It is true (the bolded bit). I've laid out reasons why I think this to be so, fairly clearly, in what are probably some of of the wordier posts i'll ever write on this forum, and the accounts published by the club seem to justify this view. You keep telling me there's no money there, but as far as I can see this simply runs contrary to the facts - as I've laid them out. If you want to convince me otherwise, you're going to need to actually give me reason to accept your point of view, rather than simply stating it and restating it. I've had this argument too many times over the years to particularly enjoy it any more, I have to say.

Seeing as this seems to be the main point of contention, I'm not going to respond to the rest, as it's pretty much all based within this paradigm, which, as we can see from your last contention, clearly leads to absurdity. I've addressed the remaining points, in more words than is really healthy - to continue this further I think I'm going to have to challenge you to produce evidence or logic.

A demain...

"We have left money in the bank many, many times over the years, window after window, moved slowly time after time, missed out on target after target."

This is the problem with your entire argument. You keep saying over and over that we have money left, I keep saying that we're SUPPOSED to have money left. You don't just spend down the balance. Don't make out like I'm beating the horse deader than you are.

Since the conclusion of the Highbury redevelopment our profitable enterprises have been cut down. We have good spending power right now, but not the means to renew it - in my opinion. Our commercial revenues are much, much lower than those of our trophy rivals, with no immediate hope of remedy. Basing this on Swiss Ramble's most recent summary of our position:

http://swissramble.blogspot.com.au/2012/02/arsenals-mystery-dance.html

I reckon the best point that has been made in this thread is that the way we spend (not the amount) isn't "optimal".

Last we signed a few players in Arteta, Mertesacker, Benayoun and Santos who didn't fit the project blueprint. All made valuable contributions. We should carry that thought to its logical conclusion and pick up real experience in the areas we're currently less than two reliably fit quality options deep: right back, and midfield.

Then we should blow the rest of our transfer budget on players who will get us points. Giroud looks like he might be worth a couple of wins coming off the bench.

Coombs wrote:

"We have left money in the bank many, many times over the years, window after window, moved slowly time after time, missed out on target after target."

This is the problem with your entire argument. You keep saying over and over that we have money left, I keep saying that we're SUPPOSED to have money left. You don't just spend down the balance. Don't make out like I'm beating the horse deader than you are.

By last count we have something like £120 million and growing in cash reserves. Nobody is suggesting that we should "spend down the balance". A significant portion of that money is held to cover debt repayments and rainy day scenarios that might occur, wages during the summer months, transfer clauses which may be activated at some point in the future and various other projects. But by all educated guesses that still leaves a massive chunk that just sits there doing nothing for anyone.

Burnwinter wrote:

Since the conclusion of the Highbury redevelopment our profitable enterprises have been cut down. We have good spending power right now, but not the means to renew it - in my opinion. Our commercial revenues are much, much lower than those of our trophy rivals, with no immediate hope of remedy. Basing this on Swiss Ramble's most recent summary of our position:

I think we're still due to make a sizeable profit on a couple of other developments in the next 12 months or so. I've read as much as £25million for one site, and around £10million for other bits and bobs.

Yeah, it's not all bad news, but as this figure shows, our profits excluding player sales aren't exactly great:

From that SR summary:

Although the property development at Highbury Square has not proved to be as lucrative as originally hoped, due to the market crash, it has generated money for the football club. This peaked in 2010, when revenue was boosted to the tune of £157 million, though the profit contributed was “only” £11 million.

Only a few apartments still remain to be sold, but there are other substantial developments at Queensland Road, Hornsey Road and Holloway Road, which should deliver additional cash, as noted by Gazidis, “Our property business is debt-free, so any new sales of property do accumulate cash, which is very positive for the future.” This could be worth up to £35 million according to an estimate made by the respected Arsenal Supporters’ Trust (AST), though is only likely to be booked in the 2012/13 accounts at the earliest.

So, to cut a long story short (as Spandau Ballet once said), Arsenal's financial performance has undoubtedly been impressive, especially compared to almost every other football club, but they face more challenges than would seem apparent on first glance.

