Sunday, March 28, 2010

Is Stan The Man For Arsenal?

After a few months of inactivity, Stan Kroenke yesterday increased his stake in Arsenal and is now within just ten shares of the threshold that forces him to make a full takeover bid. Kroenke’s latest purchase of seven shares at £8,500 each, his first since December, takes his total to 18,656 shares, which means he owns 29.9% of the club. If the Denver-based businessman reaches 30%, he has to make an offer for the remaining shares in Arsenal Holdings plc.

That much is clear, but would the American make a good owner for The Arsenal? Despite first becoming involved with the North London club back in April 2007, when he bought ITV’s 9.9% stake, there are still many questions unanswered, so here’s everything you always wanted to know about Stan Kroenke, but were afraid to ask:

1. What are his intentions?

Even at this stage of the game, it’s difficult to say for sure. Kroenke is a wily, experienced businessman who keeps his cards very close to his chest. He is not known as Silent Stan for nothing. Unlike many owners of sports clubs, he would prefer to stay out of the limelight. He was first exposed to the harsh words of the media in 1993, when he was the public face of St. Louis’ failed bid to win an NFL franchise, “I was somewhat naïve – not in a business sense, but as far as the whole public side of it.” Since then, he has chosen to conduct his business affairs in private and who can blame him. This is a lesson that Messrs. Gold and Sullivan (among others) would do well to learn.

At Arsenal’s Annual General Meeting (AGM) in October, Kroenke was invited to clarify his intentions, but opted not to speak to the assembled shareholders. This could mean something or nothing. Chairman Peter Hill-Wood pointed out that under Takeover Panel rules any public statements regarding future bid intentions must be ambiguous, otherwise the individual would be prevented from making a formal takeover move for the next six months. Even though the belief around the club is that Kroenke is happy with his position as Arsenal’s largest shareholder, there is a nagging feeling that Kroenke did not want to be constrained by those terms, hence his reluctance to speak.

"The future's so bright, I gotta wear shades"

2. Why is his approach so cautious?

Of course, he might genuinely not want to buy the team. Although an extremely wealthy man by anyone’s standards, it is not a given that he would want to commit so much of his capital to one venture, especially as he may feel that he already effectively controls the club. The board is so scared of Alisher Usmanov, the next largest shareholder (in every sense of the word) with 26.2%, that they will probably do whatever Kroenke thinks best (within reason).

His long game has also helped considerably in winning the hearts and minds of the fans, which would help prevent a hostile takeover, something a man like Kroenke would be keen to avoid. In any case, his influence is already clearly being felt at the club with the key appointments of Ivan Gazidis as chief executive and Tom Fox as chief commercial officer. They were recruited from Major League Soccer (MLS) and the National Basketball Association (NBA) respectively, which is a clear sign of Arsenal’s strategic direction.

3. Would he be happy with a minority stake?

The Arsenal Supporters' Trust (AST) have had the opportunity to meet with Kroenke on a number of occasions and their assessment is that “a takeover is not imminent” and that the recent purchases are just “the consolidation of an existing position”. That may well be the case, though Don Ellison, a former president at Kroenke Sports Enterprises (KSE) was quoted in the New York Times as saying, “There’s nothing so limited as being a limited partner. A lot of people get into sports and wake up later and realise, ‘I’m along for the ride. I’m beholden to the other guy’. That’s not Stan’s nature.”

Of course, it is possible that Kroenke is merely buying the shares as a good investment. Harry Philp, managing director Hermes Sports Partners said, “There is a precedent for this approach: JP McManus and John Magnier built up stock in Manchester United close to the 30% mark and everyone thought they were going to take over, but they didn’t, and made a good return on their investment when the Glazers took over.” However, most would see that as unlikely, especially given that, “in the sports arena he has never sold a share in any team he has had an interest in”, according to Arsenal director Danny Fiszman.

