Monday, August 08, 2011

Arsenal transfers....

Arsenal transfers – an alternative perspective
At the end of last season it appeared that Arsenal was a club in crisis.  Injuries and a lack of mental strength, combined with some seriously flawed defending horrified fans, and even AW appeared to be promising major changes – including transfers in and out of the club.

With the season about to start, there is a palpable sense of anger and frustration amongst fans.  We have not bought the marquee signings that we appeared to have been promised by Arsene Wenger, and our defence has not been strengthened significantly – in fact it appears to be weakened by the sale of Clichy.  The majority of the internet blames AW for not signing, blaming his stubborn refusal to change tactics and youth strategy.  However, I see things differently – we are not the same club we were five years ago, for economic reasons. 

We have about £200M worth of debt, secured on our stadium.  This is being repaid at around £20M per annum.  Our property development business has injected funds into the club – but this is not sustainable income. The sustainable income comes from match day income and the commercial deals the club enters into along with prize money.  It appears from the clubs’ annual report that money from the property deals (approx £40 million) is ring-fenced for transfers.   It’s a good amount – but once it’s gone, it’s gone – so AW has to use it wisely.  The state of the European economy is horribly grim, with low growth and realistically, growing our commercial side is challenging, hence the Far East tour and the aim of tapping new markets.

Historically, AW has not been afraid to buy - Overmars, Ljungberg, Pires, Reyes, Campbell, Gallas, Arshavin et al.  The difference between five years ago and now appears to be two-fold:

1. The amount of time it seems to take to complete the deal now
2. Who actually negotiates on behalf of the club and is responsible for completing the deal.

In the last 2 - 3 seasons, if you believe all that you read, it seems that we regularly miss out on big players.  Transfers like Arshavin and Gervinho appear to take weeks, if not months to fully secure, whilst the transfers of clubs like Manure seemingly completed at high speed.  I would argue that this is not the fault of AW, but the Board.

Ivan Gazidis is reported to be the director responsible for negotiating and closing transfer deals.  Since he and Stan Kroenke joined Arsenal our financial, commercial and marketing functions have been revamped, with new American managers coming in to sharpen up what was perceived to be the disappointing commercial performance of the club.  With this, it appears that new financial controls and processes have been introduced, and I suspect that our lack of agility in completing transfers arises from this.  Transfer deals are financially complex, with deals being made in multiple currencies; and with sterling being weak, our £40M does not go as far as we might like.  For example, three years ago, £40M would have been worth approximately 70M Euros; now it is worth 46M Euros.  Obviously our financial strength in the European market is significantly weakened.

The financial implications of deals are modelled extensively so that the full impact on the club finances are understood before any deals are finalised.  I would also expect that this modelling has to be done not once, but a number of times so that there are no financial surprises, and the impact on the cash flow of the club is fully understood.  This is very important - if an organisation runs out of cash, it does not matter what assets you have, you will almost certainly go bust - see Portsmouth and Leeds for recent examples. 
So before blaming AW for the lack of transfers, remember the board and the corporate support staff have important roles to play, and they also have some responsibility for the lack of speed in completing our transactions. Gazidis I suspect is a hard nosed negotiator, determined to get the best deal for the club - and that will sometimes mean that he will not complete deals that he feels are not in the best financial interests of the club.  

So, I would argue that whilst the Board fully back AW, it is only if the financial aspects of the deal are fully analysed and the financial implications fully understood.  This takes time, and I suspect costs us on some players.  Also the financial aspects of deals will be scrutinised ever harder – if they do not favour the club, then the deal will not be done.

I think the evidence for this perspective exists, with the very robust attitude being taken towards the sale of Fabregas to Barcelona.  The hard line stance is very much in the club's interest; not only in trying to keep our best player, but also in terms of the potential financial damage such a deal may inflict on Barcelona.  Their financial difficulties are well reported; screwing the odd million or two out of them sounds petty, but will cause debt ridden clubs like Barcelona a lot of pain both now and in the future because they cannot afford him - and eventually that will show on the pitch when they are not able to compete financially with clubs such as Arsenal which have a far more robust and sustainable business model.  The battle for European and domestic supremacy is being fought not just on the Emirates pitch, but also economically, and this is a war that AW and the board appear to be determined to win.