Arsenal: An Oasis Of Fiscal Sanity In An Orgy Of Excess – Part IV
ByIn the final instalment of this article series today, we’ll consider some ideas that if and when they manifest in practice can go some way in giving fans a voice that counts in the management of their clubs.
You can read:
Part I of Arsenal: An Oasis Of Fiscal Sanity In An Orgy Of Excess
Part II of Arsenal: An Oasis Of Fiscal Sanity In An Orgy Of Excess
Part III of Arsenal: An Oasis Of Fiscal Sanity In An Orgy Of Excess
It is only recently that fans, responding to the increasing recklessness in football management, and mounting consequential damage, have begun considering and taking active steps to reclaim the game from the worst of these excesses.
Perforce therefore, most of the ideas highlighted herein are fledgling notions and efforts that it is hoped will grow into mature strong practices that protect the game from the worst fiscal excesses, in the days to come.
My purpose in airing my thoughts isn’t to provide you with the finished article – I don’t have one. In my own small way, it’s to kick start discussion and action among football fans in the hope that good sense, and the best interests of the game, will eventually prevail.
That the need for action is dire is highlighted by this damning statistic.
It is worth noting that since 1992 nearly 50 out of 92 English Football Leagues’ clubs have been in administration, this in a period of stellar revenue growth.
Deloitte’s Dan Jones: “Between 1992 and 2008, revenues for the top 20 clubs grew at a compound annual rate of 16 percent, compared with 5.4 percent for the UK economy as a whole.
That this kind of revenue has attracted the worst kind of capital and management practices is clear from that failure rate.
I’ll highlight the current plight of a proud institution to illustrate the urgency:
Liverpool soccer club will have to cut debt by 100 million pounds ($160 million) before its bankers consider refinancing the Premier League team’s loans, managing director Christian Purslow said.
Any new investment “will not go towards anything else other than paying down the debt, reducing it to 137 million pounds,” Purslow added.
This is a telling illustration of the risks to refinancing we looked at in the first two instalments of this series.
One thing I hope we can agree on in the light of this evidence: Pussy footing around this issue is no longer an option.
We looked at punitive measures yesterday while recognizing that regulations will be relentlessly gamed by clubs, making them necessary though not sufficient. Regulation, however, serves one function: It keeps the targets on their toes, hustling them to constantly work at finding new ways around the restrictions.
The trick is to keep the pressure on to the extent where most, if not all, these hustlers just regard the hassle as not worth it. A supporters trust can maintain the vigil by constantly alerting the powers that be to hanky-panky by management.
The Manchester United Supporters Trust’s (MUST) role in alerting the Office of Fair Trading to the Glazer’s unfair ticketing restrictions is a classic example.
First and critically, apart from Platini’s proposed punitive measures against unsustainable debt, fans must put pressure on parliament to consider legislation that protects football clubs from Leveraged Buyouts. It simply shouldn’t be possible for a predator to foist debt borrowed to finance the takeover on the club itself.
Second, tycoons owning clubs may indulge their fantasies only if club spending isn’t structured as debt from the tycoon to the club, and the clubs assets aren’t used as collateral for any fund raising on his/her part.
Ideally the above should be accomplished by supporter trusts accumulating a “blocking stake” in the club’s shareholding. While this too is a process that’s begun, our own Arsenal Supporters Trust being an example, acquiring a blocking stake is a difficult task necessitating phenomenal co-ordination and fund raising efforts.
That said, I believe supporters trust must constantly work towards accumulating a higher share holding, difficult and slow as the task may be.
In the interim however, I wonder if it will be possible to legislate a “Nay Vote”, a veto if you will, especially in matters financial. I’m not a lawyer versed in English Law, nor do I do this for a living, but here’s how I look at it.
Clubs, by statute, will have to allow supporters’ trusts the power to say no to questionable financial plans by means of a veto. Supporters’ trusts themselves, should have a mechanism by which they can put these matters to referendum before casting the vote.
I’d wager that sufficient expertise is available within existing trusts to evolve structures and mechanisms to run these processes. This vote, mind, should only confer the power to say “No”; not to propose or compel action on management.
To address Jon’s concern (from yesterday’s discussion) about fans compelling Wenger to spend recklessly, I summarize the issue by suggesting that the vote shouldn’t enable fans to compel Wenger to spend, but enable them to say “No” if, on the off chance, he comes up with a debt laden plan to infest North London with Galacticos.
Representation on the board, by means of this vote, is of course implied.
