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THE ARSENAL

Let me make it clear, the purpose of the article isn't to demean or dismiss anyone, but to
look at the issues impacting on AFC, which have simmered away for years.
Before we can discuss the parties at play here, we need to understand the nature of the
beast, its habits, habitats and culture, so we know what we are dealing with.

The Arsenal, something given the indefinite article because its deemed unique and so
important, the only one in a football sense (despite there being more ). Think of
tradition, of Eton and Harrow, The Bank of England club asThe Arsenal are referred to.

Highbury Stadium in its art deco magnificence, marble halls with oak paneled offices,
crystal decanters, Lords and Ladies, merchant bankers, members of parliament, all
inveigled in a culture of 19th and early 20th centuryBritain.

That was a colonial, empirical Britain, with a rigid class structure, where titled chaps and
landowners ruled as masters with servants, and looked down at those below. Directors
brought up in an age of supremacy, where "Johnny come latelies", nouveau riche
upstarts, foreigners, and below the stairs types, knew and stayed in their place. The sort
of chaps whose Grandad owned Downton Abbey as a weekend house, and whose
servants were more conservative and reactionary than they were.

The Carrs, Lord Harris, Bracewell - Smiths, Hillwoods all come from this class and
share that culture and upbringing. The Carrs and Bracewell-Smiths are actually
related.

Then there is Ken Friar, who has only ever had one employer - Arsenal. What a rarity
that is today, and to be submerged in that culture all his life for over 60 years.

It is important to see how being deeply embedded in and wed to that culture affects the
mindset that pervades Arsenal, and their way of doing business over many decades up
till the current day.

For board members for many years, The Arsenal wasn't a business expected to make a
profit but a family heirloom passed on via shares to the next generation. Seen through
their eyes as custodianship through philanthropy topped by an exclusive gentleman's
club

Summed up best by Peter Hillwood's comment "investing in football is dead


money" commenting on selling sharesin Arsenal to David Dein. He shows he saw
ownership as custodianship not profit making unless its a personal one.

A football club where the Chairman delivered a "dressing down" like a headmaster to
boys, to the whole first team and manager after the first Old Trafford brawl (set up as
a stunt by George Graham to relieve FA punishment) shows how public school and
upper class ways of dealing with people, staff and the business carried on even in 1987.

Conservative, frugal, steeped in their ways and set in a time getting more distant by the
day. Frugal with wages, transfer fees and hiring experts to advise on issues where
their knowledge was limited preferring the old boy network instead of hiring the best
available.
Known as "The Arsenal Way"

A club where marketing and sales acumen was summed up by fact the club shop in the
late 70s was a green garden shed run by an ex player. Even when
Dein purchased shares from Peter Hillwood , the club's retail or marketing ambition only
increased to a couple of stores which were run under license by a friend of Dein's.

Despite Dein and Fiszman joining the board and their love of the club
and entrepreneurial attitudesdriving+dragging the club in to the modern age, the Colonel
Bufton- Tuftons and their culture remained, with some additions of a foreign nature, yet
overall still as crusty and as frugal as ever, sadly surviving Danny Fiszman even, and
are sat in his legacy to the club- The Emirates Stadium.

Today Arsenal to the board is a business. For us fans or consumers as marketing


departments call us, this already brings us in to conflict with the board's philosophy.
Decisions are taken (or not) which affect us, the team we love, over which we have no
control or involvement bar support. All we can do is voice an opinion.

Shareholders as part owners of the club can do the same, however should these
views not please the board, then that question maybe vetoed in the AGM. For having
the audacity to question and expect answers, shareholders are told "Thanks for your
interest in our affairs".

The culture which denounced Stan Kroenke as a carpetbagger, exclaiming "We don't
want his sort here", wasn't just aimed at foreign investors invading the boardroom with
their nouveau riche filthy lucre but also introducing alien cultures as well.

