In the first part of the series, I outlined four models of club administration currently in practice in Europe. The first is the loan/debt model, where a club operates way above its means, incurring huge debts as a result.
Barcelona FC and Real Madrid are two good examples of this model.
But they are not alone.
A large percentage of the clubs around the world are built upon this shifting sand. The result of this, according to David Conn of The Guardian, is a mountain of debt.
I will quote him liberally:
Uefa's revelation that in 2008 18 Premier League clubs owed almost €4bn (£3.5bn), more money than the other 714 top European clubs put together, has highlighted the conundrum tearing at the heart of the English game.
This represents a contradiction, he states, since Premier League clubs earn more money than other clubs in other European leagues, except, of course, the Spanish giants, Madrid and Barcelona, who monopolize television revenue for themselves.
But the same thing that ails the English clubs, as revealed in this report, is the same ailment that might eventually do the same in the two giants, that is, if that could ever happen. Conn explains:
The prime reason for this contradiction, between a league making more money than ever previously imaginable, and one nevertheless writhing under a mound of debt, is that too much of the money football clubs make is spent on ever-inflating players' wages. Across Europe in 2007-08, the report – the European Club Footballing Landscape – states overall income rose 11%, but "the huge increase" in wages exceeded it, at 18%. In a bumper time for football, 47% of clubs across Europe lost money, with 22% reporting "significant losses" equivalent to more than a fifth of their income.
This is exactly the case for both Madrid and Barcelona. On the one hand, they earn a mountain of commercial revenue, but on the other, they writhe under a mountain of debt. It's a Sisyphean conundrum...almost.
There is, though, a positive lurking underneath all this, one that already is belied by the practical implication of this model—the fact that enough number of clubs (perhaps, not nearly enough since people carry on as though oblivious of this danger) have paid the penalty for their imprudence.
The list includes: Southampton (thankfully, they're resurfacing, but who can argue that they've lost some years?), West Ham (they too are resurfacing), Portsmouth, Leeds United (a truly sorry case) and the recent example that should engender a pause—the Scottish giant, Rangers FC.
Here's the positive. The Sisyphean cycle will be perpetual, eternal. But, like I said, this is belied by the examples above and others. Here's the basis of my thought.
Barcelona and Madrid (add Athletic Bilbao) are national institutions; the collapse of any of which is unthinkable, tantamount to national collapse.
It's the reason for the fierce rivalry between Barcelona (representing the Catalan nation, which desires its independence from Spain) and Madrid: the Spanish status quo. (Bilbao adds flavor to the brew.)
In essence, except in the event of a catastrophic economic collapse, none of these nations will allow its institution to collapse. The Catalans will do anything to forestall the collapse of Barcelona. Pride as fierce as the Spartans will rise up. For Madrid, the pride of the Spanish royalty will not allow it.
As a result, banks are apt to keep on dishing out loans in a perpetual cycle. Naturally, a semblance of some attempt at payment will be maintained. In this case, there's a sense by which an if-you-can't-beat-them-join-them attitude develops.
That is, if the Sisyphean cycle is to be perpetual, then there's no sense in playing by a different set of rules—being prudent (the Arsenal style), for example.
The only caveat is that none can guarantee this cycle.
Enough collapses have happened in the English football for example, and the rest of the Spanish clubs are in a fearful state of insolvency, the reason for the strike that marred the beginning of the La Liga campaign last season.
Barcelona are never likely to fall. Getty Images.
Arsenal vs. the Debt/Loan model
In the case of Arsenal, yielding to the status quo cannot guarantee the kind of protection both Barcelona and Madrid could enjoy in the event of a catastrophe. Arsenal isn't a national symbol in the way these two clubs are.
Thus the question: who would care enough to dive headlong (Spartan-like) to the rescue of Arsenal in the event of a calamity?
A few, perhaps.
Peter Hill-Wood states: “I was involved [in Arsenal] because I have been brought up to love Arsenal and that is my only concern."
The key phrase here is: "I have been brought up to love..." Here one might find pride and jealousy as fierce as the Catalan, the Bilbao and the Madrid examples above.
