Are Arsenal Prepared for Life after Wenger?

Earlier this week, the German publication Kicker published an interview with Arsenal playmaker and record signing Mesut Özil. In it, Özil stressed his readiness to sign a new contract with the club.

The only sticking point, he said, is the uncertain management situation. With manager Arsène Wenger’s own contract set to expire in June, one of the team’s star men has simply asked the club for an indication of who his boss will be if he commits his prime years to Arsenal.

“The club knows that I am here especially because of Wenger, who brought me, whose trust I enjoy,” Özil said. “The club also knows that I firstly would like clarity on what the manager is doing.” (See Arseblog’s full English transcript here)

In one sense, Özil’s declarations are reassuring: He seems content with his life and work and reluctant to jettison that for greater riches elsewhere.

On the other hand, his doubt is troubling. It suggests one of Arsenal’s greatest assets is as much in the dark about the manager’s position as the rest of us. A reasonable inference from Özil’s plea is that the club’s executives have not shared the outlines of a succession plan with him.

Given the discretion with which Arsenal conducts business, we shouldn’t be surprised that all the details haven’t emerged. We won't see a five-person managerial short list, for example.

But we don’t even have reassurances, a succession philosophy, or indications of a decision structure to hint that the club is prepared for the possibility of life after Wenger.

The outlines of a plan

Three years ago, we lived through a similar scenario. Until Arsenal secured the FA Cup that spring, Wenger’s future remained much in doubt.

The risks of that state of affairs did not disappear; they were only deferred. As a result, the observations I made in my October 2014 piece “Arsenal After Arsène” are still germane.

In particular, we should look at the steps Arsenal have taken to prepare for the managerial transition. Have the Board and club executives implemented practices that would produce an effective succession? According to executive recruiting experts David Larcker and Stephen Miles, organizations should, among other actions:

• Add succession expertise to the board, particularly the search committee chair
• Develop a robust succession architecture to cover needs from immediate emergencies to a five-year horizon
• Use external advisors to assess candidates and work closely with the board
• Prepare to shuffle the current management team if any members block the development or advancement of others
• Expose promising internal candidates to the board

Although the club won't engage in all these activities in the open, we can expect the Board and Chief Executive Ivan Gazidis to reflect on these needs and to describe their preparations broadly.

Not only have Arsenal’s leaders failed to substantiate their thinking and actions on the matter, they have not answered the critical question—who is primarily responsible for the appointment.

Supporters, observers, and the media don’t know, despite the experience of 2014, who’s leading the club in this critical respect or how the leadership is approaching the decision. More troubling, the players don’t know.

The shortcomings of an insider Board

These developments, or lack thereof, do not inspire confidence that the Board has overcome its one obvious flaw. That’s the narrowness of experience and perspective of its members.

Six men. All white. Three grandees of the club. A father and son pair with no football background. And the CEO.

Even if we acknowledge that some members of this group have participated in bold, forward-thinking decisions in the past, the Board’s homogeneity and its implications are unavoidable.

First and foremost, the lack of breadth and diversity. A substantial body of organizational research indicates that the most effective decisions emerge from groups with a broad range of experiences and identities.

Not only do those perspectives bring new ideas, the very inclusion of difference sparks more careful decision making. (See “Better Decisions through Diversity” from Northwestern University’s Kellogg School of Management.)

As Katherine W. Phillips wrote in Scientific American in 2014, “Diversity is not only about bringing different perspectives to the table. Simply adding social diversity to a group makes people believe that differences of perspective might exist among them and that belief makes people change their behavior.” (“ How Diversity Makes Us Smarter”)

There have been no additions to the Arsenal Board since Wenger’s last contract renewal. No apparent changes of behavior, either.

As a result, the club doesn’t inspire confidence that it can make the optimal preparations for Wenger’s departure. 

The task that awaits

These preparations are vital to the club’s future because a monumental challenge faces the next manager.

During his 20-year tenure, Wenger has evolved into something of a Chief Football Officer. He’s an executive with both strategic and daily tactical responsibilities.

Both aspects weigh on him. He has said, for example, that he considers the financial well-being of all the current staff when he is making decisions about major outlays on new players.

“What matters to me is that when you have a club with 600 employees, you make sure you can pay everybody at the end of the month.”

That was his response to a question last August about Arsenal’s perceived hesitation in the transfer market.

In addition, very little seems to happen on the sporting side without Wenger’s okay. For an indication, read the engrossing account of 2014 loanee Kim Källström. Arsenal’s physicians diagnosed him with fractures in three vertebrae as he was on the verge of moving to North London.

After the medical assessment, Källström remembers, Wenger said:

’The transfer window shuts in a few hours. It’s impossible to find a replacement. Either I take you or no one.’ Surprised, the others turn to the big boss. No one knows how he’ll continue, but they know that his words are law. It’s evident that he has not anchored his decision among the rest of the staff. He decides. ‘You’ll stay, heal, and train. I’ll take you when you’re fit.’

