Last week I showed how Arsenal under-performs compared to similarly-valued clubs in Europe. I maintain that Arsenal's financial clout is strong enough to put together a much more competitive team than it does currently.
I am convinced Arsenal is under-achieving. Therefore I will analyze the answers given, as well Arsene Wenger's speech, at the AGM with a very high degree of scrutiny.
Chairman Sir Chips Keswick kicked it off with a question about the murky 3m fee paid to the owner's subsidiary company, Kroenke Sports Enterprises (KSE).
I will break down the question, and the answers (or lackthereof) provided:
1) Was competitive tender issued (meaning did KSE have to compete with other sports analytics companies for Arsenal's business)? No, AFC did not make KSE compete for our business.
2) What specific services did KSE provide? A wide range of services.
3) Why were these services needed? Because it was of upmost importance.
4) Will there be similar future fees? Maybe, that depends.
Sir Chips answered just 1 of the 4 prongs of the question. And the answer he did provide was alarming. Not only could the chairman not describe with any specificity what services were provided, why they were important, or whether they would continue in the future--he also freely admitted that Arsenal did not force KSE to compete with other similar companies for the services rendered.
Everything about this answer is concerning. The chairman did nothing to ease supporters' fears that the owner has simply taken money out of the club in the form of this fee for nondescript "advisory services" to the owner's subsidiary company.
While Man City's and Chelsea's owners use their outside companies to try to artificially (aka fraudulently) beef up the income of their clubs due to FFP, Arsenal seems to be using club revenue to artificially beef up the value of their owner's other companies. When people complain about Arsenal's lack of ambition, this is what they are talking about.
When asked about the appointment of Stan Kroenke's son, Josh Kroenke, to the Arsenal board, Lord Harris replied:
Josh has a chief executive role in basketball, ice hockey and soccer teams in the US. He has a background playing basketball and football. He has knowledge and insight at the disposal of Arsenal FC.
It's true, Josh Kroenke is the chief executive of the Denver Nuggets, Colorado Avalanche, and Colorado Rapids. But as far as his knowledge and insight goes, let's actually look at the Kroenke family's level of success with their 4 US sports franchises.
Stan Kroenke bought the Nuggets and Avalanche in 2000. He bought the Rapids in 2004. And he bought the NFL's St. Louis Rams in 2011. NFL bylaws prohibit any owner from being involved in the day-to-day operations of any other professional sports team, and therefore Josh was promoted to chief executive when Stan took over the Rams.
In over 40 combined seasons under Kroenke family ownership, their teams have combined for a total of 2 championships. 1, the Avalanche's Stanley Cup winning team of 2001, succeeded with the previous owner's players and and the previous owner's coach. The other, the Rapids' MLS Cup victory of 2010, was a team that finished 5th in their conference with a 12-8-10 record (to put that season in EPL terms, that's 44 points of 90 available, a success rate that is usually just good enough to finish in the top half of the table, but nowhere near the top 4) and the Rapids got hot in the Americanized playoffs to come out with an undeserved championship, when judging their season as a whole.
The Kroenke family has a record of sporting failure. I fail to see any positive insights and knowledge Josh Kroenke can offer as a member of the Arsenal board. I am disappointed to see him there.
Arsene Wenger, as always, gave a rousing speech to the audience, proclaiming he is proud of what his team has accomplished and urging the supporters to get behind their efforts.
Wenger: I know you (supporters) are ambitious, skeptical, and critical...I know we have 1 thing in common, we are loyal to this club and we love this club.
I liked this statement quite a lot. I have a very hard time with Arsenal supporters who perceive any criticism of Arsenal--be it the manager, the players, or the general ambition of the club--to be disloyal Arsenal 'hatred.'
If you believe that the role of the supporter is to be relentlessly positive, then support the club that way. There are others who believe criticism is necessary to prevent complacency and stagnation. Both sets of supporters simply want the club to be as competitive as possible, they just have different philosophies as far as how to get there.
The fact is there is no one way to support this club. At the end of the day, everyone wants the same goal. For Arsenal to be as good as possible for as long as possible. So even if you disagree with other Arsenal fans, respect their opinion and don't degrade them for it.
