UNTOLD ARSENAL » 2008 » July » 14

All business life has bubbles.  If you paid attention at school you might have heard of the South Sea Bubble – when the South Sea company bought the national debt from the government and paid insane interest rates, based entirely on the fact that more and more people were signing up for the scam.   Then they stopped buying, and everything collapsed, and even a few government ministers ended up in prison.

Or the Dot Com bubble.   Start-up companies conned the banks into lending them billions for businesses that had no hope of going anywhere or doing anything – but the banks did it because “dot com” was the big thing and if you weren’t lending money to a dot com you were not in the game.   Every single TV ad was for a web site.   And none of them made money.  They all went bust.

Now we have mortgage bubble, where billions has been lent to people who should never have been allowed to borrow – people who would never be able to repay – and then the bubble bursts.

There are thousands more examples, but they all have something in common.  A few people who know what they are doing go into an area of business (there were good exploration companies before the South Seas company, and EBay was a good model for a dot com company).  But then copycats who know nothing pour in, and get reduced to ashes.

This is what is happening in football.   Suddenly having a big football club becomes the in thing.  Everyone wants to buy one.  And not just any old club.   An EPL club.  So the clubs
are purchased and money pours in.  Chelsea, Manchester U and Manchester C, Tottenham, Liverpool, Newcastle…  Everyone does it believing that in the end they will sell the club and make more money, because EPL clubs are hot property.  They always go up in value.

But of course they don’t.  In the end the bubble bursts.  And this is where we have to differentiate between Arsenal and the rest.

Arsenal is self-sufficient – which is what made the News of the World story so annoying.  Arsenal has debts based on its stadium – but the stadium generates more than enough profit per season to pay for itself.  Arsenal (unlike other EPL clubs) makes a profit on its transfers – and so overall is very healthy.  A proper business making a profit.

Contrast with the other clubs.   Their only profit comes from the final sale – which is why Manchester U are now in a situation where they cannot pay the interest on their debts each year.  No one who owns the club minds because they expect to get all their money back and  more when they sell.

Except for one little detail.  All bubbles burst.  The moment will come (and I suspect it won’t be long) when suddenly there will be no more buyers.  No one will be willing to pay crazy money for clubs, and the owners will have clubs that are effectively worth nothing, with debts that cannot be paid off.

So what do they do?

They give them to the liquidator and walk away.  We’ve seen it happen a dozen times to the clubs in lower leagues – just look at Luton Town who’ve done it three times themselves.   Now all we have to do is sit back and watch it happen to an EPL club.

It won’t be long.