When this one figure who has made so many decisions, the one to whom so many people have deferred, departs the scene, Arsenal faces a cultural and structural upheaval. Wenger’s replacement will have to coach the entire organization through that challenging transition.

Indeed, even taking into account a restructuring of Wenger’s responsibilities, the new manager will have to be comfortable with an executive’s perch.

Wenger described the evolution of his responsibilities at length in a conversation last March:

I remember I was manager at the top level [in 1983]. It was me, 20 players, and a part-time physio. Today, we are in 2016, I have a real team around me, a team of assistants, specialists of all kinds—statistical analysts, video analysts, scouting, physios, doctors, dieticians. So my job today has, of course, changed.

And I get so much information, that the problem of the modern manager is more to select the three, four [pieces of] information about the multitude he gets which are really significant.

Today you are much more in selection mode and decision mode.

Today you have other problems, to manage your own team of consultants … That creates human problems as well.

Here, Wenger is talking about his responsibilities in terms most executives would find familiar. He has to identify meaningful points amidst a flood of information and make important decisions on the basis of that selection.

Add explaining those decisions with equanimity to agenda-driven writers and broadcasters, demanding supporters, highly compensated players, colleagues within the club, and its leadership, and you have a colossal undertaking on an almost daily basis.

Given the magnitude of this work and its effects on Arsenal’s success, those in position of authority should be better prepared to handle life after Wenger than they seem to be.

Cracks in the Arsenal Brand

Arsenal's early season struggles have brought out the well worn and often angry portrayals of manager Arsène Wenger's tactical cluelessness, his transfer ineptitude, his awkward man-management, and his geriatric stubbornness.

The suspect evidence supporting these characterizations and the logical fallacy of the Arsenal=Arsène equation only seem to intensify the appeal of these arguments. It's gotten to the point that unthinking perceptions are reshaping the Arsenal brand; as a result, the club is facing a deeper issue than the manager's performance or the team's lackluster form.

What makes a football brand

In a largely problematic account of Arsenal's 2013-14 season ("Arsène and Arsenal: The Quest to Rediscover Past Glories"), Alex Fynn presents a strong foundation in brand theory. Brands aren't just logos or taglines, explains Fynn, but are collections and expressions of the rational and emotional attributes associated with an organization.

These attributes give brands distinctive personalities, such as Volvo's "Crisp and Safe" and Apple's "Cool and Innovative," which shape the main characters in those organizations' stories. The dramatic or comedic pull of these stories, along with the personalities and values they express, attract like-minded individuals.

Even more than other sports, football engenders strong brands, Fynn points out, because the dramatic impact is so great. One late moment of brilliance or bad fortune can overturn a result that seemed a foregone conclusion for 89 minutes. That's unmatched dramatic potential.

The geographic, historical, and cultural identifications of football clubs also make them sturdy vessels for brands, and clubs and their supporters can easily identify themselves in opposition to the "other" created by rivalries.

Elements of the Arsenal brand

Although Arsenal's brand benefits from clear differentiation with Tottenham, Chelsea, and Manchester United, the club has reaped its biggest reputational reward by honing its own personality. I would define this as "Refined, Successful, and Sensible." (See "The Brand's the Thing" and "Whiffing on Risk" for additional thoughts.)

At the foundation of these personality traits lie the club's historical values:

• A distinctive balance between English football tradition and innovation
• Adherence to standards of conduct that denote "class"
• Consistent success at the highest level of the sport

Arsenal promises those who have identified with it that it will live out these values and behave in accordance with its underlying personality. Breaking that promise could make supporters and sponsors question their loyalty, with major cultural and financial consequences.

Fissures

Just three months ago, Arsenal appeared to be reaffirming its core personality and values, with world-class acquisitions joining the club soon after an FA Cup triumph. The speed and irrationality of the shift in perceptions should trouble CEO Ivan Gazidis and other club executives, because they suggest that a different, much less positive, brand story is replacing the advantageous one.

Here's how it's happening: First, the promise of potential success appears to be an empty one. It's extremely unlikely that the club will win the Premier League or the Champions League this season. That's the standard of success the club has established for itself, and it will once again fall short.

Instead, as Andrew Mangan pointed out on the November 7 Arsecast, we are witnessing a routine of top-four league finishes and exits after the round of 16 of the Champions League.

This pattern of performance lessens the excitement because it's so predictable. Add that to the team's inability to win matches against the top domestic competition, and you'll struggle to find compelling drama.

Second, the club's image as an innovator is getting weaker. With the same manager for 18 years, no matter how sincerely he might profess new ideas or his focus on the future, Arsenal is always going to appear hidebound. (One reason I think so many supporters were excited about the appointment of Shad Forsythe as head of athletic performance enhancement is that it hinted at the club's innovative best.)

The third brand problem is that the personality trait "Sensible" is being undermined by a perception that identical weaknesses cause the same results year in, year out. Facts and reasonable analysis to the contrary, "defensive frailty" is Arsenal's downfall. It doesn't matter that the major problem in 2013-14 might well have been a lack of speed and in 2012-13 a lack of creativity. The story is already written.

