Show Me The Money: How UEFA’s new financial rules will aid responsible Arsenal over the next decade

Show Me The Money: How UEFA’s new financial rules will aid responsible Arsenal over the next decade

AFCB’s resident football economist Aaron Gordon investigates the positive impact that UEFA’s new financial rules will have on the club…

Our fearless leader Arsene Wenger recently told the News of the World that he believes the new UEFA financial rules will aid Arsenal in the Champions League. For those who forgot or are unaware, UEFA has approved plans that would require clubs in European competition to have even balance sheets. Basically, if teams wanted to compete in UEFA tournaments, they would only be able to spend what they make. It has been dubbed the “financial fair play rule.”

As I wrote last week, Arsenal has been one of the most fiscally responsible high revenue clubs in Europe over the past decade. The front office has been working steadily towards climbing out of debt, which is very difficult to do in a timely fashion after financing a brand new stadium. They have managed to come very close to being debt-free by investing in real estate projects in and around Highbury (this project requires a post of its own due to its complexity, which I hope to do in the near future). Still, Arsenal’s group profit has been rising steadily since 2006, and had an after-tax profit of 35.2 million pounds in 2009.

Now that I have gone through the unbelievably dull financial information few people probably care about, your question might be, “What in the name of Cesc does this have to do with trophies?” Well, that is precisely why Wenger’s comments mentioned above are worth paying attention to. Managers are paid for two things: winning football games, and saying nice things about their team and management to the press. If they fail to do either, a sacking is inevitable. But, this is a case where Wenger was not just doing his duty to the club; he actually has a valid point.

Don't worry Arsene, time is on your side.

20 percent of clubs across Europe operate at what is considered “huge loss” annually. To qualify for a “huge loss”, a club must lose more than 20 percent of their revenue. Likewise, many clubs operate at tremendous debt **cough Man U cough** and their interest payments alone will prevent them from being eligible for UEFA tournaments by 2012-2013 if they do not get costs under control.

2012 sounds like it is far away. Indeed, if the world ends in 2012 like those pesky Mayans keep insisting, then clubs like Chelsea and Man City have nothing to worry about, except for their impending doom and the death of everything they know and love, which are minor quibbles compared to their financial situation. This is the foundation of Wenger’s confidence. Not only do the Gunners have the longest streak of advancing beyond group play in the Champions League, but they have also managed to accomplish this feat without having balance sheets with their own gravitational pull.

For sure, the lack of trophies has been very disconcerting. As one commenter on my last article said, “No other club in the premier league would be in the position we’re still in after building a new stadium. It would have been nice to be winning trophies at the same time, but people who have their cake an[d] eat it normally face the consequences afterwards.” This may not have been true in the past, with Chelsea, Manchester United and Barcelona bringing home major hardware along with their major financial hardships, but the tide seems to be turning in Arsenal’s favor.

Indeed, fiscal responsibility is going to be the name of the game over the next decade, as much so as crisp passing and ball control.

Thoughts?

Have your say on Aaron’s article by leaving a comment.

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21 Responses to “Show Me The Money: How UEFA’s new financial rules will aid responsible Arsenal over the next decade”

  1. Daniel Brookes
    September 20, 2010 at 11:36 am #

    I’m interested in this financial fair play rule. I wonder if UEFA will truly have the stones to turn around and say to all of the clubs in debt – you are not welcome in the Champions League any more. What would that do to the Champions League? Off the top of my head it would exclude megaclubs like Chelsea, Man Utd, Barca, Real? etc from participating in the tournament, which would be much less interesting to watch. I relish massive games like Arsenal Vs in the latter stages of the CL, I’m not sure the tournament could survive without the big, albeit debt-ridden, clubs although I agree something needs to be done! It’s a tough call.

    I wonder how many of the bread-and-butter CL clubs are in debt?

  2. kiwigooner
    September 20, 2010 at 11:53 am #

    Too many of the big club’s owners are tiring of success based apon their rich owners largess. Platini and his staff are not imposing these restrictions but are responding to the pleas, albeit privately of the club owners. They are sick and tired of throwing money into the cause of silverware and in these testing financial times, need a means of both reducing the spiraling costs and saving face.(with their fans especially and with the banks too!)
    Hence the lack of dissenting voices amongst the CL regulars about these restrictions. Far from being imposed, these strictures are welcomed.
    Football needs to be placed on a more realistic financial footing, failure to do so will mean more Portsmouths. The list of candidates to follow Portsmouth could be some very big names indeed.
    Arsene and Arsenal are just in front of the trend, as usual.

