Tuesday, February 28, 2012

Arsenal's Mystery Dance

So North London remains red after Arsenal put Spurs to the sword with a scintillating comeback in a memorable derby. This was a performance to give hope to the club’s long-suffering supporters, who have endured a troubled season to date, as the Gunners have misfired on all too many occasions.

There is still much to play for, as the victory over their neighbours took Arsenal back into the top four, so they still have a chance of maintaining their remarkable record of qualifying for the Champions League for 14 consecutive seasons. However, barring a miraculous comeback against Milan in the last 16 of that tournament, it will be the seventh year without a trophy – a poor return for a club of Arsenal’s plentiful resources.

Although there have been signs of promise, it is fair to say that overall this has been one of the worst seasons in recent memory for Arsenal. Eliminated from the Carling Cup by Manchester City and (less understandably) from the FA Cup by Sunderland, they are currently a massive 17 points behind the leaders in the Premier League and (whispers) seven points behind Spurs.

"Ground control to Major Tom"

They have already suffered eight defeats in the league, most painfully a humiliating 8-2 drubbing by Manchester United, but also including losses to lesser lights like Blackburn Rovers, Fulham and Swansea. The inconsistency has been maddening, because at times they have demonstrated their potential, notably during a thrilling 5-3 away win against Chelsea and a 7-1 demolition of Blackburn in the return match.

Much of the blame for the uneven displays can be laid at the feet of last summer’s activity in the transfer market, when they lost two of the club’s best players, Cesc Fàbregas and Samir Nasri, and replaced them with inferior talents. The problem was exacerbated by the protracted discussion around these movements, so that the numerous arrivals in the latter stages of the transfer window resembled football’s version of a supermarket sweep, rather than any form of coherent strategy.

Even though the likes of Mikel Arteta, Yossi Benayoun, Per Mertesacker, Gervinho, André Santos have all had their moments, none of the new purchases are really the type of player to take Arsenal to the next level – with the possible exception of the gifted Alex Oxlade-Chamberlain, who is one for the future. Certainly, they do not raise the pulse rate like Mario Götze, Eden Hazard or Juan Mata, who were all mentioned in dispatches as possible buys.

"Money in the bank"

Even Arsène Wenger admitted that last summer was one of his worst periods as a manager with his plans badly affected by players leaving for the first time just as they were reaching maturity, though he argued that some of the last minute buys were also necessary due to the injuries suffered by Jack Wilshere, Thomas Vermaelen, Abou Diaby and Kieron Gibbs (though the latter two could hardly have come as a great surprise).

Despite all the new signings, Arsenal yet again managed to make money on the transfer comings and goings, something that is difficult for most fans to understand, given the strength of the balance sheet. As they see it, while the squad weakens, the club’s finances continue to prosper. Worse than that, the executive management seem to be in a state of denial, as shown when chief executive Ivan Gazidis claimed that Manchester City would love to be in Arsenal’s position. This seemed a foolish pronouncement at the time, but Gazidis must have cringed as the reversals at Milan and Sunderland nailed that bizarre claim in a few short days.

Eyebrows were further raised when the club proudly announced a thumping great profit of £49.5m for the interim accounts (covering the six months up to 30 November 2011), which was £55.6 million better than the £6.1 million loss reported a year ago, though all of the improvement was effectively due to the significantly higher profit on player sales, which increased by £59 million from £4 million to £63 million (primarily Fàbregas, Nasri and Gaël Clichy).

Although turnover from football was up an impressive 16% (or £16 million) from £98 million to £114 million, this growth was eaten up by an increase in squad investment with wages up £8 million and player amortisation £7 million higher.

As anticipated, there was a slow-down in the property business, where revenue dropped £19 million to £3 million, though the reduction in profit was much smaller – from £3.3 million to £0.6 million.

It should be noted that much of the revenue growth is down to timing, e.g. the increase in match day revenue is mainly due to four more home games being played than the same period last year. Assuming that Milan complete the Italian job in the Champions League, then the difference for the full year will be only one match. Furthermore, not all of a football club’s business is evenly phased, so half-year results can be a little misleading. That is why much of the rest of this analysis will rely on the annual trends to glean some insight into what is happening at Arsenal.

What we can say is that these excellent half-year results continued a record of financial success that is the envy of most other club chairman. Even though the annual profit before tax fell from an amazing £56 million in 2010 to £15 million in 2011, that is still a very impressive figure for a football club. Arsenal’s expertise can be evidenced by two great statistics: (a) the last time that they reported a loss was way back in 2002; (b) in the last four years alone, they have accumulated staggering profits of £153 million.

This sort of business prowess is very much the exception to the norm in the highly demanding world of football, e.g. in 2010 only four clubs in the Premier League were profitable. However, Arsenal’s willingness to swim against the tide is perhaps best shown by comparing their financials against the leading clubs over the last two seasons.

At one end of the spectrum, we have Arsenal’s £71 million of profits, which is in stark contrast to the enormous losses at Manchester City (£319 million) and Chelsea (£137 million). Liverpool have not yet reported for 2011, but made a notable loss of £20 million in 2010, while even the fiscally prudent Tottenham registered losses of £6 million. Only Manchester United joined Arsenal in being profitable, as their ability to generate cash more than compensated for their hefty interest payments in 2011 (though they still made a loss in 2010).

All well and good so far, but this is by no means the whole story at Arsenal, as their profits have been very reliant on property development and player sales. In these interims, there was little impact from property development, but without the £63 million profit on player sales, the football club would actually have made a sizeable loss of £14 million, including an operating loss of £7 million.

In the annual results for 2011, property played a larger role, providing the vast majority (£13 million) of the total £15 million profit with only £2 million coming from the football business. Furthermore, if the £6.3 million made from player sales is excluded, the club made a £4 million loss in the football segment. Even the enormous £56 million 2010 profit would only have been £7 million without £11 million property gains and £38 million player sales.

This is concerning, as property gains will come to an end at some stage, while Arsenal would not wish to be seen as a selling club, even though this has been a major reason for their recent profits, e.g. £94 million (or over 60%) of the £153 million made in the last four years. That’s good business, but it makes it hard to build a winning team.

Incidentally, the graph above also supports Wenger’s mysterious quote about the club having to make £15 million profit each season, as this covers the annual interest payable. As the great man said, “We want to pay the debt back from building the stadium and that’s around £15 million, so it’s normal that at the start we have to make £15 million or we lose money.”

"Private Universe"

Although the property development at Highbury Square has not proved to be as lucrative as originally hoped, due to the market crash, it has generated money for the football club. This peaked in 2010, when revenue was boosted to the tune of £157 million, though the profit contributed was “only” £11 million.

