There is a little more news on the “players should take a pay cut to support Arsenal” front this morning as the Arsenal released a statement reiterating their commitment to pay wages for all staff (casual workers through May) and stating that the club’s directors have taken a 33% pay cut over the next 12 months. The club have also stated that they are in talks with the players over Arsenal’s financial future and that they will speak about that more when the negotiations are concluded.
I have lived through no less than four major recessions and what I have noticed is that typically what happens is that management keeps all of their jobs while the average workers get pinched. One of the shadiest dealings I ever saw was management reorganize itself in the midst of a recession and whenever a director got a title change they got a pay increase. All that is to say that I applaud the management team and their gesture of goodwill here.
I could be cheeky and suggest that maybe they shouldn’t have been paid the salary they were getting before COVID-19 but I won’t. They are doing the right thing – their jobs are literally to keep Arsenal afloat (profitable!) and if that means a paycut for them, then so be it.
There are some who believe that this puts the pressure back on the players but I think that’s overplaying the hand considerably. It’s management’s job to keep the company going, all of the things they are doing are things they should have been doing from the start.
And also, before we start applying more pressure on the players I’d like to hear more about what E. Kroenke is doing to pay the non-playing staff?
Has there been any discussion of a rights issue to raise funds? Has the owner decided to inject money into the company, invest his own money for his company?
It’s important to remember that Arsenal FC is wholly owned by E. Stan Kroenke. He stands to make all of the profits from the sale of this company if it is sold, he takes a dividend when the company are profitable, he installs his billionaire scions on the board and pays them handsomely for having almost no knowledge about football.
It’s also important to distinguish between players salaries and players as assets. If Bellerin agrees with all the other players to give up 33% of his salary, what does he get in return when Martinelli is sold for £50m in 1 or 2 years? What does Bellerin get if he is sold to Barcelona?
Also missing from this discussion is the fact that Arsenal have one of the strongest cash on hand positions in the League. As of the latest accounts (published February 2020) Arsenal had £167m cash. Not only that but they had shaved well over £40m off the salary from last season when they were a club which J. Kroenke said was a Europa League team on a Champions League budget.
If the issue is paying the non-playing staff, that issue is more than covered by the cash on hand. That money was stuffed away through a 15 year policy of chronic underinvestment in the playing squad. They even managed to put money away after they started spending money in reaction to what I think was fans on the verge of pitchforks and torches. I’m not sure if you remember the mood in the stands that season that Arsenal signed Ozil.
But the issue here isn’t that we can’t pay the non-playing staff. That’s why the players are insisting on any pay cut being guaranteed to pay those workers. The issue here is that Arsenal’s billionaire owner wants to leverage this pandemic to force through deep cuts to the player’s salaries. Now, I’m not even remotely being cynical saying that what’s going on here is the club trying to fix the problems that the club created over the last decade of mismanagement. It’s true.
The difficulty here is that it’s probably necessary, if Kroenke is going to continue his sole ownership position. If my predictions come true (not finishing 2019/20 and probably not playing football next season) then the club are in real, actual, serious trouble. Kroenke leveraged the fuck out of his position to buy this club – he borrowed over $700m to buy Arsenal from Usmanov. And yesterday there were reports leaked that Saudi Arabia bought Newcastle for £300m ($375m).
The main asset of the club is the players and the fans. I know the stadium feels like an important and huge asset and it is but it pales in comparison to the money generated by selling players and the money that we spend on merch and tickets. So, I think there is a real danger that Kroenke’s ownership of Arsenal could come under threat. If there’s no football and the club have to take huge losses for several years and there’s no market to sell players (because there’s no football) I can’t see how Kroenke can hold on. I would say, max, one year – unless he sells some other properties and puts his own money back into the club, which I would be utterly astonished if he did.
Anyway, I’ve sort of rambled here for too long. My main points here are
- Cash on hand more than covers non-playing staff’s salaries
- Club management took a paycut… hooray!
- However, Arsenal are in financial difficulties
- Kroenke is in a very bad leverage situation with the banks (across all his teams)
- Questions about whether the assets at Arsenal cover the debts
- Kroenke is a paper billionaire – I’m not sure how much liquidity he has to put money in to any of his businesses during a downturn
- If football doesn’t finish this season the club have massive outlay owed (guaranteed contracts, season tickets, television money, sponsors money) and nearly zero income
- The problem at Arsenal is that they have been mismanaged for years
- Wages are out of control
- The value of the squad hasn’t risen because of astute purchases but rather just because rising tides raise all ships
- But this is a problem with the Premier League in general
- I can understand why the club wants to push through a salary cut
- I can understand why the players don’t want to take a cut
- I am slightly nervous about the future of the club (because Kroenke’s leverage position feels out of line with the value of the club) but overall I’m still relatively confident that even if Kroenke is booted out of the club because of insolvency someone would come in and buy the club – like what happened with Liverpool.