The persistence and immediacy of this narrative are strong evidence that Arsenal's brand has shifted.

Impact

If this analysis is right, a succession of good results won't move the brand back onto favorable ground. Only a major achievement, a Premier League title or a Champions League trophy, will be sufficient for that.

Major sponsors seem comfortable with this scenario. The lucrative deals with Emirates Airlines for shirt and stadium sponsorship and Puma for playing gear indicate that those companies continue to see considerable advantage in aligning with Arsenal. How secondary and regional sponsors weigh the Arsenal brand will be crucial to higher commercial revenue.

Meanwhile, supporters have communicated mixed messages about their loyalty to the brand. The increase in season ticket prices, coming as it did as the brand was shifting, sparked vocal criticism. What appeared an attempt to capitalize on the FA Cup success and hope for the future has instead made longtime match goers question their commitment to an organization whose brand promises are shaky.

Despite the reaction, the waiting list for Arsenal season tickets remains long. What proportion of season ticket holders in years to come will be new? How many ticket holders will leave their seats empty? And how will those developments affect the stadium atmosphere, which is part of what any sports organization sells to sponsors, broadcasters, and fans?

These are potentially much more troubling questions for the club than are any about the manager's transfer, team setup, or personnel decisions. They aren't as dramatic or obvious, but structural questions rarely are.

Arsenal after Arsène

This month Arsène Wenger marked 18 years as manager of Arsenal Football Club, an extraordinary tenure in professional sports. He's been in charge for 1,023 Premier League matches, while the next longest-serving manager, the embattled Newcastle United boss Alan Pardew, has served only 171. In the relatively near future, though, Wenger will depart.

This eventuality seems to be dawning on club officials. "The biggest challenge we're going to face as a club is that, when the transition from Arsène to our next manager happens--and I don't know when that's going to be--that we come through that strongly," CEO Ivan Gazidis said in a recent interview on the Arsenal website.

Is succession actually the "biggest challenge"? Bigger than competing with the financial might of Chelsea, Manchester City, and Manchester United? Perhaps not. Those issues are structural, will exist regardless of who manages Arsenal in 2017 and beyond, and indeed raise the stakes of the appointment.

For that reason, a thoughtful, thorough plan is essential to guide the club through this important period. This article explores the Board's public pronouncements on the issue and outlines what we should look for as evidence of an effective succession plan.

The Arsenal Board's readiness to plan and to act

The close of the 2013-14 season should have energized the Arsenal Board and Gazidis to intensify succession planning. That's because credible reports suggested that Wenger was prepared to decline the renewal offer had his team not won the 2014 FA Cup. Gazidis's comments at the time showed that the club was in no way prepared for that possibility. (See my personal blog post "And All the Clocks Wound Down".)

So far, the Board doesn't appear to be bringing much urgency to the task. At Thursday's Annual General Meeting of shareholders, Chairman Sir Chips Keswick said, "It's premature to speculate about a successor to Arsène. I'm delighted he has signed a three-year contract. Rest assured, we follow the situation carefully... It's not being complacent--we think about it all the time--I hope when the time comes we will have a solution that pleases you."

I'd rest a lot more assured if the language coming from the board were more assertive. Instead of "we follow the situation carefully," Sir Chips should be saying, "we have launched a plan to guide our decisions."

Even if Sir Chips is only displaying English reserve, it's hardly a strong response to what Gazidis called "the biggest challenge." The approach seems instead to invite problems that befall many organizations in transition.

"They fail to recognize the need for a strategy for this critical business process, they haven't had great exposure to what other organizations are doing, and they haven't thought through what their organization should be doing given its unique set of circumstances." That's Scott Saslow, founder and CEO of a leadership development consultancy, who collaborates with Stanford University on research with senior executives. He could be describing Arsenal's leadership as it appears now.

What would indicate a plan

That passive image is all anyone has to go on at the moment, because no one at the club has detailed its approach to succession planning.

What would a prepared organization look like? According to Stanford Professor David Larcker and Stephen Miles, vice chairman of executive recruiters Heidrick and Struggles (page 14 of the presentation here), the steps an organization should take in succession planning include:

• Add succession expertise to the board, particularly the person chairing the search committee
• Think of the succession plan as a multi-person event also involving internal officials not promoted
• Develop a robust succession architecture that covers time horizons from immediate emergencies to five years
• Develop and refine a skills and experience profile
• Use external advisers to assess candidates and work closely with the board
• Prepare to move individuals off the current management team if they block the development of others
• Expose internal candidates to the board
• Engage in a confidential external search
• Provide ongoing support to entire management team after transition

Using these guidelines, we can assess the club's preparedness. All the club's activities won't be obvious or public, but the Board could start by clarifying who is primarily responsible for the appointment. Is it the full Board, a smaller group, or Gazidis? That's a crucial question. Not only does the authority need to be established, but that individual's or group's experience with these kinds of transitions could determine the search's success.