Only a few apartments still remain to be sold, but there are other substantial developments at Queensland Road, Hornsey Road and Holloway Road, which should deliver additional cash, as noted by Gazidis, “Our property business is debt-free, so any new sales of property do accumulate cash, which is very positive for the future.” This could be worth up to £35 million according to an estimate made by the respected Arsenal Supporters’ Trust (AST), though is only likely to be booked in the 2012/13 accounts at the earliest.

So, to cut a long story short (as Spandau Ballet once said), Arsenal's financial performance has undoubtedly been impressive, especially compared to almost every other football club, but they face more challenges than would seem apparent on first glance.

"Meet the new Kos"

There are numerous questions that could be asked, but let’s restrict ourselves (Guardian style) to five that would probably concern most fans (at least those with an interest in matters off the pitch):

1. Where will the revenue growth come from?

2. What happens if Arsenal fail to qualify for the Champions League?

3. How much is Arsenal’s transfer budget?

4. How can the wage bill be so large?

5. Where has all the money gone?

1. Where will revenue growth come from?

On the face of it, Arsenal do not have a revenue problem, as they enjoy the fifth highest revenue in Europe according to the Deloitte Money League. In England, it is only surpassed by Manchester United’s £331 million and is way ahead of Liverpool £184 million, Tottenham £164 million and Manchester City £153 million.

However, the problem is that the gap to the top four clubs is widening, though that is partly due to exchange rate movements. The Spanish giants, Real Madrid and Barcelona, generate around £200 million more than Arsenal at £433 million and £407 million respectively. Similarly, Manchester United earn over £100 million more with £331 million, while Bayern Munich’s revenue of £290 million is a handy £60 million higher.

It’s difficult to compete with these clubs with such a financial disadvantage, especially if you consider that they receive the benefit of that substantial additional revenue every single season.

The reality is that Arsenal’s revenue has been essentially flat over the last three seasons at around £225 million, while other clubs continue to grow their business. In that period, Manchester United, Tottenham and Manchester City have all added more than £50 million income, while Chelsea have also earned an additional £19 million. Of the top six, the only club to have under-performed like Arsenal is Liverpool – and even they have actually delivered impressive commercial gains to compensate for the loss of Champions League football.

Why does this matter? Let Gazidis explain: “It is important to remember our business goal is to increase revenues for ongoing investment in the team.” That’s very true, so it is pleasing to see some revenue growth in the interims, though as we have seen, much of that is purely down to timing.

On a full year basis, Arsenal’s only revenue growth since 2009 has come from broadcasting, which rose £12 million from £73 million to £85 million in 2011, as a result of centrally negotiated deals by the Premier League and UEFA (for the Champions League), so Arsenal’s board cannot really take any credit for that.

Both of the other revenue categories have declined, most notably match day income from £100 million to £93 million, though this should rise in 2011/12, partly due to the price increase on tickets, partly due to an extra game. Commercial income has also fallen since 2009 by £2 million to £48 million, though there are some signs in the interims of the famous five-year plan beginning to deliver, as this surged 15% (£3.4 million) from £23.1 million to £26.6 million. However, this is still a fairly low return on the substantial investment in the commercial team.

As a technical aside, the 2011 revenue of £225.4 million in my analysis above is slightly lower than the £226.8 million used by Deloitte, as they include the joint venture turnover of £2.2 million, but exclude player loans of £0.7 million.

So, the TV money was helped by the new three-year Premier League TV deal that commenced in 2010 which meant that Arsenal’s share of the central distribution rose £4 million to £56 million, even though they dropped a place to fourth, which was almost entirely due to the substantial increase in overseas rights.

Each club gets an equal share of 50% of the domestic rights (£13.8 million) and 100% of the overseas rights (£17.9 million). However, facility fees (25% of domestic rights) depend on how many times each club is broadcast live with £11.6 million for Arsenal, based on 22 games. Finally, merit payments (25% of domestic rights) are worth £0.8 million per place in the league table, giving £12.9 million to Arsenal.

In other words, if Arsenal were to fall out of the top four, they would receive a smaller merit payment and probably lower facility fees, as they might be deemed less attractive and not be televised so often. However, this would not damage them too much financially, e.g. Tottenham received only £3 million less than Arsenal when they finished fifth in 2010/11. Similarly, the additional prize money earned for winning the Premier League would not be that great – though it would be a trophy…

Match day income should increase by around £4 million following the 6.5% increase in ticket prices for the 2011/12 season, but this revenue stream is reaching saturation point, as Arsenal continue to register capacity crowds of 60,000 (the seventh largest in Europe) and their ticket prices are among the highest in the world, though comparisons are difficult, as they include the first seven cup games from European competition and the FA Cup.

In 2010/11 this generated £3.3 million a game, lower than the previous season due to a less favourable mix of matches (2 fewer in the Champions League). Nevertheless, total match day income of £93 million was the fourth highest in the Money League, only behind Real Madrid, Manchester United and Barcelona. In fact, Arsenal is the only club in the Money League where match day provides the largest proportion of total revenue.

Therefore, it was perhaps no great shock that the club announced a price freeze on General Admission season ticket renewals for next season, though the 7,000 Club Level members were not so fortunate, as they have been asked to pay an additional 2%, which is a strange move, as it will only bring in an additional £1 million. Although the club is at pains to emphasise that they have held season ticket prices flat in four of the last six seasons, that is not that powerful a justification, given the high starting point.

One issue that may yet adversely affect revenue is if the club issues credits should the team not qualify for Europe or even if the fare on offer is the inferior Europa League. Indeed, some might argue that the revenue risks here are on the downside. A combination of a less successful team, allied with a more functional brand of football and the effects of the economic crisis mean that some fans may opt out, a fact acknowledged by Wenger, “The stadiums will be less quickly full and we have noticed that already.”

Given the limited growth potential of match day income and TV revenue from the Premier League (in the short term), it is imperative that Arsenal significantly increase their commercial income, which is extremely low for a club of Arsenal’s stature. In 2010/11, their revenue of £46 million in this category was dwarfed by the likes of Bayern Munich £161 million, Real Madrid £156 million, Barcelona £141 million and Manchester United £103 million.

Arsenal’s weakness in this area arises from the fact they had to tie themselves into long-term deals to provide security for the stadium financing, which arguably made sense at the time, but recent deals by other clubs have highlighted how much money Arsenal leave on the table every season.

