Thursday, October 4, 2012

Numbers and the Game

Last week, Arsenal Holdings released its financial results for the year that ended May 31, 2012. Immediately, a corner of Twitter exploded with commentary about how this or that number confirmed an existing opinion--that the Board's parsimony is the biggest threat to the club's identity, that there's a conspiracy to foist a mediocre product on credulous fans, that in an attempt to prove his own genius Arsène Wenger is purposefully steering the club away from the highest quality talent.

Perhaps I exaggerate, but only a little.

Leave it to The Swiss Ramble to bring some rationality to the conversation. Tuesday's entry analyzed and illuminated the numbers, giving credit to the club for its sensible approach in an increasingly irrational environment but calling the leadership to task for some serious failings.

High on that list is the "miserable" growth of commercial revenue, which at £52.5 million is not even half what Manchester United earns from that stream. Because existing ticket prices and stadium capacity are taking the Arsenal close to its upper limit on match-day revenue, commercial partnerships have to be the foundation of any substantive increase in payroll.

Strategies at Odds

The analysis also makes it obvious that the annual profitability of football operations increasingly relies on player sales. Last year, without the £65.5 million from the sales of Cesc Fabregas, Samir Nasri, and Gael Clichy, the club would have posted an £18.5 million operating loss from football operations. Many others have observed that after the exhaustion of the major property sales at Highbury Square, the business's "self-sustaining model" now requires player sales and wages out to exceed player acquisitions and wages in, at least until presumably more lucrative commercial arrangements come good in 2014.

A fundamental problem with this approach is that it brings the business strategy into increasing conflict with the football strategy. Wenger's system is not focused on detailed tactical instruction, positioning, and feedback; instead, the manager gives players considerable freedom to exercise judgment and succeed as a unit. As a result, the group has to train and play together for an extended period to develop the necessary collective understanding and trust. This puts a premium on continuity of personnel.

When the team is in synch, the result is a joy to watch. The extended run of unbeaten league games that the team achieved between late January and mid-April 2012 shows what happens when the group gels. Unfortunately, this streak only came when there was no margin for error after a frustrating and disjointed start to the season, while three starters were gone or leaving and eventually vital elements were arriving.

Where We Are Now

The results seem slightly better this time around, though nine points from the first six league matches may have made another long run imperative if the club is to contend for the title or perhaps even to qualify for the Champions League. That scenario is the clear consequence of the misalignment of business and football strategy. Supporters may have to endure it again next season if the priority continues to be annual profitability.

There seem to be two conceivable alternatives:
  • Keep the current squad in tact with changes only at the margins. Even that tack could increase the payroll because it will generate a new contract for Bacary Sagna at the very least
  • Call on part of the £150 million cash reserve during the final year before the expected increase in commercial revenue to fund meaningful acquisitions, while taking what the club can get for players deemed superfluous
The second course of action seems to be the preferred one among supporters who focus on the financials. Yet it does not serve squad continuity. And if the current lineup falls short in its performances, the first option could be a disaster for the brand while new commercial deals are being negotiated.

No easy answers, unfortunately. I guess that's why Ivan Gazidis pulls in more than £2 million each year.

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