To my mind, such a measure won’t so much be a deterrent for investment in football, as it would be for attempts seeking to make a quick buck in a growing industry. I believe that serious capital will not find these measures off-putting, but will regard them as protection against casino gamblers vitiating the industry.
The fact that the UK awaits a tricky election at a sensitive time is a key opportunity for fans. If ever there was a need and a time to call your MP candidates, or submit unambiguous joint petitions under various fan group heads, compelling them to work on these questions, it is now.
Politicians, don’t forget, unfailingly recognize an opportunity to garner votes. Football fans, collectively, constitute a sizeable vote bank I’d imagine, and should use the lobbying power so entailed effectively.
It’s heartening to note that the process has begun.
The club owners, will for sure fight these endeavours. If fans, citing the dismal record summarized by the above statistics, are relentless with their MP candidates, a compromise formula between Government and the owners that leaves us better off than we’re now is certainly a possibility.
At a minimum, it is certainly worth attempting as the status quo is unacceptable. Every small step away from this mess can only be welcome.
As an aside, I believe that the world isn’t yet out of the woods economically. The “Quantitative Easing” engaged in by the UK government, to cite but one example, has, in my view, only delayed and worsened the inevitable.
We’re in for serious pain in the economy at large and in football; something that will strengthen the fans’ case if only they choose to make and pursue it.
Please call your MP candidates; get on, and stick tight to, their backs, preferably in concert with fan groups in your area.
That brings me to the last and extreme resort at fans’ disposal: Not turning up.
Even the most intractable owner will listen to fans if they can band together and abjure attendance and merchandise purchases. Fears that such measures will cause irreparable damage to the targeted clubs are overblown.
Any business where revenues can grow at 16% compounded over 18 years (http://tinyurl.com/ykdsfff) will be amply attractive to sober serious capital. I believe such owners are currently discouraged by the excessive presence of oligarchs and LBO artists in the game.
Rein these types in, and a levelling of the playing field for the more sober owners will occur and attract fresh and better management to the game.
Worries about the financial impact of such protests being marginal and insignificant are unjustified. Remember from the first instalment of this series, that the more indebted businesses are very vulnerable to marginal changes in revenue. You can be certain they’ll perk up and listen.
Let’s be under no illusions regarding the difficulty of these tasks. It is going to take sustained collective effort over a substantial length of time to achieve even small improvements. But, to my mind, the game is worth the candle, and we’ll have only ourselves to blame if we allow the Beautiful Game to remain victim to egregious money grabs.
To paraphrase Marx, fans only have victimization at hands of callous owners to lose.
That’s that, at this point in time from me. I thank all the readers who took the time to comment, appreciate, and contribute to this debate. Your interest is fuel to our endeavours. I hope reading my ramblings was, to a greater or lesser extent, worth your while.
From time to time, Stone Cold Arsenal produces thematic article series
that cover an in-depth discussion on a specific topic.
Don’t forget to Have a browse through our previous series and columns available from the ’Articles’ menu at the top, including our recent examination of How ‘English’ the Premier League really is.
Tue 13th September 2011; 19:45, Dortmund
This has been a great discussion on a serious issue. I have thoroughly enjoyed reading. Thanks!!
The veto is a good idea, but getting it passed into law would be difficult without exerting pressure in other ways. essentially you would be tying the hands of any investors which would make the club a less attractive asset to any potential buyer and i don’t think you could do that without a fight.
have been thinking about ideas for supporter ownership and wonder what you think of the following. I haven’t thought it through so i may be missing something obvious…
current issued shares: 62219
current offer price: 9500 GBP
shares required for 30% stake: 18666
shares required for 51% stake: 31172
amount required for 30% stake: approx 177 million GBP
amount required for 50.1% stake: approx 296 million GBP
current average attendance: 60,000
now, if you divide that 60,000 into the figures required to own 30/50.1% of the club you get the following amounts per head:
30% stake: approx 3000 GBP per head
50% stake: approx 5000 GBP per head
so, if you could get 60,000 people to join the supporters trust (doesn’t have to be 60k, could be less or more) and each of those people take out a loan for 3000-5000 GBP (this would be 25 quid a week at 8% over 5 years) and contribute that money to the trust to buy shares, then the trust could gain control of the club. You could probably cut a deal with a bank for a good interest rate if the members all used the same bank for the loan.
I realise we are in the middle of a financial crisis, but is it beyond the realms of possibility that a club as well supported as arsenal couldn’t raise this kind of money from it’s global supporter base??
