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Arsenal: Room For Optimism And Concern In Equal Measure
Posted by: | CommentsThe season’s practically over and these are my thoughts on the good, the bad, and the unacceptable about The Arsenal.
My sense is that Wenger’s accumulated goodwill is at levels that will not endure another season like this one. 5 seasons of development is ample and it is time the results start justifying the investment.
I rate our goalkeeper situation and the alarming inconsistency of this squad as being unacceptable.
Manuel Almunia, admittedly, has had his moments but I don’t believe he will ever be the worthy goalkeeper of a side aspiring for honours. He simply doesn’t have what it takes in my view. Stand-in? yes; First-choice? No. He doesn’t, and can’t, command the defence adequately to do the job at this level.
I don’t think we have time or money left to invest in Lukasz Fabianski’s development either. On balance, he simply hasn’t acquitted himself well enough when given the chance, to justify further investment.
He’s young yet, and I think we’d do well to let him find his feet at a lower level. If he does make it to the top eventually, fair play to him. I wish him well, but not at the Arsenal as things stand.
I’m also sceptical about the competence of our goalkeeping coaches. Since David Seaman we haven’t been able to spot, recruit, and develop a top class goalkeeper barring, in flashes, Jens Lehman.
Fabianski, it is claimed, was among the most sought after young goalkeepers in Europe when we signed him. Is his present predicament, therefore, simply a case of the individual losing it? or is it a consequence of inadequate coaching that shoots both the young player and the club in the foot?
The inconsistencies are another big worry. It bothers me that this team alternates between repeatedly snatching late winners under pressure to remain in the title race, and turning up like stale soda water, as they did against Spurs and Wigan, in the face of opportunities to enhance their chase.
The performances against the latter teams were a disgrace. All teams have an off day at the office; Championship sides, though, don’t have them when a title is up for grabs. The team let Wenger, the fans, and themselves down criminally.
It is less that the title eludes us yet again, but the manner in which we let it slip that hurts. It should never happen again. Our lack of defensive nous and our epidemic injury woes are the bad aspects of our situation.
If we do wish to emulate Barcelona we must first learn to play well off the ball, regaining possession with minimum delay regardless of where on the pitch we lose it. The idea was best expressed by, I think, Neeskens who defined total football as “attacking from the back and defending from the front”.
That, I’m afraid, doesn’t come naturally to players, or indeed teams, and requires relentless and meticulous training to manifest. It is my view that Wenger relies on recruiting players with flair and intelligence and letting them sort situations out for themselves on the field.
This team, barring that run to the Champions league final in 2006, has never shown consistent and sufficient defensive nous. I cannot claim. either, that there have been encouraging improvements in the interim. Season after season the same lament, “Naive defending”, does the rounds. Sadly, after a couple of seasons, it isn’t naive anymore; just incompetent.
Whether it involves hiring a specialist defence coach, or simply revamping our training to better address this persistent deficiency, this is a problem that needs to be urgently remedied.
All the above, of course, don’t count for much if we continue to suffer injuries at the rates we’ve recently endured. While Robin Van Persie, Johan Djourou and Tomas Rosicky have been the sad poster children of the chronically injured bridage, we also seem to lose key players, repeatedly, for short stretches of the season.
I cannot remember when our first choice selection uninterruptedly played a significant stretch of the season together. This invariably leads to inconsistency with some player or the other inevitably taking time to find his feet and hampering the squad’s performance levels. Eduardo, this season, comes to mind.
Yes, the Crozilian was a victim of assault, but the logic holds for injuries generally.
What the reasons are for this isn’t yet clear, club releases notwithstanding.
Without progress on this front, developments and improvements elsewhere will count for nothing. We simply cannot afford to have key players on the sidelines for prolonged, or repeated stretches; neither can we afford to have younger players like Djourou, on the treatment table when they should be gaining experience on loan.
Lest you conclude I’m a hopeless pessimist, here’s what I find heartening about our present situation.
A core of talented and feisty players and financial stability that’ll inure us to the financial troubles that seem certain to dog the world over the next couple of years.
In Fabregas, Vermaelen, Nasri and, injuries permitting, Van Persie, we have a core that rivals any in world football for skill and feistiness. In Sagna, Clichy, Song, Denilson and Eboue we have a supporting cast that unfussily sets the stage for the stars to display their wares.
I don’t need to remind you of the pack of promising youngsters waiting on the wings either. With judicious additions, and better coaching, therefore, I think we are very well positioned to turn out a team that belongs with the very best, and is likely to stay that way for a long time to come.
