Not a lot of news to chat through today really. There’s a story about us approaching Louis Van Gaal. Gotta say, the chances of Louis Van Gaal are slim to none. You don’t lose one megalomaniac to replace him with an egotistical lunatic responsible for spawning nasty paranoid managers like AVB and Mourinho.
He’s absolutely not what a club like Arsenal need. If Arsene goes, which I’m convinced he won’t, regardless of the finish to the season, we’ll sign a manager Ivan can make King. Stan Kroenke won’t want a big spending nut case at the helm. They’ll be looking at the Liverpool project. Sensible spending, exciting vision, tactical astuteness with an excellent approach to staffing… and saying, I’ll have some of that. Liverpool made Rodgers King. He’ll be associated with that club until they sack him. Much in the same way Wenger has been forever asscoiated with us. We gave him the chance to be King.
Well, that’s what I’d assume they’ll do.
… no. It’s what I demand they do.
We don’t need a mega name. United do to appease the markets. Spurs think they do, because let’s be honest, Daniel Levy doesn’t have a clue when it comes to running a successful football club (on the playing side at least). City do, but I wouldn’t bet on that approach for too much longer, I heard a disgusting rumour that they’re training Patrick Vieira to become the Pelligrini successor in 2 years time.
Say. It. Aint. So.
Anyway, big name managers are a dying breed these days. Smart managers are the future. You don’t need a big playing career to be a great manager these days.
In other news, some people are celebrating 10 years since we last won the league.
Wow. That’s like celebrating the last time you got laid. Now, I appreciate that plenty of people who regularly chide me on Twitter do that, but come on. We’re Arsenal. Let’s not celebrate our ten years failure. Let’s put it to one side and focus on the future and look forward to one day, becoming a side that celebrates league victories more regularly than we have been of late. A whole decade without a league win? What a sorry sight…
Still, I’d be very surprised if the next ten years don’t provide us with a league win. All the cogs are in place. Wenger did an amazing job keeping us secure when he transferred us from the old stadium into the new. As I’ve said many times before, arguably, keeping us afloat in the midst of crazy Arab and Russian money was his finest achievement. If I was to drill home a negative from all of that, I’d say that arguably, it didn’t need to be that way. Stan Kroenke could have stuck his hand into his very deep pocket and supported us through that stage. He could’ve have gone the extra mile and invested in a hugely talented first team. We could have been celebrating more league wins.
Stan put it all on Wenger (paid him handsomely) and in the process grew a monster. Wenger controlled everything, he delivered for a while, but then things started to tale off. Money came available through property and player sales, Wenger didn’t spend it. He maintained that top 4 mediocrity though and we had the most sound finances in the league. Now we’re 5 years into having surplus cash and it’s actually a hindrance. I’ll reference an interesting conversation that took place in the comments.
£70m? And the rest….
What is a ‘warchest’ anyway (a tabloidism is ever there was)? Lets define it as the amount of transfers, wages and salary commitments it could utilise NET (ie on incoming players) without impacting the long-term stability of the club. Or, in Financial terms, AFC’s potential investment capital (ie both cash and available credit).
A very loose calculation..
Estimated Flow of Funds to May 14
Cash in hand (May 13) £153m
Change in 6 month operating cash flow (Nov 13) £20m
Debtor / Creditor on Player Transfers Movements (£7m)
Cash from Property Disposals £10m
Contract Extension Payments (£10m)
Operating Cash Flow Increase £10m
Estimated Cash Balance May 2014
Allowing for the £24m bank mandate on the stadium and a prudent £25m operating reserve would leave us around £125m of cash doing nothing. So this means a warchest of £125m, right? Wrong..
The key is available credit. Imagine someone was going to give you £100m in exactly 1 years time. Does this mean you would live your normal life for a whole year and then go playboy after waiting for that time? Of course not; you could borrow for a year a pay it back. That’s essentially how transfers work; the available credit comes from the selling clubs.
On the Ozil deal we paid approx 50% up front, the remainder on tick. This transfer has left our debtors (£16m) / creditors (£38m) unbalanced by round 20m (which accounts for the £7m on player transfer movements). If we assume a similar payment profile for all transfers, it means our potential warchest is effectively double.. so around £250m.
£250m would also have to cover at least their first-year salaries; Id argue that the increased broadcasting income as well as the recently struck commercial deals would provide medium term headroom (in cash terms) to bear some of the salary payments in later years, as well as the reasonable assumption that more players would mean existing players leaving which would offset future salary costs).
The fact is we could pay for the entire Anfield redevelopment out of existing cash balances. Its a ridiculous sum of cash for any business of that size to be holding. Certainly if you look at the cash balances at the rest of the EPL (total COMBINED £180m) it bears that out. In any other industry, it would either be returned to the shareholders via dividend (still a possibility) or stick big cross-hairs on you for other companies that invest funds for a return (look at Chelski.. they operate a buy-to-lease transfer policy with 30+ players on loan and take the asset appreciation if the fit doesn’t work: De Bruyne, Mata, etc).
