Winds of Discontent

Arsenal's summer has been largely perceived as a bit of a failure, and with good cause – judging by what we've seen so far. But I find myself disagreeing with some of the broader arguments being drawn about the management of the club. I'd like to give you some context to where I'm coming from on this debate on spending. By now, you're all familiar with the notion that Wenger does not see value in the transfer market, that he and those at the club who decide these matters are not willing to pay the 'going rate', and this is what I believe as well. But, and maybe you're already aware of this, the 'going rate' or the 'market rate' does not necessarily equate to the 'fair value' of an asset, or a football player in this case.

So when Arsène Wenger says he feels a player is overpriced, he means that there is a significant disparity in the fair value of the player and his market value, and the gap is sufficient enough so as to dissuade him from making the purchase. The fair value of any asset is a very subjective concept, which is why there is almost always a disparity between the valuations of the buyer and the seller. A common rebuttal to this argument that I've come across is that Europe still hasn't emerged from the financial crisis, and so transfer prices should not be as inflated as Wenger says they are, if at all. But I think this is a faulty argument.

Sure, most of Europe is at some stage of recession, and pricing should therefore be more rational, if not a buyer's market. But as the world record transfer fee for Bale shows, this hasn't quite come to pass. Wenger has often spoken about club football residing in a bubble, and I believe that is indeed the case – top-level football has thus far been recession-proof. A smaller part of it has to do with the fact that an increasing number of clubs have wealthy benefactors with deep pockets and a concurrent willingness to reach inside and spend eye-watering amounts, thereby enriching the selling club(s) in the process (how ironic is it that Arsenal are owned by two such people, and yet exhibit none of the traits of your neighborhood sugar-daddy club!). But in the main, clubs at the top level are not really majorly supported by the economies within which they are situated. TV money, sponsorships, and the aforementioned sugar-daddies have augmented, and in many cases surpassed, gate receipts as the primary source of income. Logically speaking, this influx of wealth should have a knock-on effect on the value of a club's assets – therefore implying that the prices quoted today are exactly what these players are worth. But, value, as in the case of beauty, is in the eyes on the beholder.

I believe what Arsenal have been trying to do is to be opportunistic when it comes to transfer signings. And they have good reason to do so. They've amassed what is quite literally a veritable mountain of cash these past few years, and in that sense, they have an edge that very, very few clubs have, and I'm counting some of the wealthy benefactor-owned clubs in this as well. Think Santi Cazorla. By all accounts, he was bought for a mid-teens transfer fee, and again, by all accounts, it's turned out to be an absolute bargain. What worked in Arsenal's favor here? I suspect it was the ability to pay all or a majority of the transfer fee up front for a club that was desperately in need of cash. Because when you're tight and have an owner looking to cut his losses, and fast, what's more attractive is not a club willing to pay GBP 30 million in installments, it's the club ready to pay half that, and all upfront.

When a club like Arsenal can't match up to the financial might (to the extent that their owners are still interested. Anzhi, anyone?) of a Chelsea or PSG, a smart way to spend is to take advantage of the hard cash you've hoarded. Because not even wealthy owners have that. Arsenal have their elephant gun loaded and are waiting for more Malaga-shaped beasts-in-distress. They'll have a significant negotiating position in the ensuing firesale, and can therefore land top players at bargain prices. Is that a good strategy? In my opinion, and especially in a situation where there is a perception that the overall market is distorted, yes. The most obvious strategy is not always the most effective one. Arsenal is flush with cash, but it probably doesn't follow that you have to spend it immediately. The club has shown the willingness to spend big this summer, but have held fast to their perception of what is too much, as we've seen in the cases of Higuaín and Suárez. They do say you have to speculate to accumulate, but if you have the wherewithal to achieve the bare minimum in the league while riding out the hard times, players like Cazorla are how you do it smartly.

I've been working in buyside finance for the last five years, and there are three key factors that we typically reward companies for – organic growth, capital allocation, and the feasibility of their long-term strategy. It's these factors that determine the sustainability of long-term success, and in turn, returns to investors. In terms of organic growth, from a financial perspective, this speaks to the performance of your existing assets against the ones you purchased. For example, if you had a chain of retail stores, you could grow your revenues (and so also profits) each year by either enhancing the performance of your existing stores, or you could just buy and add more stores to your chain each year. But a lot of companies use acquisitions to cover the fact that their existing assets are underperforming. This practice is not sustainable, at some point you'll no longer be able to cover for organic underperformance through acquisitions, which is why it is important to look at how well you manage your existing assets (or stores), in addition to assessing overall performance. It is a bit difficult to transpose this concept onto Arsenal's model, but you could make the argument that their organic growth can be related to the development of the youth squad, essentially, homegrown players integrated into the first XI, and my sense is that, while they haven't been best-in-class as in the case of Barcelona, they've done exceedingly well in this regard for a club of their stature.