Other points to consider are: Diaby is hellishly inconsistent; the goalkeepers I’ve already dealt with; Rosicky and Eduardo have yet to find their feet after long lay-offs; Gallas’ plans aren’t clear yet; Arshavin is skilled but does he buy into the project? Sol is on his last legs; Silvestre earns a good pension; Walcott, Vela and Bendtner remain promising but not finished articles.
Key purchases, and revamped coaching, I reiterate, are the key factors. Wenger suggested this season would be the test; I think the next one will. Important things have been cruelly brought to our attention this season, and Wenger is too intelligent to not have taken note.
I believe he will react to the crushing disappointments of the season decisively, especially given he regarded this season as the test.
I end on the high note of our finances. The rumblings in the “Club Med”, and the unwillingness of the candidates campaigning for the English Prime Ministership to detail their plans to reign in the unsustainable fiscal situation locally, should have alerted our readers to the perilous state of the world’s financial system.
I do think Greece marks only the prelude in what is going to be a serious and painful rebalancing of the world’s financial infrastructure. Finding credit on flimsy terms is going to become impossible as banks are already faced with potentially fatal losses.
Credit availability and terms for our more leveraged brethren in football are going to be punishing over the next 2 years, and I will not be surprised to see more teams do a ’Portsmouth’. Football, like much of the global economy, went into a manic phase gorging on easy money and blind optimism. Such lunacies don’t last too long as recent newspaper reports make clear, and Arsenal is best positioned to withstand the inevitable corrections.
Greece, and Portsmouth, I repeat, are just preludes. The European banking system, and therefore access to credit are deeply imperilled. A cleaning of the Augean stables will be forced on entire economies in due course.
Roman Abramovich’s excesses marked a decisive wrenching of football from financial reality, and Arsene Wenger deserves enormous respect for keeping us competitive, without breaking the bank, in the face of such excess.
Having a squad of relatively young players is a benefit too. Unlike Chelsea, we won’t be forced to sell aging high wage players at low prices, or invest heavily to replenish our squad; A few key signings should see us through.
We will, I think, have our payback in the next 24 months, going about our task without worrying about debts, wages, bankruptcies etc.
Before I end though, football fans, regardless of persuasion, must delight at Fulham qualifying for the finals of the Europa League.
Roy Hodgson’s dignified personal conduct, and the organization and endeavour he has instilled in his team make excellent examples for the game. Here’s to more of his ilk. Well done Sir.
There you have it then. My reflections as this season draws to a close. Do share your views in the comments too.
Arsenal’s Title Charge Sharpens As Financial Reality Bites
Posted by: | CommentsThanks to Barcelona, The Arsenal is now left with only one task to contend with; Chasing down the league leaders. For a squad that has been injury prone in the extreme through the season, this after a fashion, is a blessing in disguise.
Concentrating our threadbare resources exclusively on the title race betters the odds of our success. Given that Manchester United, sans Wayne Rooney, seem relatively toothless is encouragement aplenty.
Chelsea’s lead, to wit, isn’t invulnerable either. If we stick diligently to the chase, winning every game here on in, the title, with a bit of luck, could still be ours.
The way this Arsenal side have stuck to the job, I will not put it past them to pull the feat off. Yes, the odds are stiff, and the margin for error is nil; but if we keep up the grit and the graft that has characterised our game of late, anything is possible.
That’s incentive enough, I should imagine, for the side to wish to tellingly make their mark.
Elimination to Barcelona, to briefly digress, was painful. But, given the form they displayed over the two legs, odds are that virtually any team in the draw would have succumbed to Barca. Given our injury roster, and the fact that “doing a Gentile” on Messi isn’t remotely in our DNA, the outcome wasn’t really a shock.
I’m not, let me make it clear, taking comfort in excuses. I continue to hold that this Arsenal team, relative to its peers, needs to be better staffed and coached, particularly in defence, to fully realize its potential.
Investigating the rash of injuries that have become routine with this team is an urgent necessity too. Unless we sort these out, I fear, progress beyond where we now stand will prove elusive.
Next at hand, Tottenham. They’re coming off losses to Sunderland and Portsmouth, and are in a stiff contest with Manchester City to secure 4th place. The pressure, therefore, is entirely on them. Recent history to boot, suggests that pressure and Tottenham aren’t great bedfellows either.
All found, therefore, I’d favour us to collect three points if we can bring our recent endeavour levels to the game. A win will put us a point clear of United and level with Chelsea, as healthy a set of incentives as there ever were.
So here’s to three points. We’ll have team news and other relevant updates for you come Wednesday morning.
On the business side of football, recent developments merit a fresh look at the issue of debt in the game, for the consequences of the global slump are beginning to be felt in Football too.
In all, Gay calculates Spanish football’s debt to be €3.5bn. The Spanish federation still owe the players’ union €6.8m and, according to the former president of the union, Gerardo Movilla, an estimated €100m is still owed to footballers in unpaid wages.
