15 FAQs that are related to the Board

This is a blogpost I made earlier at GoonersUnite back in January 2012. However since some parts are still relevant I decided to publish it here as well. The post was about certain Frequently Asked Questions me and a couple of others had to constantly answer on the football forum: footytube. Most of the graphs are from the swissramble and if you haven’t you should definitely check his  blog out. Anyways enough words have been wasted on explaining the post so without further ado here is the post itself.

Q1. Why is our home support so silent/weak?

Some might think its due to lack of attendance, however the Emirates has almost always been filled. Even this year against Shrewsbury in the Carling Cup we had a healthy attendance of 46,539. However the high attendance figures shadow the real reason behind a silent home support as it does not highlight the composition of the support. To illustrate what we mean just look at the Arsenal home support  and the Arsenal away support.

The massive difference in the composition of fans is majorly due to ticket pricing policies (both season ticket pricing and match day ticket pricing) by Arsenal FC. Arsenal have the most expensive match day and season tickets in the Premier League which leads to many fans who cannot afford to go to each game (or to the extra expensive home game) to attend away games. We have seen many times that Arsenal fans “borrowed” the oppositions stadium for the match day. Ironically the opposite is the case for our home ground.However recently Arsenal has joined Aston Villa in an effort to push through plans to create safe standing places. Standing places were made illegal in any stadium due to the Taylor inquiry which was the inquiry into the reason why the Hillsborough disaster happened. The plans to push through safe standing places is a rather brave one given that it was in the Premier League that such an incident happened, however given modern technology we should be able to achieve safe standing places (one should also resist the temptation to sell more tickets than actual standing places but if the project does go through extra attention should be given to the accounts of the teams that have standing places by the FA/UEFA). In my opinion standing places would help make the Emirates a fiercer environment (assuming the board does not make its prices too high)

Q2. Did Arsenal need to raise ticket prices?

No. We were in a healthy position regarding both football and finance so the team did not have a gun to its head when they made this decision. Arsenal already had the 3rd largest match day income behind Real Madrid and Manchester United. Having said that a comparison between season ticket prices is extremely hard as an Arsenal season ticket also includes 7 cup games. Arséne Wenger made a reasonable argument that the 6.5% increase in ticket prices was needed “to increase our income to fight with other clubs” however this could have been achieved in other ways. (see Q3 for more on this)A more logical explanation for the price hike was given by Tom Fox. In the interview Tom Fox outlined that after seeing a 40000 waiting list for season tickets “you think you are not charging enough for tickets”. Factor in that in football a price increase has the least drawbacks as the teams “customers” have a fierce brand loyalty. After all we don’t expect an Arsenal fan to suddenly switch to Tottenham due to the price differential.

Q3. Apart from increasing ticket prices what other ways could have Arsenal increased their income?

Most Certainly. One way (which is utilised by the likes of Manchester United and Barcelona) is to actually win competitions. However we should note that progressing as far as possible in the Champions League should be a priority over a Domestic Cup. After that would our priority should be to qualify for next seasons Champions League. (if we look at the amount of funds receivable rather than the amount of gloryhunters). However for Arsenal to actually be able to compete in the UCL they would have to hold onto the talent they produce/polish and not force Arséne Wenger to rebuild a semi-good team every 3-4 seasons but for that to happen Wenger desperately needs the help of the board.

Alternatively to winning more the board could quite possibly renegotiate some sponsorship deals. If we look at our books it is painfully obvious that we are behind the curve when it comes to commercial revenue. From this figure we can see that due to the boards unwillingness to renegotiate these deals we are missing out on approximately 30-40 million pounds of revenue EVERY SEASON. Out of all the sponsorships though Arsenal is doing the worst in shirt sponsorship and kit supplier deals where even Tottenham are doing better.

Q4. Why is commercial revenue so low?

AFC needed to tie itself down into long term deals to provide cash upfront for stadium financing because we got no subsidy from the government. The board was aware that in the long run this could possibly leave us behind the curve when it comes to commercial revenue but in order to build the Emirates they were willing to take this risk. This was a strategic decision made by the board which left us with sub-par commercial deals in the short run but a stadium in the long run (I’ll let the reader decide whether the board made the right decision)

Q5. Is the club doing anything about increasing commercial revenue?

Yes the board were actually renegotiating the shirt sponsorship deal but this is not enough when you have the likes of Stan Kroenke in the room and Alisher Usmanov knocking on the door. I’m fairly certain that one of these gentleman would be more than kind to buy-out some of the commercial contracts and help us negotiate new and better sponsorship deals which would help the clubs already slowing revenue growth.

