Recently the Financial Times published an article by Simon Kuper who is a regular FT columnist and also co-author of ‘Soccernomics’.
The article is called Arsène’s austerity: Has football’s economist got it wrong when it comes to the game’s finances?
The question asked was rhetorical – for the answer was an resounding “Yes: Arsène‘s approach to football finance is wrong.”
As far as I know, no one has really argued against this view – which is interesting because normally speaking if you put three economists in a room you quickly end up with five economic theories to explain the point under discussion.
So could it be that simple: Mr Wenger is wrong, and everyone can see it except him?
This of course is the AAA vision; although thankfully Simon Kuper goes a little further than believing that all one has to do to improve Arsenal is to say “Wenger Out” rather a large number of times on Twitter.
But, with no one else taking up the mantle, I am going to have a go. Now I must say I do this with some trepidation, as the last time I argued finance with a respected writer (The Swiss Ramble in that case – a source quoted lovingly by Mr Kuper) I received more vitriolic response than usual, much of it of the “you are not fit to lick his boots” type.
However, the whole point of a blog is to develop the debate, so here I go.
Mr Kuper’s argument is that “Wenger and Arsenal [claim] that the football economy is a bubble: clubs are spending beyond their means and risking collapse. The argument is at bottom one about the football business. Has Wenger, almost the only actual economist in football, called the football economy right? Will Arsenal’s prudence finally pay off one day?”
But then, curiously, the article spends quite a bit of time talking about the Emirates Stadium, which was surely the riskiest business venture that the club has been involved in since Henry Norris leased land in Gillespie Road and moved Woolwich Arsenal to Islington, 100 years ago.
The building of the Emirates was a unique enterprise in modern football. Yes, other clubs have moved before (one thinks perhaps of Middlesbrough, Coventry, Northampton Town and Bolton) but nothing has been done on such a scale in such a built up area before.
The sheer size of the enterprise was incredible. The new ground is not just 157% the size of the old ground, the experimentation with the Club Level was dramatic and different. Was it possible to sell all the club level and boxes at such incredible eye watering prices? Was it possible to sell 40,000 or so season tickets, and keep the waiting list topped up? Was it possible to sell another 20,000 tickets for each and every match?
And was the phenomenal risk of rebuilding Highbury as flats, and then after that re-working the old industrial areas around the ground, actually a viable proposition?
The risk was incredible, and yet, because it doesn’t fit with the profile that the author wants to present of Mr Wenger and the Board, it is skated over, as the writer moves on instead to say, “Arsenal’s ticket prices are the highest in English, and probably global, football”.
Oh dear – if only he read Untold he would know that on a like for like basis this isn’t true. All you have to do is take into account the fact that us season ticket holders actually get a load of cup tickets with our electronic card (I shall be popping along to see Arsenal v Bayern Munich shortly, and it won’t be costing me an extra penny. Same with games against Milan and Barcelona in recent years) to see that Take that we are certainly not the most expensive club.
Now the other day someone berated me on this blog along the lines that because I could not spell one particular word, my entire argument was obviously false. I would never go that far, but it does seem to me when we spot a journalist trotting out a tired old cliche which is untrue, that at that moment we certainly can say, “just how much research was done here”.
But he’s right on one fact. Arsenal “earn £3.3m per home match, about double the amount of their London rivals Spurs. Their total revenues last season were £243m, sixth in European football.”
Simon Kuper also admits that “moving stadiums was scary. Most of the £430m required was borrowed. Suddenly, this most conservative English club was drowning in debt. Things got scarier when the financial crisis hit in 2008, just as Arsenal were raising revenue by selling converted flats at their old Highbury stadium.”
But then he makes an assertion “Every season, Wenger had to sell players partly to pay off the Emirates mortgage.” Was that true?
Now I fully admit I don’t have access to Arsenal’s innermost accounting system, but my notes show that throughout that period the income from the stadium was more than enough to pay the mortgage. Mr Wenger might not have been able to buy Ronaldo or Messi, but he didn’t have to sell in order to keep the stadium open.
Indeed, time and again this site has shown the brilliance of the selling policy. Henry going to Barca and ending up costing them £250,000 a game. Hleb going to Barca and costing them double that per game. The list goes on and on right to the present day. Song going to Barca and then being voted the worst buy of the summer in the Spanish League.
Even players going on a free transfer like Flamini saved the club money, because of the huge wage demand he put in when he came to the end of his contract. Flamini took a step down (Milan were not in the Champions League at the time) and found himself something of a bit player, being a sub much of the time. Indeed so low did his stock fall that Milan couldn’t sell him, and at the end of his contract they opted to release him. Eventually he re-signed at a much, much lower salary.
