Last week Stoke City announced £30.1m pre-tax losses for the 2017/18 season. When you consider that they received £98.8m in TV money for that season, to lose £30.1m is huge mismanagement.
Due to the huge TV deals, football (in the top flight at least) is in an era where clubs no longer make huge losses. That they tend to spend within their needs, and turn over a profit.
In 2016/17, Stoke City made a £5m profit, to then turn that into a £30m loss shows how much they overspent in an attempt to remain in the Premier League.
Why clubs are still willing to get themselves hugely into debt, chasing what they deem to be success, it beyond me.
Whether that success is winning the Premier League or remaining in the Premier League, surely clubs have learnt their lessons from the likes of Portsmouth and Leeds?
That whilst getting yourself into debt might help you to be a success in the short term, it is detrimental to the long term stability of the club.
The fact that in 2016/17, 19 of the 20 clubs made a profit showed that every club was spending within their means, and not getting into huge debt chasing the golden egg. Stoke City getting into huge debt in 2017/18 is just silly.
Only really Manchester City in the Premier League are racking up huge debts – but these are being covered by the owners who have recently been exposed for flouting FFP rules and pumping in £2.7bn.
I bring up the situation with Stoke City as some Arsenal fans have consistently called for Stan Kroenke to put his hand into his own pocket, and finance Arsenal to success.
The truth is that Kroenke is not rich enough to finance us to success, and the only way he could do it is to take out loans against the club to free up cash.
Reality is, Manchester City and PSG are the only two top level clubs who are being bankrolled by owners. Every other club – from Real Madrid to Bayern Munich, Manchester United to Juventus, Borussia Dortmund to Barcelona – operate a self sufficient model. They spend what they bring in.
Now some of these clubs might have some dodgy account, be in huge debt, and have flouted EU state funding rules, but for long term success and stability of your club, the aim is to generate and spend your own money.
Arsenal have ran a self sufficient model for as long as I can remember.
The move to the Emirates was part of this. To increase income from gate receipts to close the gap on those clubs at the top who had 60,000+ stadiums.
By promoting Sven Mislintat to Technical Director shows that we plan to continue this self sufficient model.
Intelligent recruitment, exceptional coaching and solid commercial deals are the key to success for almost every club across Europe. Not just sling a load of money at something and hope it works.
Expecting an owner to bankroll you to success is unrealistic. It is a rarity.
Some have pointed to Liverpool recently, but their owners are no different to what Stan Kroenke is doing at Arsenal. Liverpool spend what they bring in, the owners put in nothing.
Overt he last 5 years, Liverpool have spent nearly £200m more than Arsenal in the transfer market. But this additional income has not come from the owners, it also has not come from better commercial deals – both clubs have similar revenue prior to player transactions.
The extra £200m comes from better recruitment over a period of time.
In recent years, Liverpool have bought better than Arsenal. they have also sold better. Think Coutinho. signed for less than £10million, sold for over £100million.
By buying low and selling high, you can continue spending big to improve the squad. And it is the selling that is important.
Over that last 5 years, Arsenal have sold very poor.
A mixture of having some average players on high wages has resulted in us having to accept low transfer deals from other sides just to get the wages off the book. Overpaying some poor players was a huge part of Arsene Wenger’s downfall.
Liverpool have generated nearly £250m more in player sales than Arsenal in the last 5 years. This means that whilst they have spent nearly £200m more gross than Arsenal, their net spend is over £40m less.
Improving recruitment and pay structure are two key reasons why Mislintat and Huss Fahmy were appointed and, more recently, promoted.
But Stan Kroenke is worth $8.5bn, he has enough money to bankroll us to success i have seen some claim.
This shows a lack of awareness of people between net worth and available income.
Net worth is the total value of all your assets. Cash, property, shares, businesses, and more, minus what you owe. Theoretically, your net worth is what you would have in cash if you sold every significant possession and paid off all of your debts. You can have a high net worth but have no cash in the bank.
Think of things on a smaller level.
You can have an ordinary man living in London, owning a house and a car, have a pension and own a few shares. Lets say his house is worth £450,000, he owes £150,000 on his mortgage. He recently bought a 2nd hand car for £6,000 and has £25,000 in savings. He has no other debts, credit cards or finance. He would have a net worth of £331,000.
But in his current account, for his day to day spending, he has just £178 – he does not get paid until month end.
What this means is today, if he decides to pay for a holiday, lets say Antigua in the new year, he does not have the cash to pay for it. If he wishes to pay for that holiday, he needs to get into debt. whether it is pay on a credit card or take out a loan.
