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The dangers of being frugal

|| The cautionary tale of Arsenal Football Club ||

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Mark Thompson

Jul 30 2019

7 mins read

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Like all historical figures, the legacy of Arsene Wenger will continue to be written and re-written for years to come. Given the warm glow that fell over the Arsenal fandom when he finally stepped aside, it may remain a positive one. The ‘fourth place trophy’ years aren’t the focus.

But perhaps they should be.

Back in April 2018, I wrote an article for Football Whispers about Arsenal and their spending. Two key points jump out at me reading it back: between 2013/14 and 2017/18, they had the lowest gross (ie total) transfer spend out of the Top Six, but the third-highest net spend (spending minus what they received from transfers). The second is that between 2013/14 and 2016/17 they made less than £50m in fees.

It’s a point that I want to come back to because I think that it says something important about squad-building in football. As we’ve seen with a lot of clubs - notably with present-day Tottenham and Liverpool - squad renewal can be funded by major sales. If you get things right, you can train up the players you buy in the initial squad renewal, sell them for big bucks, and use them to fund the next round of renewal.

(In reality, squad renewal doesn’t happen in defined, separate generations like this, but it helps to think of it in this kind of way)

My hypothesis is this: by going through a period of frugalness to fund the building of the new stadium, Arsenal not only limited themselves in the short-term, but the effects of the starvation continued to be felt into the longer term.

These two periods — stadium penny-counting and post-move high net spend — are seen clearly on the graph below. The top line is total spend (averaged over the last two seasons to smooth the lines a bit), and the second line is the net spend. Arsenal moved into the Emirates Stadium in 2006. All figures from transfermarkt.

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With the summer of 2019/20 still ongoing, I’ve stopped the graph at 2018/19, and the end is skewed by a mammoth fee-receiving season of 2017/18. Arsenal managed to balance spending of £137m with incoming fees of £140m(!). Sales of Alex Oxlade-Chamberlain, Alexis Sanchez, and Theo Walcott brought in around £85m on their own.

Unfortunately for Arsenal, they don’t have many ‘sellable assets’ left, and that net spend line is going to get a lot closer to the total spend. In 2018/19 they only brought in £8m to counteract outlay of £72m, and their net spend is around £30m for the current summer too.

The clear example to follow seems to be Liverpool’s. Their two-year average net spend hasn’t tipped over £50m by much over the past several years (Manchester United’s, as a comparison, has been around £100m for nearly half a decade). This is despite a huge increase in total transfer expenditure.

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Imagine a world where Arsenal hadn’t been able to sell £20-30m worth of players per season in the years after they left Highbury. Where would they have finished, and what would have become of Arsene Wenger?

If you’re unable to help fund buys with sales, then you’re relying on the wealth of either the commercial side of the club (something that clubs haven’t usually spent much time developing until recent years) or the owner.

Speaking of United, they’ve had some decent selling years, but this ‘club wealth’ is a large part of how they’ve been able to keep treading water these past few years. In fact, the wealth was perhaps a reason why they kept winning at the very end of Sir Alex Ferguson’s reign. They ramped up the total spend (by pre-transfer inflation levels, at least), without having significant sales to help fund it.

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Still, it’s not quite as ‘club wealth’-dependent as their noisy neighbours.

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Anyway, having seen all of these let’s go back to Arsenal. It’s interesting to wonder how long a club can sustain a big gap between their total spend and net spend.

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Arsenal managed to sustain relatively good league results while having a sizeable gap between the net and total spend for around seven years, but after that they needed to increase net spend considerably. Liverpool have now spent four or five years doing their thing - will they also need to close the gap between total and net spend in the next few years, or did they buy better and more sustainably? (Having won the Champions League will help attract good, young talent).

City’s chart is interesting because it seems to show two generations of City squads quite distinctly. They bought big in 2008 when they were first bought by Abu Dhabi royalty Sheikh Mansour, then dipped, then ramped things up again to renew the squad. (Flagging a warning about the age of City’s squad was one of the early StatsBomb predictions that proved to be a good one).

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That original Arsenal chart wasn’t quite the full picture, so let’s add this summer into the mix to get a better sense of where they really are. With 2017/18 now out of the two-year window, total and net spend come crashing back together as predicted. How will the cycle go from here?

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As interesting as I find these charts, I’m not sure that they, on their own, show the dangers of being frugal. If Liverpool weren’t performing on the pitch, we’d judge their chart (or if they were failing on the pitch, would the chart look different?).

Tottenham have had a big difference between net and total spend since before they sold Gareth Bale all those years ago, and they’re still going relatively strong (although a lot of that is down to Mauricio Pochettino and academy product Harry Kane coming good).

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Southampton are a club of caution though. They ramped up net spending on their way to the Premier League, at which point they started to consistently fund any buys with sales. But in the past couple of years things have shifted off the pitch, and the team have struggled on it. (I’ve added their 2019 summer into this one too).

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(Their previous period of negative net spend in the mid-2000s came after their relegation from their Premier League and their floundering in the Championship before relegation to League One).

With all the money running around football, this is a new age of transfer business. Not only are fees higher and higher than before, but the systems of unearthing gems are more systematic. Teams like Southampton, who both picked up cheap talent as well as producing it through their own academy, were able to get profits that may not have been possible in years gone by.

But perhaps it’s just a natural effect of football that a penny-pinching approach will always have a knock-on effect in the longer-term. Players will always age, and there comes a point at which that age will start to tell.

Liverpool and Tottenham may have helped themselves by taking gambles on young players. It might not have brought them immediate success, but it set them up for success in the future as well as being able to continue keeping a lower net spend, which helped them keep the cycle of buying good talent going.

It all takes planning, though. Not just for how the team will fare in the coming season, or the next two seasons, but how they’ll look in five years time, or even longer. Sure, this takes an uncomfortable amount of educated guesswork, but are most clubs equipped to do this kind of planning?

I guess we’ll see - unless transfer fees take another huge inflationary boost, in which case the system could become something new all over again.

It’s just one more things for clubs to plan, and one more reason why these clubs need to have a person or a team thinking about long-term squad planning.

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