New questions in the football economy!

Simon Kuper, co-author of the book Soccernomics questions whether or not ‘football economists have misinterpreted things’ when it comes to the sport’s finances? From my point of view, the question holds some interesting details when referring to some of the current issues in the football economy. From my point of view, football economy is still about ‘balancing the books’ although this may seem idealistic in an industry where ‘overspending’ is the norm as a method to compete with the best. Yet, I think that the best football brands are capable of commercializing their activities to an extent where revenues match costs, especially if the salary level and transfer level (costs) come to a position, which ‘reflects reality’. Anyhow, that is necessary if UEFA goes along with their intensions to sanction the clubs, which do not comply with the Financial Fair Play regulations. Furthermore, it proves no point to send a message to sponsors, shareholders and other key stakeholder groups that their monetary efforts to help the club just go down the drain.

Still, Kuper’s question holds some degree of reality! Fans want titles and to see their team win football games. This is especially true in clubs with proud traditions where the legacy is tied to winning. Liverpool and Arsenal are examples of two clubs with such traditions, which have been caught in a ‘drought period’ lately. Currently, Arsenal finds itself in an economic situation, which is excellent compared to most football clubs. The club has money in the bank, a high turnover and operates with a profit. But selling their most prominent players, latest Robin van Persie to rivals Manchester United, has not helped Arsenal secure any titles and ‘the club’s fans have created an external pressure on management’ to spend some money. That happens in top clubs where expectations of winning often go beyond anything. Fans ask for majority owner Stan Kroenke to spend some extra money or for manager Arsene Wenger to buy some expensive star players with immediate impact so that Arsenal once again can compete with Chelsea, Manchester United or Manchester City. In general, Arsenal has applied a strategy where they to some extent ‘buy players at relative low prices’ (or develop their own players via the youth academy) and strive to turn these players into stars. Additionally, the club has had a sharp focus to avoid spending beyond its means, which includes a critical lense on the balance between salaries and turnover (seeking to reduce the percentage of turnover spent on salaries). Arsenal’s move from Highbury to Emirates Stadium has also added positively to the club’s opportunities to capitalize on its assets. Though, fans are eager to see the club act on the transfer market before the financial and sporting gap with the other top clubs will be too big to stop.

Nevertheless, Wenger’s way of doing things has helped transform English football. He has done well in finding key talent such as Thierry Henry, Patrick Viera, Robert Pires, and Robin van Persie just to mention a few and shipping them to other clubs in good fashion when they have had a period of high impact with Arsenal. He has also won titles with Arsenal this way. Still, it serves a point to ask what his ‘conservative spending policy’ does to Arsenal’s current situation? Does it help the club or does it hurt the club? I feel that Arsenal must find the right balance. As of right now, it helps the club financially but will it also help the club financially in the long run if the club cannot qualify for the UEFA Champions League or will see itself being distanced even further in competition with other English and European top clubs on the pitch. No matter how you turn it, there is an interrelationship between sporting and financial performances for these clubs. To win short-term (financially) must not jeaopardize the probability to win long-term. Football clubs have proved to be ‘somewhat sacred institutions’ and club brands of the biggest clubs seem to ‘live and sustain’ (that is the standard rather than seeing such clubs go bankrupt). What Arsenal should do now is to consider if ‘spending some money’ won’t be a wise decision (I do not suggest that the club should jeopardize its long-term financial health). Sometimes, economic reasoning entails that organizations must ‘spend money to earn money’. The tipping point for Arsenal in this scenario is that ‘spending must be weighed against sound strategic thinking’. Rivals Manchester United spent some money acquiring Robin van Persie and so far that seems like a good strategic decision. The same can be said about Borussia Dortmund’s investment in Jürgen Klopp and when Juventus hired Antonio Conte. Finding, investing in, and managing key personnel make a diffence in the football industry – Arsenal did the same when they first recruited Arsene Wenger. The question is whether or not the club must correct a few things to make his management and coaching style blossom again.