By Radio Free Arsenal
July 21 2012

When reviewing the Re-development of Highbury and its impact there are four basic issues to consider. – a) the impact of pursuing the project on the Company, Club and Team; b) how much the Company,Club and Team have actually benefited, c) whether the Company, Club, and team were the sole or primary beneficiaries,  and d) whether the benefits justify any sacrifices made in pursuing them. The answers are both fascinating and disquieting.

Who benefited? The directors or the team?

The short-term impact of pursuing the redevelopment of Highbury in the way Arsenal did certainly was a disruptive one, even a destructive one.  This was in terms of the football team and the level it had been built to reach from 1998-2005 and certainly had reached from 2001-2005.

The decision to borrow an extra 125 million pounds to re-develop Highbury rather than as originally planned sell the stadium to another developer destabilized the Club’s actual and projected cash flow in the years immediately after 2005. It created significantly increased financial risk and obligation upon the Holding Company and thus Arsenal Football Club.

If the Club had sold Highbury it would have a total debt of about 300 million pounds with about 100 million due to be paid by 2010. It would have had an additional 40-80 million pounds from selling Highbury to cover any cash shortfalls as needed. But when they decided to redevelop Highbury the Club suddenly owed about 400 million in total and 230 million of that money by 2010, and had not one penny of additional revenue to alleviate the cash flow strain at any point.

It should also be noted the 100 million referred to above would have been in annual instalments of about 20 million pounds. Once the money to redevelop Highbury was borrowed not only did those annual instalments remain, but the extra 130 million had to be paid in full in 2010. If that did not strain Arsenal’s self-sustaining finances beyond reasonable limits it come perilously close to doing so. Certainly closer than selling Highbury immediately.

It is clear that this led to financial sacrifices being made by the football club, and funds that were traditionally re-invested in the football team were redistributed to address debt repayment, and also held back as security against any potential shortfalls.

The pursuit of this project, and the increased financial risk, led not only to funds being withheld from the manager to pay off stadium debt,  but also in all likelihood to restrictions on how much other money was made available to the manager after that. So in effect the money available to manager was not only reduced, but also the money that still could have been available was limited as well.

Some will point to total figures on spending and question this pointing out that from 2006-2012 spending increased by almost 40%, but that ignores that revenue from sales more than covered that increasing by over 150%. For every additional pound spent in this period compared to 1998-2005 the club took back two more pounds from sales than from 1998-2005. It increased income far more from 2006 to now.  This more than covered the increased transfer spending costs over those years and still created an annual profit in transfer spending.

So did this project benefit Arsenal Football Club; and more critically did it benefit the Club more than simply selling Highbury onto another developer figured would have? This is a difficult question because the answer can be clear, and unclear, depending on the context in which the question is set.

Let’s be clear there is no disputing that financially the project was a success and that the Club not only was able to pay for the project from the revenue it generated back to the Club, but also to create a healthy profit of  120-130 million pounds in all. Further than that it represents a significant increased profit over the expected revenue from the sale of Highbury.  The estimates suggest it would have netted anything from 40-85 million pounds. So the project succeeded financially any way you look it

However, if you add to this analysis the overall context the costs to the Club in terms of strained finances, and reduced cash flow that resulted, and the negative impact that it had on the team then it becomes a tougher proposition, even fully taking into account project’s financial success.

And if we then add in the fact that subsequently not one penny that the Club made from this project went back into making more funds available to reinvest into the football team directly. Nor went into reducing the stadium debt by one day to make more cash available to re-invest into the football side by reducing the remaining debt obligation. The tangible benefit to Arsenal football Club becomes uncertain at best.

Zero sum game

Indeed the only thing Highbury Square has to this day actually paid for in any amount of note is its own expense.  The financing acquired to undertake the project. Highbury Square paid for itself – period. The rest of the money, much or most of which Ivan Gazidis publicly stated more than once was earmarked to go back into the football team has yet to do so.

So the real benefit of this project to Arsenal Football Club as a football club when balanced against the sacrifices it had to make to complete it is clearly uncertain, if not actually financially non-existent. But clearly there were beneficiaries, and tangible beneficiaries. Namely the Club’s shareholders, more specifically the Club’s larger shareholders who actually approved raising the finance for this project.