Another important statement would address Wenger's involvement. Studies suggest he should definitely have a role, perhaps even as far as identifying a candidate within the organization, but his influence on the decision should be minimal. Too much involvement from the outgoing manager can produce successors like Manchester United's ill-fated David Moyes.

Need for a seasoned executive

The search that brought Wenger to the club in 1996 was, by most accounts, a one-man affair, planned and executed by former vice chairman David Dein. He is no longer in a position to shape the board's thinking on Wenger's replacement or to work his network on the club's behalf.

The current Arsenal Board falls short of the Dein standard of experience. It's accurate that Josh Kroenke, the newest member of the Arsenal Board, was president of  the NHL's Colorado Avalanche in 2013 when it let head coach Joe Sacco go and hired Patrick Roy. But that doesn't seem like adequate experience for a high-profile Premier League appointment.

(One interesting point about the Avalanche's signing of Roy: It came just after the franchise elevated longtime captain Joe Sakic to lead hockey operations. So there is precedent in Kroenke Sports Enterprises for hiring former players to serve in prominent, decision-making positions.)

Gazidis? He communicates extremely effectively, makes decisions methodically, cares about the club's future, and publicly acknowledges the enormity of the task of replacing Wenger. What neither he nor anyone else at the club has yet displayed is any urgency to set forth the principles and processes to guide the eventual transition. As a result, we're left to wonder  how prepared the club is.

Management the Arsenal Way

The recent, revealing interview with Andries Jonker, head of the Arsenal academy, provides considerable food for thought as the club and its shareholders prepare for Thursday's Annual General Meeting.

Because Jonker does not seem shy about sharing his opinions with the Dutch publication Voetball International (translated on Arseblog in "Jonker: Arsenal scouting must be restructured"), his observations offer an unvarnished view of management practice at the club. In particular, Jonker's descriptions of manager Arsène Wenger's approach to management don't necessarily line up with widespread notions about how the club is run.

The conventional wisdom has long held that Wenger is a micro-manager, someone who must control every aspect of the club's business from transfer negotiations to players' diets to the design of facilities. This is the theory Alex Fynn and Kevin Whitcher advanced forcefully in their 2009 book "Arsènal: The Making of a Modern Superclub." It also flows from the popular tendency to equate football clubs with their managers. (See "Arsenal, Arsène Wenger, and the Cult of Personality" for my critique of this line of thinking.)

Perhaps Wenger has mellowed in recent years; it's also possible the original portrayal was too stark. Whatever the case, Jonker's interview suggests that Wenger's style is not autocratic and in many ways conforms to models of successful leadership.

The manager's level of involvement

Jonker describes his interactions with Wenger in ways that will seem familiar to anyone who has ever worked for someone else. "Almost every day, Wenger and I go through a number of things," said Jonker. "He is approachable, but I do have to show him what we are doing. We must not go behind his back."

This seems like a reasonable, open-door approach to management.

"What I do see," Jonker continued. "is that everybody at the club has the feeling that they need to have the green light from Wenger before they do anything."

Now, if "everybody at the club," including Chief Executive Officer Ivan Gazidis and the stewards at Emirates Stadium, seeks Wenger's approval, then that's not a functional arrangement. I'm more inclined to think, however, that Jonker is referring Wenger's involvement with the football staff, which is a different and more understandable proposition.

It's not unusual for managers to expect those reporting to them to produce recommendations for their response and approval. This is a standard approach in many organizations and a sensible one in the case of Arsenal.

After all, Wenger is accountable to Gazidis, the club's board, its supporters, and the media, so he should know about and support the actions of his staff. How could he appear before any of those constituents and endorse the sporting direction if he had not understood and supported the original course of action?

Foundations in management theory

This pattern of manager-staff communication falls within what management theorists call "transactional leadership." This facet of leadership focuses on exchanges between leaders and followers; managers who want their staff to provide specific things give those staff members other things that they want in return. (The original idea comes from Karl Kuhnert and Philip Lewis, "Transactional and transformational leadership: A constructive developmental analysis," in Academy of Management Review 10 (1995).)

Wenger seems to be practicing "active" management in the sense that he monitors his staff's behavior, anticipates problems, and creates opportunities to intervene before the problems get worse. (For the details of "active" vs. "passive" management, see Jane Howell and Bruce Avolio, "Transformational leadership, transactional leadership, local of control, and support of innovation: Key predictors of consolidated business-unit performance," in Journal of Applied Psychology 78 (1993).)

These behaviors and actions, which amount to exchanges between leaders and staff members, complement other defining characteristics of what's called transformational leadership. These higher-level traits and activities take the form of:

1. Charisma that appeals to followers on an emotional level
2. Inspirational motivation that articulates a clear and attractive vision
3. Intellectual stimulation that challenges assumptions, takes risks, and solicits followers' ideas
4. Individualized consideration that results in mentorship and attention to followers' needs

These are the four dimensions of transformational leadership described by Timothy Judge and Ronald Piccolo in "Transformational leadership: A meta-analytic test of their relative validity," in the Journal of Applied Psychology 89 (2004) and examined for their correlations with positive performance outcomes.