The state loses out too; Atlético Madrid owe the tax man €15m; 50% of their transfer income is embargoed.
Manchester United’s financial advisers expect the club to miss out on at least £24m in cumulative match-day revenues over the next two years. That constitutes a decline of more than 11% ….
JP Morgan’s analysis of the club’s financial position, set out in a research document released last Friday, shows United’s 2009 match-day income of £109m to be a high-water mark. Even in its supposed “upside scenario”, in which the club progresses to the Champions League quarter-final or beyond in both years, it anticipates a drop to £98m this season and to £96m next.
The recovery from that base will be weak; to £101m the following year. Indeed, United’s own budgets predict an even bigger two-year fall of £29m, with much of the collapse attributed to the difficulties in selling executive boxes.
The document states: “Most of the impact from the economic slowdown was felt in the executive hospitality business, which we would argue is a highly discretionary expense.
Do note too, that their elimination to Bayern in the Champions League will put a further dent in their earnings and cash flow.
And, typical to Leveraged buyouts comes this summation:
Whereas they (Read: The Glazers) have taken near unfathomable millions out of their club – £344m in interest, £120m in fees and other costs, £22.9m for themselves in “management fees” and personal loans –…
Finally, in the light of the recent “rumours” regarding Martin O’Neill’s dissatisfaction, a look at Aston Villa
But you suspect, underneath it all, that Lerner has been expecting a bit more bang for his buck. And that buck has been considerable. Since paying £62 million for the club four years ago, he has invested another £179m.
Some £95m of that is in equity, with £84m in loans. He also underwrote record losses last season of £43.7m.
Consider Villa’s “progress” on the field over the same period, and draw your own conclusions.
My own view is this: Spain is but act one in suffering the consequences of this recession on a debt fuelled business model. The world, and indeed the UK especially, is still in the grip of a deflationary spiral – pretensions like Quantitative Easing being only that and little more.
JP Morgan’s analysis above, in essence, is pertinent to most Premier League clubs at least in the short term. I think things are going to get worse, much worse, before getting better both in the broader economy and in football, and clubs that are already under strain are going to be under the cosh over the next year or two.
UEFA’s debt rules come into force in 2012; but the markets, in my view, will have sorted the situation out, painfully, by then.
Randy Lerner, in a recent interview, put forward the best description of a sustainable business model:
We want to build the club on our attendances. We don’t want to pay all our TV money straight out in transfer fees and wages. We have to invest in developing Villa Park, allowing us to generate our own revenue streams.
Perfectly put, if I may, and it brought to mind a certain North London club; one, I must add, that isn’t competing for fourth place.
Here’s to three points in the Derby. My meaner friends look at it as two for the price of one: Further our own title chase while putting a dent in a rival’s lesser aspirations. But that’s just them……..
Arsenal Have No Time For Naval Gazing: There’s 2 Trophies To Fight For
Posted by: | CommentsWe at Stone Cold Arsenal had opined earlier that Arsenal’s fortunes over this home stretch would quite simply be determined more by our ability to outscore opponents rather than by our ability to contain them.
We failed to do so at Birmingham City and the chase for the title therefore has just become the more arduous. It was an insipid game. With most of our strike force and creative heart still not in prime form, and a makeshift defence rendered necessary by circumstances, such an outcome was always on the cards.
While Birmingham, to put things in perspective, have taken points off virtually all the top teams at St. Andrews this season, three points were certainly not an impossibility and debates about the late introduction of Arshavin and Nasri will rage for some time to come.
Waste of time I say. We’re better off looking ahead and trying to win every game that lies ahead. So too criticisms of Almunia and the sloppy defending that cost us two points. Futile to fret about these things so late in the season.
We’ll do well to reconcile ourselves to the fact that this season is going to be a test of this team’s character, eventual outcomes be what they may. They’ve acquitted themselves honourably so far; their response to Birmingham will be a fresh marker.
Next on the agenda is Barcelona. I’m quite happy we drew them as opposed to one of the lesser teams as the pressure of expectations are non-existent. We have nothing to lose, and I can’t think of a more liberating feeling than that.
Can we, and will we go out there and give the games our all is the question. To me the outcome is far from decided, formidable as the task is. How we acquit ourselves here is going to speak volumes about our potential and character.
Reputations and teams can be made or undone in games like these, and I regard this tie against Barcelona as a great opportunity for this side to make a decisive breakthrough in their development. Win it, or make it a darned close affair, and they’ll go a long way towards fulfilling their rich potential.
Fabregas is not certain to start, and strong influence as he is, I’m not particularly worried. Between Nasri and Arshavin we should be able to hold our own in the creative department. Should it be Vermaelen-Sol at the back, or Vermaelen-Song?