The Emirates deal was worth £90 million, covering 15 years of stadium naming rights (£42 million) running until 2020/21 and 8 years of shirt sponsorship (£48 million) until 2014. Following step-ups the shirt sponsorship deal is worth £5.5 million a season, which compares very unfavourably to the £20 million earned by Liverpool from Standard Chartered, Manchester United from Aon and (reportedly) Manchester City from Etihad. Even Tottenham (one whole season in the Champions League) now earn £12.5 million a season from shirt sponsorship (Auresma £10 million plus Investec £2.5 million).

The news is no better with Arsenal’s kit supplier, where the club signed a 7-year deal with Nike until 2011, which was then extended by three years until 2014. This now delivers £8 million a season, compared to the £25 million deal recently announced by Liverpool with Warrior Sports and the £25.4 million paid to Manchester United by Nike.

Arsenal have restructured their executive team at great expense, recruiting Tom Fox from the NBA in August 2009 as Commercial Director to “drive long-term commercial success”, though there has been little tangible revenue growth to date. In fairness, it is probably difficult to re-negotiate the principal agreements (though Chelsea did just that with their kit supplier in 2005), but we might have hoped for more secondary sponsors, which has been the main engine behind Manchester United’s commercial growth.

As we have seen, there were some encouraging signs in the interims, but there is still a long way to go, as annualised revenue is still only £53 million. Some new sponsors have been signed up recently, including Carlsberg at around £3 million a year and Indesit in a “multi-million” deal. In addition, Citroen extended their deal for a higher sum, while there were new agreements with Thomas Cook, replacing Thompson Sport, and on-line gambling firm Betsson. However, Arsenal still have less than half the number of sponsors that partner with Manchester United.

"When will I see you again?"

Arsenal made their first long-distance pre-season tour in 12 years to Malaysia and China, which helped fill their coffers, but may have adversely impacted the players’ fitness, contributing to the poorest start of the season in living memory. Nevertheless, there are plans to take on even more this summer with a tour of three Asian capitals (Seoul, Beijing and Hong Kong) as well as a trip to Nigeria.

On the bright side, when the main sponsorship deals are up for renewal in 2014, Arsenal will have a fantastic opportunity to significantly increase their revenue by up to £30 million per annum. However, here’s the thing: there is a danger that if the team continues to be unsuccessful and maybe even drops out of the Champions League, the club’s bargaining position will be correspondingly weaker. That said, Liverpool have managed to sign superb deals, even though they are in the same boat (though some might argue that they have a stronger brand).

2. What happens if Arsenal fail to qualify for the Champions League?

There is no doubt that competing in the Champions League can make a big difference, as can be seen by looking at the TV money received by the leading English clubs last season, where the advantage enjoyed by those teams participating in Europe’s flagship tournament is clearly evident.

In the past, Gazidis has claimed that Arsenal “have got a really stable model that could not just cope, but do well and compete” if Arsenal do not qualify, while Wenger has said that a season without the Champions League would be a “catastrophe” and a “disaster”, so who’s right?

The AST pressed the panic button when they suggested that this would cost the club around £45 million in lost revenue, which might conceivably make them “the first club to fail to meet Financial Fair Play rules.” This would be the height of irony for a club often held up as paragons of virtue by UEFA president Michel Platini.

Although the AST said they would provide a detailed assessment of this figure, in fact they only listed £27 million (€30 million) for money paid out by UEFA for participation and prize money (based on the 2010/11 distribution) with the remaining £18 million presumably coming from the “impact on premium seat sales and season tickets”, which would represent virtually a 20% reduction in match day income. That might be unduly pessimistic, especially if Arsenal were to compete in the Europa League, though it would be interesting to see what the club would do to season ticket prices in this eventuality.

Admittedly, the prize money for Europe’s junior competition is a lot less, e.g. last season the two English representatives, Manchester City and Liverpool, each earned just €6 million for reaching the last 16, while the highest pay-out was only €9 million.

Sharp-eyed observers will have noted that the allocation for the TV pool varies significantly among English clubs (Chelsea €27 million, Manchester United €25.9 million, Arsenal €16.6 million and Tottenham €14.4 million). This is because of the methodology used to allocate this element, whereby: (a) Half depends on the position that the club finished in the previous season’s Premier League with the team coming first receiving 40%, second 30%, third 20% and fourth 10%. As Arsenal finished third in the 2009/10 Premier League, they received half as much as Chelsea. (b) Half depends on the progress in the current season’s Champions League, which is based on the number of games played. So Arsenal received the least, as they only reached the last 16.

In other words, success has a direct impact on the amount of money received. If Arsenal were to qualify for the Champions League by finishing fourth, that would obviously be beneficial, but they would not receive as much as the teams finishing above them. Of course, fourth place has other unhappy implications. Not only is there potential for an awkward qualifying match at an inconvenient stage of the club’s preparation (like Udinese this season), but also there is a suspicion that this will impinge on transfer activity, as the budget might depend on the outcome of that tie.

Naturally, the other downside of failure to qualify is that it makes it more difficult to retain players of the calibre of Robin Van Persie and to attract the big names that would make Arsenal genuine challengers for honours.

As for Arsenal struggling to meet FFP, that seems very dubious to me. Even if the revenue were to fall by £45 million, this would be accompanied by cost reductions, e.g. hosting games, travel and performance bonuses. There is also plenty of room to manoeuvre in the wage bill, but that may not even be necessary because of the “healthy” costs that UEFA exclude in their break-even calculation.

In the 2010/11 annual accounts, this amounted to £38 million, consisting of expenditure on youth development and community (estimated at £10 million and £1 million respectively), interest on the stadium loan (£14 million) and depreciation of tangible assets (£12 million).

Once those expenses are added back to the football profit of £2 million (the £13 million profit from property development is also excluded), we have an FFP profit of £40 million, which should be ample to cope with a Champions League shortfall. That said, the annual cost base is likely to increase by around £20 million following the rise in wages and player amortisation, though much of this will be covered by revenue growth (excluding Champions League). On the other hand, 2010/11 had relatively low profit on player sales of £6 million.

If this is insufficient, then it should be noted that clubs will be allowed to absorb aggregate losses (“acceptable deviations”) of €45 million (around £38 million), initially over two years for the first monitoring period in 2013/14 and then over three years, as long as they are willing to cover the deficit by making equity contributions. The maximum permitted loss then falls to €30 million from 2015/16 and will be further reduced from 2018/19 (to an unspecified amount).

If that is not enough, there is a clause in the small print of the FFP regulations (Annex XI) that allows for the wages of players signed before June 2010 to be excluded from the calculation, assuming their contracts have not been extended after that date, so long as the club is reporting a positive trend in the annual break-even results.

