History of False Promises - Arsenal Football Club

In the summer of 2013, Chief Executive Ivan Gazidis confidently claimed that Arsenal could “compete at a level like a club such as Bayern Munich”. The arrival of German star Mesut Ozil that same summer was greeted with such fanfare that even the most cynical of Arsenal fans might have thought that their club had finally turned a corner.

Almost 8 years on and #KroenkeOut is trending across social media. As thousands of fans protest outside of the Emirates Stadium, the club’s decision to take part in the proposed European Super League has proved to be the tipping point for the Arsenal faithful. The club have dropped out of contention for the Champions League trophy, the Premier League trophy and even in recent years, the top-four trophy (as joked by Arsene Wenger’s biggest critics).

In the following article, I will take a look at the club’s prioritisation of financial stability post-2004 and how they began to fall behind their biggest rivals, in terms of both finances and on pitch performance.

The Emirates re-build

Ironically, the danger signs became first evident during the club’s most successful period.

From 1996 to 2004, Arsenal Football Club enjoyed two Premier League and FA Cup doubles, as well as the unprecedented ‘Invincibles’ season – a campaign that saw the team win the Premier League title without losing a single game.

However, these fond memories were being made at a stadium with a capacity of only a mere 38,000.

Having been forced to convert it into an all-seater stadium at the beginning of the 1993/94 season, by the turn of the century Highbury was only the 9th largest in the country - far too small for a team packed with stars such as Sol Campbell, Patrick Vieira, and future Premier League Hall-of-Famer Thierry Henry.

Players of that ilk deserved to play in front of 70-80,000 fans such as the San Siro or the Santiago Bernabeu, and so change was needed - but it didn’t come cheap.

Having spent £128 million on the new site alone, the total cost of construction for the new stadium eventually rose to £390 million - with the North London club having to take out a bank loan of £260 million for cash flow purposes. You might imagine that the high-profile transfers of Nicolas Anelka to Real Madrid, as well as Emmanuel Petit and Marc Overmars to Barcelona, would also have been made with one eye looking at funding the new stadium. Reducing the players’ wage bill, agreeing an extension of their current kit deal with Nike for £55 million, and issuing 3,000 bonds at prices ranging from £3,000 and £5,000 were all additional methods the club used to raise funds for the stadium’s construction.

Finally, following a number of lengthy delays, the Emirates stadium was ready for use from the beginning of the 2006/07 season. A spectacular piece of engineering which pushed the likes of Anfield, Old Trafford and the old White Hart Lane back to the industrial ages – it was truly remarkable.

However, a change of this magnitude required the rest of the club to be stable – across ownership, management and the squad itself. With club ownership regularly making the news (which we will delve into later) and many of the ‘Invincibles’ ageing and being moved on, the change in stadium ultimately came a few years too late for the club.

To try and solve the situation: Arsene Wenger, First Team Coach & Financial Accountant.

With a significantly reduced budget, the Frenchman was forced to implement his tactical nous on young, relatively unknown commodities such as Cesc Fabregas, Robin van Persie and Theo Walcott - at a time when his biggest competitors, Manchester United and Chelsea, were cherry-picking the finest talent across Europe. Admittedly - Wenger was (and still is) a proud man who claimed that the “determination of not spending 200 when we were only making 100” suited his “character and philosophy” (Wenger, 2020), but he was also a winner, and missing out on key transfer targets in the years that followed would have frustrated him dearly. With the banks’ requisite loan terms including a restriction to the total salaries of 50% of the total budget, the club simply could not compete with the financial packages offered elsewhere in Europe.

And so - Arsenal were forced to settle for players who either were skilful and quick, or just strong – unlike Chelsea, they were unable to afford players who had both attributes (Kuper and Syzmanski, 2018). With a fall in quality came a fall in competitiveness - during the 10 years that followed the ‘Invincibles’, they finished second once, third three times, and fourth 6 times in the Premier League, adding a solitary FA Cup to the trophy cabinet.

