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