designed to sensationalise to gain readers or hits.

    How many people have seen the hundreds of thousands of people on the streets of Mexico city at the weekend protesting against the election results? You get what people think you want or what they want you to think.

  • chris from Cambridge

    This article is far from helpful. Because …. 1] The writer has little understanding of corporate finance and rights issues in particular and 2] There won’t be a rights issue if Kroenke says there won’t be and he wants a rights issue like a hole in the head. He controls the club already and does not need to put up more money (or otherwise dilute his share holding.)

    > Arsenal’s finances are nicely organised – with the stadium debt reducing at a pre planned rate. There is plenty of cash (though less than the stadium debt) and he has a Manager who buys cheap and sells dear. Perfect.

    > Does that add up to an ambition for anything more than a lucrative CL place each season ? No (repeat NO ). But then Kroenke’s teams in N. America are also well run, soundly financed … and don’t win much. Trophies are not their function. Their function is cash flow.

    > Kroenke is a business man who cares nothing for football (sorry, soccer) and has no especial obsession about Arsenal.

    > Usmanov is so wealthy already … for him it would be a Chelski type toy for glory. He does not need the aggravation of a football club to make money out of. What sort of bloke is he … his face tells the story.

    YOUR CHOICE ????

  • Ben

    But the trouble is if Usmanov treats Arsenal as an expensive toy eventually he will just toss the toy aside when bored that is a far bigger problem than not spending finances to get a trophy. To him it will be so what is Arsenal is sitting there gathering dust like his fancy cars when he buys on a whim and then sits there when he has no need to take it out anymore?

  • Shard,
    Yes, AU is playing to the gallery with his letter, because basically that’s all he’s got. And yes, FFP has restrictions on rights issues because they CAN be used by billionaires to pump money in, but for a club in Arsenal’s position it’s a legitimate tool.
    Would a rights issue help? You say perhaps; there’s no perhaps, of course it would help. The only way it wouldn’t is if the whole £100m was squandered giving certain not very good players improved contracts.
    Just to be clear, I’m not in favour of anyone taking 100% control of Arsenal, so I don’t ‘support’ either SK or AU in that sense, but I believe SK is probably less disruptive and safer as a majority owner. However, as they’re both there it would benefit Arsenal for them to work together, but egos are preventing that.
    To those who say Kroenke isn’t taking money out, well he is by virtue of his half share in Arsenal Broadband, and realistically he has no other purpose to be investing in Arsenal other than to make money. He also takes a million a year as director’s remuneration, but that’s small beer really. He’s unlikely to start paying dividends because he’d be paying a third of it to AU, so he’ll find other ways to take money out eventually.

  • TERRY MANCINI HAIR TRANSPLANT

    In many ways Usmanov is a man out of time. The time for suger daddys has probably passed. FFP and the hugh potential for extra revenues generated by tapping future markets, mainly through the media of internet and TV will eventuly see all major clubs break even.

    One thing we can be sure of both men is that they see this massive increase in future turnover, hence the premium paid in purchasing there shares.

    In essence, as long as Arsenals traditions and vaules are upheld, we should not over concern ourselves who wins out in the long run, since both there long term interests are the same, i.e. to make money from share vaule increase.

  • Shard

    chris from Cambridge

    As far NEEDING to make money is concerned, Kroenke doesn’t need to make money out of Arsenal either. Sure, he may not have had his ‘wealth’ (that isn’t money in the account by the way) triple in one year like Usmanov did, but does anyone seriously think Kroenke NEEDS money? He’s a billionaire, married to a heiress in one of the biggest corporations in the world. Neither Kroenke, nor Usmanov NEED money.

    Kroenke has never denied wanting to make money from owning Arsenal. I see nothing wrong with that. Ther are plenty of ways to make money from Arsenal without it being to Arsenal’s detriment. Will he choose a path to Arsenal’s detriment to make money? Possibly, and it is still a fear I have, but his record suggests otherwise.

    Usmanov. One of the reasons he’s so keen to paint himself as an Arsenal FAN in because he can’t say he wants to make money too. He’ll have no way to try and force Kroenke out then. SO he appeals to fans’ fears, portrays himself as one, and tries to force his way in. We have no record of any sports teams he owns to judge him by. And his statements seem more duplicitous to me than anything else.

    As for your points.. 1) I freely admit to, and this was based on my limited understanding, and meant to portray my point of view (which is what a blog is about), and also as a starting point to debate anything anyone might like to add. Do you?

