It is guest post time again, and not one but two offerings coming your way this week from the inimitable Bergkamp’s the Man. I should point out that the word flipping may have been substituted for something less family friendly. I hope that hasn’t watered down an integral part of the piece. I can also provide English translations for a small fee if you are not familiar with the style of Rabbie Burns! Take it away, BtM.
Mournipea winds out of Auchterchoochty, rising up past Jimmy Shand’s house, toward Glen Glassarts. Just before Pitmedden Forest appears, there’s a tumbledown style over a fence into Spoon Field. And right beside that is my favourite bench seat. From that lofty perch, the village is viewed at its best. The Howe spreads out to the foothills of the Lomonds. Fresh trout are clearly visible running freely in the Calsay Burn, which sparkles in the sun. And the occasional wild haggis can be glimpsed looking for l’amour with the female of the species twixt fragrant strands of heather. What better place on planet earth then, to ponder the ways of the universe, the solutions to world hunger, or Arsene Wenger and The Mighty Arsenal?
On the other side of the Lomonds, on the very fringe of the shire, lies Kirkcaldy Toon, the gateway to the rest of the world for Fife folks. And there in 1776, during Fife’s Enlightenment, a local choochter by the name of Adam Smith penned a fine wee story – An Inquiry into the Nature and Causes of the Wealth of Nations. And of course nobody, not a single one in Auchterchoochty, could quite get his head around much of Auld Smith’s story (“There’s no monnie a guid laugh in yon thing, is there?”) But they were awfully proud nevertheless, because Smith liked to fish in the Calsay Burn and always rubbed shoulders with all of them over a pint in The Boars Head when he did. “A’ richt, Adam? Thon’s a braw story o’ yours, that Inquiry. A damned guid read so it is, and it fair puts me tae sleep at nicht.”
And I wonder. If Auld Smith were fishing in the Calsay right now, what would he be thinking about Deloitte’s recently published Football Money League and the challenges that confront his fellow economist, Arsene Wenger? No doubt he’d be disappointed to find that Kirkcaldy’s own, Raith Rovers, had been usurped in the revenue standings, by foreign pretenders. “Whit! Nae Rovers?”
Once he’d recovered from that shock though, he would conclude that:
- Modern day football economics are trickier even than keeping score in a Shove Ha’penny game in the Boars Head.
- Revenues, the mainstay of Deloitte’s story are only one small step in a much more complicated economics sword dance.
- The inextricable link between the product (football) and business economics is so complex as to render the millions of words of daily rhetoric to be as valuable as a Japanese Maple in a caber-tossing contest.
Real Madrid, we find, lead Deloitte’s league table with revenues of Euros 480M, followed closely by Barca (450M) and Manure (367M). Arsenal are fifth in the table (251M) sandwiched between Bayern (321M) and Chel$ki (250M). So that means Madrid must be the best run club, have the best business model, be willing when needed to “spend some flipping money”, speculate to accumulate and, our favourite, “be the best they can be.” Right? FACT!?
Wrong. Adam Smith would tell you it means no such thing. Total revenue is but one indicator, albeit an important one, that sits alone on the top line like Wojciech in a Spuds game.
If Farmer Brown sells one bag of spuds for revenue of 100 quid and Farmer White sells an equivalent bag for 50 quid does it mean that Brown is a two-times better businessman than White? If Brown’s costs are 101 quid a bag and White’s are only 49 quid, then White earns one pound sterling while Brown loses the same amount and, on this basis, Brown is the poorer businessman. “But it’s not about the business model – it’s about the product (in this case potatoes)” I hear you cry. Hold that thought, please.
Farmer White’s business dealings have a good, self-sustaining basis, Brown’s less so. Ah, so there’s that sustainability word again. And it appears that without information on spend (or costs), revenue numbers are pretty meaningless. Does that mean that Deloitte’s wee story is not fit for wiping The Arse? No, it’s worthy of a good Holic arse-wipe, but it is not the holy grail of headline fodder that many bloggers are making it out to be. Some good information can be gleaned from a quick scan. Some omissions are quickly evident too. For instance:
- Football revenues are made up of 1. Sponsorships 2. TV Broadcasts 3. Gate Money 4. Retail (Shirts, beer, burgers) pretty much in that order of importance.
