Arsene Wenger - Professor or Past it?

It’s the north London derby this weekend and, like last year, this match has the added significance of being potentially critical to the battle for Champions League places. Last year Arsenal’s 5-2 victory at the Emirates gave them significant momentum and there was only a single point between the clubs come May. 

The professor and the pupil

Arsenal have so far had a mixed start to the season but it often seems like the analysis of Arsenal’s situation is typically extreme and often heated. Initially fans and the media were raving about their new found defensive stability, under the tutelage of assistant manager Steve Bould. They were also drooling at the performances of Santi Cazola, and suggesting that Arsenal were a stronger team without Robin van Persie.

There really is a Santi Claus!

But in the last four weeks they have suffered losses to Norwich, Manchester United and Schalke, and then conceded 2 goal advantages to draw against Schalke in their return match and Fulham in the Premier League. The vultures are out again and many have questioned manager Arsene Wenger’s future at the club, just as they did this time last season.

Interspersed among these games was Arsenal’s AGM, where supporters let out their frustrations at not having won a trophy since their FA Cup triumph in 2005. For a big club like Arsenal this is obviously perceived as a failure, and subsequently a failure by Wenger. The question is, has Wenger actually failed?

To answer that question we need to understand how to judge a manager. The highly regarded sports economics professor Stefan Szymanski has done detailed studies on the impact of players and managers in football. In the book Soccernomics he showed that, because they do their job in public, the market in footballers in extremely efficient, and players largely earn what they’re worth. 

Professor Dalglish thought Andy Carroll was worth £35m... hmm

Furthermore in a study of English football managers, he found that league position was largely explained by a club’s wage bill - the correlation between player’s wages and league position is around 90%. It follows therefore that most other things, including the manager, are relatively unimportant.

Of course this doesn’t mean that the physio or the club mascot could do a manager’s job, just that their impact on overall league position is small relative to the impact of the resources at their disposal.  

Even Gunnersaurus has won a trophy!

This makes intuitive sense – put Jose Mourinho in charge of Accrington Stanley and they will improve, but they wouldn’t win the Champions League in 5 years.  

Accrington Stanley, who are they? Exactly

Of course player’s wages don’t explain everything; there is still room for a good manager to make a difference. Szymanski analysed English clubs from 1973 to 2010 and compared league performance against expectations based on their wage bill. The top 5 performers he identified were Bob Paisley, Bobby Robson, Alex Ferguson, Arsene Wenger and David Moyes.

Paisley, a giant of the game (or are those just miniature trophies?)

Paisley and Ferguson are all-time legends, having won 18 league titles and 5 European Cups between them. But while at ‘big’ clubs, they achieved their success without significantly outspending their rivals. Bobby Robson and David Moyes are more interesting cases since, in terms of silverware, they only have one FA Cup success between them - Robson’s 1978 success with Ipswich. But both managers are given huge credit for producing consistently excellent results with very limited budgets.

During his 13 years at Ipswich, Robson nearly always finished in the top 6, and was twice runners-up, despite only buying 14 players during that time, relying instead on players developed through the youth academy. Moyes similarly has only once finished in the top 4, but Everton have consistently outperformed more affluent rivals during his tenure.

Arise Sir Bobby

The problem for Wenger is expectations for success at Arsenal are far higher than at Everton now, or Ipswich in the 70s. The irony is this expectation is probably brought about from the success Wenger himself achieved in the early part of his Arsenal reign. Before their recent trophy drought Arsenal won 3 Premier League titles and 4 FA Cups, and did this with a modestly high budget and always in competition with a great overachieving manager, Alex Ferguson.

Ah the good old days

Many commentators have suggested a decline in Wenger’s powers over the years, suggesting that other teams have caught up with his once revolutionary ideas in training, diet and scouting. While this may be true, this isn’t the critical factor; the bigger reason is that the resources of the competition have increased significantly in recent years.  

In his first seven seasons Arsenal had the highest wage bill in the Premier League, averaging 7.5% of the total league spend, a slightly bigger amount than even Ferguson had over the same period.  However, in 2011 Arsenal were only the 5th biggest spenders in the Premier League, with a total wage bill of £124m. This placed them significantly behind big spending Manchester City (£174m) and Chelsea (£168m), but also Manchester United (£153m) and Liverpool (£129m). City are relative newcomers to the party, having increased their wage bill from £36m to £174m in just four years, but Chelsea, United and Liverpool have consistently been big spenders over the last 5 years.

