Spend some f****** money!” Arsenal fans chanted as their team lost again last Sunday at Chelsea. The cry echoed around the world on Twitter. Its target, Arsenal’s manager Arsène Wenger, had heard the argument before.
Wenger, now 63, arrived at Arsenal in 1996 and led the club for eight glorious seasons. He has since led them for eight inglorious ones. Arsenal have won no trophies since 2005, and now stand a miserable sixth in the Premier League. The Frenchman is becoming a figure of derision. Many fans complain that Wenger refuses to buy the expensive players who could compete with Chelsea, Manchester United, or Barcelona, even though Arsenal have £153.6m in cash, an unheard-of sum for a football club. (Management firm Deloitte estimated last year that Premier League clubs had cumulative debts of £2.4bn.) Supporters are urging him to buy before the winter “transfer window” closes on Thursday. He stands accused of practising football’s version of austerity – at a club that looks a model of financial good health.
Wenger and Arsenal retort that the football economy is a bubble: clubs are spending beyond their means and risking collapse. The argument is at bottom one about the football business. Has Wenger, almost the only actual economist in football, called the football economy right? Will Arsenal’s prudence finally pay off one day?
Wenger was born in the Alsace in 1949, three years after France retook the region from Germany. His parents ran a café in tiny Duttlenheim. Today Wenger appears upright, tense and often angry in public but when I hosted him at a sponsors’ evening years ago, I found that in private he became a jolly mime and raconteur. Those café skills obviously ran deep.
Wenger, who graduated in economics at Strasbourg University in 1971, has a mathematician’s brain. The subject taught him about valuations and the importance of data. To other managers, £15m might be simply “a big number”, but not to Wenger. When he weighs up potential signings, he judges like an economist pricing assets as much as like a coach seeking quick wins.
Wenger is taking such abuse now partly because, in his first seasons in London, he set the bar so high. He transformed Neanderthal English football. He ditched Arsenal’s traditional prematch meal of baked beans and Coca-Cola. He used stats to track, for instance, after how many minutes a player lost speed and needed substituting. Crucially, he knew football globally. English football in the 1990s was so insular (indeed xenophobic) that many managers didn’t even watch World Cups.
In this world Wenger was bound to triumph. It just so happened that the best young footballers then were French. Wenger had the pick of them. Stars such as Patrick Vieira, Thierry Henry, Robert Pires and others turned the club long nicknamed “Boring, Boring Arsenal” into the best and most exciting in England. Wenger’s scouts were everywhere and he bought cheap. The total he paid for Henry, Vieira and Pires was less than the £23m he received from Real Madrid for a troubled young French teenager, Nicolas Anelka. It was David Dein, Arsenal’s then vice-chairman and the man behind Wenger’s appointment as manager, who negotiated the transfer fees and salaries, and if he wanted to pay a few pounds more than the stringent Wenger thought fair, he would pay it. Dein, a former sugar trader, had shown his eye for a chance in 1983 when he bought 17 per cent of Arsenal for just £292,000.
In 2004, Wenger’s “Invincibles” – perhaps the best English team ever – became English champions without losing a match. It was their third championship in seven seasons, even though rivals Manchester United were much richer. Then the Invincibles lost at United in October 2004 and nothing has been quite the same since.
By then, football was already changing. A Russian oligarch named Roman Abramovich had bought Chelsea and begun spending fortunes on players. But the change didn’t merely involve money: everyone in England had copied Wenger. The pioneer was falling victim to catch-up.
Abramovich’s Chelsea began winning titles. Wenger hated the idea that some random sugar daddy could buy himself a championship, as if it were a holiday villa. He complained that Chelsea were using “economic doping, because their resources were artificial”. Wenger appears to share the widespread French suspicion of rootless international capital.
In those years he either made or went along with two fundamental decisions: one, Arsenal would build a big new stadium to boost revenues. Two, Arsenal would remain financially conservative. They wouldn’t spend riskily. These are the hallmark policies of the latter Wenger years.
