Arsènal (33 page)

One of Edelman's major projects – to turn the old stadium into the Highbury Square residential apartments – has flattered to deceive. In the view of many, too much time and effort was taken up on property rather than football. Worse, it gradually became apparent that the huge surplus – profits of £100 million were initially bandied about – was wishful thinking as the economy faltered. “Keith had a quick mind,” recalls Antony Spencer, “but sometimes too quick for his own good. He wanted to do things his way.” A case in point was one part of the development which became a sticking point because Edelman wanted to break with precedent and go about it in a different fashion. He was so adamant it had to be done his way that it took the intervention of Danny Fiszman to return to the tried and trusted policy.

Danny Fiszman had put his heart and soul into making the Emirates a reality, and was second only to Arsène Wenger in transforming Arsenal from the underperforming football club it had been before his arrival. Peter Hill-Wood concurred, “I can't describe the effort and time that Danny put in. It was seven years overall and we'd never have done it without him, and he's not a man with a big ego.” And Ken Friar adds his own compliments. “Danny is one of the best things that ever happened to the club,” he believes, “and a very genuine Arsenal supporter. He's very intelligent, gets on well with people, is a good negotiator, and he's been a big, big benefit to us. He's not one of those who wants to be upfront everywhere and not a man wanting to be on committees.”

Testament to Fiszman's unassuming nature was a conversation he had with an acquaintance as they entered the directors' box together.

“What a terrific sight,” said the acquaintance, surveying a full stadium with the teams about to kick off.

“Not bad, is it?” was the understated reply.

“You should stay around and enjoy it.”

“I intend to,” said Fiszman pointedly.

“Well as long as you do, Arsenal will be in good hands.”

“That's sweet of you to say so,” said Fiszman.

But even if he was in for the long term, he decided now was a good time to share the burden and divvy up his stake. How much the uncertainty regarding the large shareholding on the outside played any part in the decision of Fiszman to transfer, in the spring of 2009, a third of his shares to Stan Kroenke is not known, but the outcome unquestionably pointed to a future in which the American would play a more active role, if only to safeguard his multi-million pound investment. After paying £42.5 million – the shares were valued at £8,500 each – in one fell swoop Kroenke became the largest shareholder on the board with a 20 per cent stake. The arrangement over the transferred shares was rather an odd one, as no money changed hands even though Kroenke now had the voting rights attached to them, and became the director with the most shares. Effectively, Kroenke owed Fiszman £42.5 million (Kroenke probably could have afforded to pay Fiszman immediately but perhaps he was accommodating the seller with regard to tax implications at the end of the financial year).

Curiously the new power shift reflected the arrangement that Fiszman had with David Dein during the 1990s, although then the boot was on the other foot. Over time, Fiszman had filtered money through to Dein for shares they initially joint-owned, and thereby built up his stake. If the shares transferred in 2009 were totally under Kroenke's control, the indications are that Fiszman has total confidence in his colleague, stating that his “greater involvement will be in the best interests of everyone involved in the club”. It was a view backed up by Gazidis: “This is somebody [Kroenke] that shares the same philosophy as the [other members of the] current Board,” although he hinted that change might be in the air when he added, “and will be influential as we go forward”.

But only if Danny Fiszman permits it? Previously, despite owning only a quarter of the club, the pride of place held by the stadium project presented Fiszman with a whip hand, which on occasion he deployed resolutely. After Geoffrey Klass had been instrumental in bringing in Antony Spencer and Fiszman understood the prospects for the site, Klass was brusquely told “Thank you Geoffrey, but you are no longer involved,” presumably because of his friendship with David Dein. Dein's opposition to Ashburton Grove was an irreducible black mark in Fiszman's book, and apparently so was Lady Nina's wish for more involvement (from day one she felt she had never been made welcome, tolerated rather than embraced). So it augured well for the stability of the club that at this point in 2009 the two directors with the largest shareholding appeared to be acting in tandem regarding how the club should be run.