- Now, whether that new owner would be a brutal dictator who murders and dismembers journalists is the true unknown.
Honestly, there’s so much uncertainty that I can’t even worry about it. Whatever is going to happen is going to happen. I have no control over Arsenal, E.S.Kroenke or literally anything in this great big ole world. I’m not even sure I have full control of myself.
You know, in all of this, I haven’t spared a thought for Stan Kroenke? I actually forgot about him, believe it or not. But you’re on to something scary: the combination of a sport-killing pandemic and KSE ownership is a genuine existential threat to Arsenal Football Club.
Me and the band were resurrecting some Doors tunes. One of my favorites has always been “Roadhouse Blues” because I can get to play Robbie Kreiger’s excellent solo. But there’s line that Morrison sings over that foreboding blues riff:
“The future’s uncertain and the end is always near…”
That never felt so real as it does today.
Stay safe, everyone.
I think he could legitimately end up broke. He could take loans but not sure many banks will loan Arsenal much more money. I suspect his American sports teams might fare better but there again, if we don’t have an NFL season he could legit go out of business with the Rams because he’s so extremely leveraged there as well. Though they have a stronger position because of the monopoly business and the fact that a lot of NFL contracts aren’t guaranteed.
F&%k me! If liquidity becomes a serious issue for KSE, we may see all that cash on hand at Arsenal being siphoned off to service cash flow requirements.
Yes, at first for sure. That money was never there to improve the club, it was always a reserve to protect Kroenke’s leveraged purchase of the club, the stadium, and thus Kroeke’s ownership. My guess is they won’t want to use that for too long to protect the “workers wages” which they are all pretending they are doing.
I was going to use that lyric for a recent Instagram post but ended up going for ‘Strange days have tracked us down’.
There’s a great sense of uncertainty in many of the Doors songs which resonates with our new found circumstances.
Tim, do you know how the television contracts work with regards to force majure events? At what point does that income start to get haircut? To me it’s understandable for the club to request a temporary wage cut if the biggest source of income is at-risk.
It’s a tricky situation given that the league doesn’t have comprehensive collective bargaining like in the NBA. The decision to cut or defer wages should be on a league wide basis or not at all. It looks really bad for Arsenal if they are pressing for a wage cut and their competitors aren’t. The horrible ownership situation is certainly a hurdle in coming to a resolution.
That’s a good question @Talks. Here’s an interesting general piece on force majeure and coravisrus:
https://www.bloomberg.com/news/articles/2020-02-06/when-god-appears-in-contracts-that-s-force-majeure-quicktake
I could easily see Kroenke in trouble. Even the non-sports assets he has, like the giant ranch in Texas would be hard to move in this situation. He’d likely have have to pay pretty dearly for any more loans at this point.
That said, he could poach the cash on hand. That would certainly help.
As far as Arsenal generally, the club could end up in a bad spot if all that cash is gone and there’s no matches for a time. But it’s a huge team in one of the biggest cities in the world. With a nearly new stadium. No chance of it going under…someone would buy it.
We are particularly vulnerable because we a Europa League club on Champions League wages and we derive a lot of our income from match day receipts. Almost. quarter of earnings last season came from “butts in seats”, the league’s highest ticket prices and associated match day spending.
That will turn off a lot of buyers who may look at clubs with better income balance through more commercially diverse income streams.
We are going to have to sell and sell wisely and that includes a lot of top players and as well, manage exquisitely through this crisis.
There will be clubs who will not survive this, I promise you and my fingers and toes are crossed that we won’t be one of them.
I disagree. The most stable income stream is ticket sales. TV / broadcasting revenue is negotiated at league level and the club has no influence. Do you see broadcasters paying increasing sums for those rights? Maybe that bubble is about to burst. Sponsorship income is a little more nebulous but the great chunk of it comes from a handful of companies. I certainly see in a future world economy struggling to recover from COVID that sponsorship will be the first income stream to dry up.