Splashing the cash

On this basis it could be argued Wenger has actually overachieved, especially when considering the consistency of his performance - Arsenal have qualified for the Champions League in each of the last 15 seasons, a feat only matched by Manchester United and Real Madrid.

Of course supporters want trophies, and Arsenal haven’t won anything since their FA cup triumph in 2005. However, there are only 4 trophies available each season, and as per expectation, the majority have been won by teams with bigger spending power.

The 7 Premier League titles have been won by United (4), Chelsea (2) and Man City (1); the FA Cups by Chelsea (4), Man City (1), Liverpool (1) and Portsmouth (1). Yes Portsmouth are an exception here to the ‘big club’ status, but would Arsenal supporters rather have their club overspend and destroy their long term future like Portsmouth did?

Twiffic achievement, but was it worth destroying the club for?

The League Cup has been won by United (3), Chelsea (1), Liverpool (1), Spurs (1) and Birmingham (1) – so bigger clubs even have a hold in a competition they pay less attention to. The Champions League in this period has been won by Barcelona (3), United (1), Chelsea (1), AC Milan (1) and Inter (1). Milan and Inter are again examples of clubs that spent big money to gain success, but are now undergoing huge financial difficulties and restructuring as economic conditions have changed.

Berlusconi is told Zlatan has to be sold to PSG

While there have been plenty of jokes going around in recent years about the dustiness of Arsenal’s trophy cabinet, the same could be said of most clubs. And clubs who temporarily spent big to achieve success, such as Portsmouth, Inter, AC Milan and Liverpool, are currently struggling, as they face up to the costs of chasing that success.

Oh yeah, you know the joke

Interestingly Szymanski’s analysis of managers did not take any account of a manager’s transfer spending. What makes Wenger’s relative performance even more remarkable is that, since their move to the Emirates in 2006, Arsenal have had net transfer INFLOWS of £49m. In the same period Manchester City and Chelsea have been the biggest spenders, splashing out £444m and £235m respectively. But even Liverpool (£105m), Manchester United (£93m), Tottenham (£61m) and Aston Villa (90mm) have spent significant positive amounts over this period. And even relatively frugal clubs, such as Newcastle (-£28m) and Everton (0) haven’t been as restricted in their transfer dealings as Arsenal have.

Hmm should I buy another ship or Torres for £50m? Ah I'll have both

Many of the transfers involved were simply due to the club receiving offers that were too good to refuse, from clubs with larger financial power. For example, Alex Hleb (11.8mm) and Thierry Henry (16.1mm) moved to Barcelona, and Emmanuelle Adebayor (25mm) and Kolo Toure (16mm) to Manchester City. This summer’s sale of Alex Song could be considered in this bracket – £15mm is a considerable sum for a player with undoubted talent but questionable tactical discipline.

Gone for a song?

Robin van Persie (22m) and Samir Nasri (22m) had reached the final year of their deals, so Wenger’s hands were tied in these cases, and once again they moved to teams with greater spending power. Cesc Fabregas (35m) was so desperate to rejoin his boyhood Barcelona that it wasn’t in Arsenal’s interests keeping an unhappy player. In all cases Wenger made significant profits on these players, so credit must go to him for developing their talents to the point where clubs with greater financial clout would be willing to pay significant sums for their transfer.

I love Arsenal, no really I do... just not as much as Barca

While these transfers make sense individually, collectively it appears that Arsenal are a selling club, and focused on generating profits. In reality, the club hasn’t paid out any dividends to the shareholders, and all the profits that have made on player sales have been retained within the club.

Ignoring player sales, Arsenal are actually running a fairly balanced budget. In their 2012 accounts, for example, the club reported a turnover of £235m, with £200m of expenses (£143.5m in player wages). They also have £14m interest charges to service each year for their mortgage on the Emirates stadium. After infrastructure projects, such as enhancements to corporate hospitality, a new medical centre, and planned improvements to the youth academy, there is little left for spending in the transfer market.

I have this much to spend each year, what do you expect?

Of course a big gripe with supporters is that they pay some of the highest ticket prices in Europe, and indeed their matchday revenues are significant. In 2011 they generated £93m from matchdays which is only behind, Real Madrid (£111m), Manchester United (108m) and Barcelona (£100m). It is also a long way clear of rivals Chelsea (£67.5m), Liverpool (£41m) and Manchester City (£26.5m).