3. How much is Arsenal’s transfer budget?

This question is partially driven by Arsenal’s parsimony in the transfer market, where they are the only leading club that has been a net seller over the last five years to the tune of £33 million. As Gazidis stated recently, “We’re about creating star players, not about buying them.” Manchester City’s net spend of £431 million is more than the other five clubs combined, but Chelsea have also splashed out £160 million. In comparison, Manchester United, Tottenham and Liverpool have been relatively frugal, though their spend is at least £80 million more than Arsenal.

However, Arsenal did spend a fair bit in the summer: £53 million according to Transfer League, including £12 million on Oxlade-Chamberlain, £11 million on Gervinho, £10 million for Arteta, £10 million for Mertesacker and £6 million for Santos. The interims state that the club actually invested £75 million in the acquisition of new players, including “to a lesser extent” improved contracts for some existing players, suggesting either that the fees were higher than reported and/or additional payments were made to agents or to players as loyalty/re-signing fees.

"Like a Song"

In terms of how much money is now available, the noises coming out of the club are a little contradictory. After last summer, Gazidis said, “We deliberately kept some powder dry… There are funds available to invest in a significant way in January and next summer.” He was backed up by the owner, Stan Kroenke, who defended Arsenal’s lack of spending thus, “It wasn’t because the money wasn’t there. We have the money.” However, Wenger said last week that it was not true that he had £50 million available, as estimated by many analysts including the AST and yours truly.

That is the amount available in cash, though to an extent that is not really meaningful, as most transfers are funded via stage payments, e.g. Arsenal are currently owed £19 million by other clubs, but in turn owe others £23 million, so all the transfer money is not needed upfront.

Furthermore, Arsenal’s strong balance sheet would allow them to take on some additional debt, especially as this could be supported by the cash still to come from property development.

Some may be concerned that Arsenal’s cash balances have fallen £45 million from £160 million to £115 million in the last six months, but that is partly because of the seasonal nature of cash flows during the year, e.g. the balance is invariably higher in May than November, due to the influx of season ticket money. A more pertinent comparison would be November 2010, when the cash balance was £110 million. In other words, the underlying trend remains upwards.

The other point that people often raise when discussing the transfer fund is that it would also have to fund a new signing’s wages, so if the club bought a player for £25 million on a five-year contract at £100,000 a week, that would represent a commitment of £50 million. That is undoubtedly true, but it is a little disingenuous, as it ignores the fact that this would be at least partially offset by the departure of an existing player, not least because of the limitations imposed by the rules on squad size and non-homegrown players.

4. How can the wage bill be so large?

When we talk about the transfer policy, that effectively also covers the wages policy, for these are two sides of the same coin at Arsenal with Wenger controlling an overall budget for transfers and wages. In particular, Wenger has admitted that Arsenal cannot afford to follow a policy that involves both high transfers and high wages.

This is important, as Arsenal’s wage bill is one of the highest in the country at £124 million, though it is a fair way below Manchester City £174 million, Chelsea £168 million and Manchester United £153 million. Note: given the performance-related bonus payments included in United’s figure, the fundamental difference is much smaller. On this basis, Arsenal’s performance in regularly finishing third or fourth in the Premier League could be considered slightly better than par for the course. Some might point out at this stage that Tottenham are ahead of Arsenal in the league, even though their wage bill is £30 million smaller, but this is only one season – and it hasn’t finished yet.

The pressure to compete is obvious by the deterioration in Arsenal’s wage to turnover ratio from 46% in 2009 to 55% in 2011. Although this is still one of the best in the Premier League, it is the logical result of flat revenue and 20% growth in wages. There is also little sign of this trend ending any time soon with the £8 million increase in wages reported in the interims. On an annualised basis, that implies a wage bill of around £140 million for 2011/12.

There are clearly issues with Arsenal’s equitable wage structure, which means that the best players like Robin Van Persie are not particularly well remunerated (by modern standards), while fringe players like Abou Diaby, Marouane Chamakh and Manuel Almunia are handsomely rewarded for their efforts. This was epitomised recently by Johan Djourou’s new £50,000 a week contract, which seemed more in recognition of his frequent interviews with Arsenal.com than his defensive ability.

Not only does this policy reduce the money available to attract world-class players, but it also makes it difficult to move on under-performers, hence loans for Bendtner and Denilson. While there is some logic in giving youngsters good contracts, as it prevents other clubs from snapping them up for free, it is questionable whether this has worked out for Arsenal, given the relatively small number of success stories. My hope would be that one of Arsenal’s smart executives is conducting a review of whether this approach is the most appropriate in 2012.

5. Where has all the money gone?

Given that Arsenal have been so profitable for so long, it begs the question what the club has done with all that lovely cash - £389 million from operating activities in the last six years. Looking at the cash flow statement, it is clear that very little has been spent on bringing in new players with net player registrations of just £14 million.

Unsurprisingly, it’s all about the new stadium, property and other infrastructure (e.g. the new medical centre at London Colney) with £180 million going on capital expenditure and £111 million on loan interest. Since these loans peaked in 2008, another £156 million (net) has been used to repay debt. And of course the cash balances continue to rise…

Following the elimination of the property debt, the only outstanding debt is effectively the “mortgage” on the Emirates Stadium. At the 2011 year-end, this was represented by gross debt of £258 million comprising long-term bonds and debentures. In the last six months, this has been reduced by another £6 million, while net debt has risen by £39 million from £98 million to £137 million, almost entirely due to the £45 million reduction in cash discussed above.

Many ask whether it would be possible for Arsenal to pay off the outstanding debt early in order to reduce the interest charges, but Gazidis has previously implied that this is unlikely, arguing that not all debt is bad, “The debt that we’re left with is what I would call ‘healthy debt’ – it’s long term, low rates and very affordable for the club.”

So what’s the conclusion on Arsenal’s finances?

I guess this partly depends on whether you’re a “glass half full” or “glass half empty” type of person. There’s no doubt that Arsenal’s sustainable model has much to be admired, though it is not without some challenges, especially around growing (commercial) revenue and controlling wages growth. In particular, it is vital that more secondary sponsorships deals are signed before the main agreements are re-negotiated in 2014, when Arsenal’s financials could soar.

"Lightspeed Champion"

In spite of these issues, many fans still wish that the board would push the boat out a little more. After all, there is a middle ground between spending like it’s going out of fashion and hoarding cash for a rainy day.