Cultures alien to Arsenal at the time but in modern business outside football seen as
necessities such as modern business management and marketing.

Dein added some sense of commercialisation , but because of the intense emphasis
and focus placed on securing funding for and building of the Emirates
by Fiszman, marketing saw some small progress, but never was marketing or
management accorded the respect it would be in any non football PLC business.

Edelman, the managing director was a non football person, a financial man whose main
task was to secure the funds for the Emirates stadium. He was involved closely in the
Nike 8 year kit deal (later extended) and the Emirates 15 yrs naming+shirt sponsor deal.
It's fair to say Edelman and the board's eyes were focused mainly onobtaining funds to
convince banks to lend the club the rest needed, and for sure thought less of
any marketing benefits.

In other words those deals were seen as a necessary evil to achieve the ends of raising
350 million pounds from the banks, rather than a valuable income stream.

So we can see a tradition at Arsenal of antipathy towards marketing and advertising,


which was challenged by Dein, and slightly moved on by Fiszman and Edelman. That
antipathy arose from a combination of the culturewhich would have seen marketing and
commercialisation of an heirloom as frankly vulgar, and allowed the club to being wholly
focused on Danny Fiszman's drive to build the Emirates and obtain funding for it.

Had the board looked down the road and saw the principles behind Irving Scholar's
failed yet now acclaimed visionary plan to commercialise a small team in Middlesex or
had just sent an executive on a fact finding trip to the USA, then their eyes may well
have been opened.

Opened to the potential massive income possibilities and the strength it would add to
the club. Hiring an expert to advise them how to do this whilst building the stadium
would have brought more money in way earlier. The lure of that revenue may have
defeated their being focused on one target only and their prejudice against such
nouveau riche nastiness.

As the stadium which was to provide the match day income they so sought opened,
Danny Fiszman became ill and sadly passed away.
His death saw the ownership of the club pass out of the hands of the Carr's, Hillwoods
and Bracewell-Smiths to Stan Kroenke of KSE an American company investing in
sports brands. This company had been a shareholder of Arsenal for some time,having
bought Granada's shares in AFC+Arsenal Broadband ltd.

Stan Kroenke and KSE issued a takeover offer after buying Danny Fiszman's shares
and took over the club and bought up to 69% of the issued shares, mainly from his
fellow board members. The other major shareholder Red+White (who bought David
Dein's shares) owned by Uzbek Oligarch Alisher Usmanov, didn't accept KSE's
takeover offer. Seeking instead to buy shares to reach the 30% threshold, they believed
would given them access to the management accounts and a board seat.

From the first plan through to the topping off and opening of the new stadium, the
board promoted selfsufficiency, a responsible business spending only what it could
afford. When Kroenke was victorious in his takeover, KSE's press release promised
business as usual, with an emphasis on Self sufficiency.

Before we take an in-depth look at self sufficiency lets get a clear definition of what
that really means.

"Being able to maintain oneself or itself without outside aid : capable of providing for
one's own needs" - Merriam Webster dictionary

So it would seem this is good sensible business practice, to develop a business which is
totally self funding and can look after itself using its own resources.

The question is however for what purpose and whose benefit the company in question
is "self sufficient", and whose definition of that phrase it used to determine the plans.

My definition would be a self funding business operating from funds generated from all
activities, seeking break even point as minimal objective without devaluing the assets,
market share or performance or level of operation. A business targeting major success
in its market, with a planned strategy of over performing with budgets and assets.Note I
say without devaluing the assets not the value of the share price but assets.

Assets being the property of the company from cars to the stadium to player
registrations.

To ensure this strategy of self funding works and achieves maximum performance, all
budgets, funds and assets must be maximised and deployed in the most advantageous
risk free strategy.

This is where issues with Arsenal's boards deployment of their definition and version of
"self sufficiency arise.

To drive a business through a period of stadium development and raising finance for
that, requires top business management overseeing, and supervising senior executives
constantly.