Also:

On the bright side, when the main sponsorship deals are up for renewal in 2014, Arsenal will have a fantastic opportunity to significantly increase their revenue by up to £30 million per annum. However, here’s the thing: there is a danger that if the team continues to be unsuccessful and maybe even drops out of the Champions League, the club’s bargaining position will be correspondingly weaker. That said, Liverpool have managed to sign superb deals, even though they are in the same boat (though some might argue that they have a stronger brand).

Basically Swiss Ramble seems to agree with the view that the only real potential to increase our steady commercial revenue is renegotiating those deals.

Coombs wrote:

"We have left money in the bank many, many times over the years, window after window, moved slowly time after time, missed out on target after target."

This is the problem with your entire argument. You keep saying over and over that we have money left, I keep saying that we're SUPPOSED to have money left. You don't just spend down the balance. Don't make out like I'm beating the horse deader than you are.

I don't even know what you mean by 'spend down the balance'. Again, sounds to me like you're drawing a false dichotomy.

Edited for politeness' sake - re-read my post and didn't want to sound like such an arse. See my response below to Burnwinter...

Burnwinter,

Have to confess, I don't really read Swiss Ramble all that regularly - it's all a bit 'day job', something I like to get away from when I'm not at work! Nevertheless, his analysis is pretty good, he usually unpacks the numbers well, whenever I do read him. 

I think we're at the point where a bit of broader context would be relevant. It's something the SR guy alludes to, but to reiterate, the narrative of our business has been a slightly unfortunate, in someways foolish story. 

Simply put, Arsenal locked themselves into an extremely long-term business strategy many years ago when they first committed to the Emirates development. And we were REALLY locked in - no options to unwind, no break clauses, no lawyers we could turn to to pick holes in the contract - we basically went 'all-in', full steam ahead, no turning back. Now, the big problem with 'long-term' plans is that nothing at all is certain in the long-term. Fundamental assumptions need to be made, and often these assumptions turn out to be inaccurate. In our case, two major things changed that we hadn't bargained for: 

1) the property crash / credit crunch - actually didn't affect London property, in that region of the city, nearly as much as it did elsewhere in the country in terms of value - north London property prices have not fallen that much, if anything they've held steady / increased, albeit at a much slower rate than previously, and forecasted. Nevertheless, liquidity in the market dried up somewhat, and whilst prices remained solid(ish), sales were slower. Even despite this, Arsenal have had to recognise some not-insignificant impairment charges on the property portfolio.

2) the landscape of finance within football changed completely when the oligarchs first arrived.

Whilst I think it's evident that the stadium development project has been good for the club on the whole, it's also true that it was conceived in a world that was very different to the situation we find ourselves in today. 

In short, the game has changed and we need to find a way to keep playing. 

In fairness to the club, and the manager, we've managed to at least get ourselves invited to the party by qualifying for the Champions League every season. But we're not ones who're going to be pulling. Nevertheless, there are plenty of avenues I think we could be pursuing to increase our spending power:-

a) Stop pursuing profit, especially profit driven by player-trading. Bit of an odd suggestion, given we're talking about this in business terms, but not all that illogical. As I've said above, we're currently heavily locked in to a business plan that was designed to deal with a different world. It's an out of date plan. Rather than focussing on making profits in the short-term,  Arsenal should be making the sorts of investments now that will protect the business in the long-term. That means both maintaining qualification for the Champions League, something we've undeniably achieved, albeit with a few too many close-calls for my liking, but also putting ourselves in a position to maximise those sponsorship contracts, those corporate tickets, those media revenue opportunities when they do come around for renewal. No sponsor is going to pay us because we're a profitable business, they're going to pay us to get their names front-and-centre on a glamorous location in the media's eye. This goes back to my earlier point (and I'll return here a lot): in the long term, the money that comes into our club comes in because of the team.

A couple of other salient points here: businesses are answerable to their shareholders, and when the shareholders wish to see profits, that's what businesses try to achieve. Football is a bit different here though, particularly in our case, and I don't think I need to explain why. The controlling shareholder interest in our club also sits on the board - it's well within his direct power to forego the short term profitability in terms of core investment and realigning our strategy.

