Thoughts On The Kroenke Takeover

The inevitable is finally happening – a billionaire is buying Arsenal. Will it make Arsenal a rich man’s play thing? Will there be money available to the manager? Will Wenger have a sword hanging over his head? Will the Gunners be laden with the burden of debt? Will Usmanov sell his stake? What about the AST, Fanshare, and other minority shareholders? The takeover has raised many questions and it will be interesting to see how events pan out.

For now, both parties are offering predictable responses. According to the tailored statements, Kroenke will continue in the traditions of the club , the self-sustaining model will be adhered to, debt will not be imposed on the club, Arsene will continue to get the support he has been getting from the current board who in turn will keep their places, and minority shareholders will not be forced out.

I’m not quoting all the comments and relevant aspects of the offer as plenty of publications have done so already. If you want to read the details I recommend spending a few minutes on the official website. Start with this article and follow the links at the bottom.

I am dividing my thoughts into some broad categories,

Current Board

In the past I have registered my displeasure at the way the current board has handled certain issues. Now that some of them are pocketing hundreds of millions it begs the question, why weren’t fresh shares issued at some stage so that at least part of the money went into the club?

Well, it the owners’ prerogative and their shares so they can do what they feel is right. But I have my disappointment and opinion that I have the right to share. Imagine if 20 percent of this takeover cash had gone into the clubs coffers rather than the individual bank accounts, how it would have improved Arsenal’s competitiveness in the market.

It would have been a completely legal and ethical way of improving the clubs finances. That money could have been used to reduce the stadium debt, buy out the low-value Emirates deal, investment in the squad, or any other expense that directly improved the club.

I don’t completely agree with the allegation but there is some truth to the notion that the present board cares a lot about their own wealth. Whether that has reduced the pressure on Arsene to deliver titles is difficult to judge because to me Wenger seems to be the kind of person who would put more pressure on himself to win than any external factor/person could.

However, I do respect the board for doing things the right way and developing a model club that countless others would love to emulate. Since E. Stanley Kroenke has been around for a few years and has seen the madness and troubles at other clubs, one can hope he realizes the strengths that Arsenal have.

Alisher Usmanov

The Russia based oligarch, Alisher Usmanov, is reportedly unhappy with the current developments. He even tried to buy Bracewell-Smith’s shares with a couple of generous counter offers. Unfortunately for him, the deal was already done. Since NBS’ shares were on the market for a while now, the Russian can only blame himself and his advisors for their laxity and indecisiveness. It could also be that they didn’t expect Kroenke to make his move but that is also a failure of understanding the situation on their part.

Some fans want Wenger sacked and significant investment in the squad. Usmanov would have been more likely to go down the uncertain cycle of splash-demand-sack that would more likely have lead to instability and chaos rather than trophies. Funnily enough, many fans who wanted to go down that road don’t support the Russian.

I’m not sure how Usmanov will proceed in the next few days. He seems to have a choice between selling his stake for a decent sized profit or staying put with a minority stake that can prevent Kroenke from making certain changes at the club.

It is possible that if the Russian does sell his stake, the American might squeeze out the minority shareholders and take complete ownership of the club. This is an aspect that might worry the AST and those involved with the Fanshare scheme along with other smaller shareholders. But based on most reports that I have read, Usmanov does not intend to sell his shares. I think in the short to medium term it will be good to have a person like the Russian keeping the American in check.

With David Dein closely associated with Usmanov and his earlier involvement in introducing Kroenke to the club, we might see a good working relationship developing between the two billionaires. Having Dein back on the board might be a good move for the club but I don’t want to speculate on that right now.

On a different note, I’m not sure whether Usmanov has any legal options to challenge this deal. I hope the club will not be dragged into a dirty legal battle just when the run-in is heating up.

Wenger and the Squad

For many fans, the above two sections might not be very relevant. These fans would care about trophies, great players in the squad, and enthralling performances on the pitch more than the background dealings, which is fair enough.

I don’t expect any serious changes to the football side of things under the new ownership, at least not at the moment. I guess the paperwork for the transfer of shares and other relevant details might easily extend the process into the summer.

Let’s not forget Kroenke is a business man and will want to eventually make some profits out of his investment. From that point of view it could be a nightmare for the Arsene-out brigade because if their allegations have any truth, why will the American sack a manager who is making him good money while keeping the expenses in control?

