Gazidis Explains Arsenal's Transfer Policy - 'The Big Short'

Thank you to Arseblogger and his minions for posting this on Arseblog news today: a transcript of an interview that Ivan Gazidis gave with Fox Soccer Channel yesterday. (Edit - watch a video of the interview here.)

I watched the interview, and attempted to live-tweet it, because I found what Ivan said revealing. If I was going to sum-up his comments, I would use a term that Michael Lewis (of 'Moneyball' fame) recently employed in his book about the small group of people who correctly predicted the collapse of the Mortgage-Backed Securities (MBS) market in 2008: 'The Big Short'.

The collapse of the MBS market in 2008 was a classic example of the deflation of a massive financial bubble. Certain institutions - most notably AIG, Lehman Brothers, Bear Stearns - essentially bet that the MBS market would continue to expand almost indefinitely. AIG in particular not only bought up tons of these securities, they even provided a kind of insurance to others in case certain MBS became worthless (the famous Credit Default Swaps).

However, a small number of investors saw the MBS boom for what it was - a house built on sand, or, more precisely, a house built on the idea that poor home owners would be able to pay back their sub-prime mortgages in the long-term. These investors bought up a variety of instruments that would pay out in the event that massive defaults started to occur in the MBS market. Needless to say, they became very rich when others hit the wall in 2008. Lewis called this the 'big short' - i.e., these investors 'shorted' (or bet against) the MBS market on a huge scale, and eventually made out like bandits.

What relevance does this have to Arsenal's transfer strategy you might ask? Well, from Ivan's comments, it appears that the club is essentially betting against the current trends in the transfer market continuing in the long-term - they are 'shorting' the market, in a way.

Ivan began the interview by saying something which I've long held to be true - I don't know why there is so much speculation about the state of Arsenal's finances. We are a public company that has to produce public accounts. As he put it:

You know, it’s interesting – there seems to be some mystery about this, but we’re about the least mysterious club in the world, we’re a public company. We publish our accounts. Anybody can have a look at them, they’re publicly available, you can look at them, and you can pretty much work out what our monetary situation is.

Anyone with any modicum of financial training can peruse our reports and come to a pretty certain conclusion on the state of the club's finances - as 'angryofislington' recently did. Namely - we have money, and enough money to buy exciting players, but the Arabic oil barons and Russian oligarchs will always be able to blow us out the water when it comes to the biggest transfers. I would say that we have fairly healthy cash reserves at the moment, but the idea that we can compete for any player is simply not true. We live within our organic cash flows and there is an inherit limit on how much we can spend. Whether Kroenke or Usmanov should give us additional money from their own pockets is an argument for another time. At the least, there is no need for cut-throat arguments among Arsenal fans about whether the club has any money or not - we do have money, just not as much as certain other sides. This means Arsene does buy, but he can't buy anyone. Indeed, Ivan reminded the FSC panel that we do actually buy players. We bought the Ox. We bought Koscielny. We bought Vermaelen. etc. etc. But, there are definite limits to our transfer policy. As IG put it:

We can’t afford to compete with oil money, and we can’t afford to compete with from, you know, super-wealthy individuals from Russia.[...]Our focus is *always* on young players, we’ve got fantastic development system and still there are young players coming through consistently from our youth ranks and that’ll continue to be the way Arsenal do things. [...] We’re about creating star players, not about buying them.

All this builds up to the key passages in the interview:

 I think the more important thing that our model is that it’s sustainable. So, if we’ve learned anything from the world’s economic crisis, it has to be that football clubs need to have responsibility – not just for today, but for their own futures. And,  you know, our business model means that we can continue to do what we’re doing forever [...]

Now of course there’s anxiety when [other] clubs are spending the kind of money they’re spending. We don’t believe that’s sustainable for the long term. We think that has to come to an end. UEFA agrees with us and is bringing limits on spending in, and we’ll continue to do things the way we do them. 


This is Arsenal playing the 'big short'. The club doesn't believe that transfer fees can continue to spiral ever-upward in the manner that they're doing at present. At some point, the club is predicting that all this will come crashing down, perhaps even taking a few clubs with it. Moreover, the club are convinced on this point because of UEFA's recent proclamations about financial fair play. If the market won't correct itself, the regulator will enforce correction. And when the market correction happens, and the bubble bursts, those clubs which have a sound, sustainable economic basis will prosper - namely, us. Until then, and possibly even after then, we will spend our money on astute, reasonable, economical purchases, and young prospects. We're not going to compete with Barca for Neymar, or Man City for whichever superstar they buy next, but we'll get guys like the Ox, Arteta, and Eisfeld.

Does this wash? Well, in a marketplace which played by rational economic rules, yes. But the economics of football are, to be frank, irrational. How long have clubs like Real and Barca racked up debts for? In any other line of work they would have gone bust a long time ago. And the club seem to be placing a lot of weight on FFP having a significant amount of influence. But will it? It's far from certain that UEFA will be able to enforce these rules. And, even if they can, who says that clubs will stay in UEFA in the long-term? Just like the top-four in England managed to set-up the Premier League, what's to prevent the European elite from establishing a European super-league if they don't like UEFA's new rules? Not much, in my opinion.

What it all comes down to is this - in the short-term, Arsenal will not be making any mega-purchases. Our transfer policy will continue to focus on unearthing undervalued gems, and young prospects. In the long-term, the club is betting on the collapse of the transfer-market bubble. Will this happen? Only time will tell. But at least the club is being honest to the fans about how they are directing our transfer policy, for better or for worse.

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