Sat 11th September 2010; 15:00, Emirates Stadium
Archive for Off the Pitch
Why Speculating About Cesc Fabregas Is Not Good For Your Heart
Posted by: | CommentsI must have missed the last few days while stuck in the reservation and away from the hyperbole of the ’silly’ season. Not that I care much about the amount of faecal matter that gets stirred in the name of inventing breaking news, but I wonder if I made a mistake of even bothering to switch on the sports news this morning.
The thing is this, the way rumours about Cesc Fabregas leaving Arsenal for Barcelona are being peddled, you would actually get the impression that it’s a full gone conclusion and that the removal trucks are waiting outside the Spaniard’s pad in leafy Hertfordshire ready to take whatever is going to Catalonia.
Arsenal Captain, Cesc Fabregas
The narrative is so predictable. Cesc answers a planted question in a charity event in Spain by saying if he ever left Arsenal, it would be for Barca. Cue the punks at Marca who provide their own version of the story for it is written that any editor who doesn’t peddle a Cesc story will be fired on the spot.
The usual suspects here from the Daily Wail to Sky Sports News pick up the story as fact and even suggest that Fabregas’s representatives flew into London to talk to Arsenal.
Which by the way baffles me a little because Fabregas’s agent, who happens to be David Dein’s son actually lives in London so begs the question as to why he would fly from City Airport to Heathrow just to liven up the story.
What I also find amusing is that media houses send a whole crew to the Emirates stadium at 6 o’clock in the morning to stand outside and report their hogg wash. For one, no one is at the stadium and you wonder what the deal is. Are they going to get more credibility by standing outside the stadium and using it as a prop or doesn’t it make more sense to just sit in the studio and peddle their story?
I’ve never really figured out why journalists insist on standing outside buildings even at 11.00 pm talking about a story that happened in that building over 8 hours prior to that.
In the building behind me today, we believe that a meeting took place and Cesc Fabregas’s agents who flew in from Spain have held talks with Arsenal. No one is here to comment, but we speculate that the talks are on-going.
This story is not likely to go away soon though, and for the very simple reason that there’s nothing to fill the air waves and news columns. I tell you, 24 hour news cycles are a bastard.
Arsenal fans around the world will be biting their nails on account of the media shit stirring going on in the name of credible news. At Stone Cold Arsenal Towers though, our view is that we should just relax and enjoy the summer for this is not a reason to blow a gasket for.
We have spent time on the phone this morning with our inside source at Highbury House. And this is not some friend of an uncle’s neighbour’s former school mates half brother who works as a janitor at Arsenal. It is actually our contact’s job to know and deal with these things.
Our contact has made us understand that Arsenal’s position is simple and clear.
- Arsenal does not indulge in media speculation and will not enter a slinging match between the Spanish and English media and tabloids. The club is too classy for that.
- Cesc Fabregas is on a long term contract and an employee of Arsenal FC and that’s not going to change because newspapers have columns to fill.
- Arsenal are not interested in selling their best and most influential player in his prime. Speaking of which, transfermarkt.co.uk, a leading authority on player valuations places Cesc Fabregas as the 5th most valuable player in the world after Lionel Messi, Christiano Ronaldo, Xavi Hernandez and Andreas Iniesta.
- Barcelona will have to break the bank if ever there was a decision made to sell Cesc.
The impression I get is that no one really knows whether as reported, Cesc has asked for a transfer. For one, that will be professional suicide on his part, not only because it will antagonize the relationship he has with the manager and other Arsenal players; by asking for a transfer he will forfeit some serious benefits and short change himself.
The long and short of it is that it’s just another summer when Arsenal players become target practice. Arsenal are not interested in selling (though I would read that as “we won’t sell unless Barca are silly enough to unleash an eye-watering offer that is too good to turn down”).
Cesc will leave Arsenal at some point in his career, and the only known and verifiable fact is that his departure will be on Arsenal’s terms. The club is bigger than any one individual and it will not be rail-roaded into a transfer by the media or an impending Barcelona presidential election.
Until then, let’s enjoy the summer and go easy on self inducing heart attacks.
The Miseducation Of Football Punditry
Posted by: | CommentsOn Tuesday night, I resorted to quietly creeping into bed after a long exile in the living room watching a movie way past my bed time. As much as the Chelsea defeat to Mourinho’s Internazionale planted a smug grin on my face all night, I thought it prudent to stay away from the bedroom until the coast was clear.