While there is no scientific way to determine exactly how much they benefited from this project, one can observe the historic progression the Holding Company’s (effectively the Club’s) share price rose from 2005 onward. One can observe its relation to the fortunes of the project as they varied throughout that period, and safely conclude that this project did not just increase the value of the club, but through the share price the wealth of those shareholders readying to sell to the Club on.

Again there is no exact science to determine an exact amount, but clearly charting the share price from 2009 where it fell to below 6800 pounds, when reports emerged that the Club was struggling to pay the loan of 125 million plus interest back to the creditors. However, following the re-financing the share price resumed climbing upward, and when the bridging  loan was paid in full, the share price rose beyond the 10000 pound mark before reaching almost 12000 pounds at the time control of the Club was sold to Stan Kroenke.

This suggests that Dan Fiszman, Lady Nina Bracewell-Smith and Peter Hill-Wood made an additional profit for themselves of somewhere in the area of 90 million pounds from the project’s positive impact alone at that time, which would be over one-fifth of the total revenue from the sale of the Club.

But when you factor in earlier sales of holdings by Fiszman, Richard Carr, and David Dein to Alisher Usmanov, and consider these sales all the way back to 2010, which may have seen the stock’s value increase by 100-125 million pounds in total, meaning that up 30% of the stock’s value came from re-developing Highbury. Any way you look at it not an insignificant figure, nor is it a minimal increase in value or wealth unworthy of attention.

And it could be argued that the opportunity to make that much money personally at little if any risk to  personal wealth (they had invested a total of 10 million pounds between them for the stock they controlled, and not one penny of their own wealth into the club itself, and the Club as it was the holding company assumed any financial risk they deemed worth taking) to make that much more money for themselves and their families justified pursuing this project, even if the Club had to make sacrifices to allow them to do so.

Which bring us to that question of was Highbury Square worth the sacrifices it demanded for Arsenal Football Club? And the answer again depends on the context.

If you look at Arsenal purely as a business or a business investment you have invested or would invest in the answer would be an unqualified yes and rightly so. The project decreased the Club’s total debt by about 40% on its completion (though not starting the project at all or paying for it with their own money would have done that too) and left a significant profit.

But with each step back from that purely venture capitalist view of Arsenal Football Club the answer become’s less easy to determine. Even the most objective view would bring how the project was undertaken into question – whether it should have clung to the self-sustaining business model after teraing a gaping hole in it as this had done at the same time.

But again if you look entirely from the perspective of Arsenal as a football team, was this necessary at all? After all the major shareholders were still looking at one seriously healthy payday after virtually no personal investment of wealth on their part. And even Dan Fiszman the one shareholder who had invested significantly, in the area of ten million pounds) had already sold Star Diamonds within the last decade for a 150 million pounds. So the family mortgage getting paid off didn’t hinge on the money from selling Arsenal.

So they might only have made a mere 150-300 million between them. How bad could that be? After all Peter Hill-Wood bragged none of the shareholders needed the money, and since as he again bragged, none them reached into their own pockets really other than David Dein and Dan Fiszman (who both still stood to make huge profits), that hardly threatened leaving any of them with poverty or financial distress.

Even if things went wrong it wasn’t their money on the line – it was the Club’s. The Holding Company.  Arsenal Football Club assumed all the risk on Highbury Square while they reaped 80% of the reward. And even if things hadn’t gone well they had a get-out-of-jail-free card. They could just sell the Club on. After all even at as little 3000 or 4000 pounds per share they were all making money.

So was everything Arsenal Football Club gave up as a football team so the shareholders could reap as much as they possibly could, by selling their shares, be worth that sacrifice? Clearly to the real fan the answer is no.

Did developing Highbury Square underdevelop the team?

Discussion started by Arsenal Times , 21/07/2012 19:11

Arsenal Times
21/07/2012 19:11

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Edited 1 time(s). Last edit at 2012:08:17:14:36:15 by Padre Pio.

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karteta16
21/07/2012 21:30

Theodore roosevelt - In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.

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Jack_is_the_truth
13/08/2012 23:25

thats harsh karsene

good job radio

didnt read it but im sure its beautifully written

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