Wenger: We worked on different aspects to strengthen our side. We bought four players, we lost two defenders in Vermaelen and Sagna and bought two defenders in Debuchy and Chambers. We were able to buy as well Sanchez and Welbeck...I believe we have done remarkably well on the transfers. I agree we could have bought one more player, we didn't find him. We will try in December to rectify that because we are a bit short with the injuries we have. We will rectify that in the transfer market in January.
I agree with Wenger for a lot of this statement. The 4 players bought are quality players. But I am concerned with his statement that "we didn't find" the one player the club needed at the end of the window.
First, I disagree that only one was needed. We need 2, a center half and a holding midfielder, at least.
And if Wenger can't find anyone who can do a job, at the least as a reserve defender, maybe he should set his sights a little lower. Wenger is a mastermind of the transfer market, but this skill is somewhat marginalized by his ultra-cautious, reluctant approach. Sometimes, the club would be better served if Wenger was less picky and filled positions of need with one of the best players available, even if he believes that player to be worse than an alternative that might become available at a later time.
And as far as his promise to deliver the player we need in January, talk is cheap in October.
Wenger: We've tried as well...to strengthen our prevention work for injuries...The team is united. They still lack a bit of confidence because we've been hit hard by injuries again. But this year they've been post-World Cup injuries. Ozil got injured on his own. We had Debuchy get injured on his own. We had Giroud who got injured at Everton from basically nothing.
More of the same, I'm afraid. Wenger has consistently held himself blameless for his club's devastating struggles with injuries every year. This time it's the World Cup's fault, not his.
When Wenger says an injury was caused "on his own" or "from basically nothing," he is saying these are non-contact injuries. The problem with that perspective is, we know fatigue causes injuries just as frequently as a hard tackle. The World Cup was not unforeseen. Adding more depth to the club to be able to rotate more players when others were fatigued and needed rest is the best way to combat fatigue injuries. Depth can keep a strong squad of players available for a longer period of time. Therefore, until the manager is willing to take on the larger burden of managing a bigger squad, I fear nothing will ever change on the Arsenal injury front.
Chief executive Ivan Gazidis then fielded a two pronged question about how the club could raise ticket prices when it sat on such a large sum of cash in the transfer window. Gazidis's justification for raising ticket prices was clear.
We make responsible and reasonable decisions. We understand the pressures. We have tried to take a balanced approach to competing pressures. We have relied mostly on commercial and broadcast increases (in revenue) to compete at the level we demand...Demand for tickets continues to far exceed supply.
It's really that simple, people. Arsenal continues to increase ticket prices because the demand for tickets continues to outweigh supply. Therefore, rather than letting scalpers earn a profit off of the secondary market that springs up when Arsenal keeps ticket prices too low, Arsenal has raised ticket prices to take full advantage of a high-demand product with a limited supply, like any rational business would.
Im not saying those who claim "we pay the highest prices in England, so we deserve a better team" are wrong. Not at all. I agree with that sentiment. But I understand the club's decision to increase prices in order to minimize the profits ticket dealers reap from on the secondary market. It's a decision any responsible business would make.
Gazidis also discussed how much cash was actually available at the end of the window:
There is an inaccurate analysis about cash available. We are not hoarding a vast cash balance. We do not try to broadcast our cash situation but the situation is more complex.
In back-to-back sentences, Gazidis says "we are not hoarding cash" and "we do not try to broadcast our cash situation." So which is it?
Understand that the club has a major incentive in keeping their cards close to their chest on this issue. Negotiating transfer fees only becomes more difficult when your adversary knows you're holding enough money to fund a small country's deficit in your back pocket.
Think critically about Gazidis's answer, and you understand his motivation to lie about/not reveal the true extent of Arsenal's cash reserves.
The good thing is, you can look at the numbers for yourself (and the bad thing is, so can the clubs we try to buy players from).
I used Bobby McMahon's excellent analysis on Forbes.com (and converted US$ to pounds) for all of the below figures.
First, for those fans who still believe the Emirates Stadium debt is the main factor holding back the club, look at what has happened to that debt in the last 7 years. The debt was at its highest in 2008, at 411m. Today the principal balance of that debt has been lowered to just 241m (largely due to the successful Highbury property development). The debt has already nearly been cut in half.