Unfortunately, these numbers are nothing in comparison to the external money put into Manchester City and Chelsea by their owners. It is estimated that Roman Abramovich has ‘invested’ over £1bn in Chelsea since 2003, while Sheikh Mansour has made similarly large contributions to Manchester City’s balance sheet. In the 2010-11 season Chelsea reported losses of £68m, while City’s loss of £197m was the greatest annual loss in football history. Unfortunately for Wenger these clubs have changed the playing field, driving wages up and making it difficult for a club running a balanced budget to retain it’s best talent.

£197m loss? Pah, plenty more where that came from

So, given their constraints, Arsenal are performing at, or above, expectations, and their cash position is strong due to a positive flows in the transfer market. Is there anywhere the club can improve?

The first area is the club’s wage structure. While Arsenal’s overall wage bill is large enough to attract good players, they have a flatter wage structure than most, meaning that fringe players like Squillaci and Chamakh are well rewarded. A prime example of this was Johan Djourou’s new £50k/week contract signed in February, a player who is yet to make an appearance so far this season. This policy has resulted in a difficulty in offloading unwanted players, hence why Bendtner, Denilson and Park had to be loaned out rather than sold.

Woo guys, we're all on 50k a week!!

The board has also not done a good enough job with contract renewals. Wenger’s hands were tied over the sales of Nasri and Van Persie due to their contracts being run down, and the same situation is currently occurring with Theo Walcott. Rather than renewing deals with fringe players on good terms, the moneymen should have focused on rewarding their star names with more lucrative long-term contracts. Any club needs to focus on retaining their best talent wherever possible, to help the manager build a consistent playing squad.

Potentially flying the nest

The other area the board need to work harder on is growing their commercial revenues. In 2011/12 the club only generated £53m in commercial income, which pales into insignificance compared to the big 3 in this area of Bayern Munich (£161m), Real Madrid (£156m) and Barcelona (£141m). It is also less than half the £118m generated by Manchester United and less than Liverpool (£77m), Manchester City (£65m) and Chelsea (£57m).

This weakness is primarily due to the fact they tied themselves into long-term deals to finance the Emirates stadium project. The 8-year shirt sponsorship deal they signed with Emirates only pays £5.5m/year, while Liverpool, United and City reportedly earn £20m from Standard Chartered, Aon and Etihad respectively. Their deal with kit supplier Nike only earns them £8m/year, while Liverpool and Manchester United receive around £25m/year from their deals with Warrior and Nike respectively. These deals are however due to expire at the end of next season so if renewed at market rates Arsenal can expect an upturn of around £30m/year in commercial revenues.

I give you this plastic plane, you give me cheap 8-year sponsorship

Alongside this, the club undertook its first pre-season tour to Asia this year. A primary reason their rivals have been so much stronger in commercial tie-ups is the use of pre-season tours to grow their global brand. While Wenger has resisted this previously, given it isn’t ideal preparation, the reality is this is going to become a necessity if the club wants to compete financially going forward.

Clowning around in Asia helps pay the bills

The simple fact of the matter is what while Arsenal fans have been frustrated in recent years from a lack of silverware, the club has simply been a victim of changes to the financial landscape of English football. Put simply, Arsenal have not won a trophy since billionaires entered the Premier League, while also being victim to the investment and financial planning required to build the Emirates stadium.  

The club might have the highest ticket prices in Europe, but they also have a beautiful new ground in one of the wealthiest cities in the world, a ground they should be proud of and one that puts them in a strong financial footing for years to come. They also have a manager who demands an attractive style of football, who consistently develops players that the biggest clubs in the world are willing to pay huge fees for.

High prices but they keep on coming...

At a time when not just football clubs but national economies are facing future austerity due to a lack of smart financial planning, it is surely unfair to criticise Arsenal for being conservative in their spending. There is no doubt the purse strings could be loosened slightly, but they would still have struggled to cope with the financially doped Chelsea and City.

 Even still, with all this against him, with some better luck with injuries, Arsenal would likely have won some trophies in recent years and therefore had a better chance of retaining some of their star players. Think how Alex Ferguson struggled without Cantona in 95, Keane in 98, Ferdinand in 04 and Vidic in 2012.

While Arsene Wenger is no Alex Ferguson in terms of achievement, his performance considering the resources available to him have been consistently excellent, and should be acknowledged as such. He has consistently delivered attractive, attacking football that has been good enough to qualify them for the Champions League year in, year out. Possibly magnifique, but certainly trés trés bon.