"When Stan met Danny"

4. Is there any chance of a takeover soon?

There are sound economic reasons for launching a takeover bid now. Interest rates are at a historical low, which would reduce the cost of any debt, while Sterling’s weakness makes the purchase price to any American buyer hundreds of millions cheaper in Dollar terms than two years ago.

There are also reasons specific to Kroenke that make a takeover more attractive from May onwards. Stock market rules oblige any prospective purchaser to make a bid at the highest price he himself has paid for shares during the last twelve months, which in Kroenke’s case is currently the £10,500 he paid to the Carr family for 4,839 shares (7.7% of the club) in May last year. Since then, the highest price Kroenke has paid is £8,500, so waiting until May for a full takeover could save him over £87m.

Reports in the United States also suggest that Kroenke is on the verge of selling his 40% stake in the St. Louis Rams. NFL cross-ownership regulations prevent him from making a full bid and he is unwilling to give up his NBA team, the Denver Nuggets, because basketball remains his first sporting love. There have been bids of $750m, but the owners believe the franchise is worth up to $900m, so a sale would free up $300-360m of capital for Kroenke to invest in the Gunners. Apart from anything else, as a sports fan, Kroenke would not want to distract the team during a thrilling end to the season, so would probably wait until the summer.

5. How much would it cost?

The American business magazine Forbes gave Arsenal a valuation of $1,200m (£800m at current rates) in their list of most valuable soccer teams, which is the third highest globally behind Manchester United and Real Madrid, but this is “based on past transactions and current stadium deals without deduction for debt”.

Arsenal Holdings has issued 62,219 shares, so if we take the price that Kroenke has paid for the majority of his shares of £8,500, that implies a valuation of £529m, but this is lower than the current market price (mid) of £9,250, which gives a market capitalisation of £575m. As Kroenke already has 29.9% of the company, he would have to pay £370m (at the lower price) or £403m (at yesterday’s price) plus another £30m or so on professional fees.

Of course, he might not want to buy the club outright, but be content with just over 50% of the shares to gain legal control, meaning he would “only” have to find between £106m and £115m.

"The winner takes it all"

6. Could he afford it?

You would certainly think so, given that he is listed in the Forbes 400 as one of the richest people in the world with an estimated worth of $2.7 bln. Not only that, but his wife, Ann Walton, has even more money at $2.9 bln, as she is a member of the family that owns the Wal-Mart shopping chain. He has made most of his money from real estate, not least because he has been uniquely placed to develop many of the plazas near Wal-Mart stores.

Nevertheless, last year it emerged that Kroenke still owed £50m on shares he had bought, largely from Danny Fiszman and Richard Carr. At the time a board room source said, “Unlike Usmanov, Kroenke doesn’t have £500m sitting in a bank doing nothing. It could be many months or years before he has paid off all the money.” In January, the club announced that the £23m owing to Carr had been paid, but Fiszman’s money is still outstanding. This could be for tax reasons more than Kroenke’s liquidity, but some have speculated that Fiszman is happy to wait for payment until Kroenke buys the whole club.

7. Would Arsenal welcome a takeover?

The board’s initial response to Kroenke was embodied by old Etonian Peter Hill-Wood, who sniffed, “Call me old-fashioned, but we don’t need his money and we don’t want his sort. Americans know absolutely sweet FA about our football”, but they gradually warmed to this American, not least as they considered him the lesser of two evils compared to Usmanov. So much so that in September 2008 they invited him to join the board of directors.

Having apologised for his previous remarks, Hill-Wood described Kroenke as “absolutely the right kind of shareholder” whose “experience in sports team commercial management, sports marketing, media and new media rights as well as real estate development will be of great value.” These were not just empty words, as Fiszman and Hill-Wood blessed the arrangement by selling Kroenke 5,000 and 100 shares respectively. The Arsenal Supporters Trust have given him guarded approval, “While the AST welcome Stan Kroenke's involvement, we agree with the sentiment of Peter Hill-Wood's statement at the most recent AGM that there is no need for any shareholder to launch a takeover of the club.” This is significant, as Kroenke is not a man to launch a hostile takeover, which he would consider too expensive and would also bring him adverse publicity.