What's more, I come back to my earlier point that I don't even believe in a football club necessarily being run for profit - solvency is one concern, but whose interests are really being served if we're making profits that we are not re-investing?

b) actually spend some of the cash we have. Most of us are familiar with the famous 'player trading account', though it often gets mischaracterised as our 'transfer warchest' or whatever. The first thing that normally gets pointed out here, when this mistake is made, is that it's actually a form of collateral held on our own balance sheet against the stadium debt we first took on. This is quite correct. What usually doesn't get mentioned, however, is that the precise intention of this collateral was to guarantee to our lenders that we wouldn't be fire-selling on field assets to fund debt repayment, to ensure precisely that our core business (playing football) does not suffer to a degree that our revenues fall so low as to not allow debt repayments. Our debt is long-term, and our creditors understood that long-term we needed to maintain core performance to fund the debt.

We have significant cash-liquidity sitting on the books, and significant assets that we could leverage to...

c) Take on more debt. Bit of a buzz-word this, and a lot of 'fanalysis' used to focus on overall debt levels, seeing some enormous numbers, and assuming that there's some kind of problem. A lot of fans are beginning to realise now that it's a question of debt sustainability that's important, not outright levels, and as an asset-rich business, with robust revenue streams, low base-rates (despite a higher spread), now may not be a bad time to take on longer-term debt. Remember, we have reasonable expectation of significantly higher revenues in future (as you've pointed out). Just how much higher those streams are depends largely on the product we can sell sponsors - and back we are to that old chestnut,  investment in the team will pay dividends in the longer term. Talking of sponsorship...

d) take a bit of a short-term hit and negotiate an up-front settlement of our most unfavourable contracts, or, alternatively, extend with our current sponsors at a more competitive rate.

This has been something that's already been raised directly to the club, and was dismissed, but the response was so crass and glib that I struggle to have confidence that this is an avenue that's been fully pursued. 'Not something Arsenal do'? What the fuck does that mean? 

Without being privvy to the relationship we have with our sponsors, or the exact contracts that have been drawn up, it's hard to be sure that this is possible, but as with any financial contract, there will be an exit price that could be negotiated, and there comes a point where the opportunity cost becomes too high and this price becomes worth paying.

e) A share-rights issue. Easy to understand why Kroenke doesn't want this - he'd have to cough up another chunk of cash just to maintain his ownership share, and Usmanov would likely Hoover up all the shares where current owners did not take up their option.

However, ultimately this is a result of the fuck-up at boardroom level, that's created this strife to begin with and given the MO of other owners in this league, as an interested party I think it's something Kroenke should be considering.

f) straight-up cash injection from the owner. I know, I know, but fact is other clubs are doing this, and our owners are more than capable. Isn't necessarily money down the drain, either, from an owner's perspective - increase the perceived value of the franchise, increase the resale value, and back to the same point I made above.

This is about as far as I can go whilst typing on my phone, and without bringing actual numbers into the mix - in meetings all day, so going to struggle to actually pull up the figures, but from what I've researched in the past, and the brief refresher I did on the interim accounts a couple of days ago, I'm very confident of all of the above.

Question is, why would anybody bother when everything is rosey?

Ride Arsene's coat tails until he has nothing left to give, turn a nice profit and move on.

It's not really that cut and dried, Asa … but I completely agree with your argument that we should take on debt if it allows us to grow, or gives us a good chance of doing so.

You're right that the value of Arsenal's business comes from performances on the pitch. Football's not a conventional business where one simply ships more product until the limits of demand are reached. We're in a competition with 19 sides purveying nearly identical wares, so efficiency, timing, location/history and the intangibles of "brand" are the determining factors in market share and success. We're well placed in this regard.

Perhaps the only realistic immediate opportunity for revenue growth is the commercial deals to be signed in a couple of years. It makes huge sense to spend towards positioning ourselves well for those, I agree, because an extra £30m spent now could be the difference between (say) £15m and £30m p.a. over the next 5-10y from a shirt deal, whether the incentive for sponsors comes from trophy success, charismatic stars or good football.