I confess to favouring the latter option. Campbell’s talent and experience I’m afraid don’t compensate for his physical limitations in games such as these, and between Diaby and Denilson, Song shouldn’t be much missed in midfield. Needs must is my view.
I’d like to indulge a memory prompted by this draw: The quarter finals of the Champions’ League in 2004.
Deportivo La Coruna were drawn to play defending Champions AC Milan, and lost the first leg 1-4 at the San Siro. Against the formidable odds, they then thrashed them 4-0, in a display of relentlessly attacking football at the Riazor , eliminating Milan in the process.
Not that I want Arsenal to take such a tortuous route, but I certainly expect them to emulate Deportivo’s spirit and endeavour.
Here are the highlights of those two games:
An instance, I hope you dear readers will agree, of what makes football the “Beautiful Game”.
As an aside, I’d like to know if readers would like a column featuring two Spanish clubs, espousing starkly different philosophies, that for awhile around the start of the millennium punched well above their weight both in Spain and in Europe.
The afore mentioned Deportivo coached by Javier “Jabo” Irureta, and Hector Cuper’s Valencia who reached two successive Champions’ League finals. At the time, I found them a fascinating study in contrasts, and I’d like to know if you, our readers, will be interested in knowing more about them.
To conclude, I’d like to draw your attention to two articles highlighting the appalling indebtedness at the heart of club football in England and in Spain:
Seventy per cent of Barclays Premier League clubs have had their credit ratings “suspended”, an investigation by The Times can reveal.
Reports seen by this newspaper and generated by Riskdisk, a credit checking agency, reveal that 14 of the top-flight sides have been blacklisted, essentially meaning that companies trading with them are advised to withdraw credit terms.
According to José María Gay, Spain’s leading expert on football finance and an adviser to Uefa: “La Liga is dying”.
In all, Gay calculates Spanish football’s debt to be €3.5bn. The Spanish federation still owe the players’ union €6.8m and, according to the former president of the union, Gerardo Movilla, an estimated €100m is still owed to footballers in unpaid wages.
The state loses out, too: Atlético owe the tax man €15m; 50% of their transfer income is embargoed.
Look back over the clubs who have competed in the Champions League recently and the situation is alarming: Valencia’s debt is more than €600m.
Like Real Madrid (who sold their training ground for €447m to the council in 2001, wiping out their €278m debt), a property deal was supposed to be their salvation. However, the market crashed at just the wrong time. Now Valencia have two stadiums – one they cannot sell and another they cannot afford to finish building.
According to the third largest shareholder at Atlético Madrid, their debt is above €300m. Villarreal have just failed to pay their players for the first time because the ceramics industry from which their owner, Fernando Roig, makes his money has been hit hard by the crisis. Deportivo La Coruña are more than €120m in debt. Mallorca are desperately seeking a buyer and preparing for administration.
Celta Vigo and Real Sociedad have been relegated and, with no parachute payment to break the fall, went into administration. Real Sociedad’s president at the time was a certain Astiazarán, now the league’s president.
I urge you, our readers, to take the time to read through both those articles in full as these are issues that should concern all serious football fans.
I must say that I, as an Arsenal fan, ‘am delighted to only have to deal with on-field worries and frustrations.
Well then, here’s to acquitting ourselves as champions, the outcome be what it may, against Barcelona.
Speaking of the state of football finance, ownership and the sheer madness of the precarious positions football clubs find themselves in, don’t forget to join in our intriguing debate of why Arsenal is an oasis of fiscal sanity in an orgy of excess.
Also, if there’s any specific topic or aspect of football that you’d like to read in-depth, just contact us and we’ll educate ourselves on it before presenting our two pennies worth in another popular mini series, like the ones you’ll find in our ’Article Series’.
Arsenal: An Oasis Of Fiscal Sanity In An Orgy Of Excess – Part IV
Posted by: | CommentsIn 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.
Arsenal: An Oasis Of Fiscal Sanity In An Orgy Of Excess – Part III
Posted by: | CommentsAs this article series has evolved over the last two days, I’ve had to divide this final instalment into two, the first of which appears today, with the second to follow tomorrow.