Q6. How is our Emirates debt looking like?

The Emirates project cost us 470million pounds of which 260 million was a special loan package. According to the annual AFC financial report our property debt (the debt on the Highbury square apartment complex) has been repaid so that leaves us with a gross debt of around 250-260million pounds which consists of:

-the long term bonds on the emirates (lets call these mortgages) which account for around 230 mil
-debentures held by supporters which account for about 30 millionIf we deduct these cash balances we are left with a net debt of around 90 million. I would like to express at this point that since“Our property business is debt-free, any new sales of property do accumulate cash, which is very positive for the future.” (Ivan Gazidis). It is true that only 16 of the original Highbury apartments remain unsold, but in 2012 20-21 additional units will be added.

Now onto debt servicing: If we were to look at the accounts of Arsenal Holdings plc we could make our own estimate of the amount of transfer funds Arséne Wenger potentially has. The Swiss Ramble estimated 53 million pounds in October (since then the board has sat down with our shirt sponsor to try and renegotiate terms so this number should be taken with a pinch of salt). Another reason to not take this number as gospel is because the club has to keep some of this as a reserve for debt servicing (not to mention the uncertainty of season ticket renewals).

Q7. When will our Debt servicing end?

This will probably make some of you angry/sad but “Further significant falls in debt are unlikely in the foreseeable future. The stadium finance bonds have a fixed repayment profile over the next 21 years and we currently expect to make repayments of debt in accordance with that profile.” -Ivan Gazidis (2010)
So we still have to pay debt servicing for another 20 or so years. Theoretically it would be possible to pay back some portion of these debts earlier but the board has shown no signs of such a thing happening.
“The debt that we’re left with is what I would call ‘healthy debt’ – it’s long term, low rates and very affordable for the club.” -Ivan Gazidis
This is not however not necessarily a bad thing since the club is in a financial situation where it can afford such debts (as Gazidis has said)

Q8. What is the 10 year plan? How does it fit in the Arsenal philosophy? (By Cloudst)

The 10 year plan that Mr. Arséne Wenger has for the club can be interpreted in a process of steps. First it was (in my opinion) implemented when the invincible era came to an end. Players like Robin Van Persie and Cesc Fabrégas came into the club in terms of a long term future for the club that would stabilize the team into more success years for the future. Everything had gone to plan our youth academy is also producing some fairly well known players now that hopefully will be more involved in the near future but then the selling off of key players and figures of Thierry Henry and Patrick Vieira had a dramatic repercussion on the first team as the introduction of some of younger players meant that there was no leader in the back room and a figure that had left a dominating presence in midfield which eventually left us to our current trophy drought. Years went by and now standing at 7 years arsenal have been without a trophy but this particularly does not mean the 10 year plan of Arsene Wenger had come as a failure. Arsene Wenger realized now more than ever that he needed the presence of an experienced person in the backroom of the squad to unite the team together and give the younger generation of arsenal players a better understanding of the game (thus enter Mikel Arteta, Per Mertesacker, Yossi Benayoun and Andre Santos). This, by all means, is just the background to the 10 year plan as it has massive links to our stadium debt as well. If you are interested about reading about the 10 year plan just click here as it is outlined clearly by the author.

Q9. So was the youth policy just a necessity? (By Cloudst)

In a sense it makes us unique from the rest of the teams and it has it’s benefits as well as it’s downfall’s. Youth development is not a simple process of 1,2,3 and the player has made it. There’s many factors to how a player shall reach that potential, Theo Walcott is a fantastic example of how such a wonderful talent can be bogged down to early exposure to the first team and the pressures of the media to perform (which came from him being called up to the WC squad at the age of 17!!!!! Much too young for him with too much expectations). There is also the factor of younger bodies of youth products not growing stronger than the body of a mature 27 year football player who’s body is fully grown and matured (which lead younger players to be injured more, which is why we have recently opened up a brand new clinic facility near our training grounds to tackle these problems. These are the negative repercussions of youth development however the positives mostly out weigh the negatives at times for youth development (especially in a stadium debt)

Q10. This is all fair and dandy but why doesn’t Wenger buy proven players like Mata? Why did he let Nasri and Fabrégas leave in one summer?