Looked at another way, it is worth asking whether Arsenal can afford not to spend. As Gazidis admitted, the club is “not where we want to be.” If they end up failing to qualify for the Champions League, then their prudent approach might be fairly described as a false economy. This is by no stretch of imagination a club in crisis, but it is clear that a club as wealthy as Arsenal should be doing better. Then, to paraphrase Morrissey, every day might be like Sunday.

Friday, February 17, 2012

Bayern Munich - Opportunities (Let's Make Lots Of Money)

Despite a couple of below par performances in the new year, this season still holds a lot of promise for Bayern Munich. They currently sit in second place in the Bundesliga just two points behind reigning champions Borussia Dortmund, have reached the semi finals of the DFB-Pokal (German Cup) and comfortably won their Champions League group.

Under the guidance of experienced coach Jupp Heynckes, Bayern have returned to something approaching their normal high standards after a particularly disappointing time last season. The loss of influential midfielder Bastian Schweinsteiger through injury has been compensated by the goal scoring exploits of Mario Gómez and a new-found defensive stability.

Heynckes, who has already led Bayern to two league titles in a previous stint as coach between 1987 and 1991, replaced Louis van Gaal last summer. The hapless Dutchman fell foul of the old truism that you are only as good as your last game (or season in his case), as the wonderful achievements of 2009/10 were not replicated. In that happy period, Bayern secured a domestic double and reached their first Champions League final since 2001 where they succumbed to José Mourinho’s Inter Milan.

"Super Mario"

The following year was a very different story, as Bayern only sneaked into the Champions League with the minimum objective of third place, while they were beaten by Schalke 04 in the German Cup semi-finals and crashed out of the Champions League at the first knockout stage. The club’s embarrassment was amply demonstrated by the cancellation of their traditional visit to Munich’s Oktoberfest for the first time in living memory.

Although these results might not seem too bad, they represent a poor effort by Germany’s most successful club. The Bavarians’ glorious history includes 22 league titles (seven since the turn of the millennium), 15 German cups and six European trophies. In fact, Bayern are one of only three clubs to have won all three major European competitions, most notably the Champions League on four occasions, including three times in a row between 1974 and 1976.

Even though Bayern won nothing in the 2010/11 season, their results off the pitch were still mighty impressive, as they reported their 19th consecutive year of profits. That’s a remarkable achievement in the ultra-competitive world of football and is unprecedented among leading clubs. Although their revenue fell back very slightly to €321 million, that still represented the second highest ever generated by the club (only behind last year’s record).

Bayern’s profit after tax dipped slightly from €2.9 million to €1.3 million, though profit before tax actually rose from €5.6 million to €8.8 million. That’s pretty good, especially as profit on player sales fell by €20 million from €27 million to €7 million. In contrast, operating profit improved by €21 million, mainly due to lower player costs: wages decreased €8 million to €158 million, while player amortisation was slashed by €18 million from €51 million to €33 million. Board director Karl Hopfner certainly seemed satisfied, “Despite a difficult starting position – I remind you that we had no notable sporting success last season and faced an ongoing financial and euro crisis – we again recorded a profit.”

It should be noted that these are the group accounts, which include two business divisions: football (FC Bayern München AG) and the stadium (Allianz Arena München Stadion GmbH). Since its inclusion in 2008, the Allianz Arena has had an impact on the accounts with 2011 being the first year that this company contributed a positive result of €0.9 million, as opposed to losses in previous years: 2008 €7 million, 2009 €10 million and 2010 €3 million.

Although it has added commercial revenue of around €40 million (plus higher gate receipts), the expenses have also increased, including annual depreciation of €17 million and sizeable interest payments (though declining from €19 million to €8 million). As the detailed accounts for 2011 have not been published, I have estimated the reduction in interest based on the profit improvement announced in the results press release.

Given the consistent small profits, even as revenue has risen, it looks very much like Bayern make their suit from the cloth available. In other words, they have a deliberate policy of operating at a profit, but budget to use all available funds on strengthening the squad. Whatever the strategy, it’s a notable feat. Indeed, chairman Karl-Heinz Rummenigge was moved to say, “I’m justified in describing the financial side of our club as exemplary.”

It’s certainly far removed from the business model applied by some others, as can be seen by the many huge losses announced last season, e.g. in England Manchester City €219 million and Chelsea €75 million; in Italy Juventus €95 million, Inter €87 million and Milan €70 million. That said, there are a few clubs that did report profits – and higher than Bayern. Real Madrid made €47 million, thanks largely to their enormous revenue; Arsenal €14 million, boosted by property sales; and Manchester United €11 million, where the Reds’ awesome cash generating capacity was enough to cover the interest charges on the hefty debt.

Bayern’s revenue of €321 million was enough to retain fourth place in the Deloitte Money League for the fourth consecutive year, although the gap between the Bavarians and third placed Manchester United (€367 million) has nearly doubled from €27 million to €46 million. Similarly, the Spanish giants have also significantly extended their lead over Bayern, mainly thanks to their individual television deals: Real Madrid (€479 million) from €116 million to €158 million; Barcelona (€451 million) from €75 million to €130 million.

Looked at more positively, Bayern are one of only four clubs to have breached the €300 million revenue barrier and they are also a long way ahead of other clubs in the top ten. Their turnover is a huge €70 million more than Arsenal and Chelsea and around €100 million higher than Milan and Inter, so they are in a very handy position.

One technical aside: Bayern speak of revenue of €328.5m for the group in their financial announcement, but that includes €7.1m of profit on player sales, which is excluded in the revenue definition used by the Money League, leading to the €321.4 million revenue that they list.

In fact, since 2005 Bayern’s revenue growth of €131 million (69%) has only been bettered by Barcelona €243 million (117%) and Real Madrid €204 million (74%). The extent of that achievement is seen by the fact that some clubs have hardly grown their revenue at all in that period, e.g. Chelsea €29 million (13%) and Milan €20 million (9%). Post calciopoli, Juventus’ revenue has actually declined €58 million (27%).

Clearly, currency has an impact of the revenue of English clubs, as Sterling was stronger against the Euro a few years ago, but the underlying trend is not much different.

What is undeniable is how much Bayern’s financial domination against other German clubs has strengthened in the last few years. Although Schalke 04 were the biggest climbers in this year’s Money League, breaking into Europe’s top ten for the first time, their revenue growth of €88 million since 2007 to €202 million was still less than Bayern’s growth of €98 million in the same period.

No other German club came close to this performance with Borussia Dortmund’s resurrection only reflected by €49 million growth (though it will be higher this season with the addition of Champions League money). Revenue at Bayern’s other principal domestic competitors (Hamburg, Werder Bremen and Stuttgart) was virtually unchanged.