Naturally, Wenger shared great disdain for the cash injections from “sugar daddy” owners such as Sheikh Mansour at Manchester City and Roman Abramovich at Chelsea, famously coining the phrase “financial doping” when talking about the side from West London. This was the antithesis of how Wenger thought football clubs should be managed; being a strong advocate for Financial Fair Play, Arsenal regularly posted profits in their annual reports even before its implementation, a stark contrast to the teams in blue (highlighted in Figure 1 below).

(Figure 1: A comparison of the total profit/loss before tax of Arsenal and Chelsea from 2004 to 2011)

In comes Kroenke

The owners of Chelsea and Manchester City purchased the club as a form of trophy-wife, so to speak - competing with fellow oligarchs about which one had the prettiest. Money is no object in their quest to take these clubs to the top – and so it should come to no surprise that both sides will be in this year’s Champions League Final.

Turning our attentions back to Arsenal and, in 2007, the club were first exposed to a different kind of owner – one determined to “franchise” Arsenal in order to squeeze out as much profit as he could- irrespective of their on-field performances. Already an owner of NFL’s St Louis Rams, NBA’s Denver Nuggets and the NHL’s Colorado Avalanche, Stan Kroenke and his company Kroenke Sports & Entertainment decided to try their hand at the English game – eventually taking full ownership of Arsenal Football Club in 2018. It was a long arduous process, where the club were subject to a tug-of-war between Stan Kroenke and Russian oligarch Alisher Usmanov (summarised in the timeline below).

Under the Americans’ regime, Arsenal were as profit driven as ever. But fans don’t celebrate profits like a Financial Controller would, especially when it comes as a detriment to the squad as a whole. It was only due to the sales of Robin van Persie, Samir Nasri, Emmanuel Adebayor and Cesc Fabregas to domestic and European rivals that the club was able to post significant ‘profits on disposal of player registrations’ in their income statement, boosting their final retained earnings.

Chairman Peter Denis Hill-Wood opened the 2011/12 annual report with the following:

“I am pleased to open my report to shareholders by confirming that the Group has delivered another healthy set of full year results”.

He then went on to disclose the club’s 8-2 loss to Manchester United in the Premier League, their Last 16 defeat to AC Milan in the Champions League, and their losses to Sunderland and Manchester City in the early stages of the FA Cup and Carling Cup.

This is when Arsenal fans started to question the ambition of the club’s ownership. From 2008 to 2013, the club recorded a net profit in the transfer market of £49.4m. Even plucky old Tottenham had a net spend of £112m in this period. More impetus was needed from Kroenke - both the drive and the dollars to say that Arsenal was still the biggest club in London.

Whether he delivered is up for argument. The following two summers saw the arrival of Mesut Ozil and Alexis Sanchez from Real Madrid and Barcelona respectively, with no major outgoings in both years. One step forward. The club then won two FA Cup trophies in a row, and finished 3rd in the 2014/15 Premier League. Another step forward. A crucial summer approached to push Arsenal to the next level – but the club decided their sole purchase would be 33-year-old Petr Cech from Chelsea for £12m. 3 steps back.

(Starboys; Mesut Ozil, Santi Cazorla and Alexis Sanchez led the club to two straight FA Cup victories)

Departure of David Dein

Whilst players can often distance themselves from news regarding their team’s owners, there was another change at board level in 2007 that proved too difficult to ignore. David Dein shared a close relationship with the first team players, and had also been Arsene Wenger’s right-hand man since the moment he helped the Frenchman land the managerial job back in 1996. The sale of his shares (which he had held since 1983) was, and has continued to be, criticised by ‘Gooners’ worldwide - with many pinning their current difficulties on his departure from the club. David Dein provided a sense of stability at the club - without him it felt as though a member of the family was missing. Incoming to replace him as CEO was Ivan Gazidis, whose only previous experience in the sport was his involvement in increasing the global outreach of Major League Soccer in the US.

Despite reported profits, the club’s financial management under Gazidis’s tutelage was recently called into question after a number of high-value contracts were dished out to Mesut Ozil, Pierre Emerick Aubameyang and co. As demonstrated by Figure 2 below, the wages/revenue ratio of the club increased significantly over the years, reaching a high of 60% in 2017/18*.

