Is Arsenal plc floating rudderless? and towards what I wonder?

Todays blog will attempt to analyse some of the issues raised by yesterday’s blog and many of the excellent comments contributed to that thread. We now have the unenviable spectacle of two major shareholders at loggerheads, each pursuing their own strategy, neither certain of the likely outcome. We have the Board apparently not able to offer real leadership, but allowing the club to used in a game of poker between these these two immensely rich individuals. The Board’s role is to ensure that the day to day running of the club continues without risk of insolvency, it is also to recommend to the shareholders the direction of the business plan in order to increase the value and success of the business. I argue that the failure of the Board to give sound reasons for rejecting a rights issue of any form leaves the Club rudderless floating towards the whirlpool of brinksmanship, in takeover terms.
People who have read my blogs should I hope agree that I have been consistent in my view that Arsenal Football Club should remain independent as a business entity, but sadly we have gone past that stage. Shares in a company that can be freely traded are always at the whim of those with the biggest pockets irrespective of percentages and timing. It is sad that in the absence of sound leadership from the Board that the current trading activity suggests that many smaller shareholders have decided to cash in…
Why is this?
If they had had good leadership from the Board, in suggesting that the sale of these shares to either Usmanov or Kroenke would damage the long term interests of the club, then I doubt very much that Usmanov would have succeeded in getting as far as he has. In fairness, The Board has found itself impaled upon the dagger of a worldwide recession, the fall in property values has exposed the soft underbelly of the strategy which seemed foolproof on paper yet so utterly fragile in reality. Let me say at once that no-one could have predicted the speed and depth of the credit crunch. Erudite Economists had been warning about the need for correction in the trading markets, but with assorted mega Business frauds and poor risk handling in the sub prime sector having destabilised the markets, the wheels of the Mammon vehicle have come off in a spectacular fashion.
What has paralysed the Board in preventing it from giving sound leadership? Perhaps the risks of legal litigation in a libel court was one of the constraints (vis a vis Usmanov’s alleged background), or maybe other factor being the unclear motives of its own directors on the board.
Let us look at the incentives for the share owning Directors
1. Keep the shares, without dividends and see oneself as a true Custodian of the club and pass the shares down through inheritance in perpetuity…
2. Keep the shares but realise their potential profit by using the internal market of selling and buying, but being careful not to trade a sufficient volume to suggest that one’s first love was of money rather than the club.
3. Keep the shares but lobby for the payment of dividends which would at least mean that the shareholding was delivering value for the investment committed. This might prove unpopular with fans, but it would reward the shareholders.
4. Keep the shares in the hope that a takeover will occur and then cash immediately in to realise their value.
5. Dispose of the shares to realise a profit, and leave the Club.
6. Sell the shares to someone who will in the future have more influence and control in the club whilst reassuring fans that this is in the best interests of the Club.
I would like to suggest IN MY OPINION, that certain trading behaviours by some of the Directors would enable me to think that they have one or more of the incentives outlined above. If the constitution of the company Arsenal plc requires that the Board presents its strategy using the consensus of the shareholders, and in the best interests of the club, it is obvious that the self sustaining model will benefit all. It will deter the shareholders from having to increase the capital of the company through a rights issue or any other means of “giving” funds to the club without increasing the indebtedness. The status quo appears to being used by various parties to jostle for position. The “ejection” of certain board members has only served to destabilise the internal workings of the club without demonstrating for what purpose the ejections served. Again there may be legal reasons why we do not know these facts, but the outcome has seen small Arsenal shareholders losing confidence. Combined perhaps with the desire to realise funds in the current economic climate, there seems to be no ceasing of the current trading patterns.
Have the Board again hidden behind the genius that is Arsene Wenger in order to avoid having to commit funds to the club, either by increasing the indebtedness of the club, or by a rights issue? or is it that Usmanov is playing a good game? I believe that he wants to minimise his losses for having paid over the odds for shares. this is what I meant by a cash grab. I think that if Kroenke were to offer to buy his shares tomorrow for eleven thousand a share, Usmanov would sell and go as per option 5. Danny Fiszman appears to want the best of both worlds as a tax exile and not be seen to have sold out the club. He may be staying only to ensure a smooth transferring of the the rudder to Kroenke.
Ivan Gazidis is the one individual who can now drag the Board into the modern business world. Keith Edelman was doing exactly the same but less diplomatically (in my opinion) But it seems that he will run out of time. Instead of pursuing the future interests of the club, he will be being distracted by trying to work out the next strategic moves of either Stan Kroenke or Alisher Usmanov. It is my opinion that Kroenke would be in favour of multishare ownership, but something has unsettled him. Could it be that Usmanov’s referral of the Kroenke/Fiszman share dealings to the Takeover panel was seen as an act of war by Kroenke? In any case we all as fans seem powerless to influence what will happen next. This is why I describe the Board as lacking in Leadership. If we do not have enough funds to compete in the transfer market, should we at least be honest about this and reduce the expectations of fans? The risks are that we will reduce the incentive for business to sponsor or invest in marketing initiatives connected with the club.
Could we as fans have a choice?
Should we accept that businessmen need to make money and perhaps we should swallow hard and accept the payment of dividends, this might reduce the pressure or fear of missing out on the value of a shareholding. However this money would be sucked out of the club, and reduce still further the budget for players etc…
Should we accept that having shares listed in a public company, means that any Billionaire with deep enough pockets could make an offer to the Board, and then we as fans would either have to accept the harsh reality or battle against it.
Should we demand that the ownership of the club be like the co-operative Barcelona model. With all fans owning the club. In order to do this, the existing shareholders would have to be bought out… not a small price by any means. We can make demands of the Board, but without the muscle of a large shareholding, we are powerless to be able to influence them.
So in conclusion…
I believe that the lack of Leadership and at times the somersaulting of the direction of strategy of the Board has contributed to the current mess that we find ourselves in. But there remain questions that need to be answered…
Why has Mr Kroenke has failed to pay for all of hi s acquisitions in hard cash? (and should we trust his intentions?)
What is the true motive of Alisher Usmanov? Should we regard the “rights issue” proposal of Usmanov, which has proven an excellent strategy, as a means to present himself as a true supporter of the Club, or negatively as a means of increasing his personal shareholding by underwriting the issue…?
(Either way, I believe that we are past the point of no return. There will be now be a takeover, whether we like it or not…)
Will Lady Nina’s shares decide whether the takeover is more or less bloody? (If she sells to Kroenke, she may be rehabilitated in the eyes of all fans, if she sells to Usmanov, then she will go down in the annals of the club history as a traitor, if she stays put… she will be a true custodian, but not having had the opportunity to realise some of the value of her shares.)
It is my view that the ownership of Arsenal Football is is being used in a mysterious game of poker, and I don’t like that…

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