This ensures that budgets are used wisely, and maximised and are delivering value and
performance, and no source of income is left untouched or just tickled enough for
purpose.

The antipathy to marketing, a necessary evil to get the down payment for the stadium,
yet neglected otherwise whilst extreme focus is place elsewhere is an example of this.

Not hiring a senior business manager to handle the marketing and commercial side
whilst still planning the stadium move was a massive error. Had this been
done recruiting a team and having plan to kick off that important work would have been
started in 2004.

More importantly 8 years down the line Arsenal would be up there competing at the top
with huge commercial revenue, and all the benefits that would bring to the business on
and off the pitch.
Tom Fox Arsenal's commercial director wasn't appointed until 2009, three years after
the project of the new stadium was completed.

He, himself, bears out my thoughts albeit it with a bit of spin to alleviate any blame for
the board for neglecting commercialism.

In an AISA Q+A session reported by the excellent Gingers4limpar blog, Tom was asked
why in 2010 , Arsenal lagged behind other clubs in commercial revenue. The graph
below from the expert Swiss ramble blog exhibits the issue at hand..

Tom Fox's reply was this :-


" The football club [Arsenal] was focused for many years on building this stadium, and if
you remember this stadium was supposed to be the game-changer that closed that
gap [between Arsenal's revenue and other big clubs']. And this was a fairly significant
undertaking to move 400 yards from the old stadium to this stadium. Three years ago
we started the journey to begin to invest in people that could capitalise on the
opportunity that I spoke about earlier [from commercial revenue] around this club that
exists everywhere else in the world. Other clubs, werent focused on building a new
stadium so they may have invested in different ways against their commercial operation.

So an admittance by a board member that for 5 years Arsenal took their eye off a
very important ball. A very valuable ball, and a crucial one to their plan of self
sufficiency. The cost of this dropping the ball and extent of indifference to it are both
incredible.

In 2010 Manchester United's commercial revenue was 45.5% higher than


Arsenal's (46m) at 103 million.

Gingers4Limpar interview of Tom Fox explains incredibly the board's indifference


to commercialisation and then adds damning evidence of former MD Edelman's
admittance of the lack of interest when he was CEO of the club.

Tom Fox - " Three years ago we would have had one person full time employee out
speaking to companies on behalf of the club, and two people that worked for an agency,
consulting; and they would have conversations with various businesses and brands
around the world about signing on as a sponsor at Arsenal. We also had about one and
a half people one part time one full time servicing the partners the club already
had two and a half people and two consultants. We now have 13 full time people.
Man Utd have 80. So when I say they started 8 years ago investing behind this, they
started 8 years ago and theyve been investing non-stop behind this area. "
no reason to doubt knowing Gingers professionalism in note taking.
"I was at a separate AISA or AST (I forget which) meeting with then-CEO Keith
Edelman at some point between 2006 and 2008, where he admitted that the club had
neglected merchandise in recent years. It was largely brushed off as a minor issue at
the time, with Edelman visibly indifferent, but looking back I cant help but wonder if it
reflected a wider ignorance of the competitive importance of targeting commercial
revenue streams."

That ball if it had been picked up would have added 20-50 million a year to Arsenal
turnovers and revenue streams from 2004 to date.

Being conservative and saying 20 million for the first half of those 8 years and 35 million
for the second half, with 45 in the last year means Arsenal's boards indifference and
possible ignorance through their outdated culturecost the club a fortune.
Gingers4Limpar adds his own recollection of Edelman's comments on the subject which
I have

230 million pounds on a very conservative estimate


65% of 350 million in debt borrowed to build the new stadium !

A vital arterial revenue stream just neglected, left to the competition, through lack of
understanding through out of date culture. Masters of the old school who didn't listen to
advice and wouldn't be questioned.

A decision that should be haunting every single member of the board who sat there in
2004 pooh poohing any mention of it.

A decision for which fans, the manager and the clubs fortunes would pay dearly for in
the eight years following.