  3. Larry
    September 20, 2010 at 12:43 pm #

    Assuming the worst were to happen,would UEFA have the guts to ban MU/Chelsea/Barcelona/RM and any other big clubs and bring in clubs from Norway/Sweden/ and eastern Europe?The brand names of the big clubs are well established.Would tv companies be interested in Arsenal vs Split?
    I guess a start has to be made somewhere. Don’t be surprised if the big clubs are given a warning before being banned. And don’t forget the big clubs could go it alone and create their own champions league. That is if they have the balls to defy UEFA.

  4. Larry
    September 20, 2010 at 12:43 pm #

    Assuming the worst were to happen,would UEFA have the guts to ban MU/Chelsea/Barcelona/RM and any other big clubs and bring in clubs from Norway/Sweden/ and eastern Europe?The brand names of the big clubs are well established.Would tv companies be interested in Arsenal vs Split?
    I guess a start has to be made somewhere. Don’t be surprised if the big clubs are given a warning before being banned. And don’t forget the big clubs could go it alone and create their own champions league. That is if they have the balls to defy UEFA.

  5. kel
    September 20, 2010 at 1:09 pm #

    rather than ban them from the champions league uefa should impose pts deductions??? for example for every £100m in debt 2 pts deducted and the FA should follow suit, 3 pts deduction in the prem league for each £100m in debt….

  6. Hakeem
    September 20, 2010 at 1:59 pm #

    There are a few angles to view it from, 1. The Club executive, 2. The Fan, 3. The Player. The Club Executive, would love to win trophies and make pocket money, but order of importance would definitely put money making first in line. The Fan unless a major, major share holder, would ultimately cherish silverware. The Player, gets his salary and fame and i’m sure doesn’t give a sh*t about the balance sheets of the club. So from my verdict, i think Arsene Wenger and Co are just a selfish, self centred human beings just making sure they get richer with no regard for the hardest working young men in world football.

  7. Andrew Enloe
    September 20, 2010 at 2:07 pm #

    Perhaps if it comes to this we’ll see Real Madrid get another bailout from the Spanish Government. Barcelona might have to get a shirt sponsor. I wonder, like a few of you, if UEFA have the balls to actually go through with it.

  8. Adam Sommer
    September 20, 2010 at 2:13 pm #

    I don’t think UEFA would have the back bone to ban a big club like MU or Barcelona. Besides that if they didn’t play in the CL, would the winner truly be the Champion of Europe? Some type of penalty system seems more realistic to me.

  9. Andrew Weber
    September 20, 2010 at 2:31 pm #

    @ Hakeem – Aren’t you missing the point a bit here? If the club had done what all the other clubs have done (spend more than they earn) to bring in silverware and please the fans, then the change in rules would mean huge problems. Plus, when you look at Liverpool, there’s no guarantee of silverware being achieved by spending and going into debt.

    By running the club the right way – ie. ensuring profits rather than losses and only taking on manageable debt – we are well placed to win the silverware that pleases the fans in the future. I don’t see this as selfish and self-serving in the same way you do, obviously.

  10. Ianwrightwright
    September 20, 2010 at 2:35 pm #

    AFC are balancing their spreadsheets well before there time.But be WARNED at what expense!.
    The latest case over in Germany ,Borrusia Dortmund i think where fans would not pay £19 a increase of £6 for away ticket!.AFC season ticket holders are paying upto £2000 for a season ticket.AFC are beginning to take the PISS,so AFC do need to start winning silver,plus some marquee players and justifiably.

  11. slim
    September 20, 2010 at 3:24 pm #

    How many Arsenal fans would wanna win the champions league without any of the other “big” teams playing in the competition anyways?

  12. Aaron Gordon
    September 20, 2010 at 4:04 pm #

    Thanks for all the comments, some really good thoughts in here. I just want to clarify one point. UEFA is not thinking of restricting teams with debt from playing. That would be virtually every major team in Europe! Debt has become a fundamental part of the game. Managing the debt is an entirely different story. Man U is managing their debt extremely poorly, and it has completely spiraled out of control. Ditto with Liverpool. Chelsea and Man City have their incredibly wealthy oil tycoon owners purchase hundreds of millions of pounds in debt and transfer them to equity. That isn’t the kind of solution UEFA is hoping for, since its very short-sighted. UEFA wants to prevent any team that spends more than they make over a 3 year period from competing. For instance, Arsenal has an operating profit last year, so they would be in, even though they have substantial debt, mostly from the construction of Emirates Stadium. BUT they have that debt well under control.