Say he also wants to get his kitchen done. It will cost around £10,000. For that he might need to go to the bank, release some equity in his house, increase his mortgage.
He might have a net worth of £331,000, but he would need loans and mortgages to pay for holidays and his kitchen.
Kroenke is no different to the ordinary man, he just has a bigger net worth.
He does not have £2.7bn sitting in a bank account, ready to splash on Arsenal.
To buy out Alisher Usmanov, he took out a £550m loan. He was able to get a loan of that size due to his net worth, basically leveraging the debt against his current assets.
Remember the theory above? if he sold all his assets, he would be able to pay off all his debts.
Kroenke has another well known loan also outstanding.
Earlier this year, he and his wife, Ann Walton Kroenke (heiress to the Walmart fortune) took out a $2.25 billion loan for the construction of the LA Rams new new Inglewood stadium.
He still has a net worth of $8.5bn, and his wife $6.8bn, so the eye watering loan is easily manageable. The loan is 14.70% of their net worth. The equivalent of the ordinary man we described above (who has a £310,00 net worth) taking out an additional £45,500 mortgage on his house.
This highlights the cash flow of billionaires.
Kroenke did not have $2.25bn to finance the stadium just sitting around. Nor did he have the £500m+ for the rest of the Arsenal buy out. His finances were tied up in other business. Arsenal, the LA Rams, other sporting interests, working ranches and a huge property portfolio.
Do people really expect him to liquidate a billion pounds worth of assets to free up cash to spend on Arsenal?
The other option could be that he could take out another huge loan, and this brings us back round to Stoke City.
Kroenke’s loan to buy Arsenal was taken out by his English subsidiary KSE UK inc. The only tangible asset is Arsenal Football Club Holdings. The loan was not directly taken against Arsenal, it is against the company that owns the club.
The £600m Kroenke spent buying the whole of the club valued the Gunners at £1.8bn. It is safe to say then that KSE UK inc is also worth around the £1.8bn mark.
However KSE UK inc owes the £550m loan. This would leave the company with a net worth of £1.25bn.
If Kroenke was to do what fans want, and spend £1bn spread over an extended period, he would basically have to take out further loans through KSE UK inc. With Arsenal being the main asset of the group, it would be a loan against Arsenal in everything by name.
So what fans want is for Kroenke to take a £1bn loan against Arsenal to chase success.
This is terrifying.
The loan would be used to cover huge outgoings by the club. Transfer fees, wages. Basically Arsenal would run at huge losses chasing the title, using the money from the loan to cover those loses.
But at some point the KSE UK inc and therefore the club will need to start paying back that loan.
In 2003 Arsenal secured a £260 million loan to finance the stadium. This was due to be paid back over 25 years.
What some fans are calling for is a nearly 4 times that amount. What they do not seem to be concerned about is how the club will pay back that loan, and how long it will take,
If a £1bn loan was taken out, and the money spent over a 10 year period, it could take 50 years to pay back. So we are sacrificing our long term future for short term success. Adults demanding that Kroenke finance Arsenal to the title now, at the risk of the club not winning league titles for their children and grand children’s time. How selfish is that?
And what happens if the TV bubble bursts, or Arsenal struggle for a few years in mid table, or good forbid get relegated. Arsenal would be stuck with a £1bn loan, a business model making huge losses every year, and no way to pay it back.
And £1bn over 10 years old not guarantee any success. Manchester City owners have spent £2.7bn over that period!
Anyone that thinks Stan Kroenke has the means to finance Arsenal the way Sheikh Mansoor finances Manchester City is clearly uneducated and do not understand business and net worth.
And anyone that is happy with the club taking out a £1bn loan to chase success is selfish.
Arsenal need to concentrate on replicating what Manchester United have done. Increase spending by increasing revenue.
During the stadium build, it was often said we were look towards Bayern Munich as how to run a club. That still stands.
A strong academy, good recruitment, quality coaching, solid commercial revenue.
This is how Arsenal not only return to title challengers, but ensure we are up their for future generations.
High spending over a short period is boom and bust. It leads to Stoke City, to Leeds United, to Portsmouth.
Back the club, back the new management team, and understand how finances work.
The club are moving forward. They are in a good place. There are improvements that can be made, and these are happening.
We might not be buying our way to success, but only Manchester City and PSG are currently doing that.
For long term stability, long term success, we need to do it the right way, not the easy way.