Dortmund’s achievement in winning the Bundesliga last season is all the more striking, when you consider the huge disparity in financial firepower compared to Bayern with their revenue being nearly €200 million lower. Put another way, based on the revenue advantage, Bayern should really win the German league every season, though, as somebody once said, it’s a funny old game.

Bayern’s slight revenue reduction of €2 million in 2011 was mainly due to a €12 million decrease in TV money, which was almost entirely due to lower European revenue following an earlier exit in the Champions League. This was offset by €5 million improvements in both match day income and merchandising.

Unlike many other leading leagues that are very dependant on television money, the Bundesliga prides itself on a more balanced revenue mix. The league’s chief executive, Christian Seifert, describes this as “a stable and sustainable business model that relies on three revenue sources.” This means that German clubs tend to receive a higher proportion of their revenue from gate receipts and commercial income. Bayern are no exception to this rule with €72 million generated by both match day and television and €178 million from commercial income.

No, that’s not a misprint: Bayern really do have commercial income of €178 million, comprising sponsorship and advertising €82 million, merchandising €44 million, other commercial activities €14 million and revenue from the Allianz Arena €38 million. That accounts for well over half (55%) of the club’s total revenue. Of the top 20 clubs in the Money League, this proportion is only surpassed by Dortmund (57%). Vorsprung durch Technik indeed.

Commercial revenue grew considerably in 2008 after Bayern bought out the 50% of the Allianz Arena owned by 1860 Munich, who play their matches at the same ground, to take full ownership of the stadium. The €11 million payment saved their city neighbours from the threat of bankruptcy, but, according to Rummenigge, “was not done because of brotherhood or sympathy. It’s in our own self-interest.” Given the additional revenue from naming rights, stadium tours, rent, hospitality and catering, he probably has a point.

Unsurprisingly, Bayern’s commercial revenue of €178 million is the highest in Europe, though Real Madrid narrowed the gap to €6 million last season. It is still a fair way ahead of other commercial powerhouses, such as Barcelona €156 million and Manchester United €114 million. In fact, the commercial income on its own would place Bayern 12th in the Money League, ahead of such luminaries as Manchester City, Juventus, Marseille and Roma.

Bayern’s shirt sponsorship deal with Deutsche Telekom, extended to the end of the 2012/13 season, is one of the most lucrative in world football, only behind Barcelona’s €30 million deal with the Qatar Foundation. There have been varied reports of its value with Deloitte suggesting that there is a guaranteed minimum of €22-24 million, though performance bonuses could take that to €30 million. This structure was confirmed by club president Uli Hoeness, who said that the money “will go up if we’re extremely successful internationally. There could be icing on the cake.” The German media usually report that the agreement is worth €25 million.

Recently Hoeness has confirmed that the club is in sponsorship talks with Gazprom, Schalke’s current sponsor, though he has said that any deal with the Russian energy giants would be “in conjunction with Schalke instead of replacing them.”

Bayern also benefit from attractive sponsorship from two of their largest shareholders, namely Audi and Adidas. The car manufacturer acquired 9.09% of FC Bayern München AG’s shares in 2009 for €90 million as part of a commitment to invest €200 million in the club until 2019. The remaining €110 million represents sponsorship of around €10 million a year.

Adidas acquired a similar shareholding in 2002 for €77 million and have been the club’s kit supplier for an eternity. They have extended their agreement for a further eight years until 2020, paying a reported €25 million annually. That is only exceeded by the €30 million paid to Manchester United and Barcelona (both Nike), Real Madrid (Adidas) and Liverpool (Warrior Sports).

According to the club website, on top of the main sponsor and kit supplier, Bayern have 10 premium partners, who each pay €4-8 million a year (per Handelsblatt): Audi, Coca Cola, HypoVereinsbank, Imtech (Hamburg’s stadium naming rights sponsor), Lufthansa, Paulaner, Samsung and Yingli Solar (the first time a German club has had a Chinese partner). In addition, they have 13 classic partners (paying €2-4 million) and 4 food partners (€500,000). Furthermore, the stadium naming rights have been sold to Allianz for around €90 million in a 15-year deal, so are worth €6 million a year.

"Schweinsteiger - Hand in glove"

The merchandising revenue of €44 million is also hugely impressive, as the club profits from some high profile players, including German internationals such as Schweinsteiger, Gómez and Thomas Müller, plus foreign stars like Franck Ribéry and Arjen Robben.

Of course, not everything that Bayern touches turns into commercial gold, as was seen by the recent fiasco, when the club announced that a “spectacular transfer” would be announced at a news conference, only to disappoint their fans when they merely revealed a new Facebook application.

Hoeness greeted the club’s commercial success with typical modesty, “In sponsoring we are number one in Europe”, while Rummenigge was only slightly more restrained, “We are one of the biggest and most valuable brands in world football.” There is no doubt that Bayern benefit from their position as the undisputed leading club in Europe’s largest economy, as Germany’s strong corporate market enables Bayern to negotiate numerous money-spinning contracts.

Paradoxically, they are also helped commercially by the weak digital television market, which means that German clubs are televised more frequently on terrestrial channels than their counterparts in England, Spain and Italy, thus providing more exposure for their sponsors. As the old saying goes, it’s an ill wind that blows no good.

Nevertheless, the TV rights for German football are considerably lower than the other major leagues. The current deal is worth only €412 million a season, which is around a third of the value of the Premier League contract (€1.3 billion), and also less than Serie A €1 billion, Ligue 1 €0.7 billion and La Liga €0.6 billion. The domestic rights are bad enough, but the Bundesliga has really failed to market itself globally, so it gets only €40 million a season for overseas rights compared to €550 million for the Premier League.

Hoeness has bitterly complained about the need for a better TV deal. When the three-year contract is renewed in 2013, it is likely to be higher, but it is questionable whether the increase will satisfy the Bayern board, as recent reports suggest that the rights might be sold for €450 million, an increase of less than 10%.

Unfortunately, we do not know exactly how much Bayern received from the Bundesliga in 2010/11, but they got €28 million the previous year. In the 2009/10 accounts, the club estimated that their share would be €30 million. To place that into context, the club finishing bottom of the Premier League, West Ham, received around €45 million, while the winners, Manchester United pocketed almost €70 million.

TV revenue in the Bundesliga is largely divided among clubs via a points system based on their league position over the past four years, though some money is also allocated per the number of games televised live.