We don’t know where Kroenke is getting his money to finance this deal. If he does have sufficient cash he could pay off some of Arsenal’s debts and might be able to negotiate better commercial deals after buying out the old ones. This could generate extra cash for investment in the squad but I would not expect big investments in the short-term. However, even if there is an additional 15-20M generated it could lead to an extra player in the squad.

Irrespective of the takeover I was expecting some jiggling of the squad in the summer, although not as many transfers as those predicted by the sensationalist media and doom-mongering blogs. Even after the change in ownership I don’t see Arsenal buying big names for crazy money.

Debt

According to the confirmations given to the board, Kroenke will not use debt to fund the takeover. At least no debt will be placed on or serviced by Arsenal. But to me that doesn’t mean much. If the American does get control of the club he can withdraw the cash in the clubs accounts to suit his needs. He can also pay himself generous dividends to cover for any kind of interest payments or other financial matters.

In effect, once a person is in charge of the club it is not easy to control how he runs it and what he does with the revenues or cash generated by the club. The previous owners of Liverpool or Manchester United could never have predicted that their clubs would be in the state we have seen them get into. So the statements by the Arsenal owners justifying the sale and predicting a continuance of the traditional, sensible approach don’t carry any significant weight. However, that doesn’t mean Arsenal are guaranteed to get into a miserable mess like the aforementioned clubs.

In that regard, having someone like Usmanov in a minority shareholding position that is at least able to block certain decisions could turn out to be a good thing.

Something does tell me that Kroenke will not exploit Arsenal and will turn out to be the right man but it’s difficult to explain.

Conclusion

In the immediate future we are not likely to see any changes to the status quo. Some fans will undoubtedly prefer greater demands being placed on the manager in terms of trophies and the new owner’s stance in this regard will be worth noting. The impact of that might not be seen this summer but I expect to get a better understanding based on the summer dealings and the statements made during that period and all through the forthcoming season.

The most significant impact can be made in terms of improving the commercial deals and marketing/branding of the club. Hopefully, Kroenke will be able to move these issues in a more decisive, purposeful, and beneficial manner than the present board.

A lot will also depend on the way Alisher Usmanov deals with the cards in his hand. I’m hoping he will stick around and make a constructive contribution. While I have nothing against E. Stanley Kroenke, complete control of the club in the hands of one person doesn’t seem like a good situation at the moment. Of course, future events might tell us that having the American as the sole owner is much better for the club. It’s difficult to be certain one way or the other. We’ll just have to wait and watch.


15 Responses to Thoughts On The Kroenke Takeover

  1. Phil23 says:

    A great article for an important event in the clubs history. I also have a good feeling Kroenke will be the perfect owner for Arsenal. I think he will possibly invest money but not into the squad. As you have talked about he will improve the branding of Arsenal, but I think a small boost in Facilities and Coaching will be just as important. A large cash boost would mean our youth facilities and coaching will be pushed on to a new level. With so many players at the club it surely wouldn’t do any harm to have a couple of extra coaches around.
    If you are right about the extra 15-20M that will be the more than enough for Arsene to have an amazing squad. Funnily enough Arsene could probably break even again on the transfer market and have come up with 2 or 3 more gems who raise the squads level immensely. If you then add the 15-20M he could make some really marquee signings with that kind of money. We really can afford a world beating squad thanks to Arsene’s genius. Arsene has put us in a really good position so that the club was in a good enough state to hand over to the right man rather than whoever came calling.
    Great article Desi!

  2. arvind says:

    Great read Desi. I am cautious, and you brought up some good points, especially about not reinvesting some money back into the squad. SK is a businessman and that is what he is out for, to make a profit.

    I doubt anything will change. He will his Arsenal Brand better to get more return on his investment, stay quiet, let AW and others take the heat and be happy with that.

    Of all of this, bringing David Dein back would be great. He can influence both SK and AU.

    We need more $$ for players, and we need accountability for AW. DD can possibly do both.

    • desigunner says:

      My guess is that more than accountability AW needs a better financial plan put in front of him that shows that he can afford to risk a couple of bad buys.

      My theory is that since Arsenal have abour 40M or so to spend, Wenger cannot risk it on a couple of big names who might struggle to adapt, or flop like Torres. Then we would be out of cash and in dire straits.