In short, Arsenal sold players at top prices or removed others who were demanding insane wages – and continued to pick up players to do the job at lower prices. It is true that the selling process did not start when the Ems came along, rather it started much earlier as players left once buyers came in willing to pay more than the player was worth. Even thought, most recently, we were all sad to see RVP go, we are scoring more goals without him, and Man U appear to be stuck with paying him an insane salary well into his 30s.
But let’s come back to the FT article. Simon Kuper continues, “The wilder side of Wenger’s nature was Dein, but he left Arsenal amid board ructions in 2007 and, since then, Wenger has been freer to be himself.”
Now does no one else see something odd in that statement? Dein was the one board member who was utterly against Arsenal moving to the Emirates, and running the whole show itself. Dein wanted the more cautious approach of going to Wembley on a ground share operation. It was the rest of the board who wanted to move around the corner.
And then, from there, within a sentence, we jump in the FT article, into, “Austerity is in Arsenal’s culture. Once known as the Bank of England club, it has been cautiously run for decades.”
So how can the huge risks and astounding gamble of the Emirates become set aside in the white space between paragraphs and become an example of “austerity”?
Ivan Gazidis is quoted in a way that sums the matter up. “We don’t spend more than we have. In football that is seen as conservative. That tells you a little bit about the environment we’re in.” Arsenal’s “policy of sustainability,” Gazidis adds, “should be familiar to more people given the economic state of the world, but football has continued to be a little bit of a bubble.”
Thus we have a club that has taken a huge gamble with the stadium, but it not taking gambles with players. Is that better than taking a gamble with players but leaving us in the old stadium? I think so, for two simple reasons. First because the stadium earns money to pay the players while the reverse is only true if you already have the stadium. Second because just because football clubs have been making losses for years and getting away with it, it doesn’t mean that will always be the case.
So far there have only been two great collapses of top division clubs: Portsmouth and Leeds. But what happened to them is enough to suggest that this is something to be avoided rather than risked. As Michel Platini, said, “If this situation goes on, it will not be long before even some major clubs face going out of business.”
The argument in the FT is that “that moment never came” rather than “it hasn’t come yet.” It hasn’t come yet because the government has allowed the football creditors rule to continue and the courts have found in its favour. One move by the Coalition government, desperate for every penny it can find, would change the world. Likewise the rules allow Chelsea and Man C to take the benefactor model to previously unknown heights (or depths depending on your viewpoint).
In many ways it all comes down to this. If the benefactor model has its wings clipped and/or the government changes the football creditor rule, the landscape changes utterly. And in such a situation every club has to decide – do we live day by day with this gamble, or do we make provisions. Most businesses with any sense, make provisions.
Arsenal could go into the make-believe world and pay 114% of their income on player wages – but ultimately that bubble has to burst either because the benefactor pulls out, or there is a revolution in his country, or the price of gas or oil drops, or because Uefa changes the rules, or because… there are a hundred reasons.
I have to say that if I ever said to my fellow directors in my business, “don’t worry, it won’t happen” there would be more than mutterings of discontent. The fact that people in football take that risk doesn’t make such decisions make sense.
There is of course more in Arsenal’s future. The liberation of the process of running youth academies will help simply because Arsenal’s academy has such a stunning reputation, compared with many of its rivals. And we are now in the era when the old marketing deals made in order to reduce the stadium debt are ending, and new ones are coming on stream at much higher levels of income. Interest on the stadium debt is declining all the time.
But I have left the oddest hole in the FT argument until last. They say, “other clubs are finding new revenues too, as countless Asians and Americans start switching on to the Premier League.” Yes indeed, and that is why Arsenal is in there as well. It is suggested (although not argued through) that whatever progress Arsenal makes in terms of reducing debt and increasing revenue, it won’t be enough because other clubs are getting more money. But Arsenal are entering these territories. I remember at the AISA AGM hearing the mantra of China, the Far East and America said over and over again. Arsenal is pushing as hard as anyone to bring in these new markets.
Overall I don’t think the FT article works. Arsenal have weathered the storm, and are set for the future with a wonderful stadium, high income levels which are growing, a wonderful reputation overseas (where the AAA rarely operate), and will happily pick up any bounty that comes their way as a result of FFP. When necessary Arsenal have proven themselves to be great risk takers – now we can see if the endless risks of other clubs will be as remotely successful as Arsenal’s great leap forward.
Recent posts
- Is Financial Fair Play really all for (or because of) Arsenal?
- Injuries and transfers. Looking forward to two cup games in four days.
- Chopping down the forest: football’s ludicrous and awful situation
- Who is going to sue Uefa first?
- EC demands reform of the transfer system. The pressure is mounting.