The Emirates Stadium opened in 2006. Mostly, it has worked out: the 60,000 seats sell out almost every match, for the largest regular crowd in London’s football history (the old ground, Highbury, held 38,000). Arsenal’s ticket prices are the highest in English, and probably global, football, with this year’s cheapest season tickets costing £985. Consequently, Arsenal now earn £3.3m per home match, about double the amount of their London rivals Spurs. Their total revenues last season were £243m, sixth in European football.
And yet moving stadiums was scary. Most of the £430m required was borrowed. Suddenly, this most conservative English club was drowning in debt. Things got scarier when the financial crisis hit in 2008, just as Arsenal were raising revenue by selling converted flats at their old Highbury stadium. Every season, Wenger had to sell players partly to pay off the Emirates mortgage.
With hindsight, Wenger’s cautious spending policy was predictable. It’s his nature. Billy Beane, general manager of the Oakland A’s baseball team and hero of the book and film Moneyball, told me in 2010: “When I think of Wenger, I think of Warren Buffett. Wenger runs his football club like he is going to own the club for 100 years.” The wilder side of Wenger’s nature was Dein, but he left Arsenal amid board ructions in 2007 and, since then, Wenger has been freer to be himself. That has often entailed refusing to sign a player who cost a touch more than Wenger’s own valuation.
Austerity is in Arsenal’s culture. Once known as the Bank of England club, it has been cautiously run for decades. That tradition must have attracted the current majority owner, the American Stan Kroenke, who treats sports clubs as serious businesses. Ivan Gazidis, Arsenal’s quiet-spoken chief executive, son of a South African anti-apartheid and anti-HIV activist and doctor, told me last week: “We don’t spend more than we have. In football that is seen as conservative. That tells you a little bit about the environment we’re in.” Arsenal’s “policy of sustainability,” Gazidis adds, “should be familiar to more people given the economic state of the world, but football has continued to be a little bit of a bubble.”
In fact, the environment of overspending rivals probably only encouraged Wenger’s caution. Many pundits have long forecast a great reckoning, of football clubs ceasing to exist when they couldn’t pay their debts – especially after the financial crisis hit and even some big banks went under. Michel Platini, president of the European football association Uefa, said in 2009: “If this situation goes on, it will not be long before even some major clubs face going out of business.” Stefan Szymanski, economics professor at the University of Michigan, with whom I co-wrote the book Soccernomics, suggests now that Arsenal were waiting for the moment when prices collapsed and they could snap up great players on the cheap.
But that moment never came. It turned out that football clubs weren’t like normal businesses. In normal business, if you rack up unpayable debts, you close down. However, football clubs rack up unpayable debts and live. No English club has folded for good since tiny Wigan Borough during the Great Depression in 1931. All the rest survived the Depression, the second world war, recessions, corrupt chairmen, appalling managers and now the financial crisis. It’s a history of remarkable stability.
True, smaller British clubs are forever going insolvent (though the only Premier League club ever to do so was Portsmouth in 2010) but then they do deals with their creditors, usually repay a small fraction of debt, and march on. No creditor or bank manager wants to kill off a beloved ancient institution. And, anyway, at bottom a club is just a name. If the club’s holding company folds, a new limited company is simply created using the old club name, and the club marches on. Football clubs survive even when they go bust. That’s pretty sustainable. Asked if he expected clubs to start disappearing, Gazidis says: “I don’t see an immediate prospect of that, especially in England.”
Against such a backdrop, Arsenal’s cautious spending seems exaggerated. If the club thought that big football clubs were as vulnerable as other profligate businesses, it was wrong. Clearly it shouldn’t have copied Leeds United, which amassed a particularly spectacular debt mountain that eventually required the sale of almost Leeds’ entire team and ended in a fall to the third tier of English football. However, Arsenal chose the other extreme. The “Swiss Rambler”, a British financial professional based in Switzerland who runs a respected blog on football finance, calculates that since 2007 the club has made total profits of £195m, of which £178m has come from selling players. On his blog, he estimates: “Arsenal could safely spend £50m to £60m from cash resources.” That itself might not dislodge the two Manchester clubs – “Although the stadium took us forward, it didn’t take us forward far enough,” says Gazidis – but such spending could get Arsenal closer.