Regarding capital allocation, there are two ways to look at this – transfer fees and wages. In terms of transfer fees, I think Arsenal have insofar been masters of capital allocation – when they've spent, they've spent judiciously (I look at this from an overall perspective – and that means I've factored in misses like Park, and maybe Santos, who I judge to be reactionary purchases, and even then does not tarnish their overall record). On wages, it's quite obvious how Wenger's preference for a "socialist wage structure" has been a drag on the team, as well as on the financial side of things. Splitting the wage pie fairly equitably resulted in underperforming players being paid more than they're worth, and paying the better ones less than they could command elsewhere (as an aside, it is curious how someone so rigid on paying as per value dropped the ball in this regard – that's why I said there are two ways to look at capital allocation). The fact that they're contractually obliged to pay these sums resulted in a large number of grossly underused players remaining with the club for years – as no other club was willing to match these terms. The club seems to have finally managed to extricate themselves from this predicament, with Bendtner currently being the sole reminder of how things used to be.

Then lastly, on the long-term strategy – I admire that they've been consistent in this regard. Whether you like them for it or not, an adherence to a consistently stated and well-executed strategy is a hallmark of good managements everywhere. I think the club has been consistent in stating their squad strategy over the years, and I've paraphrased this to be – "develop a majority of our players from within, and add quality to the squad from without". What is implied in the "long-term" aspect is the level of risk involved in seeing that strategy come to fruition. Brave managements stick to their guns, go about executing this strategy methodically, and make changes as required. It is difficult to refute this last aspect. The club has overhauled the youth ranks this summer, clearing out a whole bunch of players who they did not deem fit to make it in the long-term. This kind of restructuring is a significant operational challenge, but they've done it. What is disappointing is that a majority of the fanbase have myopically chosen to focus on the transfer window, and berate the club in this regard. It is remarkably flippant to say "We haven't won anything in eight years, and so it's about fucking time, and it's now or never". But it really, really hasn't been about eight years of stagnation, of not having a plan to deal with the significant changes that came with financing and building a new stadium, together with a distortion in wages and the transfer market, and all that in the midst of a recession, with a toothless FFP initiative touted as the solution.

These are all unforeseen changes that the club has had to adapt to, and I see their performance over the years in light of all this. They've maintained themselves at a consistent position at the top of the league; they've qualified for the most elite of all club competitions in every occasion. We've enjoyed a certain level of football – I know it hasn't been enough to win that elusive trophy – but on the other hand, I'd say the club have done remarkably well to keep themselves in the running each year. You can call me a loser that accepts mediocrity, but for me, the tale of the last eight years has been a victory in itself. A victory that sadly hasn't been garnished with trophies. There are unfortunately, no prizes in football for good management, or for executing against a long-term vision and not being cavalier about it.

I'd say I'm an Arsenal supporter for life, and so right now it's not really about the end result of trophies for me. It's about the story of how we got there. And get there we will, sooner or later – because they've always been working towards it, maybe just not within the timeframe we expect. We've all suffered these barren years, and I'm not seeking to gain some moral high ground by saying I'm a better supporter because I still believe in the club. Most of you would've supported the Arsenal way longer than I have, and I accept that there is a last straw for everyone. But I fear we've been overcome this summer by a deluge of largely misplaced negativity, for the reasons I have outlined above. If anything, I think what has added fuel to the fire is Gazidis' premature talk on the club's 'escalating financial firepower'. His purpose would've been just as well served if he'd made those comments after a couple of rounds from this supercharged fiscal cannon. But anyway, this club has done a lot to not pin their fortunes on the outcome of any one transfer window, and so I will not judge them on Monday no matter what happens. If I have to suffer a disappointing season because of it, then so be it. The club will be in a better position for it next summer, that mountain of cash is going nowhere (if you're thinking dividend, I think not – and maybe I can address that in a later post). I'm in this for the long-haul, and I'm nowhere near feeling like jumping off. All of which, ironically, brings me to the point of this whole post in the first place. I actually started off writing the rest of this piece, and then felt the need for context, and now the bush is well-whacked.

There's been an increasingly widespread focus on the growing impact of social media in forming and influencing public opinion. This summer, and the months leading up to it have been especially revelatory in the case of Arsenal, and football in general. It makes sense. If they ever did, no one underestimates the influence of social media anymore. I've also seen it mentioned that the club does indeed pay attention to what's being said about it in social media. To those who use it often, it's become an important part of how we often think and act. So much so that it spills out on matchday, it dictates the sentiment of the home support. This is why every Arsenal supporter understands why the atmosphere in the stadium was so toxic against Villa. It doesn't require any explanation. We spent a part of that day on social networks, and you don't have to be among the fans at the Emirates to know exactly what they were disgruntled about.