The board has the say on which transfers go through and which ones don’t. A good example of this is Phil Jones and Chris Smalling who were identified by us but the board refused the extra 2-5 million to authorize the deal to go through. Further proof is the fact that Arsenals money floodgates opened after the memorable 8-2 at Old Trafford. It normally takes weeks to sign 1 (!!!) player let alone 3 (in a matter of days) which suggests that most (if not all) the paperwork was already done prior to the Manchester United game. What was needed was the green light from the board and the final signature of the player(s).

Q11. Gazidis and Hill Wood said that Arsenal can do with missing out on the UCL for one season. is it true?

As I am not an insider to the Arsenal Board I do not fully know if this is true or not. Having said that this seems to be more of a message to the stockholders than the fans (“Don’t worry stockholders your dividends won’t be affected”).This highlights the problem that the board is more concerned and is only accountable to the stockholders and not to the stakeholders (fans) of the club. Not to mention that most fans blame Wenger when a transfer breaks down so the board enjoys a little safety due to this common misconception about football clubs (as an enterprise). This misconception comes from the fact that both FIFA and PES franchises manager mode gives the player almost absolute control over a clubs finances, tactics etc. which is not true in real life football management.Having said that Arsenal has qualified to the Champions League for the past 14 seasons so one can argue that the Club has got accustomed to the funds received from UEFA. If we just look at last season Arsenal received a total of 30 million euros (that was around 26 million pounds) from UEFA for reaching the round of 16 (the season before that Arsenal received 3 million more for going an extra stage). And these figures only capture the funds due to television distribution! We have to also count for extra gate recipients as well as bonus clauses in some sponsorship deals. So if Arsenal would miss out on the Champions League we would be talking about a loss of 37-45 million pounds (I cannot give you an exact figure as I do not know the bonus clauses of the sponsorship deals).

Q12. A Loss of 40 million?! Surely Europa Cup is still better then nothing!

True it is better than nothing but the question is how much better? Is it worth taking seriously (financially)? Both Liverpool and Manchester City received 6 million euros for reaching the round of 16 and the highest pay-out in the Europa Cup was a mere 9 million euros. The question is that if we do end up in the Europa Cup is that 6-9 million worth it to risk first teamers getting injured. I will let the reader decide that (feel free to leave a comment in the comment section as to what your answer is and why you think that way).

Q13. Arséne Wenger and the board. What is their relationship?

Well right now we can witness some sort of dichotomy between the manager and the board. Both PHW and Gazidis have claimed at some point that missing out on the UCL won’t hurt us while Arséne Wenger recently claimed that “We want to be in there, in the top four, and to play in the Champions League. Anything else would not be good enough”. Sure this doesn’t necessarily mean that missing out on the UCL will hurt us but it highlights that Wenger would go all out to grab a top 4 spot while the board would rather get ready for missing out on it. Why the board is okay with Wenger working ‘against’ them? Unfortunately for Arséne Wenger the way the board handles things (not taking risks on the financial sphere) AFC is forced to act like a selling club since the only way profits are achieved is by selling the top talent of the club. And since Wenger is a master of choosing talent while its still rough and undiscovered, the board needs him to achieve profits. Of course this isn’t the only way to generate profits though (For more on this see Question 3).
Apart from the profit Wenger is able to turn on the market there is also the fact that when something bad happens the fans turn on Wenger rather than on the board. So safety is another reason why the board needs Wenger (for more on this see Question 11) although it is not as an important reason as the face that only under a manager like Wenger is the club able to turn a profit.

Q14. Was the relationship between Arséne and the Board always so polar?

Until 2007 there was someone called David Dein who was part of the board and acted like the right hand of Arséne Wenger. The moment Dein left we have seen the manager and the board working in 2 opposite directions and things started falling apart. I will not waste space here to talk about the importance Dein had on Arsenal since there is a page on him on wikipedia that gives a quick and accurate rundown on how influential he was in creating the Arsenal that us gooners are so proud of.

Q15. Is the board really the villain?

I would not go as far as to call the board a villain as their actions are business oriented. I fully understand why the board tied itself down into subpar commercial deals as this was the only way we were able to handle the dent that the Emirates project left on our finances. What I do not agree with is their lack of ambition nowadays where they are not willing to take any risks. How many times have we seen after Dein left (2007) that Arséne built a team just to be deconstructed by the board for profit? I can recall 2 times! 2 times in less then 5 years! This is absolutely outrageous and should be addressed as fast as possible otherwise us gooners should be happy if we even make it into the top 4. It is time to bring Dein back on the Board and if that is not possible then introduce fresh blood (in the board) who have the ambition to make Arsenal a global brand in football and not in finance.