A cracking read.
A littl ebit Blue sky though mate. Perhaps if you were serious, you could sound out some of the major supporters trusts (ours, Manure, Liv etc) and see what they think.
Ive been thinking for a while that the supporters trusts need to get together on this issue. 92 seperate voices will make less impact than 1 united group.
Thank you very much, Saloner, for your efforts on this article series.
I agree that a level of supporter participation is always a welcome way of ensuring that a check is placed on money grabbing owners. However, as I said before, I still loath to trust fans to check Oligarchs’ financial dopings which may eventually result in Sudden debt overburden. Quite a lot of fans want instant, short term success.
Having said all that, a legislation or FA regulation is required to stop or at least prevent individual outright ownership as they are now beginning to do in France and Germany.
Bob Foster: Glad you enjoyed the series. Thank you for the compliment.
Andy: Control over a “blocking stake” will always be the best option, as I’ve indicated in the article. The numbers do feel doable, but I always wonder why none of the major clubs’ supporter trusts have made headway on this front. They do own stakes, but far smaller than the target. I suspect getting people to sign up isn’t as easy as it appears to be.
Jim: The purpose is to get discussion going in the matter. Yes, it is time supporters’ trusts organized themselves into a unified front.
LRV: I share your skepticism regarding supporter wisdom. But the point is to give them a chance to redeem or damn themselves. Today they are dumb puppets.
Well done – very good read over the four pieces. I teach financial strategy at a professional education company (ie post degree level) and was impressed with your grasp.
Also makes a great change to the tedious ‘I want to moan about something to do with Arsenal without thinking about it much’ type of blog that we get a lot of.
Look forward to future articles (eg how performance picks up as players get older to see where this team will go, analysing Arsenal’s financial accounts for Income Statement trends, correlation of revenue and success by club – happy to suggest others).
Clive
Clive: Thanks for the encouragement. Please feel free to suggest topics you’d be interested to read about. We’ll do our best to educate ourselves and share our understanding and views with the readership.
Saloner,
Thanks again for the series. I really enjoy reading Arsenal articles that are well-thought through and thought-provoking, even if opinions on the topic vary widely (actually, especially so).
In terms of today’s content, I agree with Andy that having a “special” category of voting representation on Board which has only a veto power rather than a proposal or full participation share is problematic. I agree with Andy’s reason, which is that such an arrangement will make it unattractive to investors, but also unattractive to managers. Why would a quality manager want to come to a club where, despite having a good relationship with the Board, there was a chance that the fans support, who, while they love the club dearly, frankly know next to nothing nothing about the inner workings of football? Especially when that same manager could go to Spain or Italy and have no such interference.
There is an additional reason why this probably wouldn’t work, which is that I don’t think such a vote is cognizable in law. I’m not a UK lawyer, I’m a Canadian one, but our companies law is based on yours, and I don’t think there can be a veto-only class voter on a Board. Either one is a ful Board member or one isn’t – there are no classes of membership on a Board. That means the Trust member would have the ability to put forward proposals for voting on purchases, and THAT is a CEO and managers nightmare.
Additionally, I do not think that the “ultimate power” of the fans as you’ev described it – to not turn up – is as effective as you think. There is a waiting list 10,000 people strong for Manchester United tickets, and I bet its the same for our Gunners. That sort of fan action might work for a small or even middle tier club, but for a club with a huge national and international following, I don’t think that will work. There will consistently be people who will step in and fill the shoes of those who leave in protest because for some, the love of the club and pull of being a supporter overwhelms the willpower it takes to walk away “for the good of the club”. It also potentially means undermining the success of the club which can have a horridly long impact to recover. Would you sacrifice all the years of development and success on the horizon for Arsenal for a 10-15 year rebuilding project that would be required if the walk-away protest worked and the value of the club dropped so as to be sold to a supporter’s trust? That’s a big ask.
But I do think that two of your proposals are spot on and I would wholeheartedly adopt them. First, I agree that there should be legislation preventing leveraged buy-outs. This sort of takeover was designed for a commericial purpose – dismantling a large asset to sell off the profitable parts – for a company for which the parts are worth more than the whole. Think car companies with several brands and facilities, only some of which are successful. Football clubs are not like that. Second, football clubs hold a special cultural significance which puts them in a special category of corporate assets that I think would justify special non-LBO legislation for football clubs.