"All the way from the MLS"

8. Is he like the Glazers?

Or Hicks and Gillett for that matter. As represented by the AST, Arsenal fans “would fight any plans that require the club to incur debt to pay for a takeover, as has happened at Manchester United and Liverpool”, but Kroenke has pointed out that none of his sporting ventures in the United States operate in this way and he has never done a leveraged buy-out. The New York Times said, “Though some Arsenal fans worry a new owner will saddle the club with debt and curb the signing of players, that has not been Mr. Kroenke’s style.” Whatever his method is, Kroenke is not a man whose name has been associated with greed.

9. Why would he want to buy Arsenal?

First of all, football is a sport that crosses all national boundaries with huge global appeal. Larry DeGaris, professor of sports marketing at the University of Indianapolis agreed, “Where are the growth opportunities? In the world’s biggest game”, complaining that “American sports have a very poor track record of being exportable.”

The Premier League in particular is an attractive economic proposition with its lucrative TV rights (domestic and overseas). Although Arsenal would not be cheap, costing about the same as an NFL franchise and twice as much as Liverpool, Kroenke’s right-hand man, Paul Andrews, has described Arsenal as “one of the greatest brands of any sport – and I’m not just talking about soccer.” It’s the biggest football club in London with a brand-new world-class stadium that generates over £3m revenue a game. While other clubs struggle financially, Arsenal are making good profits and paying down their debt.

"If you build it, they will come"

10. What is his modus operandi?

When Kroenke buys a team, he likes to buy everything that surrounds it as well. According to one business associate, he is not just a man with an eye for an opportunity, but “the opportunities stemming from that opportunity.” Speaking to the Leaders in Football conference, Ivan Gazidis described his business model as diversified sports entertainment ownership, “Look at Stan Kroenke in the Denver market. He not only owns sports teams, he owns stadiums and the TV station that distributes the sport on local TV. He aggregates content and he distributes it.” He even owns the in-house ticketing system (TicketHorse).

As well as allowing him to leverage the shared infrastructure, this approach also allows Kroenke to better withstand any downturns. What he does do is maximize the potential of his sporting venues: the Pepsi Center in Denver hosts 270 events last year ranging from the Democratic Convention to Celine Dion concerts. Would he put a roof on the Emirates like the Millennium Stadium in Cardiff?

11. What would the impact be on Arsenal?

After buying approximately a third of Fiszman’s shares, Kroenke himself stated, “I will continue to work closely with my board colleagues to maintain the stable environment in which the club operates and to preserve the self-sustaining business model enjoyed by the club.” Gazidis echoed this view, “I have spoken to Stan and he believes in the philosophy of the club. He is going to ensure we have continuity in the traditions of the club.” In other words, if it ain’t broke, don’t fix it.

All well and good, but it’s hard to disagree with former Arsenal managing director Keith Edelman, who said, “Anybody who invests in a club, particularly from overseas, will want financial returns.” There is no doubt that Arsenal has been run relatively conservatively and I would expect the club to become more aggressive under Kroenke’s stewardship. He would look to raise the profile of the club overseas, reaching out to the American and Asian markets in the same way as Manchester United have done. So, we could expect pressure to take the team on pre-season tours a bit farther afield than Austria; significant improvements in commercial revenue once the Emirates deals expire; and some interesting discussions on televising Arsenal games – either via broadband or potentially even individual deals with TV companies (like Real Madrid and Barcelona).

"A corner of a foreign field that is forever Arsenal"

12. Does he understand sport?

He should do, considering he also owns the Colorado Rapids of the MSL, the NBA’s Denver Nuggets, the NHL’s Colorado Avalanche and 40% of the NFL’s St. Louis Rams. Kroenke has explained his desire to own sports teams, “I always thought I’d enjoy it, because the professional sports business is part business and part sports, and I love both of them.”