We say so much about the media having an "agenda" with respect to football clubs (not just Arsenal, it's apparently more widespread than I thought). Let me ask you, who sets this agenda? Maybe all those journalists get together and decide – "OK, this is the line we're taking on Arsenal, and this is what we're going to say about Chelsea..", and so on. Alternatively, could it be really that outlandish to suggest that the organized media get their cues from social networks? Every journalist whose work I've read is on Twitter in some capacity. They pick up on what the fans are saying – you and I can do it, it's not difficult at all. I don't know how it worked earlier, but I'm convinced what we read in the newspapers is an echo of fan sentiment. And this is where independent bloggers and other notable voices come in – they are by and large drivers of this sentiment. I'm not saying all of us are easily lead on and have no capacity to think for ourselves, but can we really deny that we aren't – to some extent at least – influenced by the thoughts of these "independents", as I'll call them?

I'll summarize the relationship I'm trying to draw here – influential independents talk about Arsenal on social media, their thinking has an impact on thousands of fans, national media picks up on this and uses it as a base for their stories, and so it becomes the basis for how everyone perceives Arsenal in the broader world. In such a situation, what would be absolutely ruinous for a club like Arsenal is to accede to this sentiment. Once that precedent has been established, it cannot easily be broken. And more than the lack of signings, this is what bothers me most about the club. Because in such a scenario, all the club's cards are laid bare. In the worst case, every Chairman / Manager / Board Member / Dick Law equivalent / Journalist / Fan can predict the club's next move by simply gauging the aggregate of fan sentiment on social media. At least one newspaper today has taken the line that Arsenal are moving for Julian Draxler and others, to "ease the pressure on manager Wenger". Just where did this pressure originate?

I therefore find it quite amusing that people with thousands of followers talk about how the club have "worked themselves into a corner" and "will now have to pay over the odds to sign someone" and yet are blissfully oblivious to the possibility that they themselves may or may not have had no small part to play in that. I completely understand that they are only speaking their minds from an independent perspective, and people are free to choose what they believe. Sure, they are. But when you keep saying the same thing over, and over, and over, and over, and over again – well, it's a little different from the odd rant that one could occasionally have.

What is the solution then, should they not be allowed to speak their minds? Of course not, and this is far from what I am suggesting. But I do feel people need to be more accountable for what they're saying. Whether they like it or not, they have to take responsibility for their words, and not succumb to incendiary rhetoric. If the organized press said some of the things I've read on Twitter about Arsenal, I'd say there'd be a decent case for charges of libel or defamation. I'm not a lawyer, but I don't think the matter is very technical. In any case, you have to use on your own judgment to deem what is acceptable and what is not. When you have a Twitter following that surpasses, or is equivalent to, or is some meaningful proportion of, say, the stadium capacity at the Emirates, it's safe to say you have a significant degree of influence over a large number of people – nearly all of whom follow you out of a shared common interest.

So, all in all, I'd be disappointed if the club actually spends big money solely in order to relieve the pressure on the management at Arsenal. After years of adhering to what I believe is a brave, coherent, and far-sighted strategy – this sort of capitulation would shake my belief in the club. It's also fair to say that there may be some reassessment of how the club engages with its fanbase. They've been increasingly welcoming to all manner of independent bloggers - regardless of their views. But if they have to adopt a reactionary stance now to put out the fires that have been started, they may choose entirely not to deal with it in the first place.

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Goonersphere's response:

Thank you for that post Jacob and for sharing on YouWrite. It's an interesting point of view with a lot of merit. Your comparison of player purchases and strategy at your benefactor clubs versus the organic approach at Arsenal was particularly enjoyable to read. Certainly there is an element of masking underperforming players with expensive acquisitions and what Arsenal have done well this summer has been completely skated over by some because of a lack of shiny acquisitions. Arsenal have cleared out the squad and wage bill of these underperforming assets, if indeed we can call them that, and consolidated what they have by increasing the performance of existing assets with greater capacity, ie Ramsey.

The cash on hand aspect is an interesting one as you can certainly see that Arsenal have benefited from other clubs needing cash injections like Malaga and Köln however that is a dangerous game to play when benefactor clubs are able to swoop in and pay money up front as well. Possibly where that gives Arsenal the advantage is against clubs like Manchester United, Liverpool and Tottenham who can spend big but maybe not in lump sums. All in all, a fascinating post and certainly one that will get the debate raging.

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