For a long time, Arsenal was managed by the Hill-Wood and the Bracewell-Smith families, who, together with others, constituted the board members. This was an English club proper, with inevitable customs and traditions, as well as well-cherished memories.
This might explain the reason why Hill-Wood reacted rather virulently to the idea of Stan Kroenke's involvement with the club—a man sought for and brought to Arsenal by David Dein: "We don't need his money and don't need his sort. He knows sweet FA about our football."
Past regimes: Dein and Fabio Capello. Getty Images.
David Dein and Stan Kroenke
A year after the move to the Emirates Stadium, David Dein, ever on the lookout for any opportunity to better Arsenal on the pitch, thought it was expedient that Arsenal sought an outside investor, one who could help service the Stadium debt as well as invest in players. Stan Kroenke seemed to him to be the man.
But why Kroenke?
Perhaps, because he was already involved in sport administration. He was the owner of the Kroenke Sports Enterprises that owned the Denver Nuggets basketball team, the Colorado Rapids football team and the Colorado Avalanche ice hockey team.
Hill-Woods reaction to this is noted above, but he continued in a petulant retort that he, and apparently his fellow board members, would be “horrified to see the club go across the Atlantic."
When therefore, Dein encouraged Kroenke to buy ITV's shares (9.9 percent stake in the club), he was shown the door by Hill-Wood, with Fiszman acting (funnily enough) as the "muscle" man.
At this time, the board owned about 45.5 percent stakes in the club, distributed thusly:
By April 25 of that year, seven days after Dein's ouster, Kroenke increased his shares to 12.19 percent. Fiszman reacted to this by declaring that the board would fight a Kroenke takeover. According to Matt Scott of The Guardian, he emphasized that the board held 45.5 percent of shares and that:
We also have friends that take us over 50%. They can mount a hostile bid but they are never going to get control of the club. I think it is going to be very, very difficult to explain to me and the rest of the board how you can make a substantial investment, which has to be £400m, £500m or £600m and expect a return for that. Even an 8-10% return you have to take £50m or so. And that has to come out of the club, otherwise there's no point in making the purchase. I don't know how they are going to be able to improve the finances of the club.
Here we find a tacit clue to the board's hostility: "Even an 8-10% return you have to take £50m or so. And that has to come out of the club, otherwise there's no point in making the purchase."
Having seen the effect of the Glazer family takeover of Manchester United, it appears the Arsenal board had no intention of letting this happen to Arsenal.
But events would take a twist and escalate.
Dein and Usmanov
Having been ousted, and evidently observing the board's hostility to Kroenke, David Dein turned to another person who was buying the Arsenal shares at inflated prices—Alisher Usmanov.
On a purely business side, Dein stood to gain a lot by selling to this man, but it is not implausible that in Usmanov, he saw a different route to the fulfillment of his dream for an investor.
Dein quickly sold his 14.65 percent shares to Red & White Holdings owned by Mr. Usmanov and his business partner Farhad Moshiri. That was in August of 2007. It was a whopping £75 million windfall for Dein.
At this point, Danny Fiszman became the majority shareholder—but only just.
His stakes were 24.1 percent while Usmanov's stood at 24 percent. The board needed to act swiftly, and they did, instituting a lockdown agreement, which was to prevent board members from selling their shares to outsiders.
The lockdown had originally been agreed upon shortly after Dein's departure.
Dein's sale to Usmanov indicated obviously that he wasn't the friend that Fiszman had talked about as the person who could push the board's holding to over 50 percent. Or if he was, the board had been mistaken.
After the strengthening of Mr. Usmanov's holdings, the board extended the lockdown agreement to 2012. Had it worked, it would have put an end to developing events.
Ivan Gazidis and Peter Hill-Wood. Getty Images.
It's understood that Danny Fiszman was adamant about not selling shares, at least not until "the expected financial benefits had been fully realized," which begs the question regarding when that expected time would be and about what exactly he meant by "expected financial benefits."