Performance is weighted in favour of the more recent years, so last season a factor of 4 was applied to 2010/11, 3 to 2009/10, 2 to 2008/09 and 1 to 2007/08. However, a form of equality is then applied, as the club with most points from this algorithm only receives twice as much money as the club that has the lowest number of points. In this way, as top club in 2010/11 Bayern received €24 million for performance, which was double the €12 million for last placed St. Pauli.

Bayern’s allocation from the Champions League decreased €12 million from €45 million to €33 million, as they went out at the last 16 stage, compared to reaching the final the previous season. The importance of Europe’s flagship competition was emphasised last week when a report by La Gazzetta dello Sport revealed that Bayern had earned a staggering €347 million since 1992, only behind Manchester United.

This was also seen in 2007/08 when Bayern only qualified for the Europa League and received the relatively paltry sum of €5 million, even though they were semi-finalists. The Europa League’s status as poor relation to the Champions League was confirmed last season when Bayer Leverkusen only received €7 million, the 4th highest in that competition.

Therefore, Bayern will be gratified that Germany’s number of places in the Champions League has increased from 3 to 4 (at the expense of Italy), due to the changing UEFA coefficients. However, this might prove to be a double-edged sword, as it could mean that Germany’s TV (market) pool has to be shared between more clubs. The impact can be seen in 2008/09, when Bayern secured the largest slice of the TV pool (€21.5 million) in Europe, as Germany’s portion only had to be shared between two clubs that year.

"Ribéry - Franckly, Mr. Shankly"

The other aspect of the TV pool that is little understood is the methodology used to allocate this element, which is as follows: (a) Half depends on the progress in the current season’s Champions League, which is based on the number of games played. (b) Half depends on the position that the club finished in the previous season’s domestic league. Thus, Hopfner has already warned that Bayern’s share this season will only be 15% following last season’s third place, compared to the 50% received as champions.

Of course, qualifying in fourth place is also not without danger, as this only qualifies a team for the play-off round, which might throw up an awkward opponent, e.g. this season featured a match between Arsenal and Udinese.

Bayern’s match day income rose €5 million from €67 million to €72 million, even though the number of home games dropped from 25 to 23. This was due to higher ticket prices, more friendly matches and more attractive opposition in the domestic cup.

Even though Germany has a well deserved reputation for low ticket prices, Bayern still have the sixth highest match day revenue, though they are still miles behind Real Madrid €124 million, Manchester United €120 million, Barcelona €111 million and Arsenal €103 million. Part of the reason for the shortfall is that Bayern play less games, e.g. only 17 in the Bundesliga compared to 19 in the other major leagues. That in itself is worth €6.2 million, as Bayern earn around €3.1 million a match.

Compared to other German clubs, Bayern are once again in a league of their own, earning €30 million more match day income than Hamburg and twice as much as Schalke 04 and Borussia Dortmund. This was helped by the move to the Allianz Arena in 2005/06, which increased attendances from 53,000 to 69,000 today, significantly boosting match day revenue.

Bayern’s near capacity average attendance is the fourth highest in Europe, only beaten by Barcelona, Borussia Dortmund and Manchester United. In fact, eight of the top 20 European attendances last season came from German clubs, partly due to what Christian Seifert has described as the clubs’ fan orientated culture (low ticket prices), though this is also helped by more standing areas.

There’s little doubt of the Bavarians’ enduring popularity, as is also seen by the number of club members rising from 162,000 last year to what Hoeness described as an “unbelievable” 171,000.

On the cost side, the wage bill was cut by 5% (€8 million) from €166 million to €158 million, though some analysts expected the reduction might be even more, as director of sport, Christian Nerlinger, had spoken of trying to lower the wage bill, while performance bonuses had inflated the figure the previous season after the run to the Champions League final and the domestic double.

It should be noted that I have estimated the total wages bill by taking the “football” wages of €156.3 million and adding €1.4 million for the Allianz Arena, based on previous years.

From looking at the wages to turnover graph, it is clear that Bayern target a healthy ratio of 50%, as this has fluctuated in a tight band between 48% and 52% in the last six years. Since 2006, wages have only grown by €51 million, while revenue surged €117 million.

Bayern have taken a balanced approach to their salary structure. Many of the players are on comparatively low salaries, especially those developed in-house. However, the club is willing to pay high salaries for top talent, as explained by the former England international, Tony Woodcock, who played in Germany during the 1980s, “They have attracted Franck Ribéry, Mario Gómez and Arjen Robben. To get them, you have to offer good rates. Bayern realise this.” This was supported by the list of the top 100 footballers’ salaries last year, which included five from Bayern (Ribéry, Schweinsteiger, Robben, Klose and Gómez).

Nerlinger explained that “every case has to be dealt with individually and according to the market.” Bayern’s selective approach was confirmed by Rummenigge, “We’ll never pursue a risky business strategy, but we will continue to sign high quality players. We’ll invest in quality, not quantity. We’d rather have one more Ribéry than three surplus players.”

Domestically, Bayern evidently have the highest budget, e.g. Borussia Dortmund’s wage bill last season was almost €100 million lower at €62 million, but most of their peers abroad pay more, namely Barcelona €241 million, Real Madrid €216 million, Milan €193 million, Manchester City €193 million, Inter €190 million, Chelsea €186 million and Manchester United €169 million. That is based on the exchange rate used by Deloitte for the Money League, so the English clubs’ wage bills would have been even higher, if a more up-to-date rate had been used.

Many of these clubs can cover such burdensome wage bills with their high revenue, so they end up with reasonable wages to turnover ratios, e.g. Real Madrid 45%, Manchester United 46% and Barcelona 53%, but others are struggling, most notably Manchester City 114%.

After rising significantly in 2010 to €51 million, player amortisation fell €18 million back down to €33 million in 2011. This is relatively low for a major club, reflecting Bayern’s ability to progress academy players to the first team, as well as lower transfer spend than some clubs abroad. To place this into context, it is around a third of the amortisation at big spending Real Madrid and Manchester City. However, this expense should increase this season, according to Hopfner, “We were active in the transfer market at the beginning of the season, which means we have to write down higher sums for transfer fees in the current year.”

"Neuer kid in town"

For non-accountants, amortisation is the annual cost of writing-down a player’s purchase price, e.g. Manuel Neuer was signed for €22 million on a 5 year contract, but his transfer is only reflected in the profit and loss account via amortisation, which is booked evenly over the life of his contract, so €4.4 million a year (€22 million divided by 5 years).