Pointedly, before the deal with Fiszman, Kroenke had been picking up odd shares on the open market (which he belatedly disclosed, presumably initially unaware that the Stock Exchange had to be informed). At the time there was uncertainty as to whether he had ambitions to strengthen his hand in the hope of one day taking control himself or that he felt the club represented a good investment which he could recoup with interest in the event of a future takeover bid. The reasoning became much clearer in April, a month after the exchange with Fiszman, when it was announced that Kroenke had bought out the Carr family's shares at between £8,500 and £10,500 per share, the higher price reflecting the inherent power attached to them. The purchase from a combination of Richard Carr, Lady Sarah Phipps-Bagge and Clive Carr raised the American's share of the club to 28.3 per cent. As with the transfer of shares from Fiszman, no money actually changed hands at the time. Kroenke and Fiszman now had an amalgamated holding of over 44 per cent, so that even if Alisher Usmanov's Red and White Holdings attempted to combine with the other disaffected shareholder, Lady Nina Bracewell-Smith, they could now only muster 41 per cent. The prospect of overthrowing the board was killed stone dead by the deal. The Carrs had shown fidelity to the existing hierarchy, leaving Lady Nina and Usmanov – even if they did want to combine forces – effectively powerless in spite of the size of their respective holdings.

Kroenke and Fiszman had cleverly managed the situation whereby they could ensure the board retained control without either man being forced to make a mandatory takeover bid that a 30 per cent stake would entail. The takeover panel at the Stock Exchange were asked to investigate the notion that the pair were acting in concert to the detriment of other shareholders and should be forced to bid for the entire company, with the payoff that both Usmanov and Lady Nina would then be able to cash in their chips at £10,500 a share (the highest price paid for a share in the previous 12 months, which any takeover buyer would be obliged to pay under Stock Exchange rules). By reason of acquiring the Carrs' shares, Kroenke became the main man at the club and there was speculation amongst knowledgeable outsiders that this was the intended outcome ever since talks began about inviting him onto the board. Although no one would confess to such Machiavellian planning, the pieces of the jigsaw fell into place and completed a picture (with the happy co-incidence of Ivan Gazidis as the new CEO) that left two very substantial shareholders – Alisher Usmanov and Lady Nina Bracewell-Smith – on the outside looking in.

Having originally been welcomed to the inner sanctum so that the powers that be could keep an eye on her, if the intention all along was for Kroenke to control a dominant stake, Lady Nina had become expendable, as long as the cooperation of the Carr family was maintained. Richard Carr's departure from the board when Lady Nina was forced out may have led her to believe he was unhappy with events and would remain loyal to her. Anything but. On learning the Carrs had sold out, she felt betrayed. “I had no idea they were going to do this,” she revealed. “And they've still got all their seats in the directors' box, whilst I have nothing.” The Carrs played the game and played it well, both cashing in and retaining their matchday privileges. If Lady Nina had accepted that she was fighting a battle she could not win, then she too could have remained a luminary.

The bottom line is that she was never taken credibly as a director but was endured as long as it suited. She was justified though in her acrimonious feelings. She had remained faithful to the Carrs and the board by refusing to sell to both Kroenke and Usmanov. Two years after rejecting the American, the tables were turned and no loyalty had been shown in return. Once her stake was the key to who held power. Now it only had a cash value. She felt she had been “deserted” by her husband's family, who sold out to make Stan Kroenke the key man at Arsenal.

Danny Fiszman's own position remained unbreachable. The 16 per cent he retained ensured he would remain as influential as he needed to be. He had replaced Lady Nina in holding the key to power, as his alliance with Kroenke determined the club's future. The only way Kroenke could act without Fiszman's blessing was to make a takeover bid himself. Why bother if the two men were comfortable with each other? The irony was that Fiszman was effectively handing the reins over to a man who had been brought into the fold by David Dein. So much had changed in two years.

Kroenke may have been encouraged in his actions by the interim accounts for the six months to 30th November 2008 that the club had released a few weeks before the transfer of a third of Fiszman's shares. They demonstrated a sustained growth in a difficult climate even though most of the revenue had been attained before the recession really began to bite. Turnover increased by 10 per cent to over £98 million as a result of more matchdays and higher ticket prices for season 2008/09 and higher broadcast fees including a beneficial €/£ exchange rate on Champions League income. Football operating profits (before debt service costs) also rose as Arsène Wenger's expertise in player trading again proved very profitable. Sales of Alex Hleb to Barcelona and Justin Hoyte to Middlesbrough as well as sell-on fees for players who had previously left the club and been subsequently transferred again, such as David Bentley who moved from Blackburn to Tottenham, netted Arsenal several million pounds.