Sports industry expert Dean Bonham agreed with this blend, “He’ll enjoy those sports, but at the same time he’s sophisticated enough to know you can make a lot more money than you could twenty years ago.” Danny Fiszman emphasised “Stan’s long term commitment to sport”, while his local paper, The Denver Post, described him as “a genuine sports fan who also happens to be a billionaire.”

13. What about football (soccer)?

Although it is likely that Kroenke’s interest in soccer is as much for its investment potential as its inherent sporting characteristics, it is true that he would be the only overseas investor in English football who has also invested in football in his home market. He invested $70m in a new 18,000 stadium for the Colorado Rapids and surrounded it with 24 youth soccer pitches – the largest complex of its kind in America.

The club’s managing director Jeff Plush declared, “What we’ve built here is a focal point for the game in this community, an inspiring and clearly identifiable home for the sport. There is no question about our commitment or the direction in which we believe we can go.” Advisors to Kroenke say that his interest in football was inspired by his travel in Europe, where he witnessed the fans’ fervour first hand.

"Under a blood red sky"

14. Are his teams successful?

Kroenke has transformed the team closest to his heart, the Denver Nuggets, from a bunch of no-hopers to title challengers, losing the 2009 NBA Conference final to the LA Lakers, though they have not yet won the championship he craves. In ice hockey, the Colorado Avalanche won the Stanley cup back in 2001, but the St. Louis Rams have been embarrassingly bad after winning the Super Bowl in 1999 and losing in the final in 2001. Last year, they finished rock bottom of the NFC West with a record of one win and 15 losses. His soccer team, the Colorado Rapids, have not qualified for the MLS play-offs for the last three years. As Paul Andrews so appropriately put it, “We want to win the championship every year, but nobody can tell you that they are going to do that.”

15. What sort of manager is he?

It’s hard to find anyone with a bad word to say about him. Ivan Gazidis has described Kroenke as a “model owner”, while MLS commissioner Don Garber is of the same mind, “Stan Kroenke is very, very bright and a capable sports man and I think he will be a good owner of Arsenal. He’s a strong silent type, and I think that’s not necessarily the worst thing when it comes to sports team owners.”

Former Kroenke lieutenant Don Elliman stressed his long-term commitment, “Stan is a buyer and holder, not a trader. He expects to be the owner of these franchises for many years to come”, while David Stern, the NBA commissioner, said Kroenke was “as knowledgeable a person as there is.” He delivers on his promises, as evidenced by building an excellent stadium for the Rapids, while the Pepsi Center has been named the most “fan friendly” sports arena in the country several times.

"Ground rules"

16. Would he provide money for transfers?

He is regarded as an owner who wants to win, who will spend money in order to do so, bring in star player like Carmelo Anthony, Allen Iverson and Chauncey Billups to the Denver Nuggets. When Iverson came up as a possible trade, Kroenke’s response was simple: “Go get him.” Billups even said, “For us, it’s simple. Mr. Kroenke is the MVP (Most Valuable Player).”

However, his teams do not buy for the sake of it, as Paul Andrews explained, “There is never a quick fix in sports. You might see that one player, who looks like a great player, who might come at a very high price, so do we bring that player into our basketball team? The answer to that, however tempting, is that maybe, when you bring that person in, it upsets the chemistry of that team. Typically, history would tell us that doesn’t work to build long-term success.”

17. Does he interfere in team affairs?

Although he keeps close tabs on his investments, he does not have a reputation for interference. Ivan Gazidis reassured Arsenal fans, “He believes that the manager should be in charge of what happens on the pitch and his role is to support the manager – not to make a big fuss about his involvement.”