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
*** Update (20/03/2010) ***
Commenting on this instalment of this article series, readers “Ken Hendrickson” and “ClockEndRider” found the Forbes presentation of debt to be non-intuitive. In hindsight, they’re right. So here is a link to an article that lays out the numbers in a far more straightforward
format: http://tinyurl.com/y9ot3nl
- £727m Manchester United
- £609m Real Madrid (Real claim only £296m)
- £436m Barcelona
- £386m Internazionale
- £348m AC Milan
- £297.7m Arsenal
- £240m approx Liverpool
- £147m Juventus
- £136m Roma
- £96m Bayern Munich
- £0 Chelsea, after £340m write-off, announced Dec 2009
- £0 Man City, after £305m debt-to-equity write-off, announced Jan 2010
The key point to note is this (extract from the article linked to) :
Debt in English football has been highlighted again because United’s new financial figures, released last week, showed they made an annual profit of £48.2m only thanks to the £80m summer sale of Cristiano Ronaldo.
United paid £41.9m in interest in the year on debts that are now above £700m. Chelsea’s most recent figures showed a £44.4m loss, while City’s showed they lost £92m. Both those clubs’ owners have wiped out debts in excess of £300m to clean up their balance sheets.
Liverpool’s debts are £240m-plus. Arsenal have £297m of debt, but this was acquired mainly for building Emirates stadium, now a cash cow that helps fuel profits. Arsenal’s repayments are easily serviced.
My own comments: Bayern is the only other club, apart from Arsenal, on that list to have borrowed to take ownership of the Allianz arena; again a case of debt financing an asset that pays for itself as it were.
No other club on that list can point to recent revenue generating assets financed with their debts, something that highlights the prudence of both Bayern and Arsenal.
***end of update ***
Over the two prior instalments, we’ve seen how the plc model is vulnerable to Leveraged Buyouts by those seeking quick turnaround on their money, and how the membership model doesn’t necessarily protect a club from the elected management’s adventurism either.
In today’s column, we’ll look at the various ideas taking root in the protest movements by the fans, and at the interest UEFA has shown in curbing debt, to understand how sound and sufficient they are, and what ideas are worth exploring to better protect fan interest in the clubs.
Let’s be clear about what we’re aiming at here too. The objective is not to eradicate debt or excess from the game, but to give fans a chance to curb both.
If given the opportunity, they choose to go with excess, they shall face the consequences, and will not have recourse to pleading powerlessness.
Recent events at Notts county underlie the view expressed above.
Tuesday, 30 June 2009: Notts County’s Supporters Trust have voted overwhelmingly in support of the takeover by Middle Eastern consortium Munto Finance Ltd.
12 Feb 2010: Ray Trew, the businessman who assumed control of County for £1 from former chairman Peter Trembling, has sent in a team of five accountants, who spent the day combing through computer documents, looking for discarded invoices in their attempt to unravel the mess left behind by Munto Finance and gauge the financial turmoil at the club.
The consolation is that the trust, with a 60% share holding, had a say in the matter. It is giving the fans the chance to salvage their situation, or prevent a mess, that I think is necessary.
The most pernicious consequence of the leveraged or tycoon takeover of the Premier League, to my mind, is the possible reluctance of sober, long term oriented capital to enter the business. who in their right mind would want to compete with the recklessness of those playing for a quick turnaround on the back of perilous debts, or of tycoons motivated by who knows what?
That it is possible to realize a steady if not spectacular profit in the game consistently is clear; as illustrated by Arsenal and Bayern Munich.
In this table
, you’ll find clubs sorted by different variables. Click to sort the table by the debt/value column, and you’ll see that both the clubs, clearly belonging in the big league, aren’t crippled by debt.
It’s not that either are perfect; it is that both, as a consequence of reasonable debt levels, have a sufficient margin of safety to recover from the inevitable errors inherent to business.
It is clear, therefore, that football can be a worthwhile business when run soberly and with an eye on the longer term. What is necessary is to put in a structure that for the most part, is attractive only to such owners, and allows fans to have a say in the way the clubs are run.
In the light of that conclusion, Michel Platini’s initiative to deny participation to the unviably indebted is welcome, but not sufficient.
Two outcomes are possible: Clubs break away and form their own “Super League”, or recruit financial wizards to game the system and hide debts “off balance sheet” through various mechanisms.
It’ll then become an all too familiar game of regulators playing “catch up” while crises beset us in the interim. This entire “credit crisis” the world’s dealing with is the perfect illustration of this behaviour, as illustrated by the following links:
First, within football itself – http://tinyurl.com/yzg8tfk, because as long as the holding companies are servicing any debt on the loans that have been taken out by the owner, it is perfectly possible for clubs to break even or even record a profit.
For example, last year, Liverpool actually made an operating profit of £10.2 million, even though Tom Hicks and George Gillett paid interest of £36.5 million, contributing to a holding company loss of £42.6 million.
The problem is that the holding company debt, to greater or lesser extent, will be secured against the club’s assets. In the event of bankruptcy, creditors will land on the club eventually.
From the larger world, just to highlight the prevalence of the games:
did Lehman Brothers Holding Inc (LEHMQ.PK) cross a line in the routine manipulation of its balance sheet, as described by an independent examiner?
