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.
Transfer season is upon European football again, and with it come the delusions and madness.
Arsenal supporters have been infected, with some actually contacting the club via social media to demand the immediate deployment of the large cash stake on new players; the new Manchester United manager David Moyes has experienced the epidemic of crazy as well, having thus far failed to sign any of his high profile transfer targets; the denizens of the blue side of Liverpool have been flummoxed that Everton's new manager Roberto Martinez sees players from his former and relegated team Wigan as his main solution to improve the Toffees.
Although distinctive dynamics are at work in each club, all have more to spend thanks to the explosion of television rights money, which is increasing from £3.5 billion in 2012-13 to more than £5 billion in 2013-14. Meanwhile, Financial Fair Play (FFP), whatever impact that may have, will not come into full effect until at least mid-2014, so some clubs may be taking a last run at profligacy. Then there's the peculiarity of the system of player exchange in Europe and the illusion that this system creates a "market" for players, especially at the highest levels.
The infernal design
Bizarre individual and group behavior is almost unavoidable given the twisted nature of the transfer window, the structure through which clubs exchange player services. Viewed among other systems of moving professional athletes, the transfer window has three distinguishing characteristics:
- It limits activity to only three months (January and July-August)
- It overlaps with the most crucial period of the season
- It is dominated by cash deals
The brevity of the open transfer window not only produces a mad rush of activity, it means that club managers and executives have little opportunity to improve their charges' fortunes based on observed evidence. If they see a shortage or a surplus in a particular area, they can only address that in January or between seasons. That leads to questionable decision-making. (See Samba, Christopher, and Redknapp, Harry.)
Improving a side through transfers is more difficult because the primary period of player movement occurs during the pre-season and the first few weeks of the season. This schedule can keep a team from developing a full collective understanding, which is a vital quality given the flow of a football match and the relative self-regulation of its participants. The degree of player autonomy in manager Arsène Wenger's philosophy and flurries of transfer activity in the important weeks of August have at least partly caused Arsenal's early struggles in the past two seasons.
This summer's transfer period will again see big money move among the European football clubs, unlike transactions in U.S. sports. In Major League Baseball and the NBA, for example, cash is often a secondary component of a deal; it's the exchange of players themselves that drive most transactions. Some parties in those deals are even motivated by "anti-cash," or the savings enjoyed from unloading a large contract and the flexibility that brings under league-wide spending caps.
Cash, the dominant currency of football transactions, gives the appearance of free exchange: One club doesn't need to employ a player sought by the other party to do a deal, it just needs enough money to persuade the other to sell.
A market for crazy
But the freedom, flexibility, and comparability cash theoretically provides do not make player exchanges informed or their pricing transparent. I'd suggest that these transactions don't add up to a market at all. They're instead a number of discrete exchanges giving off the illusion of market characteristics because cash is enabling the transfer of similar services for a price.
Close observers of the Arsenal, particularly Elliott of @YankeeGunner, have argued that the issue of a player's "worth" is beside the point. If Arsenal wants a player, CEO Ivan Gazidis, chief negotiator Dick Law, and Wenger have to be willing to pay what the other club demands. I'd take this logic a step further. Because there are so few transactions among top clubs for world-class talent, I'd say that each transaction bears almost no relationship to any other.
Here are the summer 2013 transfers to date between Champions League clubs for world-class talent, defined as members of national teams (figures from transfermarkt):
- Edinson Cavani, striker, from Napoli to Paris-Saint Germain for €64.5 million
- Mario Götze, attacking midfielder, from Borussia Dortmund to Bayern Munich for €37 million
- Henrikh Mkhitaryan, attacking midfielder, from Shakhtar Donetsk to Borussia Dortmund for €27.5 million
- Mario Gomez, striker, from Bayern Munich to Fiorentina for €15.5 million
- Carlos Tevez, forward, from Manchester City to Juventus for €9 million
- David Villa, striker, from Barcelona to Atlético Madrid for €2.1 million
That's it. Only six national team players have moved from one Champions League club to another during the current transfer period.
What if we expand the borders and look at national team players from top-four clubs outside the European leagues? None qualifies.
My point is that this handful of transactions doesn't serve as much of a market. There just aren't enough comparables to determine what prices should be, and each exchange seems distinct from the ones before and after it.
The only exception I would make is for moves in which one club is participating in another transaction. Even then, thanks to their resources, Bayern Munich, Barcelona, Real Madrid, Chelsea, Manchester City, and PSG can conduct multiple, megamillion-euro or -pound acquisitions without concern for offsetting the costs.
Add the intensification of player power, and you have a hugely distorted "market." Players tempted by moves elsewhere, regardless of their contractual status, can threaten to go on strike, leaving their current employers with little recourse but to sell. That changes the supply-demand dynamics and the prices of transactions, which makes connections from one deal to the next even more tenuous.
If it's hard to discern a clear relationship among exchanges during one transfer window, connections from one period's transactions to what went on in previous periods are positively opaque. For that reason, any meaningful conclusions about trends--"prices are going up" doesn't count--are suspect, and models based on those trends seem flawed.
Arsanity
For at least 10 years, Arsenal as a club resisted the excesses of the transfer system. I wrote in January that risk aversion seemed to be the guiding principle of the club's transfer dealings. This approach took the club away from acquiring world-class players from other Champions League sides, so it did not act as a buyer in those rare transactions. The sensible image of the club and its decision-makers therefore persisted, though I argued that their risk calculus was suspect.
Now that money is less of an issue for the club, it's seeking top talent from top competitors. The question is, are Gazidis, Law, Wenger, and their colleagues prepared to act in this different environment? They have been reasonable to apply economic principles to the host of transactions in the €20 million and less range, where the set is large enough to render the cash comparisons among player assets meaningful. Can they bend those principles to succeed in a different setting, one in which it's unreliable to compare asset values and unreasonable to expect selling those assets for a higher price later?
We'll have our first indication by September 2.
* - title an homage to Charles Mackay's seminal work