Wenger as "transformational leader"

Without sinking too deep into the academic theory and language, we can use the four dimensions of transformational leadership to understand how any manager's behaviors and actions create conditions for top performance. In the case of Wenger, we can break down his contributions as follows:

Charisma. Before and after the FA Cup victory in May, current players talked about how much they wanted to win this trophy for Wenger. Many former players came out with impassioned support as well. This is just a recent, prominent episode suggesting that Wenger has built an emotional appeal among many of those who work for him.

Inspirational motivation. The vision of attractive, offense-minded football appeals to many both inside and outside the club. Wenger also displays the optimism that this approach will succeed in the long run, another aspect of inspirational motivation.

Intellectual stimulation. It's fair to say that Wenger challenges assumptions and takes risks, as I recently pointed out in "Arsène Wenger's Risk Tolerance." He allows players considerable autonomy on the pitch. Questions persist, however, about his willingness to entertain other ideas. So we should refrain from making a definitive statement about how well Wenger fulfills this dimension.

Individualized consideration. If you listen to experienced players such as Mikel Arteta and Tomas Rosicky, Wenger emerges as a mentor and model they may follow when their playing careers end. And one of the criticisms levied at the manager is that he responds too much to what players need, granting their wishes to leave Arsenal for more playing time elsewhere, for example. That's definitely an indication of individualized consideration.

This admittedly superficial review does suggest that Wenger fulfills many expectations of the transformational leader. It's hard to conclude that he is not, given that he has guided the sporting side of the club during an 18-year period characterized by significant, and in many ways positive, change.

One last test of Wenger's leadership ability remains: What will happen when he departs the scene?

Arsenal, Arsène Wenger, and the Cult of Personality

As the summer transfer deadline approached Monday, millions of keys were called into action to lambaste Arsenal manager Arsène Wenger.

"He's still cheap."

"He's a ditherer."

"He's too loyal to current players to acquire anyone who might replace them."

These are well-worn, superficial explanations of the club's transfer activities, criticisms that transform the perceived personal traits of one man into the guiding principles of a multimillion-pound sports business.

It's not just the amateurs making this association. Marketing professional Alex Fynn and Arsenal fanzine innovator Kevin Whitcher called their 2008 study of the club "Arsènal: The Making of a Modern Superclub," essentially equating the organization with its field manager. Even more striking was Arsenal CEO Ivan Gazidis's recent characterization of the club as run-of-the-mill, save for Wenger. He told Sports Illustrated's Jeff Bradley: "There's nothing that really distinguishes us from other clubs in England, other than this man."

To me, this line of thinking is simplistic, misleading, and damaging to the spirit of the game.

The full-blown obsession with managers

The overemphasis on the character and power of the football manager doesn't affect Arsenal alone. Although it's easy to identify Wenger with the club due to his extraordinary tenure, to say nothing of the spelling connection between his first name and the club's, observers are just as likely to limit their analyses of other clubs to the perceived traits of their managers.

The English media are particularly sycophantic toward Jose Mourinho of Chelsea, hanging on his every word, giving undue credence to all of them, and buying the image that Mourinho wants to present of himself. The fawning press then depicts Chelsea as a worldwise, ruthlessly practical organization; an equally legitimate characterization would be decadent and inhuman, but those descriptors don't comfortably connect to Mourinho's accepted public persona.

Then there's the case of new Manchester United manager Louis van Gaal. He presents himself as larger than life, which made him a good fit for a while at the similarly grandiose Barcelona and is in line with the hubris at Old Trafford. Van Gaal benefited from good fortune as Netherlands manager at this year's World Cup, where many touted his tactical genius based on the Dutch defeat of an aging Spain squad and a goalkeeper substitution that could've just as easily gone wrong. The fawning led to predictions that van Gaal would bring Manchester United the title, notwithstanding the squad's midfield and defensive deficiencies and the questionable performance of the club's executives.

Manchester United may, despite its slow start, contend, but it'll be more down to money and good fortune than to the brilliance of van Gaal.

Easy but inadequate analysis

This focus on the manager as the sole representation of a club makes work easy for those who craft the stories through which we understand matches and campaigns. All writers and broadcasters have to do is perform some amateur character analysis or copy those of others; they don't have to ask players any hard questions about their decisions or performances. That'd be too uncomfortable and complicated.

As a result, we get fed and regurgitate a line of analysis that is simplistic in three main respects:

1. It ignores structures, systems, finances, and club culture that make particular actions by individuals possible and comprehensible
2. It creates a story we quickly relate to and understand by focusing on one individual
3. It permits a knee-jerk critique based on a contrast of how that individual has acted and how I as an individual would have done differently in the same circumstances

 Deeper factors and dramatic outcomes

The character-based drama is indeed attractive, partly because it is so easy to grasp. Nobody wants to think too hard about a pastime. However, as a means of explanation, the personality-driven narrative falls short.

