I’m  going to pass over quickly our two disappointing results in Oporto and on Teeside in the past few days. The loss to Porto means we’ll be away second in the round of sixteen in the New Year. We can get Panathinaikos (hopefully Athens will have calmed down by then if get them!), Barcelona, Juventus, Bayern Munich or Roma.
In the League, Villa have now overtaken us in fourth place with their 4-2 win over the Trotters. Next Sunday sees a mega six-pointer against Liverpool at the Grove. Another “must win” if we’re to have ANY chance of staying with the chasing pack. What’s saved us so far is that nobody has established consistent commanding form, exemplified by Liverpool, Yoonited and Chelsea all drawing along with us over the weekend.
United will have two games in hand after next round of games. They’ve still to play their outstanding fixture at the Cottage against Fulham, postponed due to the European Super Cup. They’re now off to Japan for the next week for the World Club Championship. They play Gamba Osaka in the semi-final on Thursday and will play either in the final (barring a REAL shock) or in the third/fourth place match, both next Sunday. Even if they win both their games in hand they’ll only come up alongside Liverpool on 38 points as things stand.
At some stage (surely) we’ve got to hit some consistent form. We certainly need to beat Villa in the Midlands on Boxing Day to keep with the chasing pack. A big ask on their current form. We shall see.
Onto the main topic of today’s blog. Is the fact that Sterling has gone down the gurgler since the summer (to the tune of around thirty percent against against the US Dollar and the Euro) going to affect Arsenal? Well the short answer would have to be a resounding “YES”.
The fall in the Pound will affect us in a number of ways. Firstly, it makes our salaries a LOT less attractive in Euro terms than they were. £50k a week equated to around €72.5k in the summer. Now it equals around €56k. To offer a player a basic salary of €72.5k a week will cost us £650,000 a year more than it would have done this past summer. And that’s just for one player! Ouch! Secondly it inflates transfer fees which are generally quoted and paid in US Dollars or Euros for international transfers. An offer of €10 million will cost us over £1.7 million more than it would have done just six months ago. Again, ouch!
The fall in the Pound also makes most of our foreign players’ salaries worth a lot less in their national currencies. All bar eight of our foreign players are nationals either of countries in the Eurozone or of countries using the CFA Franc (Communauté Financiére Africaine, or African Financial Community, a long-standing monetary union of fourteen mainly Francophone African countries). The CFA Franc is tied at a fixed exchange rate to the Euro. When the Euro rises against Sterling, so does the CFA Franc. Of the eight which aren’t (include Philippe Senderos, who looks like he’ll be back from his loan to Milan soon. Oh dear) the Pound has plummeted against their most of their national currencies too.
You’d like to think that reality will intrude into their thinking but I wouldn’t bank on it. Players and their agents live on Planet Football which has little to do with the real world.  It will make any offers they get from Eurozone clubs a lot more attractive. There is also a distinct possibility that some of our players may receive some or all of their salaries in Euros. This is lawful in Britain. It would be an obvious move to protect against just the kind of currency fluctuation we’re seeing at the moment to negotiate a contract to be paid wholly or partly in Euros. It’s what I’d recommend if I were representing a British player, never mind a foreign one.
The club does “hedge” against foreign exchange rate fluctuations, but this only “smooths out” the effect of Sterling’s nose-dive. Usually “hedge” contracts are for six months. A contract is signed to sell whatever currency at an agreed exchange rate against another currency at some time within that six months. Sometimes the date of sale is fixed. In our case, if Arsenal agreed to sell £1 million and buy Euros at an exchange rate of £1=€1.45 on a six month contract expiring on 31 December 2008, the club would get €1.45 million whereas if it wanted to buy that €1.45 million today that would cost a quarter of a million Pounds more at the current rate of £1=€1.16. Like all things financial it gets a lot more complicated than that, but that’s the basic principle. Essentially currency hedging buys time to adjust to a new exchange rate but it isn’t a permanent solution.
It also assumes that the financial institution with which the hedge contract was placed is still in business. Far from certain as all too many Gooners who were working in the City know to their cost.
IF any of our current players are paid wholly or partly in Euros then we’re going to feel the pinch fairly lively. Even if we don’t, our foreign players are going to notice a BIG difference whenever they go home. Mathieu Flamini and Alexandra Hleb bailed from Blighty at just the right time in terms of  their narrow financial interests. We’re also going to find it MUCH harder to compete with the big Eurozone clubs in Spain, Italy and even Germany than we did a few months ago.
There is SOME good news. We receive something like eight percent of our current income in Euros (we got €23.205 million from UEFA in central Champions League payments last season), BUT that income depends on us being in Europe and doing reasonably well. If we end up in the Europa League (which is what the UEFA Cup will be known as from next season) next term, that’ll be worth a lot less. If end up with no European games at all, we can all start weeping in our beer –  and not just for the obvious reason that it would mean we’d had a pretty ordinary season by the high standards of most of the last two decades under George Graham, Bruce Rioch (briefly) and Arsčne Wenger. I should think our chief bean counter will be looking for a window to dive out of.
There is SOME silver lining to the current economic and financial tsunami that’s washed up on our shores. The plunge in the exchange rate suddenly makes London a lot more attractive place for those with US Dollars, Yen, Euros, Swiss Francs or other strong currencies. That MIGHT make the remaining flats at Highbury a bit easier to move to foreign buyers. It’s where I’d be looking for buyers at the moment. Except of course just about every economy in the world is heading south as well,  so people are loath to spend money. Even the uber-wealthy are feeling the pinch. Roman Abramovich is apparently down to his last £5 billion, poor love. It’s certainly enough for him to have jammed the financial brakes on at Stamford Bridge.
It’s here that any silver lining is to be found. Yes we’ve got big debts, but they’ve been taken on in order to build our new ground, which generates comfortably more than the cost of paying off the debt. Liverpool’s debts are through the roof and nobody is going to lend them anymore anytime soon. Manchester United’s profits don’t come close to meeting their debt repayments and the debt mountain at Old Trafford grows every day.
On the continent, Valencia are in BIG trouble. They need to find €50 million LIVELY (over £43 million) by the end of the year, or they’re toast. A fire-sale of their best players is likely to take place in the transfer window. Barcelona’s gates have taken a nose-dive (well, relatively speaking).  The big Italian clubs are all deep in the financial brown and smelly.
We might all have had our doubts about Arsčne and the board not flashing the cash over the past few seasons. They might very well be proved to have been absolutely right for the long term health of our beloved club.
With many of the executive boxes up for renewal at the end of this season and the four-season Club centre-block season tickets expiring at the end of 2009/10 there are some big challenges ahead for us too, mind.  The bottom has fallen out of the corporate entertainment market as it always does in a recession and high net-worth individuals are suddenly a LOT more cautious. A BIG percentage of the money generated by the Grove comes from the two thousand seats in the boxes and the seven thousand in club. Over a third of the total ticket revenue I’d estimate.
One way and another, our new chief executive Ivan Gazidis is going to have a very full in-tray when he starts work in the New Year. Best of luck mate!
Keep the faith, my fellow Gooners.

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