That is the central question to emerge from the examiner’s report, released late on Thursday by the bankruptcy court in Manhattan, which details examples of Lehman concealing assets and liabilities through accounting techniques.
Goldman Sachs, the giant investment bank, is today at the centre of the row over the Greek government’s finances, amid recriminations over complex financial deals that allowed the euro zone nation to skirt its debt limits.
I’d also like to express my dislike of a NFL type structure.
In summary this is a permanent roster of clubs with no relegation or promotion, with wage caps, a rotation system that allows the worst team to recruit the top player for the coming season to ensure some form of equalization, and restrictions against leveraged buyouts.
This structure, the delight of pseudo free marketers everywhere, is called an oligopoly. ‘We all agree not to rock the boat so we all may benefit’ is the motto.
The only winners in this structure are the equity holders themselves. They get a fatter share of the profits pie at the expense of the wage capped players.
You don’t have to be Marxian to see the injustice of this. Players should enjoy the possibility of variable reward for skill and application. The same
applies to teams not part of this privileged league: Relegation and
Promotion, as we know it in the Premiership, are great motivators. Why
on earth shouldn’t clubs in the Championship not have the prize of promotion, with the attendant financial rewards and higher profile, to aspire for and play towards?
Moreover, capping wages would be treating the symptom and not the disease itself. It isn’t the wages, but the fact that they are driven higher, on the back of debt, or an owner’s personal wealth, in a mad hunt for a quick buck, or glory, that’s the problem. We should be careful to separate cause and consequence here.
I hope, on this evidence, that we can agree about UEFA endeavours to be necessary but not necessarily sufficient to curb gambling by football management.
Having explored the limits of the punitive measures, we shall take a look in tomorrow’s final instalment at preventive measures, which in essence allow fans to say no right at the outset, to the more reckless ideas of management.
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Arsenal: An Oasis Of Fiscal Sanity In An Orgy Of Excess – Part II
Posted by: | CommentsIn the 2nd instalment of this article series today, we take a look at a club structured very differently from a plc to understand if such a structure protects the club from excess predicated on ambition and greed.
You can read Part I of ’Arsenal: An Oasis Of Fiscal Sanity In An Orgy Of Excess’ here.
Real Madrid
Real Madrid as we know it today is very much a product, perhaps irredeemably of Florentino Perez’s Galacticos project from earlier this decade.
The strategy of the Real Madrid president was to sell Madrid’s training ground to raise money that would not only wipe out the club’s debt, but would finance the purchase of top stars who would contribute to on-field success and also to hefty revenue increases from media rights and merchandise globally.
The fact that clubs negotiate media rights individually in La Liga, as opposed to collectively as in the English Premiership, has undoubtedly encouraged this approach.
So far so good, especially given that Real Madrid’s debt was eliminated.
I’ll just post a chronology of highlights detailing events since then to serve as a road map for our understanding:
- May 2000: Florentino Perez is elected president of Real Madrid.
- May 2001: Training ground sold to Madrid city and the regional government for £290m.
- 2000 through 2003:
- Assembly of the Galacticos with then record transfer fees of £37.2m for Luís Figo; €75m for Zinedine Zidane; €39m for Ronaldo de Lima; and €35m for David Beckham.
- La Liga winners 00-01; 01-02.
- European Champions’ League winners: 01-02.
It is then that trouble starts with the sacking of the then manager V.Del Bosque’s, and with Florentino Perez’s refusal to countenance pay rises for the non-galacticos in the face of growing player discontent at the enormous wage differentials.
Claude Makelele’s departure from Real Madrid was the culmination of Perez’s meddling, at one point saying of Makelele:
His technique is average, he lacks the speed and skill to take the ball past opponents and 90% of his distribution either goes backwards or sideways . younger players will arrive who will cause Makelele to be forgotten.
Perez’s outburst on Makelele prompted what now seems a prophetic comment by Zinedine Zidane:
Why put another layer of gold paint on the Bentley when you are losing the entire engine?
It turns out Real Madrid did “gold plate” a “Bentley” without an engine.
Between 2003 and now Real Madrid have topped La Liga but twice; haven’t qualified for the quarter finals of the Champions’ League for six successive seasons now; are on their fourth manager; and are back in debt to the tune of €510m.
On top of this debt, Perez has borrowed a further €151.5m to finance the assembly of the cast for Galacticos the sequel.
One thing is clear on this evidence, assembling stars is no guarantee of success; and this time they haven’t embarked on the enterprise debt-free.
If that doesn’t worry fans, I don’t know what will.