Again, at this point, Fiszman is the principal shareholder, and if this held, it would become the status quo in the meantime. There was also the chance that Fiszman could strengthen his holdings by acquiring more shares since board members could sell among themselves. In fact, an inside source indicated as much.
But if Fiszman had designs for the control of Arsenal, hence his opposition to first Stan Kroenke and then to Alisher Usmanov, what prompted his u-turn to these designs soon after?
For in September 2008, in a strange reversal of attitude, the board invited Stan Kroenke to become a non-executive director.
A little after, a huge row appears to have broken out between Fisman and Hill-Wood on one side and Lady Nina Bracewell-Smith on the other, which led to her ouster in an acrimonious fashion.
I’m in total shock and very upset about the appalling way I have been treated. The board have no manners whatsoever and my views were ignored on many occasions.
I can’t understand why I have been removed in such a ruthless fashion. I had no intention of selling my shares and was no threat to the lockdown agreement between the directors. I have also had no proper explanation as to why they wanted me out so much.
It is very difficult to accept, especially after what my family has done for Arsenal for so many years. I am extremely upset at what's happened and the way it has been done.
I've never had a thought of selling my Arsenal shares and I still don't.
To oust her, Fiszman and Hill-Wood had to "persuade" Richard Carr to resign from the board. Carr was Bracewell-Smith's brother-in-law. The pair needed the anonymous vote required to sack Bracewell-Smith from the board.
Lady Nina seemed to have been at loggerheads with Fiszman and Hill-Wood over a number of issues, including the appointment of Ivan Gazidis as the executive director.
Moreover, Jeremy Wilson, a writer for The Telegraph, who evidently has an inside access to Arsenal, thought that this move came after Fiszman had determined that he no longer needed Bracewell-Smith.
Paul Kelso of The Telegraph reacted to Bracewell-Smith's sack:
By forcing Lady Bracewell-Smith off the board after an irreparable disagreement about the way forward for the club, principal shareholder Danny Fiszman, his close ally Chips Keswick and Hill-Wood have demonstrated that dissent will not be tolerated at the Emirates
The removal of Lady Nina Bracewell-Smith from the board makes little sense in the face of the fact that this practically released her from the lockdown agreement, meaning that she could then sell to Alisher Usmanov if she so desired.
This was a likely scenario, giving the hostility she had experienced from the board, which now included Stan Kroenke.
Had she sold to Alisher Usmanov, and bar the shares of Richard Carr, Usmanov would have become the majority stake holder.
It appears though that she was as staunchly opposed to an outside takeover as the next man, and given the fact that her break with the board happened shortly after Stan Kroenke had been invited to join the board, one wonders whether her opposition didn't stem from this.
This, in fact, could explain the reason why she eventually sold her 15.9 percent stakes to Kroenke instead of Usmanov—despite the fact that she stood to gain significantly more by selling to the latter—having decided that Kroenke was a better option to Usmanov.
The deal with Kroenke fetched her £116.24 million, whereas selling to Usmanov would have fetched her £128.6 million.
Arsene Wenger: His visibility means he gets a lot of blame. Getty Images.
The acquisition of Bracewell-Smith's shares in December 2008 represented a major victory for Kroenke in the maneuvers for power at Arsenal.
In March of the following year, Fizman sold 5,000 ordinary shares to Kroenke, which increased the American's holding to 20.5 percent.
Shortly before his death a month later on April 13—three days before,—he sold his remaining shares to Kroenke, enabling the American become the majority holder at 62.89 percent.
There is a silent thread that runs throughout these events that culminated in the Kroenke takeover.
There's first the difference that emerged between Danny Fiszman and Keith Edelman on the one hand and David Dein on the other over the idea of a stadium, wherein the pair of men emerged as winners in this disagreement.
David Dein, it appears, had the immediate footballing implication in mind.
That is, how could Arsenal continue to win and challenge for trophies in the immediate present? Money, of course, was very important. It's the reason he opted for a switch to King’s Cross or to the restored Wembley from Highbury instead of a new and larger ground.