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The books…
- Woolwich Arsenal: The club that changed football – Arsenal’s early years
- Making the Arsenal – how the modern Arsenal was born in 1910
- The Crowd at Woolwich Arsenal FC: crowd behaviour at the early matches
The sites…
- Referee Decisions – just what are the refs up to this season?
- Parent News – what is going on in schools these days?
- The weight loss programme: The only guaranteed way to stay fit
- The Arsenal History Blog from the AISA Arsenal History Society
It took a little boy to point out the the emperor was naked, and in the end he was seen as a hero. QPR could well be the next Portsmouth, and what started as a simple snowfall will soon become an avalanche.
FFP seems to be as clear as mud according to some. Yes it’s great we are picking up fans worldwide but those sort of fans flock to clubs that win things, they do not, on the whole, have the dedication to a club homegrown fans have. That can benefit us in the future should we start winning things again because these sorts of fans can be fickle and we’ll then recruit more of them when we again become exceptional again.
Moving to a large stadium was essential and worth the financial risk. The odd occasional financial risk in the transfer market might benefit us too without damaging our financial health irreparably. Caution first, of course.
As for our brilliant selling strategy on the whole I agree but I think it’s disingenuous to suggest selling RVP was a great idea. We’ve scored more goals without him. Well yes, but what strange logic for if we’d have kept him we might also assume we’d have scored more goals with him and Manu would have scored less.
I too read this piece by Kuper (whose work I have read and admired before) and came to the same conclusions. Thanks for putting my thoughts into such a well written response.
Arsenal have, for the last 100 years probably been the least ‘conservative’ club in Britain. Just because one or two Board members went to Eton doesn’t make them ‘conservative’ when it comes to business. To assume such is just lazy, pigeon-holing, journalism that we still struggle to get used to.
The market for footballers has indeed ‘bubbled’ in recent years – fuelled by the cash from financial doping and any sane business sells when a market is high and only buys when it is low. The fact that Arsenal have, at very least, broken even in the transfer market during the period of the EPL pretty well proves that it is a policy to do so and that it was so before Wenger even arrived. It may even have been a Dein policy initiative!
The new sponsorship deals dramatically improve cash flow into the club and reduce (possibly to zero) the need to find the mortgage payments from the existing stadium revenues. With lots of hindsight it is more than possible to come to the conclusion that the only mistake the Board made re the move to Emirates was not to have done it much earlier. Again Dein may well have been the barrier to this due to the FA hat that he also wore which led him to what he thought was a mutually convenient Wembley sharing strategy.
The Board is far more unified and focussed without him and his presence (or that of Usmanov) on the Board is now entirely redundant.
The desperation that some writers have to undermine Arsenal (and I am very disappointed that Kuper has joined them) smacks either of a conspiracy which requires illogical arguments to hold together or of a fear of what the future might hold if we return to a pre financial doping situation (the first half of Wengers tenure) but, this time, with Arsenal in a stadium delivering twice the revenue than it did back then.
The way a player performs once he leaves is not necessarily an indication of how he would have performed if he stays.
I think it is naive to assume that because Hleb didn’t succeed at Barca or Flamini at Milan that they wouldn’t have continued performing the way they had been for the club if they stayed, the same applies to most of the names you mention. Those sales made Arsenal weaker, regardless of the fact that they didn’t make their new teams stronger.
The Idea that Man utd are “stuck with a player ” WHo is currently winning them the premier league is one that shows your deep rooted biased ( understandably as you are an Arsenal fan but it lessens your credibility for me )
Interesting read otherwise, enjoyed it.
It’s really strange on anyone’s part to simply dismiss Arsenal’s spending history pre-Emirates as being due to Dein. I’ll never understand this type of simplistic thinking. Dein might be a factor, but you know there is a huge stadium there that had to be paid for. Which would be more likely to be a factor?
I didn’t think the FT article actually made any point beyond saying that football clubs don’t go extinct. And that even if they do, they just start a new holding company and take on the old club’s history (such as Rangers or Fiorentina) It equates not going extinct with license to spend what you can’t afford. It’s like a junkie urging others to just ‘Go with it. What’s the worst that could happen? You won’t die’
I do disagree Tony, about not needing to sell players. It depends what you classify as ‘need’ I suppose. I’m sure we could have, and would have liked to have, kept a few of the players we sold.(If they weren’t offered triple their salaries elsewhere) But we probably would still have needed to trim the wage bill some, by selling some other players. I think Wenger did mention once about needing to raise money from transfers.
Good point about Arsenal taking a risk in building the stadium. The ‘lack of ambition’ charge against the club is pure nonsense. If anything, Arsenal have been the most ambitious club in recent years. No other club has aimed to do what we are doing. For some, this standalone policy shows madness. If no one else is doing it, it must be wrong they say. But to me, it shows character, determination and ambition to be the best, on the basis of our own strengths. Not on daddy’s money.