What's much more influential is the minimal degree of regulation defining football's culture and structures. In contrast to American professional sports, which have governmental oversight and self-imposed salary constraints, European football as a business is a free-for-all. This encourages the financial frenzy, which itself drives player acquisitions, which threatens to trump the game itself as the object of attention. (See Rory Smith's excellent piece for ESPN FC on this perversion.)

In this unregulated financial environment, the apparatuses driving clubs' commercial and player acquisition activities have a greater effect on results than the personality of one man. I have cautioned in "We Are All Bean Counters at Arsenal Now" about paying too much attention to the business side, but that doesn't mean the organization supporting the players and the manager isn't important; it's just not the reason to follow a sporting endeavor.

The competitions themselves are that reason. And at pitch level, thousands of individual decisions and actions, as well as twists of fate, occur that no one person controls. Any one of those small events can be decisive. That's because football matches are tight-scoring affairs contested by elite athletes of similar talent.

It's also why the matches are inherently dramatic. We don't need to psycho- or otherwise analyze one person sitting in the manager's chair to make that drama any more enjoyable.

We Are All Bean Counters Now

Michael Lewis's 2003 book Moneyball and its 2011 feature film offspring made Oakland A's general manager Billy Beane a well known figure. The story also popularized sabermetrics, the use of specific statistics to guide personnel decisions. With the success of Oakland and the Beane-inspired Boston Red Sox, baseball observers and fans began to examine arcane measures and used those analyses to predict individual and team performance.

It's not a huge conceptual leap from sabermetrics to an ongoing, detailed assessment of the underlying sports business, particularly because Beane's approach was designed to advance a financially disadvantaged franchise through a novel application of statistics. Financial and operational scrutiny do seem to have become the new sabermetrics, as fans of many major sports teams have made fair game of studying their preferred sports businesses.

There's been resistance from the old school and from those who contend that this corporate emphasis saps the passion from sport. For me, examining the business enhances appreciation, understanding, and enjoyment of the competition, but there are dangers in obsessing about the finances and operations of sports organizations in general and Arsenal FC in particular.

The business as the source of performance risks and rewards

As it happens, Billy Beane is an Arsenal fan. This makes sense given the parallels between his approach and manager Arsène Wenger's penchant for seeking players undervalued by consensus opinion.

In an expansive conversation on last week's Arse America podcast, Beane also made a strong case for paying close attention to the underlying business. Bad business decisions can be catastrophic in European football, Beane said, because they heighten the risk of relegation and perpetual decline. The recent histories of Wolverhampton and Portsmouth in England indeed serve as cautionary examples.

Rewards on the pitch also have their foundations in the business. In particular, a strong correlation appears to exist between a Premier League club's expenditures on transfers and player salaries and its finish in the league table. (See the Pay as You Play blog and Twitter observations of Zach Slaton @the_number_game for deeper analysis.)  

Wenger recently noted this relationship and associated it with Arsenal's prospects in the league, saying "I would say that the balance of power is a bit more even than it was five or six years ago, in the Premier League. That's because of Financial Fair Play, added to us having more financial power than five years ago, that gives us a better chance."

These positive and negative effects on performance justify widespread interest in clubs' operations and accounts.

The business as a storytelling device 

Supporters should understand a club's business for an additional reason: The management of affairs expresses a value system, which should guide club officials' words and actions (I wrote about this dynamic in "The Brand's the Thing" two years ago.) When they don't, supporters are right to criticize.

Fans are reasonable, too, in their pride when business developments provide direct evidence of principles that carry meaning for them. CEO Ivan Gazidis evoked this pride to Sports Illustrated's Jeff Bradley when he emphasized the courage it took the Arsenal board to build Emirates Stadium.

"Most people would have just sat back and said, 'This is great. Everybody loves us.' But what do they do?" Gazidis said. "They throw all of that up in the air, a massive risk. They say, 'We're going to commit all the resources of this club to building a stadium that we think we are going to need 15 and 20 years from now if we want to be a really global football club.'"

Gazidis is skilled at emphasizing this compelling part of the Arsenal story, and it's worth our effort as fans to pay attention. If we as individuals share the values captured by the story -- planning for the long term, resisting the urge to rest on laurels, etc. -- we feel more closely connected to the club. At the same time, though, we should be wary that the story of the business isn't used to gloss over poor performance and unmet expectations. 

Dangers of shallow analysis

The same level of vigilance should also apply when we're faced with faulty analyses of the business. For example, even the casual Arsenal fan has probably heard that the club had more than 100 million to support transfer activity this summer.

That hefty balance seems to have convinced many that all the club needs to do was write some big checks and, presto, world-class players would arrive in droves. They draw up their own lists of targets and then criticize the manager and the club when those players don't end up donning the red and white. (A recent culprit was Elliott Smith, @YankeeGunner, who often has interesting insights but set forth completely unrealistic expectations in the season-opening Arse2Mouse podcast.)

