Is Arsene Wenger more a great bookkeeper - than a CEO?
It is common knowledge that Arsene Wenger, the manager of Arsenal football club, has a degree in economics and likes to be referred to as "Le Professeur". He is to Arsenal what Steve Jobs was to Apple - the de facto CEO - who has indelibly stamped his mark on Arsenal both as a football club and brand over the last 16 years.
For the first 10 years of Wenger’s reign Arsenal’s star shone very brightly - a combination of scintillating style of play, a superior fitness regime, technically gifted players and fighting spirit - made them every neutrals favourite team.
Fast forward to 2012 and it is clear that Arsenal’s brand USP has now become commoditised – even Swansea and Norwich can beat Arsenal at its own game. 6 years without a trophy is the most tangible sign of this decline to dullness.
But, parallel with this footballing decline it seems that Wenger wishes to be increasingly judged by his economic or business acumen, rather than his football management skills. After all he is no longer able to compete with the Mourinho’s or Ferguson’s in pure footballing terms.
Wenger’s legacy now appears to be all about running a sound business model. Which means that brand Arsenal’s frugality, profits and cash pile are the trophies Wenger now craves most of all.
The question I want to raise is; despite the signs of profit and business liquidity – is there a case for saying that Wenger has actually diminished, not enhanced, the overall brand value of the club - due to the business decisions he has taken in the last few years?
Consider the case for this proposition:
Most business success is closely related to underlying profitability of that business.
Profit in turn is dependent on revenue.
Maximising revenue, or certainly gross margin, opportunities must therefore be a goal of all successful CEOs.
A typical football club has 5 primary sources of revenue – and hence margin maximising opportunities:
· Ticket sales
· Broadcasting revenue
· Commercial (sponsorship) revenue
· Player sales
· Prize money
Having a successful team, or product, is the crucial element in driving the revenue streams and hence profitability of the football business model.
The single most visible manifestation of Wenger’s business decision making is his dogged – some would say stubborn - desire not to give into exorbitant player wage demands or succumbing to ever inflated fees for super stars.
This means he has missed out on certain purchases because of price – that could have made a difference at crucial times (Gary Cahill in the January 2011 window springs to mind).
Whilst being forced to sell key players whose wages demands are out of line (Ashley Cole is a celebrated case – and Theo Walcott could be another).
This means he has saved Arsenal loads of money in the short run – but at the expense of forming a team capable of winning trophies.
An argument can be thus made for saying that Wenger’s poor judgment, in this crucial area of team building, has paradoxically had an adverse and direct impact on all 5 of the primary revenue areas.
So, it could be thus said that both as a business and football club the Arsenal brand has suffered due to Wenger’s recent stewardship.
There is a virtuous circle in football that looks something like this:
Because Wenger is famously miserly, frugal or stubborn – call it what you want - in box 1 - he has forgone the chance to even start the virtuous circle really going in the last few years.
So crucially, a non-cup winning team is unable to maximise the revenue stream from; prize money, commercial sponsorship, broadcast revenue, tickets and even player sales.
In business and football, it’s goals that count – so here are those all important scores:
Proof that winning cups is good for the brand and the bank balance.
Chelsea earned €60m from winning the Champions League in 2012.
That’s €32m more than Arsenal - who didn’t even make it to the quarterfinals.
A successful team and brand will attract more lucrative sponsorship and merchandise contracts. Man Utd has 28 different sponsors – the top one being Chevrolet – which is worth a whopping $80m per year. Contrast that with Arsenal who has just signed a new deal with Emirates at a paltry £30m per year.
£57m a year less in sponsorship revenue is a big deal – forgone.
Player sales – Man Utd £80m: Arsenal £81m (but for 3 players!)
Football failure has lead to Arsenal’s stars constantly wanting to leave. Yes Wenger made a profit from the sale of Nasri, Fabregas and Van Persi – but these were all distress sales. Simply put, the £80m Man United got for Ronaldo from Real Madrid almost equalled the total sum earned from the sales of Arsenal’s 3 superstars Van Persie (£27m), Fabregas (£30m), Nasri (£24m).
In conventional business terms Wenger did not maximise the potential revenue he could have got for his prize assets – his players.
As the Arsenal brand gets more tarnished, in the absence of trophies and big stars, the margin achievable from each revenue stream will obviously fall. Empty seats at the Emirates are a visible sign of this happening already.
Wenger’s approach to business seems to be; “watch the pennies and the pounds look after themselves”.
However in a dynamic business sector, such as football, this cautious approach can be dysfunctional.
As with most other business models – spending or investing more in the brand – is actually the right business decision.
A bolder and longer-term vision – in terms of signing and retaining talent - could have thus delivered both a successful winning team and bigger financial rewards for the shareholders.
After all, on Wenger’s wages, he is not paid to be a diligent bookkeeper - but a great CEO – someone who is still capable of taking the business and brand forward.
And winning the game.