As we Arsenal supporters refresh our browsers in the hopes that our new brain trust will identify and then reel in the next big player for the Gunners, we ought to remind ourselves that our team is owned by a man who is (at-best) an agnostic about the concept of winning a title, someone who is quite apparently disenchanted with the idea of continuing to spend consistent shares of his revenues on valuable players. We have a simple measure (and apologies for our armchair economics) to verify the premise that the valuation of Arsenal is more important to Stan Kroenke than anything else. Take a look at the direction of the wage/revenue percentage for Arsenal (sourcing from Swiss Ramble) – from 58% (2015) to 56% (2016) down (in this case sourced to the Evening Standard) to 47% (2017), all while revenues continue to grow strongly. This should be worrisome to supporters. While football economics are extremely hard to discern and we are best off leaving deeper analysis to places like the Ramble, our gut tells us that this drop in wage share indicates exactly what one would surmise: that ownership’s asset is growing in value, cash is coming in all while reducing that spending as a percentage of said cash. And, even better, the team can rightly claim they are paying their players like never before, in an disingenuous effort to convey ambition. So the asset grows. The wages grow. But they grow at different rates, and this continues to bolster the value of the asset, the only real thing that matters to the Owner.
Compare wages at Liverpool as a percentage of revenue, increasing year over year, to the point that in 2015-2016 they tipped over 60%. FSG, owners of the Boston Red Sox (full disclosure: we are a lifelong diehard fan of that team), have consistently shown a willingness to spend in Massachusetts. The Red Sox’ wage bill, over a similar period had a wages-to-revenue ration of 44.1% (2014), 45.5% (2015), and 45.7% (2016), in a sport with a competitive balance tax for the top-spending teams. At Liverpool, the increase in spending matches the ambition that FSG has displayed in Boston. Sadly, Arsenal’s ambitions trend more towards the Colorado Avalanche and Rapids, and (this year’s anomaly notwithstanding), the Los Angeles Rams.
We should feel confident that the new brain trust (Mislintat, Sanllehi, et al) are not singularly focused on the balance sheet, leaving that work to others. Players are their thing. Smart talent identification, anticipatory financial savvy, and expansive scouting with intelligent data assessment is indisputably welcome at the club. But in the end this serves a purpose: to secure players prior to (or, at least, early in) the wage-inflation process. This will continue to reduce wages relative to revenue. This will create salable assets, of high differentiated sell-to-buy ratios. And this will, with further television revenues and a growth in value of that next contract, add significant value to the team itself. With success in these efforts (high value, low cost talent and better revenue) one might expect significant reinvestment of that “surplus” – in professional sports the absolute maximum profit isn’t always king. Unfortunately, with this ownership group we need to be realistic. If they reinvest a “surplus” it will be in an entirely different entity, unbeknownst to us supporters.
-ab