The whole Financial policy of AFC is flawed- we just stash the cash under the mattress and watch its value depreciate (in real terms). £70m is a huge under-estimate of our potential investment capital
SurferX – While your post seems to have more thought in it than your average, it does lead to other questions, aswell as that you seem to be making the point that we could spend everything we have, as if this is something we should consider.
Swiss Ramble posted this for the start of the year :
“So, what is the magic figure Arsenal have as a transfer fund? Given all of the variables described above, it’s safest to quote David Bowie, “It ain’t easy”, when trying to pin this down, but the oft-quoted £70 million is a reasonable estimate. If funds from property development and future commercial deals are also made available, then it could be as high as £100 million.”
This isn’t an attack, it’s just more convenient to ask you this and hopefully give everyone something to talk about.
– How has he come to this number ? Is it fair ?
– The other thing was even with these cash reserves, how is it that the players we sold was the difference between us posting a loss for the past two years.
I can guess at either but then people get upset when I question them.
“SurferX – I did say it wasn’t an attack”
Dont worry mate- coming from you I wouldn’t of taken it as such anyway: we’ve both been on here for far too long for that..
“Still wondering how our cash reserves impacts against us only turning a profit through player sales ?”
Well, firstly profit on player sales is only 1 (non-operating activity) item: around £50m of ‘profit’ has also come in from property over the past 5 years. What is crucial is that neither of these are directly ‘cash’ items. So, take 2 players;
(1) Bought for 10m, sold for 5m (5m loss?)
(2) Bought for 10m, sold for 20m (10m profit?)
So I assume you are thinking that we made a 5m loss on (1) and 10m profit on (2)? Wrong- it depends on the length of contract because of amortisation. This is where a player is written down over the course of his contract. So if both players were signed over 4 year contracts, their ‘cost’ is 10.4 = £2.5m pa. If they both sold after 3 years ( 1 year left), the profit would be;
5 – (10/4) = 2.5m profit
So profit on player sales isn’t so much how people read it (ie how well we did on a transfer). Its better to think of it as a by-product of when we sell them v how much they have left of their amortisation. Especially in our case when we have let a succession of people go in the final year (when most of their amortisation has been written down, and we still get a big transfer fee= big Profit on disposal).
And back to cash- these aren’t cash transactions regardless. If we bought both players up front, then sold them with a 50% payments profile, then we would only see 12.5m of additional cash (rather than £25m). And, of course the inverse applies if you are a ‘buying’ club rather than a ‘selling’ (as we should be). This is why clubs potential investment levels (in EPL) are so much higher than the cash they have- because they are net-spenders rather than sellers.
“All it comes across as is a massive balancing act, just tired of people throwing figures out there or stating our entire cash reserve as something that we should consider spending,”
It is a balancing act- but the point is the cash we have is have can be doubled (in terms of transfer fee surplus) by the short-term gearing that happens in major transfers. Its a balancing act that we are failing to balance at present. We should be investing as much as we possible can without endangering the club: or have a viable reason why not.
Lets put it another way, why should we be keeping any cash reserve at all beyond what is reasonable and prudent? So if my £175m cash estimate is correct- and allowing for cycle fluctuations and banking mandate leaves us with £125m excess cash (ie working capital that we never touch)- what else should we do with it?
- The only arguments that can be made for not spending are;
- Transfer Fees will fall (they will become deflationary rather than inflationary)
- The supply of players will increase faster than the demand for players (same as point 1 really)
- The shareholders have identified a better ROI than can be made on player acquisitions (like building a new stadium, for example)
- The Board wants to return the excess cash to the shareholders,
None of those scenarios (imho) are likely or desirable; therefore we should be investing the cash in the best players we can.
Thanks for that guys. So there you have it, Wenger kind of fell off the boat when it came to spending. There’s not reason for him not to splash cash now. It’s actually costing us as a club every time he decides not to.
… but like I said yesterday, the real worrying trend with Wenger was the downward spiral everywhere else. When he did spend he’d spend badly, opting for cheaper alternatives that didn’t work. He was slowly being found out tactically. His approach to fitness and player health didn’t change over the ten years, despite the league speeding up and getting more powerful. He started to fade as an elite manager.
So here we are, ten years later, no closer to a league title.
The good news for Arsenal fans all over the planet is that this won’t last longer than two years. If we’re lucky, Ivan might push Wenger to change some areas of the playing staff. Jonker, the new academy coach, was apparently not a Wenger signing. Hopefully we make more moves like that. I can’t remember the exact jist of the story, but I think Liam Brady failed to attain Elite Level status for our academy. So he went (was pushed?). I suspect there are a few areas in Arsene’s team that aren’t elite level. Will they get the same treatment over the next few years?
I hope so.
Anyway, that was supposed to be a short post. I’m off for a meeting. Have a mighty fine day!
P.S. Those comments are an example of why the comments section of Le Grove is one of the best in the business. Excellent analysis.
P.P.S. If you sit next to someone with a computer screen, everytime they leave the table, move their screen by 4 inches. Do it until they ask. Deny it. Keep doing it. You’d be surprised how much stress this can cause.
If you’re a trader, may I suggest taking and important tool from one persons bag and putting it in anothers. Do it all day. Next week, reverse the action so it looks like a revenge attack. Divide and conquer. Within weeks, you’ll be running the damn show.