We're wise to resist another urge when we focus on the business side of the Arsenal Football Club, that impulse to make the business a story in itself. This tendency turns the financial affairs of the club into another competition, pushing observers to view different clubs in an arms race for resources.

What's the reason to manufacture a contest on this level, stacking statements of accounts against each other? We already have contests to watch, from mid-August to mid-May. All the financial and business activity matters only if it plays out on the pitch. That's where the real drama and meaning of football happen.

And All the Clocks Wound Down

Time is running short on Arsenal manager Arsène Wenger's contract, and as his current agreement draws to its end, speculation mounts about his and the club's future. 

Not to worry, says CEO Ivan Gazidis. "Arsène will be extending with us, and at the right time, we'll announce it." That was his statement at the unveiling of the club's £150 million new kit deal with Puma on January 27.

Yet every time he's faced questions about the renewal, the manager has demurred. He admitted in October that the club had offered him a new contract, but with supporters, journalists, and his superiors hanging on every word, Wenger has been cagey. Hints that no lawyer or linguist could construe as a commitment are all he's offered.

This drama has played out longer than any of Wenger's previous three contract extensions, intensifying suggestions that he may leave. Some papers report heightened concerns within the club, though their sources are unclear and they could simply be stirring up mischief.

Meanwhile, even such measured supporters as Andrew Mangan of Arseblog and James McNicholas of Gunnerblog have put forward a 30 percent probability that Wenger will decide to walk away. (Listen to the excellent Arsecast Extra from March 3 for their rationale.)  

It's a delicate line

Rather than address the oft-opined-upon question of whether Wenger should be offered or should accept a new contract, I want to point out some implications of how the club's executives, specifically majority owner Stan Kroenke and Gazidis, have handled probably the most pressing issue affecting the club's future.

As Andrew rightly stresses on the Arsecast Extra, the club's executives have no contingency plan in the event Wenger decides not to return. Their near-term succession plan consists of Wenger and Wenger alone. As a result, even a 10 percent chance of his departure represents a major risk to the business.

I've written before that the club has often erred in elevating personnel risk, in the form of transfer fees and related player salaries, to the level of strategic business risk. In the current situation with Wenger, the personnel risk is significantly higher than it is for any other person on the payroll; it's as close to a strategic business risk as you'll see connected to any one employee's status.

Not only has the Arsenal brand become closely linked with Wenger's approach to  management and playing style, his skills have adapted to the club's environment. He has had a substantial role in shaping that environment, perhaps even the self-sustaining business model, which makes him particularly suited to shaping decisions there. Studies in the management field have drawn a strong correlation between employees with specific knowledge of their firms and those firms' successful performance. (Anyone interested in the nerdy details can read this analysis from The Journal of Applied Psychology.)

Kroenke and Gazidis may recognize this relationship between experienced staff and organizational achievement, which would make their current deference to Wenger in his deliberations somewhat understandable. Still, their stewardship of the club requires a backup plan.

And the names were all erased

The club has also recently publicized staffing decisions that Wenger either made or endorsed. It hired a new Academy director in Andries Jonker to oversee youth player development, brought on Ian Broomfield as a scout, and finalized contract extensions with midfielder Tomas Rosicky and center half Per Mertesacker. All accounts suggest that record signing Mesut Özil agreed last summer to join Arsenal to play for Wenger.

If Wenger leaves and a new manager arrives, player morale could be a major issue. The replacement will have to build trust among the players he favors and work within the bounds of some long-term commitments that he may not like. Either that or the club will have to buy out the deals. Football performance might suffer, along with the finances. Just look at Manchester United's league position and market value under David Moyes.

Arsenal's costs likely start at £15 million in the near term. That's a figure based on a Center for American Progress review which indicates that losing highly skilled and highly compensated executives can cost organizations more than twice that person's salary.

Again, these factors could partly explain why Kroenke and Gazidis have given Wenger so much leeway as he considers his future.

In standing off so much, though, and in leaving themselves no Plan B, they have worsened the potential effects of a Wenger departure. Gazidis would find himself in an untenable position due to his clear public statement about Wenger's return, and the club will likely be searching for a new chief executive with all the financial and operational consequences that entails.

One good minute could last me a whole year

Even with the best intentions of managing the valuable asset the club has in Wenger, Kroenke, Gazidis, and the rest of the Board have lost control of the situation and the discourse. The question has moved away from whether Wenger is the right person to carry the Arsenal football management forward. It's now a matter of how the club's executives could cope if Wenger decides of his own accord to move on. Allowing that shift to happen seems like negligence on their part.

I'm hopeful in spite of that mismanagement. Part of the reason is that organizations have ways of enduring, especially organizations as rooted to history and the community as is The Arsenal. The club has also combined sound financial management and expanded commercial relationships to amass funds that Kroenke and the Board could bestow on a new manager in the form of his own salary and incentives and a historically large transfer budget.