TV rights are a very difficult one to figure out. On the one hand, I think if they can figure out a way to play behind closed doors they could sell the living bjesus out of some tv rights to a captive population. I’d probably pay season ticket prices for all Arsenal matches, I basically already do. So, there’s money to be had there. They all need to get together and think and act cooperatively. The hunger for sport hasn’t diminished (much) and I think they could leverage that into a ton of money even with closed stadiums.
Do you think he is actively looking for a buyer for the club? It can’t make sense to hold on It much longer. I wonder if Usmanov would still be interested. It’s a pity he pulled out of the club because Kroenke would be there for the taking now, if Usmanov was still a shareholder and made an offer to buy the club outright. The club is valued around $2.2bn by Forbes. Kroenke would bite the hand off that made an offer in that ball park. I know that there are reservations about Usmanov himself as an owner but all the preferred billionaires won’t touch a football club with a stick. If he really wanted Arsenal he could offload his Everton shares and make an offer. Now is the time.
To expand on an earlier comment. Arsenal sponsorship revenue primarily comes from two deals – Adidas and Emirates. Both companies sponsor many businesses and sports and both are having a very difficult time. Neither will see their businesses return to pre-COVID sales levels in 2020 and probably 2021. I guarantee both companies have teams of people figuring how they can reduce their sponsorship commitments. Either the value of existing contracts or the number of companies they sponsor. In Arsenal’s case we’re currently outside the European qualification spots and there will be penalties and possibly break clauses which could come into play. I think we’re in quite a precarious position retaining or replacing our key sponsor deals.
Match day income is nearly if not completely season ticket sales. I don’t have the exact breakdown but corporate boxes will make up a large chunk of the revenue. They tend to be priced at a significant multiple of regular seats (.com is currently offering an exec box for the Leicester and Watford games rom $4k). Typically seat sales are paid for in advance and clearly there is some uncertainty regarding when fans will be able to attend games which will impact renewals. I think if the club couch the sale of 2020/21 ticket sales appropriately renewals will be fairly robust. Let’s be honest, if you can afford a season ticket or corporate box now that’s unlikely to change due to COVID.
Broadcasting revenue domestically comes from Sky and BT Sport. The last rights renewal was won at a lower cost (Sky saved £199m per annum). There’s a lot of potential disruption in how broadcasting works. The EPL sell packages of games which aren’t necessarily how fans want to watch football. I think there’s going to be a large overhaul as fans want deals where they can watch all of their team’s games in one package. Plus Sky are likely going to see quite a reduction in their customer subscriptions. Paying £50-£90 per month for sports access will be increasingly hard to justify for many households. Sky are making friendly noises in the press but if the postponement extends or we end up with ‘closed doors’ games I’m sure they’ll be looking to pay much less.
It’s going to be very hard for some clubs to stay afloat. There’s too much uncertainty to predict what it means for Arsenal but football in general is going to take a haircut.
Another awesome post Tim. My guess is this current season will never be finished but hopefully they will start a new season sometime in the last few months of this calendar year.
Who knows if Kronke will be able to hold on to all of his leveraged assets. It would make sense for him to sell one of his clubs and use to cash to keep the others afloat. Arsenal’s value has certainly increased since he purchased it and there has to be significant equity and it would not be a surprise if he chose to sell Arsenal.
I don’t see why the PL couldn’t play, though whether it would be worth it is a separate question.
You will note that CNN and Foxnews are both on, so the technical staffs are managing to function. I could imagine being able to hold a game with a very limited game day tv crew and grounds crew all with tyvek suits, n95s and gloves. You couldn’t have real spectators but you could cut to individual fans celebrating at home.
The coaches and players would not be able to protect themselves so you would have to test them repeatedly and hold them in strict quarantine from their friends and families at their academy. It would be a tremendous hardship, so you would have to make it optional. But then you’d find out who really loves the club wouldn’t you?
Again, not sure whether it’s worth it. The PL is not an essential business but certainly would help to keep the economy going and any normalcy would probably help with general morale which would support the animal spirits of the economy and might even help people maintain quarantine.
You’re forgetting about travel. So there’s everyone involved in travel.
Then there’s hotels, everyone involved in the hotels would have to be quarantined with the team.
Then you have food prep and training, all of those people would have to be quarantined
And with strict quarantine rules comes strict shut-down rules (or else you risk rapid infection of the entire population). So, if anyone comes in contact with the virus, that means the whole league has to shut down for two weeks (at least).
Honestly think we need to put our energies into figuring out what to do with the world going forward.