  13. Aaron Gordon
    September 20, 2010 at 4:20 pm #

    @ Larry: There have been a lot of studies conducted by sports economists saying those “mega-matchups” between the top clubs in the CL carry the tournament from a financial perspective. That is why a lot of sports economists support the idea of the formation of a full European league. They see it as a way for teams to make more money, instead of getting stuck with a lot of garbage matchups TV stations don’t want to pay for.

    @ Daniel: The short answer is, all of them are in debt. But, in the scope of the financial play rule, you were pretty spot on with which teams would be in trouble, because they operate at a loss. But add Man City to the list now (if they’re competitive enough)

    @Hakeem: You may be right, and I have certainly heard that perspective before. But remember, there is no Abramovich or Sheik Mansour to write off Arsernal’s debt like they have for their clubs. Arsenal, had they behaved like the other top clubs, would be right there in the Man U and Liverpool boat.

    @Andrew Enloe: The Spanish government has gotten creative with how they bail out teams. Now they are tying their equity to construction companies, transportation industries, and other government funded projects. But, look for that to stop. Spain has no money to spare in this economy.

  14. Shard
    September 21, 2010 at 10:14 am #

    In short, I’ll believe it when I see it..

    Apart from the fact that UEFA will not ban the big clubs or indeed do anything to upset them, nobody seems to mention how the accounts have to be kept. Now I’m not an accountant or an economist, but I know that figures can be manipulated to pretty much show what you want. Unless there are rules and regulations governing exactly how the break up of the accounts have to be then my guess would be that these ‘financial fair play’ rules will just remain an eyewash, and a way to keep new clubs from upsetting the ‘natural’ order of things and getting a share of the UEFA pie.

  15. Shard
    September 21, 2010 at 10:18 am #

    Also, even having rules for the clubs accounts may not be enough. Let’s say Chelsea ‘earn’ 500 million pounds through shirt sales. Thats a legitimate gain as far as Chelsea’s accounts are concerned. However, all of those shirts could have been bought by Abramovich himself. How do you come up with rules to stop that? I think it’s only possible if there is really a strong will to level the playing field. Maybe I’m just being cynical, but I seriously doubt such a will exists. Like I said earlier. I’ll believe it when I see it.

  16. billi
    September 21, 2010 at 11:06 am #

    I like the idea of Kel, though I’ve no idea how to apply it 😎

  17. Aaron Gordon
    September 21, 2010 at 2:52 pm #

    @ Shard, good points all around. International soccer is renowned for making rules, then finding ways around them. I’m with you, that it would be extremely difficult to enforce.

  18. Shard
    September 21, 2010 at 4:34 pm #

    @Aaron

    Unfortunately, I’m not even at the stage to think about the enforcement mainly because I’m not well informed about what the rules state and totally ignorant about accounting practices and how the books might be cooked so to speak.

    For me the first thing to consider is the intent (unlike in the case of a studs up, straight legged tackle/assault).Are UEFA serious about leveling the financial playing field for the larger benefit of football clubs even if it is to the short term detriment of some big clubs and hence UEFA themselves? Or is it just a way to appeal to populist sentiments while finding a way to maintain status quo? I lean towards being a cynic here much as I hope I’m wrong. But I’d like to know where you stand on this, considering you probably understand the rules and ways to get around them better than I do.

  19. Aaron Gordon
    September 21, 2010 at 8:34 pm #

    Its true, enforcement issues are a long way off, and its probably worth considering your other questions much more heavily. To me, it seems like the intent of the rule is to protect the big clubs from themselves. The clubs can’t control player salaries; that would be collusion and is illegal. However, the league can implement measures that artificially reduce salaries, like I mentioned in my first post about the home-grown rule. A financial fair play rule would artificially lower the price for major transfers, because clubs would be willing to spend less on the transfer market in order to keep their balance sheets even. Ultimately, UEFA is interested in assuring the long-term financial stability of the major clubs, and a rule like this would be a bigger step towards doing so.

  20. Henry
    February 26, 2011 at 11:30 am #

    This is exactly what world football needs. It will force clubs to be realistic with their payments to players and the transfer fees to clubs. no longer will an owner with billions in his pocket be able to just buy what ever player he wants. It will make the champions League a lot more about football and not about who has the richest owner in europe. Of course Man City can afford to have a operating loss of 121 million pounds when the owner has $80 billion in his pocket

  21. Bank CardUSA
    March 23, 2012 at 7:15 am #

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