If there’s one thing marriage teaches you, it’s the skill of knowing when to compromise for the sake of world peace. My wife had clearly had an unpleasant night, seeing her beloved Chelsea bitch slapped out of the Champions League, and I had to rein in my temptation to shamelessly gloat.
I thought I’d got away with my stealth entry into bed only for her to say ”wipe that stupid smirk off your face”. Whatever happened to ’goodnight sweetheart’.
It was only until yesterday when we got round to talking about football, and the conversation naturally revolved around where Chelsea go from here. I’ve always maintained that it was only a matter of time before the footballing senior citizens from Stamford Bridge reached the point of diminishing returns.
Whenever I get the opportunity, I wax lyrical to anyone who will listen about the virtues of Arsenals youth development infrastructure, and the benefits it is slowly yielding. It’s the antithesis of the brazen ’cheque book’ style of management we’ve come to know in the last 8 years or so.
For many clubs, the ethos and practice of ’building’ a team within your means has become an unfashionable concept. The easy way out for clubs chasing glory is to ’buy’ their way into stupidity, as Chelsea and Real Madrid have spectacularly shown.
The Chelsea hierarchy and fans have been carrying out a post mortem after Tuesday’s dramatic exit from the competition their wealthy owner sees as the holy grail. Not surprisingly, the solutions being bandied about evolve around the need to dismantle the squad and start over.
The Chinese have a saying suggesting that insanity is doing the same thing over and over again and expecting different results. I couldn’t help but notice the default position that the football establishment and punditry have taken on this issue.
It seems that no one has learnt the fundamental lesson here that you can’t buy success. For one, this short-term mentality is a sure fire way to flush millions of pounds down the toilet.
Secondly, the constant cheer leading by the pundits and hacks for Roman Abramovich to whip out his cheque book is so detached from reality, you honestly start to wonder if these guys live on this planet.
My sense is that one of football’s biggest problems is the fact that pundits are unfortunately given a stage by media houses to spew some serious diatribe that goes unchecked.
There’s an inherent assumption that if someone played football at one point in time, then they have the competence and or ability to form a reasonable, well thought out and researched opinion about footballing matters. Unfortunately for us, we’re stuck with a bunch of folks who I’ve got to tell you, leave me with the impression that they possess the IQ and personality of a fence post.
We are forced to endure the injustice of having folks who’s grasp of tactical and general footballing matters such as finance or the evolution of the game across the world is so off the pace, it ventures into the realm of criminality.
Even after Abramovich has spectacularly lit a bonfire with over £700m of his own fortune and watch it disappear with the dying embers of an aging Chelsea squad, the pundits are so far removed from this world to think that the solution is for Abramovich to keep spending more of his personal fortune.
Clearly, the club can’t afford to spend its own money considering they’re still running an operating loss and have a payroll to revenue ratio that beggars belief.
I’ve got to tell you, spending £700m (and counting) is an expensive if not a breath-takingly stupid way to acquire 2 EPL titles and a few FA cups, and at the end of it, you’ve got a squad that is about to retire, and no viable solutions to organically refresh the squad in a sustainable way.
What’s ironic is that in the last 5 years or so, this group of pundits and hacks have totally derided Arsenal and Arsene Wenger for going about their business in the right way. It’s become fashionable to sensationalize and shamelessly laud the virtues of what is clearly the financial doping of football by the injection of obscene amounts of ’artificial’ investment.
The sycophancy around the likes of Chelsea and Manchester City’s unsustainable spending sprees is typical of a culture that has lost any form of reality. It’s a culture that still thinks that football is immune to the impact of the global economic crisis.
My take is that very few if any of these pundits have the capacity to understand and digest the environment that football is operating in. They fail to grasp the fundamentals that affect the dynamics of the game as it evolves, and they fail to understand the impact of their ill-informed and misguided so called ’expert’ opinions shoved down our throats in the media.
This in my view makes them extremely dangerous. I have a friend Kevin, who retired from the Armed Forces, after serving in both Northern Ireland and in desert Storm, the first Gulf war if you will.