As stated previously for a self sufficient business to achieve its objectives, all assets
and budgets must be maximised and then best deployed in the most advantageous risk
free plan.

Clearly the evidence shows this wasn't done, therefore reliance on match day and TV
income and player sales to "self fund the business" became order of the day. To
counteract accusations of failure to compete on the pitch, as well as off it (we are JCLs
to commercialisation) the self sufficiency mantra was extended to "living within our
means".

To many fans the entrance to the arena of Sugar daddy clubs made the living within our
means ring more true.
Many just swallowed the story, missing the real underlying news, the board lost the
chance to gather a fortune to fund the club at a much higher level. The truth is that the
club made this situation far worse than it could have been, and spun the mantra to keep
banks and fans quiet and off their case.

Nothing like admitting you spurned 230 million pounds of profit to give bank managers
during re financing the jitters!

Even attempting to invent 4th position in the premier league as a new trophy. For the
board it is a trophy, a trophy of income to bolster up Arsenal's budgets, shorn by the
board of commercial income commensurate of London's biggest club.

The season ticket and club level rises at the start of the recession in May 2011
demonstrate how much failure to pick up the ball in 2004 cost Arsenal in performance
and its fans in pound notes.

The extra revenue which was lost, would have enabled the club to hold down ticket
prices, retain players, invest in higher quality new players and improved Arsenal's
chances on the pitch. It would have enabled even an increase in wages and more, year
by year, again increasing the club's competitiveness as well. All that needed to happen
was hiring the person to start the process and build the team in 2003 and fund
the commercial team properly.

Despite all of this, and lack of commercial revenue being identified by new CEO Ivan
Gazidis, quickly, and provedby his hiring Tom Fox.
Arsenal's board stll refused to veer from "The Arsenal Way".
They sat honouring their word as Victorian gentlemen would have 125 years ago.
Completely ignoring the changing world of Abramovitch, Sheik Mansour and others,
refusing to buy out or re negotiate the deals struck to get the necessary evil and thus
seeing the cost of "The Arsenal way".
We know the cost today, the difference between the 22 million deal with Adidas
rumored to be in the pipeline and the old one with Nike, over say the last 4 years. As
well the cost of losing players, showing no ambition in transfer markets whilst spinning
the self sufficiency socially responsible mantra. A better title would have been

"Self Sufficiency hampered by Self Deficiency

Again a significant cost and penalty to a "self sufficient" business, its not enough to deal
with Oligarchs and Petro billionaires sponsoring clubs, but we had our own board
hampering us with Self Deficiency as well.
All because it wasn't the done thing.

Only in football could a board of directors survive such a massive error, demonstrate
such an attitude of laissez - faire towards such a vital subject and get away with it.
Worse still the error forces them to put up ticket prices,destabilising relationships
with loyal long term customers during a recession. Worse still they devalue their
business by having to sell valuable players yearly to fund the gap in their self sufficiency
budgets, their incompetence created.
They continue to blame sugar daddy clubs for their inability to compete at the highest
level to some extent true but not without their 230 million pound penalty hampering the
club.

Can anyone imagine directors at Tesco being allowed to stay in place if they
concentrated on opening new mega stores only, but forgot to invest in advertising ?

At the AGM there would be no censoring "awkward questions" , or spinning replies.


Fund managers and institutional shareholders would demand blood. A full replacement
of the board, bar the newly hired professionals would be demanded and enacted.

That is how serious this error was, and compounded by the board seeking comfort in
profit making, as money men they feel that denotes success. They feel profit is an
acclamation of their philanthropy and proof of their philosophy.

Sadly results on the pitch and in the commercial revenue league don't bear out their
feelings.

A board who were recently enriched by the takeover, sat waiting to be paid for their
promissory notes, with little incentive to change the current situation. They will be long
gone when Ivan Gazidis and Fox are running the club for KSE or future owners.