A very good article, thank you. A useful counter to the normal tabloid
b*ll*x, especially the version that comes cloaked in FT respectability.
Simon Kuper is a smart man. But he doesn’t fully understand his subject.
Arsenal are a very misunderstood club. Not least by the fans and ‘experts’.
Arsenal’s basic premise is this: If we operate on the principle that the only way is to spend big, we will lose because we can not outspend Chelsea, City and Man United. So we need a different model to succeed.
I have yet to see a rational, coherent argument that destroys this premise and offers a true alternative.
Top class article. Agree Shard, there are an abundance of myths attached to Dein. Overall,I respect the guy, he is a real fan, but he , like all of us made mistakes. And, the way his son was acting presented a serious conflict of interests. We have moved forward while others stood still, and those behind it deserve credit. We made a once in a lifetime move, despite the worst recession in a lifetime, despite the advent of the petrodollar boys,despite all the multi driven negativity, and now, with an owner , whatever you think of him, has been significantly less generous than Randy Lerner….and luckily we have a manager who has kept us very near the top during all that. The Spuds and Liverpool have been terrified over the new stadium issue. The club have mistakes, i am not sure they were geared up for a situation whereby they lost so many top players without a youth system ready with immediate replacements in all cases. We have it seems been slow and reactive in the transfer market, however looking at out most recent buys, this has clearly changed for the better. Building a self sustaining football club has been at thimes painful and frustrating, but we are clearly now in a much better position than we where,or could have been. BWT, remember last year when our many detracters dismissed us as a one man team, well there is another such team around north London at the moment, not that the media would ever mention it of course,
What Kuper also fails to acknowledge is that as well as the huge investment in the stadium, which reportedly cost some £400m while the long term stadium debt is now a tad under the £260m that the bonds raised hence some £140m was found from the clubs own resources, is that we have consistently averaged the 4th highest player budget (transfers plus wages) in the PL. Folk are misled by the fact that our transfer spend is broadly neutral. Our gross spending on transfers is actually quite high but we tend to buy players that increase in value and sell those that are decreasing. It’s the difference between knowing the price of something and its value but there’s nothing in that practice that demonstrates Arsenal aren’t willing to take a risk. On the contrary Arsenal are just rather better at taking those risks than many others are.
Good, well-reasoned article.
@Rupert Cook
…”but those sort of fans flock to clubs that win things, they do not, on the whole, have the dedication to a club homegrown fans have”, is a disrespect to the millions of dedicated Gooners worldwide who have suffered bodily injuries, personal effects, and endured loss of bragging rights for over seven years. But we are still strong and believe in the Wenger project. You just don’t know how popular our beloved Arsenal and the EPL is outside Uk.
Good article though.
A truly enjoyable article, but (what a hateful little qualifying preposition that word that is) 🙂 — but, there is a tendency in a long Post to run certain trains of thought together, and end up with a pot pourri of sometimes conflicting conclusions.
The benefit, of course, is that there will be passages that will catch the eye of the already convinced, and they will acclaim that part having missed some other key areas.
Cassandra is now moving his butt out of here!! 🙂
Everton FC, Liverpool FC and Spurs plus any club with serious aspirations for challenging Man Utd to the Premier League title will need to follow the Arsenal model.
Income generated via bigger stadia is the road they will have to take.
As you say, Arsenal have now weathered the storm.
Good luck to those who do decide to follow. Its going to make interesting viewing.
I do not agree with that fans flock to clubs that win things.
In HK most support Brazil because they were the champs back in the day but they still support them even now when they are not as successful.
Plus the Chinese tend to support clubs that are red it seems probably because its a lucky colour?:)
I don’t know why private businesses that run within their means are equated as being austere? Austerity is a broad concept, first bursting into limelight after the greek financial tragedy. Since then its been used & misused. Austerity is typically bad for any national economy, in that investments (spending)in infrastructures is necessary to the running of the whole economy. Hence, we see the US deficits increase. But its inappropriate to use the term austerity in relation to private businessess. Besides, there is no substantive evidence that Arsenal is austere, as it would require substantial spending cuts, staff cuts and salary cuts- all of which, on the contrary, according to arsenal accounts, have increased. Since there’s been spending its ignorant to call arsenal austere. Another silliness from a mainstream magazine.
Great write up Tony – I read this article recently and would have written an article had I had the time, though it would have been inferior to yours.
Great piece.
Dear Tony!
You have elevated Simon Kuper, the author, columnist, etc., to a certain Professor Szymanski’s discipline?
Kuper, is an improvement on the majority of football reporters, whose job it is to sell newspapers.
Kuper’s article, is to pretend that his research is based on stringent testing by “economists”.