The miseducation of these pundits reminds me of one thing Kevin says about combat and how intelligence is important. Going to war without intelligence is bad enough, but there’s nothing more dangerous than going to war with the wrong intelligence. It’s inevitable that people will die.
Pundits have the same dangerous effect on football, in that what they perceive to be their expert opinion about football is actually wrong and misguided for most part.
The constant clamour for Abramovich to spend more money to rebuild the squad is a classic example of having absolutely no grasp about the issue that ails Chelsea. Buying this squad is a fundamental part of the problem because it’s not sustainable.
I think one of the issues that can be addressed is that some standards regarding the basic education and communication skills of pundits are put into place. It’s insulting to pick any Tom, Dick or Harry who has just walked through the ’I used to play football’ door, stick a Mataland suit on them and put them in front of a camera.
I sometimes get bemused that following any news and or football event, there’s always an ”ex…” something available for his 15 seconds of fame in front of a camera or at the end of a phone to provide an opinion.
You do wonder whether it’s impossible for the media houses to get the opinion of somebody reputable who is actually in the game as opposed to a ’used to be’ who wants his name out there.
We can’t do any worse than expect that whoever sits on a sofa and earns his corn as a pundit should at least have a competent grasp of the subject matter, if not a basic education.
What was more interesting and telling though, is that through gritted teeth, some of them have reluctantly started pointing out that the Arsenal way is perhaps the way for Chelsea to go. I get the sense that the tide is starting to turn.
The losses of Real Madrid and Chelsea in the Champions league, despite the urban myth that has evolved to suggest that big money equates to trophies, is a visible indicator of this misguided notion.
My sense is that the success of Arsenal and the achievement of winning titles in years to come will do more for the sanity of football if only to illustrate that you can live within your means and be successful.
Speaking of football punditry, the late legendary Nottingham Forrest manager Brian Clough has to be commended for his shall we say – bitch slap of the hacks and pundits and putting them in their place.
Watch the video here:
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.
How ‘English’ Is The English Premier League? Part III
Posted by: | CommentsIn this final instalment of the series that examines ’How English is the English Premier League’, I want to conclude the threads discussed in Part I and Part II of the article.
I’d like to firstly highlight one other important aspect of foreign influence in the English game following on from Part II – – and that is club ownership.
Foreign Ownership of English Clubs
As with players and managers, there were an insignificant handful of foreign owners through the early years of the EPL who either partially or wholly owned clubs.
The football landscape was changed beyond recognition in 2003 when Roman Abramovich, a Russian oligarch, bought Chelsea. Legend has it that Abramovich decided to buy Chelsea after seeing an aerial view of Stamford Bridge from a helicopter during a ride across London.
Apparently, he also wanted to buy other stuff but he was told that they weren’t for sale and that they belonged to the Queen.
What was significantly different was that unlike other foreign club owners who came before him, Abramovich pumped an obscene amount of money into the club – £700 million and counting to date.
His sole aim was to move Chelsea from the obscurity of mid to lower table mediocrity and turn them into the biggest football club in the world.
Assessing whether he has achieved his goal depends on which side of the bread you’re buttering, and I’m conscious this article isn’t about the rights and wrongs of foreign ownership per se – but more about the impact it has had.
However, I will say this– it’s a hell of an expensive way to try and achieve world domination, and I believe that Abramovich himself has acknowledged how unsustainable the path he took was.
Writing off a £350 million loss and turning another £350 million into equity in the hope that you might one day recoup it says a lot about a businessman who realises when it’s time to cut his losses.
Setting aside the rights and wrongs of this ’sugar daddy’ model of ownership, what Abramovich did was to open the flood gates for other wealthy individuals to venture into ownership of EPL clubs – with varying results I must add.
You have the owners who used leveraged finance like Hicks and Gillett of Liverpool and the Glazer family who own Manchester United; and you have the filthy rich Abu Dhabi Investment Corporation who pretty much print the money from the mint attached to the back of their office complex.
Without delving into the merits or not of this new breed of foreign ownership, the issue as relates to this article is that the influx of the obscene amounts of money pumped into football by these filthy rich folks has had a substantive impact on both the administration and the technical side of football.
- Wages and expectations of player and staff remuneration have spiralled out of control because of what the rich owners are willing to accept as normal.