The failure to see the immense value and critical role commercial revenue would play in
football, and getting in the game so late, meant Arsenal sold assets. Worse still put up
prices, and weakened prospects for success on the pitch, and still had to use property
income to shore up the club.

Property income which was supposed to be a massive boost in reducing the debt and
increasing the clubs capital and wealth, yet was spent on running costs in absence of
commercial revenue.

You will notice I haven't mentioned UEFA FFP or Premier league FFP yet. I didn't do
deliberately to ensure people could see how one blunder 8 years ago forced the board
in to the policy they now follow.

Yet despite oligarchs, and oil money sponsored rivals, they sit with 140 million pounds
in cash in the bank, and despite their commercial revenue cock up !

All gained from selling players and charging the world's most expensive ticket prices.

The self sufficiency and living within our means a worthwhile, admirable philosophy has
been perverted by a cock up, and now possibly something more sinister.
According to the clubs accounts, this 140 million pound in cash is reserves, not special
reserves required by funding. Those are shown in separate account lines in the annual
report, for sure some of the cash is to carry the club through the year.
It is worth remembering other than his original investments in to Arsenal, Stan Kroenke
and KSE have paid no cash for shares. The takeover costs were funded by the club,
and shares of the other directors bought in exchange for promissory notes paying 7%
income.

Arsenal does not pay dividends, however when pointedly asked at the last AGM,
Kroenke refused to confirm he would not take money out of the club.

So is self sufficiency Arsenal football club living within its means hampered by its
board's F**k up or is it Stan Kroenke and KSE being self sufficient by paying to buy the
club using some of it's own money.

Is self sufficiency, the board being self sufficient ie not investing any money, seeing
share prices rocket due to Red and White's activities, sat on a fortune, not investing it
and looking forward to payout boosted by the prices fans and TV stations pay.

For sure those reserves aren't being used to invest to strengthen any facet of the
club, off or more importantly on the pitch. So what are the club doing with that
humungous lump of money apart from on paper reducing overall debt. Note it can't be
used to clear debt early as this would incur a penalty.

As I write there is news Arsenal and Tom Fox's team have begun the long climb to
catch up the rest on commercial revenue.

Rumours circulate twitter from shareholders claim a 22 million pound a year kit
sponsorship deal from Adidas will be announced by Arsenal in the near future.

A deal announced today (23/11/12) with Emirates over 5 years for shirt sponsorship
from 2014 to 2019 at the rate of 150 million pounds. The deal also extends stadium
naming rights till 2028, Ivan Gazidis announced Emirates will pay funds in advance so
money is available now.

One has to wonder if this money will be spent, Arsenal have 140 million pounds sat
on deposit earning interest, which so far hasn't been dipped in to, even slightly.

Wonder how sponsors will feel if their money is used by the clubs owner to pay for the
shares he purchase with credit in the takeover, or if the club fails to
progress, because the owner and club aren't investing in its future.

Surely the deal announced today will allow the club to retain Walcott?

As successful that deal is, even adding a new shirt will only bring us to 20 million
behind Manchester United's 2010 total of commercial revenue, its nearly 2013.

Its the number of secondary, and item specific sponsors, and number of partners, Tom
Fox's team need to increase. It's perfectly feasible to increase commercial revenue to
twice the 2010 ,46 million pounds. Kit deal 22million Stadium and shirt naming 50million
and say 20 extra partners at average of 2 million each equals 112 million a year. if the
team is enlarged and invested in to do it.

Given Arsenal's position of England's 3rd most successful club of all time, based in
London, with the best demographic mix and highest disposable income of all clubs fans,
this should be easy to surpass.

However it is made harder by lack of on the pitch success, big brands like sponsoring
winners and contenders, not also rans.

Just a shame Arsenal's board didn't hire a Tom Fox in 2002 and had reaped the
benefits of the activity for the last decade, perhaps now we would not be where we are
today.

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