- Champions League qualification and progression is a big ticket item worth 20-30M per season.
- Revenues don’t include player transfers out (thus, RvP’s sale proceeds would bridge Arsenal’s gap to Manure by 30M)
- Revenues don’t include “sugar daddy $$$” – Citeh and Chel$ki would rank higher if they did.
- The much scorned Europa League isn’t the financial basket case it is sometimes presented – finalists earn 15M AND have a 50:50 chance of winning a trophy.
Deloitte’s numbers shout loudly of some details of which we’re already aware. Arsenal competes well on gate revenues. Arsenal has done well on CL (a very important part of our revenue stream). BUT Arsenal trails badly behind the pacesetters in what Deloitte calls “Commercial” – i.e. Sponsorships (mainly). Manure earned 103M in this area, Arsenal only 51M. That difference of 52M is a primary contributor to Manure’s ability to trade with a small profit and still:
- Pay interest on their 480M Glazer-gifted debt (at 4% each year, this costs 20M; at 6% it’s 30M)
- Pay substantially higher wages (Percy @ 250kpw = 12M)
- Buy players like Percy (24M fee).
The question “But why doesn’t Arsenal spend some flipping money like United” or the insinuation that “Fergie has the ambition, Wenger doesn’t” is partially explicable by the sponsorship data point alone. (OK – I agree – it’s more complicated than that, but throw me a bone here or this will become Encyclopedia Britannica!).
So, apart from telling us stories and losing us in Scotch mist, what needs to be done about all of this? Well, that’s easy to see. It’s less easy to achieve. Arsenal MUST increase their commercial income. Industry fundamentals are favourable. Right now. Why?
- Football (soccer to “us Yanks”) is the world’s fastest growing spectator and participant sport.
- The market (global population) is growing rapidly and will increase by 1.5 billion by 2040 (The current population of China is 1.3 billion)
- Growth will be in developing markets (Indonesia, Africa) receptive to easy-participation sport
This market growth will spur a willingness to invest in great global brands that help manufacturers, financiers and service providers reach their target audiences through sponsorship. The more attractive and successful is Arsenal’s product, the more appealing will be the Arsenal brand to those potential investors.
But at this stage of the game, on a self-sustaining business model basis, the hen (cash income, i.e. good business) has to precede the egg (football) to help nurture a healthy young chicken (stronger table stakes for Arsenal) into the future. The new Emirates deal is a good start. The Adidas deal will add great flavor. Despite the protestations of some, the planned Indonesia and Nigeria tours make great sense but MUCH more is needed and at a growing pace.
Oh, and just by the way while I’m at it. It’s time to stop painting failure to qualify for the Champions League as the death head door-knocker on Ebineezer Scrooge’s front door. With the opportunity of an easier path to the final, a higher likelihood of actually winning the trophy AND a bottom line contribution of 15M, the Europa League might actually represent a BETTER proposition for Arsenal and its brand voltage next season.
Is there a silver bullet, a wild-card solution that could speed this whole process up and really get us on the fast track?
Yes, there is. But it has nothing to do with a pure, self-sustaining business model. It requires magnanimous, unfettered, previously undemonstrated “profligacy” on the part of our silent owner. Stan could put his hand deeply into the very deepest reaches of his financial empire and quite literally pull out a Llorente or a Villa. This would kick-start Arsenal’s continued development, while adding luster to our great brand.
Am I holding my breath? No, I’m pitching my brolly on a beach in Bali and waiting until Arsenal’s ship sails into port with Steve T and his brood waving from the prow. Hmmm – this ice cold Laphroaig is going down quite nicely in the meantime, thank you very much. Time to settle down and have another crack at The Wealth of Nations……….zzzzzzzzzzzzzzz.
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