A programme on Radio 5 Live on Monday night suggested that when it comes to Arsenal’s finances, the manager is more candid than the directors.
I was told about the programme, didn’t hear it myself. A guest on the show apparently said that the reason MD Keith Edelman was sacked was that the financial structure he had put in place depended very heavily on the front end, and on the property market.
Unfortunately, the commercial property market collapsed 18 months ago, and the retail property market collapsed last October, and both look like being depressed over the next two years.
The guy being interviewed seemed to have been at a conference where Arsene Wenger had been speaking, and the manager admitted that he has to come up with £24million every summer from the sale of a player, or net sales of players, in order to pay back the loans for the stadium and the property developments. And that will be the case for the next seventeen years.
That explains his strategy of buying young players, which is his reputation, his niche, what makes him different. Other clubs buy stars AND kids. He buys kids.
Cesc Fabregas is his flagship player, his beacon, the prodigy whose success sends out signals to teenage footballers on all five continents. If Wenger is very well known for signing young players, and giving them opportunities, then he can sign young players more easily than other clubs. So Arsenal is actually more like a Dutch team, a selling club that find talent and moves it on at a profit.
However, does all that really stack up with what is in Arsenal’s financial statements? Does what Wenger said contradict what’s said in the clubs accounts?
In financial statements, companies can make reasonable assumptions, as long as their auditors sign off on them as being reasonable. It may be that Arsenal are very, very short of money. But their financial statements so far do not indicate that. The next accounts are due in September and are eagerly awaited.
So Radio 5 Live backs up that “Exclusive” by David Harrison in The News of the World, where Arsene admitted that Arsenal are a selling club and had been for some time. He said, “We manage at Arsenal to maintain all our football ambitions —national and European —while having to free up – for seventeen more years – an annual surplus of £24m to pay for our stadium. The club’s strategy is to favour the policy of youngsters ahead of stars and to count on the collective quality of our game.”
If this is the case, and we can believe it is, since those comments have never been contradicted by the club, it’s new. It reveals for the first time that since building the Emirates Stadium, Arsenal are playing a different ball-game to the other 19 Premier League clubs. It changes the assumptions most supporters can make about what the manager is doing with their team.
Clearly, young players are cheaper and hungry to earn star wages, so they will work hard to become stars. Arsene can keep selling us the future and loads of loyal fans will buy into that dream. Football is all about hope, after all, and every season begins with hope, as well as some doubts. Plus, young players are easier to control than older players, as long as they are not gamblers or drinkers. Plus, as I’ve said before, as football’s stars get richer and richer, teams are going to get younger, although Berlusconi, the godfather of AC Milan, hasn’t twigged that one yet.
The other aspect is that while the property development market is dodgy now, there are lots of hedge funds who are cash rich, and could take on projects like Queensland Road.
In the finance industry, everybody has been waiting for this to happen for several years. It always happens when the economic cycle turns down. Every nine years, or thereabouts, the cycle turns down.
You can look back on successive banking crises, and their impact on the commercial property market in ’89-90 or ’92-93, or in the Seventies. It’s all documented and everybody knew it would happen again. Every director of a major joint-stock bank and or investment bank, and everybody who worked directly for those directors (people in corporate development, or corporate finance, or risk), knew a recession was inevitable. These people meet up at Chatham House Forums and everybody says : it’s going to happen. They’ve been saying this since 2004.
You know what will happen with markets, but you don’t know exactly when it will happen. With the stock market, there has been a massive amount of research done, and they now have mathematical models and tools which help you to predict what will happen. But the timing remains unpredictable. The nine-year cycle can last eight years, or seven and a half, or even eleven. The cycle will affect everybody worldwide, but not to the same degree, or in the same way, or at the same time.
So that is where we are. That must be the context in which we talk and write from now on.
Remember, David Harrison wrote that story recently. He wrote it 19 days ago. He said that if Adebayor was sold to Barcelona for £30m, Wenger would sign Huntelaar from Ajax for £18m and make a handy £12 million profit. But since then Marco van Basten has said, “He’s going nowhere.” And Huntelaar has signed a new five-year contract at Ajax. Personally, I don’t rate Adebayor. But he can keep Arsenal in the top four. Arsenal need to be in the top four and Adebayor can play a big role in keeping them in the top four. That is obvious to anyone.
Being a big-picture guy, rather than a news junkie, I asked a couple of friends to send an email if something big happened at Arsenal while I was away. I didn’t know if I would be online in Croatia, or how often. But I would read the story when I came back, if there was a big story. When we got home on July 9, I saw what Arsene had said in The News of the World on July 6.
For me, what he said was much more significant than selling Hleb to Barcelona or buying Nasri:
“We manage at Arsenal to maintain all our football ambitions —national and European —while having to free up – for seventeen more years – an annual surplus of £24m to pay for our stadium. The club’s strategy is to favour the policy of youngsters ahead of stars and to count on the collective quality of our game.”
That is telling it straight.