  3. Phv says:

    I am glad you are back,Desi ! I missed your articles and your views. They are very objective and top class.
    On Kroenke, I also have the feeling that he will not exploit the club.I think the only difference he will make is that he will oblige Wenger to go on tours in America and Asia from this summer onwards.
    We can not be sure that he will not use Arsenal’s cash to fund his takeover though.He has $1.7bn and he will buy the club for $731m.He does not have all that cash and he has refused to say how he financed the acquisition according to the Guardian. It is true that he did not use leveraged buyout for his NHL,NBA,MLS and NFL clubs but you never know. We will see in the future.I am sure that Wenger does not want to spend money anyway so in reality the money may go to Kroenke in dividends and paying the debt of the stadium and it will not matter that much.
    If we keep our 15-16 best players and continue to develop those other 10-15 top talents in the academy, I think we will have a bright future.Stan does not want to interfere with that either.The only player I would have loved to have in our squad is Luis Suarez but that chance is gone now.

    • desigunner says:

      Is the tour of Malaysia this summer confirmed? I read somewhere that the plans for Japan have been shelved, understandable so, and Malaysia is now the new destination.

      I’m sure Kroenke doesn’t have the cash to pay 731M but luckily for him he only have to pay around 32-33% of that right now. If Usmanov doesn’t sell it could save the American some cash and that could ensure that debt is not placed on the club directly or indirectly. Another reason to hope the Russian stays put.

  4. caveat emptor says:

    DesiG,

    i generally like your articles, but must admit I paused after your statement “…it begs the question, why weren’t fresh shares issued at some stage so that at least part of the money went into the club?”

    That’s like taking, you , me and your thousands of readers to task for not providing a tithe to Arsenal as supporters.

    It’s just not the real world. Even when companies issues new shares, the ownership of the money raised is with the shareholders (to invest for future profit, etc., etc., which I don’t think is what you are suggesting here).

    Just to be clear, I still enjoy reading your blog. However, more for the football than the economics 🙂

    • desigunner says:

      I’m think you misunderstood what I said and I definitely didn’t get your point.

      Issuing fresh equity to raise capital is not an uncommon practice and while the modalities might have been complicated, I’m pretty sure it would have been a workable option if the directors had genuine inclination to bring funds into the club.

      A simplified explanation is as follows –

      Suppose Arsenal have a total of 100 shares. Now Kroenke wants to buy some shares. Lets say Friar sells him 20 of his own shares and pockets the money. The total number of shares remains the same and the money goes to Friar as an individual. This money cannot be used by the club.

      The second option would be for Arsenal to issue 20 fresh shares and for Kroenke to buy those. The money would go into the clubs books and not to Friar. This money can be used by the club.

      Obviously, the percentage holdings of individuals would be affected and it would never be as simple as this example. A lot of details would have to be worked out and it had to happen in the early stages and not right now. But if the people involved wanted it, and since they are such a small close knit group, they could have worked something out that took care of their interests and brought some capital into the clubs accounts.

      • critic says:

        ???
        what kind of explanation is that???
        Why would current shareholders devalue their shares in order to issue new shares????

  5. Phil23 says:

    Wow this article deserves a lot more intelligent feedback than this… where are the regulars at? Santori?

  6. Claver says:

    I sincerely hope ‘Stan the man’ has thought through this one carefully.

    His purchase of ATVO would indicate that he has identified some areas of growth in the business side.

    Hopefully, he will back Wenger substantially, financially and otherwise.

    Arsenal has been an island of sobriety over the past few years, perhaps too much sobriety!

    But, for a billionaire; Arsenal FC truly represents the gold standard of investment opportunities in the EPL.

    Moreso, being based in London, it is no wonder Usmanov is ‘livid’. You can do worse things than buying a block of flats in Park Lane.

    • desigunner says:

      Yes there was some mention that he is really keen on the broadband segment. Not sure when that will be big enough to generate meaningful revenues.

  7. Mr Venger says:

    I see what you mean re the shares, but Arsenal shareholders have never taken dividend payments out of the club, so its a bit much to expect them to also lower the value of their own investment on top of that by creating more shares. But I see your point

    • desigunner says:

      Well if it had been their investment in terms of millions then I’d have agreed but based on what I understand many of them have inherited these shares and their families didn’t actually pay great amounts for them. In that sense they have been custodians of the club and rightly so.

      But for custodians to walk away with hundreds of millions when a fraction of that could immensely improve the squad seems a bit un-Arsenal-like if I can say so.

      Even if they had taken dividends, would it have come anywhere close to these amounts? I still agree that the Arsenal shareholders are far better than the likes of the Glazers and others but we have seen owners like Abramovich, Randy Lerner, and others have invested huge sums of their own money into the club. I didn’t expect that level of investment from the Arsenal board but they could have done better.

  8. Rosdan says:

    I hope Mr Donald Trump will buy Arsenal ;p

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