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

10 August 2018 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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Champions League glory hard to buy for football’s economic elite

15 March 2019 Consultancy.uk

The thrills and spills of knock-out football can still be one of the sport’s great levelling forces, with the Champions League’s second round having shown that the biggest spenders aren’t always able to buy their way to glory. While a league format broadly favours the squad depth of the beautiful game’s richest teams, half of the tournament’s wealthier teams exited in the first one-on-one elimination round.

As the Champions League burst back into life in February, following an agonising winter break, only two of the 16 teams re-launching their Champions League last-16 bid were from outside the so-called Big Five football leagues. With the exceptions of Portuguese champions FC Porto and Dutch footballing powerhouse AFC Ajax, teams from the world’s biggest spending leagues monopolised the second round. As outlined by analysis from KPMG’s Football Benchmark, the Premier League was represented by four teams, with three clubs come from La Liga and the Bundesliga respectively, while Serie A and Ligue 1 both retained two clubs.

This followed a grimly predictable group phase, which had seen the two most expensive squads progress in all but one of the eight collections of four teams. The one team to buck that trend, Ajax, had last won Europe’s premier club competition in 1995, but those halcyon days have long since faded into memory, and Ajax had failed to progress beyond the group stage in 13 years. With the second youngest squad in the tournament, what now seems to be an awakening football giant had some shocks in store for the second round too.

Group Stage values

Despite an impressive Europa League run which saw the team reach the final two years ago, Ajax had not progressed in a Champions League knockout stage tie since the 1996-97 campaign. That all changed this time, as Erik ten Hag’s men overturned a first leg deficit to trounce Real Madrid 5-3 on aggregate. Having felt hard done by in a 2-1 defeat at the Johan Cruijff ArenA, the Amsterdam club cruised to a 4-1 victory at the Santiago Bernabéu, a result which saw the tournament’s fourth most expensive squad crash out to the third cheapest remaining team.

The supremely expensive team, which had won three Champions Leagues on the trot, had crashed out in spectacular style. For many footballing purists, the end of the seemingly invincible Galacticos would have been enough to restore some of their faith in the sport – but there would soon be more schadenfreude to revel in, as a succession of Europe’s most bank-breakingly costly teams would soon join Los Blancos in their exit.

The pick of the bunch was unquestionably Paris Saint-Germain, who forfeited a 2-0 first leg advantage to somehow crash out of the Champions League. The team, who are fast becoming known as the foremost bottlers in Europe, faced a grim dissection in the French press following a 3-1 defeat by Manchester United at Le Parc de Princes. While it would be over-egging it to paint United as ‘giant killers’, the Red Devils squad is worth markedly less than the club bankrolled by Qatari oil money. PSG hold two of the most expensive players of all time in French World Cup winner Kylian Mbappe and Brazilian playboy Neymar.

Second Round values

Elsewhere, the round’s cheapest squad proved further that money is not everything, as Porto overcame Roma (the Italian club has since parted ways with manager Eusebio Di Francesco in the wake of this humbling) – while Juventus battled back to beat Atlético Madrid. The most ‘balanced’ tie of the round, there was a squad value difference of only €22 million between the two squads, in favour of the Spanish giant. With that being said, €113 million of Juve’s price-tag came from the summer acquisition of Cristiano Ronaldo. Ronaldo’s tie-settling hat-trick went to show that money spent in the right place ultimately makes the difference.

Spending wisely

At the same time, there were also four teams which lived up to their large price-tags. Manchester City pummelled Schalke over the course of two legs, hammering the German team 7-0 in the second game. With the largest squad market value in the tournament, the Citizens showed that their spending had not merely been a frenzy provoked by having large amounts of money to throw about – a la PSG – and that every penny had in fact been used to craft one of the continent’s most well-balanced and dangerous teams, to ultimately contend for the title.

Tottenham Hotspur similarly brushed off Borussia Dortmund, while Liverpool eventually overcame Bayern Munich, to leave no German teams in the tournament. Meanwhile, Barcelona similarly did for the French contingent of the Champions League, bundling out Olympique Lyonnais 5-1.

Operating Revenues

Going forward, the humbled economic superpowers of European football will take solace from the fact that their huge operating revenues will allow them to buy up talent which has emerged in this year’s Champions League. With Real Madrid having re-installed Zinidine Zidane as Head Coach, the club has already committed itself to spending big in the summer, cashing in some €50 million of its €743 billion revenue stream from last year to sign Éder Militão from Porto – who has impressed in this year's Champions League – in the summer.

Whether the PSG project is financially sustainable in the long-term remains to be seen, meanwhile, but with a huge portion of commercial revenues including shirt-sales from the club’s array of superstars, it will likely also seek to bring in more big names in the summer. The club was reportedly in the running to sign Ajax star Frenkie de Jong, before Barcelona finally secured his services from the end of the season.

The likes of Ajax will meanwhile face an uncomfortable wait, as a range of its new crop of outstanding players inevitably attract the attentions of Europe’s top spenders. With the lowest operating revenues of any team left in Europe, the club will face an uphill struggle to hang on to the likes of teenage captain Matthijs de Ligt. However, it would not be the first time that the club has been plundered for its top talent, and what Ajax and clubs of its size can take forward is that with the right eye for lower-key recruitment, they can rebuild, and still challenge Europe’s elite.