    2)Yup. There won’t be a Rights Issue because Kroenke has no reason to agree to one. Do you think Usmanov does not know this? He knows Kroenke will refuse, and thus his letter is meant less as a serious proposal and more as a means to cause unrest, and portray himself as the good guy. Which is what I’ve said earlier.

  • Shard

    Phil,
    I say perhaps, because yet again, I am focusing on the picture beyond just the rights issue. My main focus was the letter as I said, and the Rights Issue was something I decided to try and look at because I thought that was the only thing worthy of any debate that R&W included. We both agree that was a play to the galleries.

    So. Perhaps it will help, because at what ‘cost’ do we get a Rights Issue in the first place. I think we both agree Kroenke doesn’t have any reason to agree to one. He can only be pressured to by the fans(which is also what the letter aims to do). If he has to spend more money out of his pocket, just to keep the natives quiet, he will also look to recoup such money as and when he can. Will we be better able to afford it later? Maybe, but there’s never a good time to lose 70million.

    Meanwhile, at this point, without a Rights Issue, we’re managing our debt perfectly well, we comply with FFP with no problems or complications, and we’re still able to produce more than a decent team on the field. Simply getting a 100million pounds will help (it’ll buy us a quality player or two, or keep a quality player), but I see a Rights Issue, especially in current circumstances, as coming with strings attached. Because the boardroom machinations, and fans unrest aren’t irrelevant. It affects Arsenal too.

  • Shard

    TMHT

    I’m not so sure all clubs will break even eventually. I mean FFP is one thing, how effectively it is enforced is another.

    Revenues WILL go up massively, but they already have done through new TV deals. yet clubs keep spending more and more. There is some talk of a wage cap with the new 3billion pound TV deal. West Ham’s chairman was taking the lead in that and he named some other (smaller) clubs as agreeing with the principle to not let all the new money be taken out of football. But the big clubs have more need to push the barrier, and the small clubs cannot afford to be relegated either, so I doubt such a thing would find universal favour, despite it being sensible.

    As for both being interested in share price increase. I’m not so sure. There are plenty of other ways to make money out of clubs without hoping to sell shares at a higher price. (kroenke has never sold his shares in any club) Besides, share prices, or a team’s worth causes it’s own problems in selling. If the price of the club gets REALLY high, no one will be willing/able to pay it. So that value remains notional, and not money in the bank for the owner.

  • Shard

    Actually, Phil, a 100million might not even buy us a quality player. It depends on what the penalty is for paying the loan off early. I think we have about a 100million pound debt remaining. We pay that off, we have no way to pay the penalty if it’s anything over 15million (since we budget 15million to pay every year) Even if we do that, we’ll have no extra cash this year (and might even be overstretched this year if the penalty is more) And will have 15 million extra next year. Which will help, but not to the tune of 100million, and not immediately.

    So in effect, the Usmanov proposal, is asking Kroenke to pay 70million of his cash, to give Arsenal value of 15-20 million a year for 5 years, but in the second year of which, new commercial deals will bridge the gap anyway. If I were Kroenke, (while still being a fan), I am not sure I’d think it advantageous enough to do actually.

    Is there something I’m missing there? Of course we could have a rights issue to raise 200million pounds to account for any penalty too. In which case Kroenke will be paying nearly a 140million, to pay of debts which aren’t crippling to Arsenal at all. Not sure I think it worth it.

    Even if Kroenke has the money to pay for it, we might well need a Rights Issue more urgently at some point later. It certainly isn’t urgent now, and if I were on the board, even as a fan, I wouldn’t think a Rights Issue worth it.

  • Notoverthehill

    Shard, the question is: who wrote that letter?

    Both the Jersey and U.K. Company Acts insist that: if the company is trading as a Limited Company, then the full registered company name (check), the company registration number and place of registration, the company registered address and the address of it’s place of business, if different.

    With the mention of MetaFon, it was not just anybody with a computer and word programme, who produced the “spoof” letter.

  • @babakrdaemi

    This is no different to the way City make money (in real terms).

    Could man city do this to beat the fair play rules?

  • nyand

    Being a fan of a football club involves alot of passion. But your article is based on loving Arsenal? It sounds you would wine and dine before making love to it. You love it with your sacrificial relatively little money yet the billionaire owners and millionaire players are laughing all the way to the bank. Why not just support Arsenal.

    Supporting a club will make you more openminded. Financiers like Kroenke are in charge of your love Arsenal, and the world for that matter, because they employ their head and not their heart. Emotions are clouding your judgement. This is the same love which yaps “in Wenger we trust” yet dare not think of lobbying for Guardiola or a genius in his mould to take over. Guardiola’s Barcelona made tiki- taka-Arsenal look like a Stoke team one man down.