Annual interest on that debt is 13.5m, and Arsenal has paid 19.5m per year for the last few years, paying off 6m from the principal balance on a yearly basis. If Arsenal continued to pay off the stadium debt at these increments, it would take an even 40 years to pay off the principal in full. This is a payment plan that leaves enough income untouched to add much more quality to the team every year.
Don't forget that Arsenal's annual revenue has exploded since the stadium was built. Matchday income doubled immediately, but progress on the commercial and broadcasting fronts, as the EPL becomes more and more popular worldwide, have driven this growth in revenue.
Look at how Arsenal's broadcasting, matchday, and commercial revenue has increased since the stadium was built:
| Revenue source | 2006/07 | 2013/14 | % increase |
| Broadcasting | 44 | 121 | 175% |
| Matchday | 91 | 100 | 10% |
| Commercial | 42 | 77 | 83% |
| Total | 177 | 298 | 68% |
Now let's look at how last year's 298m in revenue was used:
2013/14 REVENUE DISTRIBUTION
The debt payment costs Arsenal just 19m, only 6.5% of Arsenal's 298m revenue. The majority goes to wages, as you can see, but a very large portion of last year's revenue (75.5m) has not been spent.
The club already had 132.5m in cash reserves entering into last season. Add 75.5 more and the reserves equaled 208m when the financial report came out in June.
Here's the thing, if you thought last year's revenue was great, just wait until you see the numbers for this year. Commercial revenue has nearly doubled thanks to new deals with Puma, Emirates, and others. These deals will bring in an extra 70m in commercial revenue next year.
In addition, the 3% increase in ticket prices will bring an increase in matchday income, although not likely a 3% increase due to diminishing returns (i.e. tickets are more expensive, so purchasers are less likely to buy concessions or memorabilia on matchdays). A conservative estimate would be a 1.5% increase in matchday revenue this season. Broadcasting revenue will not rise unless Arsenal's position in the league table improves, or the club makes a deep run in the Champions League, and therefore is on more televisions than last season.
A conservative estimate of this year's eventual revenue would be the same broadcasting revenue as last year (121m), a 70m increase in commercial revenue (147m), and a 1.5% increase in matchday revenue (101.5m) for a 24% increase in total revenue (71.5m) to an astounding 369.5m.
It is impossible to know how that revenue will break down next season, because transfers could yet take place and new contracts could be handed out at any point. We do know Arsenal had a net transfer spend of approximately 64m this summer, and those players will add at most 15m to the wage bill.
Therefore lets look at Arsenal's projected financials, admittedly with some key, and probably unrealistic, assumptions (1: that we finish in the same positions in the EPL and UCL as last season, 2: that no new players are bought, 3: that no current players are given new, lucrative pay raises, and 4: KSE takes the same 3m fee for themselves as they did this year).
PROJECTED 2014/15 REVENUE DISTRIBUTION
The increased commercial revenue, despite a higher net transfer spend and a higher wage bill, has still increased. Unaccounted revenue should rise above the 100m mark over the next year.
Simply put, Arsenal is on track to earn enough money to invest more in the team. Much more. And Ivan Gazidis, wisely, wants to conceal this fact in order to better negotiate with other clubs for future transfers.
Late in the meeting, A supporter in the audience asked whether funds were available to further strengthen the defense this summer, and if so--why were these funds not used.
Sir Chips responded: The board backs Arsene Wenger 100% on football decisions. Its not up to me as chairmain to decide on football, not the fans, it's up to Arsene Wenger...If he has a plan we back it, if he doesn't have a plan we keep quiet.
Gazidis assured: We did not withhold cash reserves from the manager.
Wenger had no comment.
When many people bemoan the lack of ambition by the manager, this is what they are talking about. The board is, and have been, unequivocal in support of Wenger. They have been equally unequivocal, for years, about the resources available to him.
Therefore when Wenger doesn't use the club's significant resources to strengthen his team to the full extent capabale, many say it's because Wenger is not ambitious enough.
I do not agree with this notion. I believe Wenger is ambitious. I believe he wants to win trophies more than any supporter does. I simply think its a case of misguided priorities.
I think Wenger mistakenly values the unity and togetherness a small, tight-knit squad can create higher than the contingency and versatility a larger squad with more depth provides.
And I believe Wenger's mistaken priorities are the root of Arsenal's problems.
Therefore I continue to look forward to--and do not fear--the prospect of a new Arsenal manager in the near future.
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