Let me remind you, for context, of the fact that without Christiano Ronaldo’s sale Manchester United would have been in the red, despite consistently strong domestic and European showings; the point being that, beyond a point, even success doesn’t ensure fiscal stability if you’re indebted.
In my view, it should never come to selling the family silver to salvage a situation in the first place. That will only buy one time, little else. Doom is delayed not evaded.
Real Madrid still earn hefty revenues, but a large part of that is down to the €1.1 billion 7 year TV rights deal negotiated in 2006 with Grupo Mediapro. While detailed data is difficult, nay impossible to come by, the odds are that a good part of Real’s debt has been raised with this TV money as collateral.
That is to say, they have borrowed and already spent tomorrow’s money today as TV money is paid out in instalments over the duration of the contract.
Let us now take a look at the economic conditions underlying this situation.
While Real leads the Spanish league, it is selling fewer jerseys than Chelsea and Liverpool, according to uniform supplier Adidas AG. Attendance at the club’s Santiago Bernabeu stadium has fallen 7.8 percent from last season, as Spain suffers its worst recession in 60 years.
A recession in Spain, whose 19.5 percent unemployment rate is the highest in the euro region, is hurting Real’s plan. Average attendances at Madrid’s Bernabeu stadium declined to 67,461 from 73,157 since last season, according to data collated on ESPN’s Soccernet Web site.
Broadcast and sponsorship revenues for this season’s Champions’ League competition are worth €1.1.bn, three-quarters of which goes to the 32 competing teams. Some clubs stand to make €50m from this year’s Champions League.
Elimination from the Champions League cost Real Madrid up to 82 million dollars in prize money, marketing income and other business opportunities this year.
The headline says it all: “Decline Of Spain’s Banks Follows Country’s Economic Problems”.
Real Madrid’s ability to refinance their loans, especially at favourable rates, or in a pinch, to raise fresh funds is therefore clearly not a given under these circumstances.
Note that Banco Santander, is one of Real’s big bankers.
Again, a worrisome headline: “Santander Faces Scrutiny After BBVA Property ‘Shock’”.
On the strength of these facts, and given yesterday’s illustration how greater indebtedness leaves very little margin for errors, I propose that any sober Real Madrid fan must be very worried about the club’s current situation and direction.
It is also clear that Real Madrid’s membership model, while preventing takeovers by LBO artists, doesn’t afford protection against the vanity and adventurism of the elected management team.
I scarcely need remind our readers that the elections at Spanish clubs are exhibitions of all that’s unsavoury in a democracy: Promises year after year to sign everyone from Lev Yashin through Beckenbauer to Pele, with Tele Santana as manager.
Long suffering Arsenal fans will forgive me for recollecting that delightful summer pastime we’re invariably subjected to: Spanish interest in Arsene Wenger, Fabregas, Vic Akers…..
I’ll sign off on this article to the observation that membership models aren’t necessarily better at insulating football club from mercenary interests.
Tomorrow, in the last instalment, we’ll look at two clubs from each of the ownership models we’ve discussed, that highlight the importance and success of fiscal prudence; Arsenal and Bayern Munich.
I’ll share some thoughts about what I think can be done within a PLC structure to give fans a vote that can act as a protection of last resort against robber barons.
Arsenal: An Oasis Of Fiscal Sanity In An Orgy Of Excess – Part I
Posted by: | CommentsReal Madrid’s spectacular exit out of the Champions League at the hands of Olympique Lyon, on top of the on-going fan protests at Manchester United , has me pondering the question of club ownership models.
There’s no denying that football, unlike most consumer products, enjoys a socio-cultural significance that transcends the purely commercial. It would be absurdly reductionist therefore, to simply dismiss ownership concerns with the usual “free market” paradigm that badly run clubs will go bust while the cream will rise to the top.
Supporters are significant stake holders in the game and some mechanism has to be evolved that’ll give them a chance of saving clubs from poor management. I take this aspect of fan participation as a given and as extremely important.
What I’m not clear about at all is the management model that best serves the objective of fan participation. In this 3 part article series, I’ll outline my understanding of the issue and the reasons for my quandary, and invite readers to debate the subject
The question is this: Is there a management structure whereby fans, represented by some collective body, can realistically reign in the plans of a club’s board to play fast and loose with debt?
Given that the primary sources of revenue at clubs are media rights, commercial activity (sponsorship, merchandise etc.), match day revenue (tickets and hospitality); the demand for top talent, and the resultant transfer fee and wage inflation- often cited as the key causes of unsustainability – are natural consequences.
I personally think it isn’t the wages and transfers per se that are the problem. It is the use of excessive debt to finance the show.
The attractiveness of debt in funding ventures is illustrated in the table below (I have ignored tax to simplify the illustration). It can amplify both profits and losses dramatically for the equity holder.