Red and White Holdings, which represents Alisher Usmanov, an Uzbek-born oligarch ranked by Forbes as Russia’s richest man, and Farhad Moshiri, Usmanov’s British-Iranian business partner, who own nearly 30 per cent of Arsenal’s shares between them, also wants the club to spend more.
Arsenal’s wage costs have risen sharply in recent years and last year reached £143.4m, or 61 per cent of turnover. Gazidis thinks spending a bigger slice of turnover on wages would be to enter “dangerous territory”. But the Premier League’s average wages-to-turnover ratio is 70 per cent. And Manchester City, Chelsea, and Manchester United pay comfortably higher wages than Arsenal. (Manchester City spent 114 per cent of its revenues on pay in 2010/2011.)
Separately from economics, Wenger made another fundamental misjudgment. He dreamt of building a team produced in Arsenal’s youth academy, rather than bought as adult stars. This is another truth of football: it’s almost impossible to predict whether a great untried teenager will make a great adult footballer. Only once a teenager has achieved success in actual professional football – as did Cristiano Ronaldo, Wayne Rooney or Gareth Bale – can you know he is the real thing, and by then richer clubs than Arsenal will be chasing him.
Some think a prince is now riding in to prove Wenger’s conservative strategy right after all: “financial fair play”, as Uefa’s new policy is called. It essentially requires European clubs to stop spending more money than they have. The Premier League is considering similar rules for England. The European FFP “rules” are full of loopholes and, even when they take full effect in 2018, may not require clubs to break even but FFP does already seem to be limiting clubs’ spending slightly. Spending on transfers by Premier League clubs dropped 23 per cent from 2011 to 2012 to £550m, says Deloitte.
But it is unlikely that FFP will transform football. More probably, says Szymanski, clubs and Uefa will both give a bit. Uefa’s main concern will be to stop penniless clubs becoming insolvent. Clubs with sugar daddies, such as Chelsea and Manchester City, who face less risk, may be cut more slack. In any case, some clubs are already finding ways around FFP. City have signed a 10-year deal believed to be worth £350m with Etihad Airways for stadium naming rights and shirt sponsorship – a flabbergasting sum.
Critics note that Etihad, like City’s owners, comes from Abu Dhabi. They question whether the deal allows City to inject money from an outside well-wisher despite the FFP restrictions. However, Uefa might struggle in court to prove the £350m was excessive, or that Etihad and City’s owners were linked. Presumably, then, such deals will be left to stand. In the end, FFP may change football less than Arsenal would hope. Gazidis says: “Are there loopholes in the way FFP works? Quite possibly. FFP is not part of our strategy.”
In short, neither a collapse of the football economy, nor a sudden blossoming of Arsenal’s youth academy, nor FFP is likely to come along and save Wenger. On the upside, Gazidis does expect Arsenal to get richer, as longstanding commercial deals expire and are replaced by bigger ones. Arsenal’s revenues look set to hit £300m next year. Meanwhile, interest costs on the club’s debt have dropped to a manageable £13.5m, with net debt at £98.9m. The burden of the stadium is lifting. “We’re coming through a period of risk to a period of less risk,” acknowledges Gazidis.
However, other clubs are finding new revenues too, as countless Asians and Americans start switching on to the Premier League. Contrary to the doomsayers, English football’s economic rise may have only just begun. That probably means Arsenal’s new revenues won’t be enough to lift it back into prizewinning zones – certainly not in time for Wenger.
Simon Kuper is an FT columnist and co-author of ‘Soccernomics’ (HarperSport)
This article has been subject to a correction