Second, I agree that the best and wisest mechanism is for Supporter’s Trusts to acquire a blocking stake in the shares of their club. This would give them full board participation, the ability to block any club-changing thing that would require a special resultion to pass, but not enough power to pass even an ordinary resolution proposal of their own, and not enough to get in a manager’s way. But it would give the participatory measure you value so highly.
Therein is the rub though – which is my last point in this ramble and which is addressed to Andy’s comment – just because it is THEORETICALLY POSSIBLE to get a 30 stake in a club, doesn’t mean it is PRACTICALLY POSSIBLE. Andy’s math is right, but remember that you have to find someone willing to sell some of those 62000 shares. it is not just a matter of money – you have to have a seller. If it were just money, Usmanov or Kroenke would already own the team. They have more than enough money to buy the shares. The protection has been the Board’s unwillingness to sell to either man. They have to convince the shareholder that selling to them is the right thing to do.
I doubt highly that Abramovich or Hick and Gilette or the Glazers or our Board are going to sell shares to the great unwashed masses of supporters who they consider themselves better than and who don’t understand finance or football management.
By the way, I put myself in that latter category, and this despite the fact that I have a Masters Degree from an Ivy League school and I played football at a North American collegiate level and have played and coached for just under 30 years. But I guarantee to the Boards and managers of the world, I’m a dangerous idiot. They want my money and my support, and not my feedback.
This blog is great and I remain a new, but dedicated, reader.
Cheers,
Jon
Jon,
I’m in agreement with you so far as the practicability and desireability of the options are concerned. You’ll notice I put the LBO and the blocking share right at the top of my list.
So far as the other ideas are concerned, I’m essentially trying to think aloud and put stuff out there that’ll ignite discussion, debate and hopefully action. I think fan movements are in their fledgling state as things stand and we will be in for a lot of trial and error when it comes to ideas and methods. I do agree that a veto only board representation might well be a legal impossibility; also true that it will discourage managements and new capital. But I wonder if the discouragement will be more for the gamblers and less for serious long term capital. But, yes; straight forward it certainly isn’t.
As for no-shows, I do recognize they’ll be variously effective depending on the club in question. But I’m perforce thinking about football as a whole, and not necessarily Man U, egregious example of an LBO though they are. Different combinations of approaches will work best for different clubs.
As I acknowledge in the article, I don’t have ready answers. Indeed, I don’t think any one of us has. We are taking baby steps as things stand. The most practicable ideas will slowly but surely take deep root.
Thank you for your thoughtful and detailed comment. We’re delighted to have you, with your rich experience, amongst our readership.
Let us not forget the 800 lb gorilla in the room. English clubs are part of a capitalist society and function within the limits of capitalist democracy. Any changes to curb the excesses that capitalism has wrought on English clubs will be resisted by those who most benefit from the current order. Conversely, those who want to remove these excesses, especially the supporters, will have to work might and main to overcome the resistance of the money men as well as the politicians and administrators who act in their interest. To have laws passed banning leveraged buy-outs of clubs, may seem eminently reasonable to supporters, but it will face fierce resistance from the usual suspects. To go a step further and and limit ownership by any single person/entity and their related interests to no more than 49% of shares issued, as is currently the case in Germany, will even magnify the resistance. I am not trying to scare anyone or discourage reforms, instead I simply want all who see the need for change to realize the enormity the forces that must be overcome.
Love this mini series articles….
Any chance we can have Season 1, Season 2 of the Voyage?
Check out my new blog http://socceropera.blogspot.com/
thanks
Excellent series of articles Saloner with some thoughtful comments.
Our current structure is the most desirable, I feel. It is, however, fragile & dependant on the good intentions of the current shareholders as I suppose it always has been.
Judging from opinions generally coming from the blogs it is hard to believe that the fans owning the club would lead to anything other than confusion & dangerous promises, as Jon & others have pointed out.
Shotta-gunna: You do well to bring about the prevalent economic ethos. But, global events over the last couple of years have suggested capitalism, as practiced by the powers that be, isn’t capitalism at all but a rigged game protected by a cosy money-power nexus. No surprise, therefore, that it has led to disaster. If ever society wanted to take on this charade and put an end to it, this is the time when this fraud stands revealed for what it really is. Better opportunities won’t arise.
True Flint; Real Madrid is a very good illustration of all that’s unhealthy about democracy. Greater voice for the fans is certainly no guarantor of improvement or common sense, but I wonder if it will be an improvement, on net, over the current situation where they don’t have any say in club ownership and management.