Fans wary of hidden fees as Kroenke takes 100% Arsenal stake

10 August 2018 Authored by Consultancy.uk

Arsenal fans have reacted with apprehension as their club is set to fall into the complete ownership of US sports tycoon Stan Kroenke. The American’s holding company extracted some £6 million in consulting fees from the club before shareholder pressure put paid to that arrangement, but supporter organisations worry that he may use the lack of transparency which 100% ownership allows for to reintroduce such practices.

Just days before another breathless campaign of on-pitch spectacle is set to kick off in the English Premier League, several clubs have been embroiled in sustained drama behind the scenes. At this stage it is unsurprising to see the traditionally farcical reign of Mike Ashley as Newcastle United owner trundle on into a new season – as players refuse to participate in media duties until he commits to pay them the going rate in bonuses – while the controversy surrounding West Ham’s new publicly funded home – which recently spent early £450,000 of tax payers’ money on consulting services in a fruitless effort to find a sponsor – continues to prevent the team settling into their new ground. However, it is perhaps more surprising to find English footballing giant Arsenal now mired in uncertainty.

For a long time, the North London club had been the continuity outfit of English football’s top flight. As one of only six clubs to have never been relegated from the Premier League (which was established in 1992), the Gunners also possessed the league’s longest standing manager, Arsene Wenger, and before last season had finished in the top four in the last 20 seasons, and the sixth richest club in Europe despite being run on a ‘sustainable’ model of only spending what they make. Despite winning the FA Cup, Arsenal experienced a frustrating 2016-17 season, finishing fifth and missing out on Champions League football for the first time in two decades as a result. The result was repeated last season, Arsenal this time finishing six, prompting their most successful manager to finally call time on his reign at the club. While newly installed Head Coach Unai Emery faces a defining first season in charge, though, it is not the footballing transition that has many fans concerned, as much as a change in the club’s ownership.

Fans wary of hidden fees as Kroenke takes 100 percent Arsenal stake

American sports magnate Stan Kroenke first made inroads to adding Arsenal to his sprawling empire in 2007, with the Premier League club agreeing to a £731 million majority take-over by the billionaire five years later. At the time, the club was desperate to invest in its squad, following a then-six-year trophy drought, and Kroenke – who already owned close to 30% of the club, said he had offered £11,750 pounds per share, in a bid to rest full control of the club from its shareholders. Kroenke, who also owns several major sports teams in America via his investment holding Kroenke Sports & Entertainment (KSE), took his stake in Arsenal to a 63% majority, by securing the backing of 16.1% shareholder Danny Fiszman and 15.9% shareholder Nina Bracewell-Smith. Bracewell-Smith was advised on the sale by Big Four professional services firm Deloitte and Magic Circle law firm Linklaters, having first engaged them when she was approached by Kroenke in 2011. In since deleted tweets, Bracewell-Smith recently said that she “deeply” regretted selling her shares in the club to Kroenke, however, and has since subjected both Deloitte and Linklaters to a high profile legal battle.

Following that, Kroenke has expanded the KSE share in the club to 67.09%, but until now, had been unable to rest the remainder of the shares from remaining minority holder, Alisher Usmanov. The Russian oligarch held a 30.04% share in the team, and even offered to buy out KSE, but was rejected before being refused a seat on the board, making Usmanov’s shares effectively useless. Following an extended stand-off between the two entrepreneurs, Kroenke finally made a bid to break the stalemate during the summer of 2018, and as no business entity was likely to buy his share to be similarly frozen out, Usmanov accepted the American’s offer, selling his portion of shares to Kroenke for around £600 million – still making a profit in the hundreds of millions based on his initial investment in the process.

Consulting fees

The concern for Arsenal fans comes in here, as once Kroenke has obtained Usmanov’s shares, rules of stock market trading will allow the American to complete a compulsory purchase of all remaining shares, thus giving him 100% ownership – a right which Kroenke has already stated he intends to exercise, before taking the club off the Stock Exchange to reconstitute it as a private company wholly owned by him. Kroenke’s explanation for taking the club private and compulsorily acquiring all the shares is that “KSE believes moving to that model will bring the benefits of a single owner better able to move quickly in furtherance of the club’s strategy and ambitions”, but the stance has been criticised by the Arsenal Supporters’ Trust, which described the announcement as “a dreadful day for Arsenal football club.”

The anxiety among fans has been provoked largely by the fact that as a result of KSE’s total ownership of the British footballing institution, any transparency which previously existed in the running of the club will no longer be a necessity, including the annual general meeting, which previously gave minority shareholders including many ordinary fans who bought a single shares years before their boom in prices could express concerns about the running of the club. At the same time, the previously detailed public accounts that were needed to allow those people to see where the club’s money was being spent will no longer be published.

This is particularly concerning for the club’s passionate support base as, despite the initial belief that the billionaire would invest in the club’s squad and facilities, in shades of Mike Ashley’s Newcastle tenure, rather than investing, Kroenke has actually taken substantial funds out of the club in the form of consulting fees. KSE sapped a massive £6 million from Arsenal in the space of just two years, charging £3 million a year for ‘consulting services’ in both the 2013-14 and 2014-15 seasons. When the payments appeared in the clubs public annual accounts, however, it caused uproar among the fans, and the payment subsequently ceased to appear in the accounts lodged at Companies House for 2015-16. While no official explanation was given for the change, it was understood that the club was still receiving the same range of advisory services from KSE, but the fee has simply been waived, following letters from other shareholders – notably Alisher Usmanov and the Arsenal Supporters’ Trust – on the matter.

In an ominous warning about what Kroenke’s 100% ownership of Arsenal could mean, author and key fan voice Andrew Mangan, who runs fan site Arseblog.com, told the Guardian, “With no AGM, no public accounts, and nobody able to hold him to his responsibilities, there’s nothing to stop Kroenke making similar payments or taking fees in the future. Of course that has to be balanced with the obvious need to run Arsenal in a way that doesn’t negatively impact on its value and thus Kroenke’s investment, but when your club becomes just the latest addition to a wealthy man’s portfolio it’s hard not to worry.”

During KSE’s statement to the Stock Exchange, the holding group highlighted Kroenke’s ownership of US teams in the NFL, NBA, National Hockey League and MLS, before saying Kroenke’s “commitment to Arsenal remains unwavering” and asserting that “KSE is a committed, long-term owner of the club.”

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