*Note: The wages/revenue percentage reached 68% in the 2019/20 season primarily due to the decrease in matchday revenue following the COVID-19 pandemic.

(Figure 2: The wages/revenue percentage reported by Arsenal from 2007 onwards)

As mentioned at the start, it was Ivan Gazidis who had proposed the idea that Arsenal could compete at a level like Bayern Munich. 5 years later, and Arsenal played their last match to date in the Champions League - losing 5-1 on the night and 10-2 on aggregate against…that’s right, Bayern Munich. Having said this, there is absolutely no shame in not being able to achieve this goal – their German counterparts have admittedly been one of the most well-run clubs of the modern era, producing scintillating football and winning trophies, whilst managing to keep ticket prices to a fraction of those charged in England. What is truly worrying for the Arsenal faithful is the trajectory of the club against their North London rivals, Tottenham Hotspur.

“Could be worse, could be Tottenham”

For context, the Gunners have finished above Spurs in every season since 1995, with fans even going as far as labelling the moment this is achieved in each season as St Totteringham’s Day. This tradition lasted up until 2017, when Spurs finished second with Arsenal failing to qualify for the Champions League for 21 years.

(Figure 3: Total revenues earnt by Arsenal, Bayern Munich & Tottenham Hotspur from 2003 onwards)

From Figure 3 above, you can see that up to the 2009/10 season, Arsenal and Bayern Munich were following the same trajectory when it came to revenue earnt. As Bayern began their march of 9 Bundesliga trophies in a row, along with European success, the distance between themselves and Arsenal only widened – despite the considerably greater sums of revenue brought in by English clubs thanks to the Premier League TV rights deal (which I have explored in a previous article – see here) and their inflated matchday prices.

However, when it comes to revenues earnt by the two North London sides, for the first time since Deloitte began collecting data for their annual Money League, it was Tottenham who recorded the greater amount in the 2018/19 season. Far from a blip, they repeated this feat the following year. Arsenal, on the other hand, finished outside of the top 10 earners for the last two years running. Despite often being criticised for accepting mediocrity, this is one area that fans will not accept continuing.

So Long Arsene – a new chapter

2018 saw the departure of Arsene Wenger from the club after 22 years in charge. In fairness to Kroenke, he did get the chequebook out following this. A net spend of £220m since the Frenchman’s departure may have justified Josh Kroenke's (Stan’s son) encouragement of Arsenal fans to “be excited”, but this was too little too late from the owners. The stability just wasn’t there to appropriately implement these signings.

Unai Emery was appointed Wenger’s successor in 2018, but was sacked the following year. Mikel Arteta replaced him - yet now even his future is in doubt. At board level, Ivan Gazidis left his role of Chief Executive in 2018, only to be replaced by the duo Vinai Venkatesham (as Managing Director) and Raul Sanhelli (as Head of Football). Sanhelli didn’t last long in this role either.

In the past 12 months, Arsenal have made 55 staff redundant, owing to financial pressures suffered due to the COVID-19 pandemic; they fired and then re-hired Gunnersaurus (the club’s long-standing mascot), and even become a founding member of the breakaway European Super League (a controversial topic that I have explored here). Not to forget thousands of Arsenal fans protesting against the Kroenke ownership outside of the Emirates stadium. Eventful for all the wrong reasons.

It is a difficult road ahead for Arsenal. Years of instability have led the club astray from their motto of “Victory Through Harmony”, and it has proved to be costly - with the club set to miss out on European football for the first time in 25 years. Whether it is a new owner, a new manager, or new players, the club need to decide which direction they aim to go down and back it – it will be crucial in harmonising the Gunners and its Gooners once again.

References:

Kuper, S. and Szymanski, S. (2018) Soccernomics: Why England lose, why Germany, Spain and France win, and why one day the rest of the world will finally catch up. 5th edn. New York: Nation Books.

Wenger, A. (2020) My Life in Red and White. My Autobiography. United Kingdom: Weidenfeld & Nicolson.