A move to a new ground would constitute a huge financial strain, while a mere switch would not. But had Dein prevailed, Arsenal would be in the second tier of clubs today, as far as value and revenue are concerned.
The Stadium move was a good move.
There's secondly the insistence of the board to maintain the English tradition (the Arsenal tradition), which appeared headed ineluctably to a majority control by Danny Fiszman.
He was the principal shareholder for a long while.
Both he and Hill-Wood were hostile to the presence of Stan Kroenke, and, as we've seen, this led ultimately to Dein's sack from the board, even though it was Dein who had brought Fiszman to the board.
Keith Edelman's sack seven months before Bracewell-Smith's and Carr's came about as a result of his fierce opposition to foreign takeover, and as I see it, represented the turning point in the saga.
Why the sudden disagreement over an issue that seemed unanimously agreed upon before by the principal parties in the situation?
In short, why did Friszman change his mind? To me, the answer lies in his cancer problem.
His obituary states that he had died after a long battle with cancer.
I am supposing that after realizing that he was going to die, and being one of the two people holding the key shares at the time (Usmanov being the other), and being opposed to the Chelsea-like oligarchy, he decided that Kroenke was the lesser of the two evils.
Kroenke, after all, would make a written pledge, not to load Arsenal with debts (a la the Glazer style), and his track record seemed to show that he favored the self-sustaining model.
And as far as the City-style patronage or the Chelsea-style oligarchy was concerned, Kroenke promised not to "delist Arsenal from the stock market."
It meant "that smaller shareholders [could] maintain their stake," which in turn meant that Kroenke did not intend to take the club into private ownership. This pleased the Arsenal Supporters Trust.
Stan Kroenke: What exactly is his role to be at Arsenal? Getty Images.
One implication comes to the fore, since Kroenke has no intention of taking over the club, what incentive is there for him to invest further in the club besides the stakes he already holds?
The question is relevant because since he isn't the only stakeholder at this point (Usmanov and his partner being the other), were he to invest, resulting in appreciation in value of the club, wouldn't he be buttering the bread of his adversary, who stands to gain from any such appreciation?
There is a further question: How exactly is Arsenal to benefit on the playing pitch and otherwise from Kroenke's ownership if the current model remains? Doesn't it seems like all gains for Kroenke, who can simply sell his stakes any time he likes when he deems that his investment has appreciated?
In order words, based on the current model, it appears that Kroenke has simply planted some stakes through his shares and waits for them to mature, at which time he'd simply reap the dividend and disappear.
Needless to say, this does no good to Arsenal, which to this point has huffed and puffed on her own. On this model, it makes no difference who owns the club, since ownership represents zero investment.
If one appeals to commercial revenue, the ready answer is that Arsenal could manage this without Kroenke's help, whose presence hasn't to this point changed anything at Arsenal.
For me, then, and as an admirer of the self-sustaining model (one of the reasons I love Arsenal), Stan Kroenke is nothing more than a spandrel, extraneous to Arsenal’s cause, except, insofar as he has timed his presence to coincide with the time Arsenal have (on their own) managed their debt and would begin to reap the dividend, and it just happens that a bulk of that will likely go to Kroenke.
Am I then recommending Alisher Usmanov? By no means.
I am saying that Stan Kroenke's presence makes no sense at this point. He appears to be an opportunist who disguises it under his trademark silence.
Read his silence and non-intervention to mean Arsenal will lumber on on her own, just like she has always done.
Robin van Persie: He is at the center of the current saga. Getty Images.
I have a lot more to say than I have in the "Implication" section, but I evidently have overstayed my welcome with this series. I must therefore stop.
I neither side with Kroenke nor Usmanov. Neither do I think that the current status of things represents the ideal. This incidentally is where the challenge lies for everybody: what is the way forward?
It is easy to blame and make insinuations; it is another to make assertions based on facts. What I've sought to do in this series is dispel some of the shroud of misinformation that seems to swirl everywhere.
I do not kid myself that I have succeeded. Nevertheless, I want to thank the readers for staying with me throughout my attempt.
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