I think it's very wrong for fans to imagine our owners are motivated primarily by business profitability … certainly they're more concerned with our paper valuation than our year on year profits which are relatively puny compared to that valuation.

A business worth hundreds of millions that returns < 5% isn't optimal.

Personally I think our owners, if motivated by personal enrichment, will be looking for a discontinuous change in the base revenue of PL clubs — for example, a massive global IPTV rights package for the league, or the creation of a full-season UEFA super-league. Such a change would massively increase our revenues and our valuation, I think, and we've been working carefully to ensure we'd be included in any such initiative since Dein's era.

I just came in here for some casual transfer muppetry, was not expecting this!

That was a great post, Asa, and I think if you showed your point "a" to our board they'd say "yea, that's exactly what we're doing." Arsenal's spending power, however, IS growing. You're suggestions are geared towards making it grow faster, and most of them are certainly riskier strategies. If we were stagnating or going backwards, then I'd agree with every word you said. The thing is, though, is we're growing. We have more money to spend (though still not as much as others) and we have less debt to deal with. What I meant by "spending down the balance" is that I'm not sure why it is a bad thing for a business to have modest (and they are modest) cash reserves. Cash injection from an owner is a totally subjective thing that you would embrace and I would not. It's an issue of values, and those on the two different sides are never going to reconcile. I understand that there is a fiscally responsible method to take on debt, and I think the board would point to our stadium as proof of that. I'm just not interested in it and neither, it seems, is Arsenal.

But we still get niggling calf strains from our major reconstructive surgery, if you will. We are gimped by our sponsorship deals, which our preseason tours in particular are geared to address. Yes, winning gets you more fans quickly, but its not like when Porto won the champions league they were suddenly catapulted into the top tier of football. It's continuity and a sustained presence that really counts in the end for sure, steady growth. Our product is entertainment and we're trying to sell it to the broadest spectrum of buyers, which means competing consistently in the broadest possible competitions. Clubs that got cash injections got a bit of a head start in the U.S. especially, but they are reliant on owners and have unhealthy debt. We are now exploring more untapped markets, i.e. Asia and Africa in the coming tour, and if our guys put this club in good stead in the regions we are specifically targeting, then we'll be well placed to sign very lucrative sponsorship deals when our current situation expires.

All that being said, winning a trophy would go a long way to achieving that goal, but it really isn't absolutely necessary to do so. In the world's current economic climate, I am not surprised at all that the board is willing to take what is clearly the safer approach and grow slowly and steadily into our new stadium and our worldwide status, rather than push things too hard and take too many risks and see something go wrong.

Our business strategy is sound, and our work in the transfer market is more or less in line with all of the above, with the expected anomalies and disappointments. What I'm not fond of is exactly who we buy and for what reasons. What I'm not fond of is how the players are then deployed. What I'm not fond of is how the team itself is managed. The buying and selling of players is not the be all and end all of football, and I'm relatively pleased all things told with the current state of our playing staff. I just think that more so than 1 or 2 signings away from a trophy, we're one or 2 screws loose in Arsene's tactical mind-brain.

Hey Coombs...

I think I certainly found more to agree with in that post than I have previously. I think there's probably a central point at issue here where we fundamentally disagree. I've probably expressed myself as well as I can here, so on that specific central issue, I think we must just politely agree to disagree and move on. A few points still, however:

a) Certainly don't disagree with a 'rainy day' fund. The point is, I think, that we don't seem willing to dip into it even on rainy days. We do seem to fork out a bit when it looks like a tornado's coming and the whole roof might blow off (January 2006, January 2009, Summer 2011 for example), but my one core element of my argument is that if we were spending even the same amount, but with a proactive rather than reactive strategy, we'd see tangible benefits up front. That sits on top of the general case I've made about investing more in the team (where I don't think we're going to reconcile), of course, but it's another element I think we need to be aware of.

