Arsenal have a financial and an upper management problem

Earlier this week, I took a look at Arsenal’s transfers and recruitment over the last few years. What emerged was a pattern of expensive moves not panning out for Arsenal and poor decisions on second contracts for those expensive players. You’d be hard pressed to argue that any of the other Big 6 have done worse in the transfer market over the last five years or so. Unfortunately, it doesn’t stop there. The financial picture is a bleak one as well, and it goes hand-in-hand with the transfer and recruitment problems. And when there are so many problem areas at a club, you have to put the question to upper management.

That chart is a pretty way of showing that Arsenal have, in fact, been outspent by the the teams with whom we think they should be competing in the table. Even if you add in the most recent transfer window, Arsenal still come out behind the other top 6 clubs in terms of overall expenditure (there is apparently a slight number / calculation difference between Coral/Sqwuaka and Transfermrkt). If you limit it to 2016-17 through today, Arsenal jump up to fourth largest overall expenditure, with Everton right on their heels, Liverpool about £60M behind, and Spurs £114M. Much of the gap with Spurs can be attributed to their austerity related stadium construction, the new stadium will likely help boost future spending once the football economy recovers from COVID-effects.

Even though recent history undermines the “Arsenal don’t spend” argument a bit, it’s a cold comfort. It’s a pretty damning indictment of Arsenal’s transfer and recruitment business that they have spent and, well, this ***gestures at the current state of Arsenal*** is what they have to show for it.

Net spend doesn’t improve the picture. Arsenal’s -£309.5M net spend over the last five years is the third largest deficit behind that of Manchester City and Manchester United. The Gunners are more than £200M behind both the Manchester clubs and much closer to 4th ranked Chelsea’s -£263.69M in terms of net spend deficit, but so what?

Arsenal haven’t bought well. Arsenal haven’t sold well. And they’re off to their worst league start in almost 40 years.

To an extent, those big negative numbers are just pixels on spreadsheets. But things were trending in the wrong direction BEFORE coronavirus turned footballing finances on their head. When Swiss Ramble posted his annual, fantastic Twitter thread breakdown of Arsenal’s financials, he noted that Arsenal had posted their first loss since 2002 and were the only top 6 club to see their revenue fall over the last two years of the period covered (2010-2019, the decline coming from 2017-2019). He also noted the importance of matchday revenue to the club’s finances — it accounts for 25% of total revenue — which, in light of half a season without fans and however long the significantly limited number of fans in the ground will last, is a massive concern.

In his communique posted to Arsenal.com alongside the financial release, former Club Chairmain Sir Chips Keswick noted that limited player trading profit was partially to blame for that first recorded loss since 2002. He also warned that “another season outside the Champions League will continue to apply pressure to our financial results.” All of that was based on the 2018-19 books.

Fast forward to today: Arsenal have another -£96M in player trading deficit hitting the books in 2019-20 and as of right now, -£60.6M from this summer’s spending for the 2020-21 accounting. Add to that the significant negative impact that COVID will have on revenues, the fact that Arsenal look nothing like a side capable of even making the Europa League to get a bit of that European football cash, and yeah. I’m worried.

But I’m not a financial expert. In fact, the people with the best knowledge of Arsenal’s financial situation going forward, the people that own the club (the Kroenkes) and run the club (Edu, Arteta and co.), are still opening up the purse strings. I’m sure they’ve projected exactly how they think COVID will impact the bottom line and what the club can and cannot afford. And they found £45M to spend on Thomas Partey with rumblings that Arsenal may be more active in the January window than in past years.

The knock on Stan Kroenke has always been that he treats Arsenal too much like an investment vehicle, concerned with profit and loss more than the product on the pitch. If we assume that he and his son Josh are competent businessmen, maybe there’s reason to have hope about Arsenal’s financial future. Generally, you don’t put money into an asset you expect to decline in value, and the Kroenkes look to be putting money into Arsenal.

One of those “shock stats” that has made the rounds several times over on Twitter is how much money billionaires have made during the COVID-related economic downturn. Perhaps the recent (and hopefully upcoming) player expenditures are the Kroenkes recognizing that the market for players has dropped precipitously, and they’re buying the dip. There are deals out there to be had for the clubs that have the money. All of that is an oversimplification of economics to be sure, but the underlying assumptions and suppositions are sound, I think.

A popular take over the years has gone something like, “well even if the Kroenkes only care about Arsenal’s profitability, at some point they’ll realize they need to put a good enough team on the pitch to stay in Europe, right?” We may have reached that tipping point. The club chairman warned about the financial pressure of missing the Champions League, which I’m sure was understood before the Nicolas Pépé spend. The club sent the Brinks truck or whatever they’ve got in London across the Channel. Well, technically they’re still sending the trucks because they’re paying Lille in installments. They spent again on Thomas Partey even with the specter of shutdown-effects looming over the books. Maybe, just maybe Arsenal really are going to do whatever it takes to get back to the Champions League.

Here’s the $64,000 question: what do Arsenal need to do to get back to the Champions League? And I’ll add a follow-up: do we trust the current decisionmakers at the club to figure that out and make the right moves?

I think it’s going to take more of a full-on rebuild and less of the spot-fix approach that seems to be current model. But Arsenal seem reluctant to hit that reset button. Signing Willian, re-signing David Luiz and Cedric, those feel like win-now moves. Look at the table. Arsenal are not winning now.

Barring a miracle turnaround and at least two January window moves to add attacking creativity, Arsenal have almost no shot at making top four this season. You’ll note that I said “Arsenal need a miracle and to have a shot.” The chances at top four this season are infinitesimally small.