Football costs – primarily the players' salaries – are exorbitant, perhaps surprisingly so considering the ages of so many in the first team squad, although with a wages-to-turnover ratio of around 50 per cent (way below the Premier League average of 62 per cent) are perfectly manageable as long as Arsenal continue to play before a sell-out crowd and qualify for the Champions League (the penalty for failing to do so could amount to as much as £40 million from lost broadcast and matchday revenue) as they have done for the past 11 years. The demand for season tickets and premium seats (boxes, Diamond Club and Club Level) will be severely tested prior to the 2009/10 season, despite renewal prices being the same as 12 months ago, after another year without a trophy. Any fall-off from the premium sector (box holders and Club Level season ticket holders) will be particularly painful as it rivals the Champions League as a revenue stream. Now the veracity of the waiting lists – over 40,000 for ordinary season tickets according to the club in 2008 – will be exposed.

Rather than loan out a quarter of the playing staff with a short-term cost saving as a result, perhaps it should be trimmed permanently. Certainly UEFA feels it is unreasonable to have over 50 players on the books, when 25 can cope with a season-long Champions League campaign. Because of the squad size and with player wages rising faster than club income (wages in the Premier League exceeded £1 billion for the first time in 2007/08), it is revealing that the bill is now 50 per cent higher than the last time Arsenal won a trophy. And then Arsenal had the quality of the likes of Henry, Vieira, Pires, Campbell, Bergkamp and Ljungberg in the ranks.

Whilst not reflecting what David Dein termed “the black hole that is Highbury Square”, Dein's assertion that the club ‘should have stuck to what they know' (ie football matters), whilst made with the benefit of hindsight, rings true. The construction of the Highbury Square apartments continued apace and in the autumn of 2008 over 90 per cent were ready for completion to buyers who had already parted with deposits of 10 per cent. However, the mortgage market had collapsed. Many were unable to find a lender in order to complete their purchase and some were actually pulling out and forfeiting their deposits rather than completing, so dramatically had the housing market changed. By the end of November 2008, 595 of the 680 units had been sold, but only 186 were fully paid up. Arsenal had a £140 million loan taken out to construct the flats, due for repayment by April 2010. At least any future building costs were covered so each completed sale went towards reducing the outstanding debt. Unfortunately, they just weren't happening quickly enough.

So naturally the club sought to extend their credit facility. However, the cost of buying some breathing space and time for the property market to recover would be further interest charges, putting extra pressure on the manager and players to achieve success. The bottom line was that around a further 340 of the 409 pre-sold units would need to be completed before any profit would be seen. And there wasn't much interest in the 85 that were still unreserved at the asking prices. Anyone who could actually manage to find a mortgage might be better off buying one of the myriad other properties in the area that appeared to offer better value.

Peter Hill-Wood could not foresee a prosperous outcome to the situation, admitting, “I said a year ago if we made a profit from the property side it would be a bonus. Many people I suspect will find that some of their financial projections have not quite worked out in the way they thought they would and we're certainly one of those.” He continued, “The property side would be much more fun if it was working well. It's annoying. It's a wonderful development and it'll sell like crazy one day, but we're in 2009. It's tough and we're selling a few flats. It would have been very nice to have extra profit there but we're not going to have that. It's not something that impacts on the running of the football club at all which we've stressed many times.” But generating extra cash for the football club now appears a distant proposition. Certainly the chairman's statement of 2008 that a revenue of circa £350 million (and a profit of perhaps £100 million) could be expected now appears wildly optimistic. “Sitting here today if we had sold the whole bloody thing three or four years ago and taken a one-off payment of X million that would look very clever. When we decided not to do that we looked at all the downsides other than the current downside – which has taken not only us but everybody else by surprise.”