- Other clubs have had to resort to the ’cheque book’ culture of management where unsustainable debt finance is used as a first resort to chase glory and survival in equal measure
- The gap between elite clubs and clubs in the lower echelons of the English leagues has grown wider and wider.
- The media and football establishment circus who only seem interested in self preservation and curving out careers for hacks and pundits have perfected the art of misguided and sensationalist cheer leading. Considering that this very media is the last bastion of imperialism – it goes without saying what influence they can have over the masses when it comes to shaping opinion and culture.
Conclusions
I want to conclude by drawing on the core thrust of this article series and reflecting how xenophobia creeps into a culture where the football establishment views what is ’foreign’ with suspicion
Again, I want to use Arsenal as an example to illustrate my point. In a recent article I wrote, I posed the question as to whether Anti-Arsenalism is a reality or a myth. This article will give you a bit more depth about where I’m coming from on this anti-Arsenalism angle.
The football media in general, and pundits and commentators in particular have openly shown bias to Arsenal for the simple reason that Arsenal is not ’English enough’ for their liking.
It’s become common practice to here openly xenophobic statements from journalists and presenters on the air waves and news columns like:
- ”Arsenal will never win the EPL without an English backbone” (whatever that means)
- ”I can’t believe Arsenal and their fragile glove wearing foreigners are not men enough to play in the snow” – this is in reference to the cancellation of a home tie against Bolton on Jan 6th 2009
- ”These cheating foreigners have brought their dodgy ways of playing and we don’t want it in our honest game” – diving, anyone? Notwithstanding that the 2 saints of English football Gerrard and Rooney have perfected the art of diving that the same commentators call ’being clever’.
- Constant negative references to the number of foreign players in Arsenal’s line-up and reference to the falsehood that Wenger is responsible for killing English football.
- Constant references to Arsenal allegedly not having – wait for this – ”Good old fashioned English grit and steel – or passion and commitment”, as if the attributes were a preserve of the English brand of football.
It’s ironic in that Wenger is castigated for not following the blue print of what is seen as quintessentially English – whether it be his training and development methodology, his brand and style of football, or his unwavering commitment to total football and the belief that you can win championships by playing beautiful football.
The net impact of the collective xenophobia bandied around in the name of self preservation of English football is that Arsenal have become the ’whipping boy’ of the ”…they are not English enough” band wagon.
To the establishment that is openly or inadvertently fighting for the endangered species that is the brand of English football, Arsenal are a visible representation of all that is supposedly killing English football.
The truth is that English football – in terms of quality, technique, development and style – really needs to move into the 21st century like other cultures have moved on. It’s a trait that needs instilling right across the board from the Hackney marshes to Wembley, and from the youth ranks of 10 year old kids to the senior national team.
In Holland for example, kids from the age of 9 or 10 are taught the virtues of total football. They’re taught how to caress and seduce the ball; how to use it well and how to enjoy the game.
They are taught the value of team spirit and mental attitude and they’re taught not to be afraid to express themselves out of a tight spot on the pitch. By the time these kids are senior professionals, technique and total football are a way of life.
In England, football still seems to be stuck in a time warp when it was cool to play a certain brand of football. The type of football that focuses more on physical strength and the push, kick, shove and run mentality to get the ball to the other side of the pitch.
When technique and skill are devoid, characteristics like grit, steel and graft are openly promoted in substitution as total virtues in the game.
Let’s face it, some of this ”we’re well ‘ard” mentality just promotes thuggery sanctioned as association football. The media for example, openly embraces teams that have pre-match team talks as ”the only way to play Arsenal is to get into their faces, up their noses and kick them”.
Off the pitch, such statements (printed in the press) can easily qualify as a crime of conspiracy to cause ABH or GBH.
I feel that the xenophobia then kicks in when ignorance takes over and the foreign influence is misguidedly seen as endangering English football as we know it.
My sense is that the English footballing establishment should go back to the drawing board and totally re-think how it approaches football. They might find out what ails English football and stop blaming the ’foreigners’ in the English league for the decline in the standards of English football.
To be honest, if there weren’t any foreigners in the English Premier league, it wouldn’t be the English Premier League.
The powers that be in the establishment wouldn’t do any worse than spending a week at London Colney with the Arsenal youth and reserve teams – which incidentally, is full of technically gifted and promising English players.