A creative attacker and some on-field improvement give Arsenal a chance to win the Europa league, although some strong teams look likely to drop in from the Champions League. It’s a lottery ticket. Arsenal are a good cup team, as evidenced by the FA Cup win. They’ve got enough talent that, if they play well, they can give most anybody a game.

The problem is when you go win-now and you fail, you find yourself outside the Champions League looking in with two more seasons of Willian and Cedric on contracts that will take them well into their 30’s, eating up weekly wages and playing time that could be used to develop young players. You get Yunus Musah, who spent seven years in the Arsenal academy, leaving the club because they don’t see a path to the first team. By the way, he just signed an extension with Valencia that includes a €100M release clause. You get Folarin Balogun, another highly coveted academy player, threatening to leave for the same reason. You get a big spend on Thomas Partey who will improve the team for two or three more years but will be past his prime when it comes time for his next contract, when Arsenal are (hopefully) back in the thick of it.

It’s the same story with different players. It’s making repairs on a house with a crumbling foundation. You can dump as much money into it as you want, but if you don’t make the difficult and expensive choice to fix the root problem, it becomes a money pit.

The maddening part is that Arsenal also seem to be buying for the future. The William Saliba purchase looks like a very long-term signing. That’s fine if you’re rebuilding, but less fine if you’re trying to win-now. That £27M could have been spent on another player towards the end of their prime who might have helped the current roster win football games, like Thiago Alcantara or Allan or James Rodriguez (and just his wages, he moved on a free!).

Arsenal bought Gabriel Magalhaes this past window. I thought he was more of a signing for the future. It’s gravy that he’s been an absolute stud since arriving. Add to that the great find in Gabriel Martinelli, the good business that was Kieran Tierney, the burgeoning star that is Bukayo Saka, and the rest of the promising young talent at the club, and you’ve got a strong young core around which to build a consistent contender.

Think about Liverpool. They missed out on the Champions League six out of seven years from 2010 to 2017 while building their current juggernaut of a side. They sold Luis Suárez, a star player and Raheem Sterling, a likely star-in-the-making, to fund the rebuild. They sold Phillippe Coutinho to help complete it. It took lean, painful years to get to where they are. And I’d bet that everybody at the club and in the stands would do it again for a Champions League win and a Premier League title.

Do Arsenal have the courage to do that and the willpower to stomach the bad years? Would they sell somebody like Hector Bellerin this summer because he’s one of the more salable assets at the club to speed things along? I’m honestly not sure.

As Ron Swanson from Parks & Rec said, “never half-ass two things, whole ass one thing.”

To be fair, it’s a bit of a false choice between rebuild and win-now. A well-run club is always looking to add young talent and replenish the pipeline, even when in the midst of a title-possible window. Optimally, you’d want to field a side capable of qualifying for the Europa League while retooling the team. But Arsenal are in such a state that they need to lean even more heavily towards rebuild — in situations of conflict between those two objectives, the rebuild needs to carry the day.

Part of me wants to give Edu, Mikel Arteta, and company the chance to implement their vision for the club. Bouncing from one regime to another is part of how Arsenal got themselves into their current predicament. But Edu was at the club for the Pépé deal (although he supposedly didn’t have much say in it) and has overseen the mish-mash Saliba, Willian, Partey strategy. On the other hand, he found Gabriel Martinelli and was instrumental in the Gabriel Magalhaes deal.

I suppose it’s my job as someone who writes about Arsenal have a take here, so here it is: Edu should get another summer window, and Mikel Arteta has earned more time in charge. But if Arsenal don’t improve from their current 15th place performances, can ‘em both in May (or earlier). Reading the tea leaves, I think they’ll get at least that from the Kroenkes, provided the bottom doesn’t somehow fall out even further.

Speaking of the Kroenkes again, given their recent track record with hires and fire, how much do we trust that they’ve got the right people running the club right now? Yes, I suggested earlier that we should perhaps trust their business acumen, but that doesn’t mean we have to trust their ability to oversee footballing-executive hiring decisions.

Let’s look at the last three years of executive performance and big decisions. Ivan Gazidis and the board forced out Arsene Wenger in a way that if recent reports are to believed, left a bitter taste in the legendary manger’s mouth. Gazidis led the search for Unai Emery, who was definitely not the answer, then left the club for A.C. Milan.

Gazidis’ responsibilities were split between Vinai Venkatesham and Raul Sanllehi. An internal power struggle between Sanllehi, Emery, and Sven Mislintat led to Mislintat leaving the club with some not-so-nice things to say about how things are run in North London. Mislintat may or may not have been the right guy, but his track record at Borussia Dortmund gave him a resume that looked well-suited to transitioning Arsenal out of the monolithic, all decisions run through Arsene Wenger, approach that had clearly broken down.

As we know, Sanllehi has since been run out of the club largely because of the Nicolas Pépé transfer disaster that will always be surrounded by whispers of impropriety. Meanwhile, Vinai Venkatesham, primarily a marketing guy, is now C.E.O. and has delegated the football side of things to Edu and Mikel Arteta, who he elevated from “head coach” to “first-team manager.”

That’s a three-paragraph way of saying, “no, I don’t have much reason to trust that the Kroenkes have the right guys in charge right now.” But we’ve reached the top of the food chain. We can’t change the owners. We can only hope that they’ve stumbled across the right people to lead Arsenal out of their current quagmire.

But there’s only spotty evidence of Arsenal getting it right in the recent past. There’s scant reason to believe this group will get it right this time. Unfortunately, the best option right now may be to just cross our fingers and hope that the combination of young talent at the club, an apparent willingness to spend, and blind luck will get the job done.