Neuer’s signing is an example of Bayern’s capacity to spend big, as noted by Rudi Voller, sporting director at Bayer Leverkusen, “We should not close our eyes when it comes to Munich’s financial strength. They purchase a goalkeeper for €22 million and he only has a one-year contract with Schalke. Not even Real Madrid have done such a thing.”

Bayern have net spend of €236 million in the last decade with only one season (2007/08) showing net sales. It has been a fairly consistent pattern, as they spent €96 million in the five years up to 2006/07, rising to €139 million in the following five years.

This is a key aspect of Bayern’s ability to maintain competitiveness at the top of the Bundesliga. In fact, their gross spend of €44 million last summer accounted for around a third of the league’s total expenditure, including Neuer from Schalke, Jérôme Boateng from Manchester City €13.5 million, Rafinha from Genoa €5.5 million and Nils Petersen from Cottbus €2.8 million.

An element of rebuilding may have been necessary following van Gaal’s departure, but it is nothing new under the sun for Bayern. Over the last three seasons, their net spend of just under €100 million is about twice as much as the other Bundesliga clubs put together, bringing to mind the expression, “If you’ve got it, flaunt it.”

There are few signs of this slowing down, though Bayern’s status as the automatic destination for any top German talent took a blow when Marco Reus opted to move from Moenchengladbach to Dortmund. However, there were special circumstances here, as Reus grew up as a Dortmund fan and his parents live in the area. In any case, this allowed Bayern to snap up the exciting Swiss Xherdan Shaqiri for a bargain €11.6 million.

According to Hoeness, Bayern will have an additional €20-30 million a year to spend on transfers once the stadium debt is repaid. Some people are under the impression that Bayern have no debt, which is indeed the case for the football club, as confirmed by Hopfner, “We can state without reservation that the AG has no debts or bank liabilities whatsoever.” However, the group does have debt from the Allianz Arena company, which was used to finance the €346 million needed to build the stadium.

As the full accounts have not yet been published, we only know that total liabilities (bank debt, trade creditors and other creditors) decreased by €65 million from €243 million to €178 million, but it is reasonable to assume that bank debt has similarly come down by a substantial amount.

At the 2010 AGM, Hopfner informed the shareholders that €176 million had already been repaid: €90 million from Allianz itself with the remainder being funded by Adidas’ equity injection. According to Rummenigge, the €90 million investment from Audi was also largely going to be used as repayments on the Allianz Arena, “so our stadium will be free of debt considerably earlier than originally planned.” Hoeness has said that this should be achieved within six to seven years.

Bayern’s liquidity has already improved from €64 million to €129 million in 2011, so the club’s balance sheet is in great shape, encouraging Hoeness to brag, “When we’ve paid off the debt for the stadium, we’ll be the richest club in Europe.”

"Müller - Tommy gun"

They have equity of €268 million, which actually under-states their assets, as players are only shown at net book value in the accounts. In 2010, this equated to €83 million, while the market value is clearly higher. The respected website Transfermarkt has this at €360 million, though some values seem on the high side, e.g. €42 million for Mario Gómez.

A club as well run as Bayern should be one of the main beneficiaries of UEFA’s Financial Fair Play regulations, which encourage clubs to live within their means. Indeed, at the AGM Hopfner stated, “We have more than met UEFA’s financial fair play criteria.” Hoeness added that FFP would be “good for clubs such as Bayern and Arsenal, who are financially proper and make profits.”

For Bayern, it is almost a morality issue. After Bayern were beaten by the loss-making Inter in the Champions League final, Hoeness said, “I would not be happy to win like that. If I win a Champions League, I want to be in profit.” In the past, he has also put the boot into other clubs, saying that if FFP is not enforced, “It will be a disaster, because then all those crazy guys like Hicks and Gillett and the Glazers will be right.”

"Lahm to the slaughter"

Rummenigge has often been on the warpath too, particularly against one club in the north-west of England, “Let’s take the example of Manchester City. How does it work when you write about a €200 million loss? The financial doping must come to an end and lead to a virtual ‘equality of arms’ between the clubs.” That’s why they have argued that it would be a “total disaster” if UEFA’s bite failed to live up to its bark.

Others have suggested that the reason that Bayern are so keen on FFP is that it will further advantage those clubs that earn the most revenue, as their budgets will be correspondingly higher. The thrust of their argument is that if clubs are not allowed to have a benefactor investing substantial sums, it would be almost impossible for them to break the current monopoly. This is the line taken by Manchester City against the new rules, “This suggests that the big clubs, which make the most money, must remain the big clubs and that the status quo must remain.” On the other hand, for every Sheikh Mansour, there is a Craig Whyte waiting in the wings, as Rangers have discovered to their cost.

"Hoeness - Everybody's happy nowadays"

As part of the German rules, clubs have to provide a balanced budget before each season in order to receive a license, which does not completely prevent clubs falling into financial difficulties (see the problems experienced in the past by Dortmund and Schalke), but it undoubtedly helps. Indeed, the Bundesliga annual report for 2011/12 noted that 12 of the 18 clubs were profitable. To place that into perspective, only four of the 20 Premier League clubs reported a profit in 2009/10.

Conservatism is also endemic in the Bundesliga ownership model, known as the “50+1” rule, whereby club members must own a minimum of 50% of the shares plus a deciding vote. The idea is that this prevents an unwelcome owner from taking control, but it does allow considerable scope for private individuals or businesses to invest in the club, as is the case at Bayern with Adidas and Audi both featuring on the shareholder register.

However, continuity is a byword for success at Bayern, as seen by the club’s executive management, which largely comprises former players: the legendary “Kaiser”, Franz Beckenbauer, was the club’s president until last year; his replacement, Uli Hoeness, was the club’s General Manager since 1979; Karl-Heinz Rummenigge is the Chairman; while Christian Nerlinger is the new boy, trying to fill the large hole left by Hoeness climbing up the corporate ladder.

"Kroos control"

Despite the presence of so many of the old guard, Bayern’s model is equally reliant on their academy, which is one of the best in Germany. This was amply proved when they fielded no fewer than four homegrown players in the Champions League final: Philipp Lahm, Bastian Schweinsteiger, Holger Badstuber and Thomas Müller. Since then, Toni Kroos has also made a great impact.

So, what of the future for Bayern? Financially, everything looks rosy in this Bavarian garden. However, Hopfner did sound a cautionary note, when he pointed out that commercial success was still dependant on sporting success on the field of play. While Hoeness allowed himself the luxury of describing the club as “an oasis of happiness”, Hopfner surely spoke for all the fans, when he put away the calculator and got the ball out, “A year without a trophy is a lost year. We don’t want that twice in a row.”

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