Paul Andrews endorsed this approach, “The experts in soccer are in the UK and Arsenal, in our opinion, is the foremost expert. You hire people you have confidence in and you let them go out and prove they can do the job.” This was confirmed by former Colorado Avalanche manager, Pierre Lacroix, “We could have had all kinds of problems. Instead, this cool guy walked in and said, 'OK, what’s the plan? Fine, do it’.” In any case, given all his other sporting responsibilities, how much time could he realistically devote to Arsenal?

"Usmanov considers his options"

18. What is Arsene Wenger’s view?

While it is rumoured that Wenger has made it plain to the Arsenal board that he would not work under Usmanov, he has been far more balanced in his reaction to a possible Kroenke takeover, “The only important thing is that the club is run properly in every department. And the most important department in any football club is what happens on the pitch. As long as who owns the club doesn’t interfere with what we do on the pitch, for me it's OK.” A veiled warning not to meddle in football matters, but hardly unexpected.

19. Would he want to retain Wenger?

Kroenke’s executive managers have stressed their appreciation for Wenger’s brand (sic) of football, but there are clear similarities between the two men. They both focus on youth development and involve themselves in every aspect of their business. One of Kroenke’s partners, Charles Banks, said, “He throws himself into it and he fully understands every aspect of it. It’s not micro-managing, it’s micro-comprehension.”

Wenger’s economics background has helped him look after the club’s financial affairs, while continuing to produce teams that challenge for honours. If Kroenke were tempted to go for an alternative like Hiddink or Capello (or, God forbid, Mourinho) in an attempt to win trophies immediately, he would surely appreciate that this would require another substantial investment to rebuild the squad along their lines.

"Passing the baton?"

20. Who are the other key players?

Through his investment vehicle Red and White Securities, Alisher Usmanov has the next largest holding with 26.2% and some believe that Kroenke would only proceed with a takeover bid if he was sure that the Uzbek was willing to sell his shares. The other major shareholders, who could well hold the balance of power, are Danny Fiszman with 16.1% and Lady Nina Bracewell-Smith with 15.9%.

We know that Fiszman looks favourably on Kroenke, having already sold him over 8% of the company, but Lady Nina has been considering her options after she was ousted from the board in what she called “a ruthless fashion”. Although Peter Hill-Wood only owns around 1% of the company, he is still highly influential from his position as chairman, though his incredibly relaxed manner at last October’s AGM might just indicate that he is on his way out. One advantage of a Kroenke takeover would be to remove this uncertainty and bring stability back to the board room.

So many questions, very few with a definitive answer. As is so often the case, the wisest comment on the situation came from Arsene Wenger (he knows), who said, “A takeover is not inevitable. It can have both a positive and a negative influence, that is the same with every owner.” Whatever happens next, let’s hope that Stan Kroenke is indeed a man with a plan, as he appears to hold the future of the club in his hands – at least from a financial perspective.


  1. oh my god.
    your blog is amazing, it's clear you are very knowledgable and have researched heaps:)

  2. Thanks for Re-tweeting this link. The update with the Colorado Rapids winning the MLS title since the original writing certainly helps his credibility from a soccer/football standpoint. The fact that the Rams started back towards credibility as well isn't a bad thing either.

    As an American, Gooner, and huge fan of the game I'll be fine with Stan K becoming the owner. I'm fine if he doesn't as well. My sense is that the board isn't the thing keeping the team from winning trophies.

    I would love to see a pre-season tour headed in this direction though.

    Love the blog.

    Cheers - Neal

  3. Certainly appears to be the lesser of two evils, although I'm still resistant to any formal takeover that limits the influence of the fans in the way the club is run.

  4. Well done for doing the legwork on this. Really informative.

  5. Why are Arsenal so scared of Alisher Usmanov?

  6. A very prescient article - considering recent events. An excellent write up. The board room uncertainty is now behind us (regardless of whether AU sells or not) and with the sporting credentials of Stan, it can only auger good for Arsenal. I think the changes will be gradual and well managed.

    @Asif - just google Alisher Usmanov...


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