b) Your 2nd paragraph makes an excellent point about sustaining a global presence. Which is absolutely key, as skeptical I am of Arsenal going to Nigeria this summer. However, in the long run, people like to back winners. Porto, absolutely, didn't become global giants the day they won the CL. The San Francisco Giants didn't become the biggest franchise in baseball the second they won the World Series. In that sense, your comparison fits well, in that the teams in the biggest markets are always the ones that can sustain their success in the long-term. But that's why competing is so key - people like winners, and it only takes a few years for things to shift around in terms of market share. There is already a danger that we become (are?) the 4th, 5th choice in the playground in our own country, and those are the trends that will hit the bottom line in the long-term. The international market is somewhat less mature at this stage - the Premier League, the Champions League are products that the world is desperate for, and right now we're in a position where there's a bit of 'football colonialism' going on, plenty of the globe available for clubs to carve up for themselves, push themselves into untapped markets, without really stepping too much on each others' toes. Being the first club to go and play somewhere IS a big deal. Longer term though, this too is market that will become saturated, mature, and I believe start behaving in a similar way to the domestic market, and though this is probably some time away, this is when the revenues from sponsorship & global TV packages are really going to peak (so long as football can maintain it's sparkle overall, anyway). This is the world we need to be preparing ourselves for now, and to some extent I think we are - I just don't think it's enough to just put yourself 'out there', even now.

c) I tend to disagree that what we're doing is in any way a 'safe' approach. There's some things that I think we're doing that are correct, and make good sense - the pre-season tours are definitely a big step in the right direction. And, undeniably, we have maintained our position over the last 7-8 years and avoided disaster. There is something to be said for that, though I feel very strongly that 'avoiding disaster' is not a sufficient business strategy! Look how close we've come, a couple of times at least, to actually hitting that iceberg - in 2006, we went into the last game of the season without our Champions League qualification in our own hands. Just this season, we were in the same position two games out. On both each occasion, some fairly extraordinary events transpired to help push us over the line - 2006 was a dodgy lasagna, 2012 it was about the only goalkeeper I've seen in the Premiership much worse than Manuel Almunia. Of course, on both occasions we made it through, and in the long run that's what counts, but these were two very, very near brushes with disaster, and in both cases the direct result of the sort of strategy I've been complaining about! All the while, we're watching the gap between us and the teams above us grow; the more ground we give up now the more we're going to have to claw back.

And if there's one thing I think that's indisputable is that you simply cannot know the future with any great surety. What happens if the CL gets re-formatted such that the Premiership loses a qualification spot, or the qualification rounds become a lot more complicated? That's certainly a direction that Platini seems interested in moving things. Or, another club or two get taken over by an oil sheikh, oligarch, or tech billionaire? If either of these things happen, all of our years of 'prudence' will ultimately be wasted. Personally, my own feeling is that there's a huuuuge amount riding on FFP for us, and we have by far the biggest interest of anyone in Europe in seeing these new regulations actually have some teeth. I am extremely skeptical that UEFA & FIFA will ever be able to police football to this degree, and I fully expect to see these regulations challenged in court before too long. And even if UEFA could enforce, I don't see them doing anything so drastic as to risk their crown-jewel clubs not taking part in their crown-jewel tournament, or worse still forming a breakaway tournament. We'll see, anyway, I can't predict the future, but I am extremely skeptical.

Anyway, enjoy the weekend.

Reading could perhaps become that threat you are talking about Asa. Recently bought by mega rich Anton Zingarevich and looking to severely strengthen the team. If he is serious they could very well be a factor in 3 years or so.

http://www.dailymail.co.uk/sport/football/article-2131754/Reading-promoted-Meet-Anton-Zingarevich-mega-rich-new-owner.html

Good stuff Asa.

Thanks for the post asa, good stuff to think about. I think we'll both be happy when this current board is "moved on" and we get some fresh blood ready to take Arsenal's current strategy to a more contemporary level and show more competitive spirit. I honestly do think that is coming in the next years, along with a new manager. Can't wait 'till we win the league again.

Little drunk.

...

Indeed, not one of them are worth a damn.

They should all be fucked and burned.