Or Wenger could stay on and make maximum advantage of his intimate knowledge of the club and its expanded resources. My guess is he will indeed re-sign. I say that because Wenger strikes me as a person of integrity, and I have trouble believing he would mislead Özil and especially Rosicky, who, after all, could have enjoyed a more lucrative career sendoff in MLS or elsewhere. 

So maybe, like many organizations, The Arsenal will find itself in a reasonably advantageous position despite what appear to be some odd choices on the part of its executives. 

Whiffing on Risk

Since the start of the 2011-2012 season, Arsenal CEO Ivan Gazidis has regularly and famously said the club has "kept some powder dry," and the cash on the balance sheet shows it. There's most likely about £75 million available for player acquisitions and new salaries right now, if you set aside a good chunk of the club's £154 million cash position (at May 2012) for debt service and a Champions League contingency fund. The new five-year, £150 million shirt and stadium sponsorship deal with Emirates Airlines will add another £30 million to the pot in the coming summer.

That creates a 2013 transfer kitty of more than £100 million, which supporters can reasonably expect to be deployed, given the obvious shortcomings and poor form of the current team. (Read the January postings of the 7amkickoff blog for insightful analysis of where the club should be adding.) 

 

A single-minded focus on personnel risk

 

Gazidis says a lot of things, and to pick out the image of the dry powder might unfairly characterize the club's thinking. But it's an image that sticks for several reasons:

1. The club has not brought in new players whose fees have exceeded those of players sold by the club, having registered profits on player sales, since at least 2007 (source: The Swiss Ramble)
2. Prior to this month's re-signing of Theo Walcott, the club has sold marquee players rather than exceed the existing wage ceiling
3. The highest reported transfer fee in the history of the club is the £14.5 million for Andrei Arshavin in 2009 (per Arsenal Report's Transfer Centre)
4. Manager Arsène Wenger's statements, such as "We are open to strengthening the team, but the difficulty is to find what strengthens us," indicate skittishness about incoming transfer activity

This evidence in word and in deed suggests that the club's leadership considers the failures of new signings to be a primary risk to be mitigated. It's not difficult to understand this position given the long need of the club to pay off the burdensome aspect of the stadium debt and the transfer flops of Marouane Chamakh, Sebastien Squillaci, and Park Chu-Yung.

The problem is that the club's leadership has elevated the risk of personnel mistakes to a level of strategic priority. Often it seems like the only priority.

 

Ignoring the damage

 

In the process of focusing on the possibility of acquiring poor individual performers, which I would consider a tactical business risk, the club is now running a risk that is much more damaging--the risk to the Arsenal brand.

The Arsenal brand has been 125 years, or at least 85 years, in the making. Certainly beginning in the Herbert Chapman tenure in the 1930s, the club has worked to establish its brand as a distinctive and successful balance of sensible and innovative, of English and cosmopolitan, of street smarts and class. The most visible manifestations of this brand have been the exciting playing styles at the peaks of the Chapman and Wenger eras.

That's all being jeopardized by the approach to transfers and the near obsession with ensuring the precise value of new playing personnel.

As a result, a growing--and unfortunately not unfounded--perception of the club is emerging: It's stubborn and doddering, a full turn from the image hard-earned and well promoted over the years. When Grantland.com's Triangle blog recently published a Downton Abbey-to-EPL converter, Arsenal was equated with Robert Crawley, the Earl of Grantham, who is "electing to remain stuck in his ways as the modern world passes him by."

The history of brands indicates it's difficult to reverse the fundamental perceptions of a brand once they've been turned in a negative direction. The examples of Toyota, whose massive vehicle recall damaged its reputation of quality, and the Susan J. Komen Foundation, whose public split with Planned Parenthood called its focus on women's health into question, should serve as cautionary tales. Perhaps more to the point, Sony has stood still while such rivals as Apple, Panasonic, and Microsoft have usurped its prime positions in the laptop, television, and video game markets, respectively.

 

Where the pain will come

 

As has been the case with Sony's gradual decline, don't expect a single event to signal the downward shift of the Arsenal brand. Instead, each disappointing transfer period, followed by a stretch of subpar performance on the pitch, will represent a step in the worrisome direction. Eventually, the trend will show up in the club's finances, as sponsors drive harder bargains and ticket sales lag.

I was admittedly much more concerned about the potential damage before the new Emirates sponsorship deal was announced. Still, the positive effects of that agreement could be wiped out by weakening match-day revenue, failure to secure secondary and regional sponsorships, and prolonged absence from the Champions League.

As Arseblog wrote on 9 January, "How long before that [a combination of high prices, under-performance and refusal to invest] has a knock-on effect on revenue in other ways, such as sponsorships, advertising, endorsements and so on? Do you want to pay for a pitchside ad running in front of swathes of empty seats?" 

Here's hoping that majority owner Stan Kroenke, Gazidis, and their colleagues recognize the risk before the effects hit the finances. By then, it'll be too late.

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.