- Debt 10 14 10 14
- Equity 10 6 10 6
- Total Capital 20 20 20 20
- Revenues 25 25 18 18
- Revenues/Assets 125.00% 125.00% 90.00% 90.00%
- Interest @ 10% p.a. -1 -1.4 -1 -1.4
- Debt Repayment -10 -14 -10 -14
- Net Return on Equity 4 3.6 -3 -3.4
- % Return on Equity 40.00% 60.00% -30.00% -56.67%
KEY: The cluster in column 2 indicates the amplified profit while the cluster in column 3 indicates the amplified loss.
This means that when the going is good it’s party time for the equity holder. However, this being a double edged sword, in troubled times the margin for error is dangerously low. The more leveraged you are the more amplified your losses are due to even small drops in revenue.
At an extreme, this leads to bankruptcy where your debts exceed the value of your assets. The key fact is that it doesn’t take much for the show to begin unwinding. When the larger economy gets into trouble, as it has globally today, two things happen; your revenues fall and lenders become wary of renewing your loans if you’re already highly leveraged.
At a minimum, they’ll insist you pay a higher interest rate which given the already falling revenues affects cash flow and threatens your solvency (the ability to pay bills in a timely fashion). This typically, is Act 1 in most unwindings.
Timing, therefore, is everything; If you’re caught short by circumstances- typically a bust of some sort- then you’re inevitably toast.
In this article series, I take a look at two clubs with very different ownership structures to see if either affords better restraints against debt accumulation; Manchester United and Real Madrid.
Manchester United
My sense is that in concert with the global boom following the dot-com era , the Premiership’s global popularity excited people a bit too much.
It is my view that most leveraged and debt heavy takeovers of clubs – Manchester United, West Ham, Portsmouth – were attempts to get in early on the game with borrowed cash that was then cheaply available and in abundance. The plan was to then whip the business into shape extracting ever more revenues, and finally selling out at a profit enjoying a lovely return on equity after the debts funding the takeover have been cleared.
The industry parlance for this is “LBO”, short for Leveraged Buyout. The Glazers followed this blue print to a tee before the “credit crisis” threw a spanner into their works.
As evidence to back this view I offer up some extracts from the following links:
Key Extract:
The Glazers bought the club for £810m, a fortune pocketed greedily by enough shareholders in what was then Manchester United plc. The Glazers paid £270m themselves, borrowing the other £540m from banks and hedge funds.
In the four years up to the latest accounts to 30 June 2009, United became liable to pay more than £325m in interest alone, yet the interest they have not paid, plus fees, has increased the debt the Glazers loaded on to United to £700m.
2) Extracting ever more revenue out of the asset
Key extract:
…independent Manchester United Supporters Trust (MUST), which claimed that since 2005 season-ticket prices have soared by between 50% and 60%. MUST also claimed the club was acting unfairly by “forcing” season-ticket holders to buy tickets for all home cup ties. It alleged the club was making fans sign a “blank cheque” for home cup matches.
3) Rolling out a fresh bond issue to refinance £500m of the loans.
Let’s remember that not one penny of these amounts have been investments in the club. They have simply financed the takeover of the Glazers. It is Manchester United that’s liable for the debt, not the Glazers.
Yes, they’ll take a hit on the equity they put in, but they’ve already paid themselves £22.9m in the form of various fees out of the club’s revenues.
The prime example as to how perilous such leverage can be is illustrated in the following statistic
.
“Without the sale of Christiano Ronaldo, Manchester United, who announced pre-tax profits of £48.2m today, would have been reporting a loss of £31.8m.
That it has taken Ronaldo’s sale to generate a profit despite the club performing consistently well both domestically and in Europe in recent years should be cause for grave concern. They have Wayne Rooney who’ll fetch a good valuation in a pinch too; but what then?
Even doing a domestic and European double, year after year, isn’t going to guarantee a healthy level of profitability it seems. Let’s not forget, too, that the world isn’t yet out of the woods economically; can ever growing media and commercial sources of revenue be taken for granted in such an environment?
In my view, the state of football financing and ownership should never be allowed to come to this ever again.
The whole sorry episode is summarised in the following set of questions asked by MUST of David Gill.
My question to our readers is this: On the above evidence, do the Glazers seem to you to be interested long term investors, or financial mavens looking for a quick turnaround on their investment despite being blindsided by the Credit Crisis?
I’m not suggesting they were oblivious of the possibility of crisis; but that they, like many others, may have misjudged the depth and duration of the beast.
I’ll post my views on the circus that is Real Madrid in the next instalment and then sign off with my thoughts on what I think are avenues worth exploring to safeguard fans’ interests.
Tue 13th September 2011; 19:45, Dortmund