    Guardiola knows football is about mind games or a war among geniuses. After one season of relative failure, because of Messi missing a crucial penalty, Guardiola resigned. Guardiola is probably the real professor of football as he is behind Spain’s success. Yet he is taking a break from coaching. Wenger is at it for the 8th fruitless year.

    Usmanov is rocking the boat probably because of considering Guardiola’s attitude. Guardiola could be in the near future the coach of Real Madrid. Does that mean he would be hating Barcelona? Coaches, players and financiers are approaching football as a means to exhibit their genius capabilities; fans have a funny love towards a system which runs like a porn hub where the performers exhibit their stamina, athleticism and styles of thrilling to prove they are genius beasts worthy of watching over and over again at any cost.

    Usmanov is a crook. But he knows football is full of crooks because being a crook often is the flashiest way of proving to be a genius. Look at Barclays Bank, Lehman brothers and every other gang in charge of the world. It is too late to blacklist Usmanov unless fans become like Kroenke, who cares less how Arsenal fares as long as his ‘genius’ carefully planned forecasting of his profits wins.

    Do fans have any ruthless, emotionless plan to be the best? Most are merely speculating on the next move of players, coaches and financiers. Unless you come with a clear, emotionless, ruthless plan on what the fans should do, this article is like one person’s shout in a packed stadium.Van Persie is proving, in loving himself, that there is really nothing like loving a club.

  • Shard

    nyand,

    Telling someone what to love, who to love, and how to go about it. Are you advertising for a singles dating/escorts site or something?

    No. Don’t choose this Wenger fella. He’s no good for you. All principle and no substance. This Guardiola chap is who you should be looking to snag. Yeah, he’s a little short of hair, and he is overly sensitive. Any little failure makes him close all the curtains on his windows and bawl his eyes out.(Be careful not to look disappointed when he’s..ahem… performing) But really, he is a genius. A real professor. Not only does he teach the young ones in his charge, but the top “businessmen” in the world run to emulate him. Stop looking before you leap, and just jump in bed with the one who holds promise of riches. Loving money, is loving yourself. Everyone else loves your money, so you should love theirs. Be ruthless. Open your mind. Being a whore is the only fashionable thing to do. Move with the times.

    So nyand. Two can get all vague and wordy. Did you have a point?

  • Stroller

    @nyand

    No disrespect but having criticised shard for being emotional, you then enter into a love-fest yourself over Pep Guardiola. No inconsistency there then?

    Of course head over heart applies to those running and playing the game, few would doubt that. That’s why I’m always sceptical when those people make claims about being fans. Just as we cannot think like them, they cannot think like us.

    Which leads me to consider why Mr Usmanov ofen makes this ‘fan’ claim, as in his recent statement. Perhaps you have provided the answer – because he’s a crook.

  • nyand

    What is your clear plan? You are hoping, speculating and crying wolf. You, just like all fans, are helpless. This is a war between billionaires who are ruthless. If Usmanov is so terrible who allowed him almost thirty percent of the club. Why didn’t you stop him before he got any share?

    I am not supporting any billionaire. Fire fights with fire. Ruthless fights with ruthless not empty emotions. You say you don’t support Kroenke. Do you love him? Who do you support? Wenger? Or maybe you love Wenger.

    Wenger himself, after being clueless against Barcelona’s style of play, called it “Play Station”. Wenger’s ‘love’ for the club is the problem just like anybody’s ‘love’ towards a club or player is. Football is sublimated warfare, based on the love of conquering. Therefore fans who are crying for trophies have no illusions. Especially when the tiki- taka Arsenal style looks third rate when compared to Barcelona, the only team everybody wants to and must beat. It is either Wenger outplays Barcelona, wins trophies or resigns.

    I know Usmanov is a crook. But why is he owning a company in the UK? I admire this self sustaining model and the grooming of young players into future stars. But it looks naive and disgusting when Arsenal are playing like a third rate Barcelona. After Spain’s win, every team in the world knows Barcelona is still the team to beat. They are planning ruthlessly on how outplay and beat Barcelona. Van Persie, the captain of the team, knows Wenger and Arsenal are no match against Barcelona, let alone Manchester United, Bayern Munich or atleast a dozen other teams playing better football than Arsenal. His love for conquering proves only naive football fans are loving a club or a player. The club is owned by a billionaire(s).

  • Shard

    ….. I guess not.

  • WalterBroeckx

    We just should close the shop 😉