Arsenal Football Club: The Accidental Victim?

Can Arsenal Preserve Its Human Capital In The Aftermath of Brexit?

The war on globalization conjures images of dilapidated towns in the American Rustbelt, of the jubilation that encompassed Trump Tower on election night 2016 and of the solemnity that defined David Cameron’s expression as he approached the podium outside 10 Downing Street to announce his resignation in the hours following the United Kingdom’s collective decision to withdraw from the European Union (‘Brexit’). Increasingly, however, the mention of isolationism should herald thoughts of Arsenal Football Club.

Arsenal’s supply chain is irrefutably atypical, commencing with the sourcing of players, who in effect serve as the organisation’s raw materials, from around the world. Last season, players from 65 countries were represented across the Premiership. Players are subsequently cultivated and assembled by Arsenal, culminating in the finished product: a team of eleven players who compete in domestic and international competitions. The downstream supply chain is composed of the distribution of viewing rights in the form of both ticket sales and licensing to domestic and foreign TV channels (ticket receipts accounted for £100m in 2016, 24% group revenue; sales of TV rights contributed £199m in sales, 47% group revenue) (1). The final downstream channel is tied to the ability to be associated with the product, which arrives in the form of sponsorship deals (‘Commercial Revenue’ accounted for £117m in 2016, 28% group revenue) (2)

Football holds a central role within England’s national consciousness, and thus carries an unparalleled capacity to elevate the national morale. That ability has, more recently, been accompanied by the ascent of the Premier League as an emblem of globalization. When Arsène Wenger was appointed Arsenal’s manager in 1996, he became the fourth manager appointed from outside the UK in English history; today, he is one of 12. (3) This season, 84% of Arsenal’s playing minutes have been played by foreign footballers. (4)

Arsenal’s rapid internationalization renders it particularly vulnerable to the brand of isolationism manifested in Brexit. The upstream supply chain is intensely threatened by the prospect of enhanced work permit restrictions being levied on foreign players, particularly those from within the EU, whose talent has contributed significantly to its success as a Club to date. Those permits serve, in effect, as tariffs on the human capital necessary for Arsenal to continue to prosper.

In turn, the deteriorative ramifications Brexit poses for the club’s downstream supply chain are principally vested in three key tenets. The first of which is that the sale of TV rights and sponsorships deals internationally are inextricably tied to the presence of players from across the globe, i.e. French viewers are more likely to watch if there are French players. Secondly, stadium ticket sales will decline alongside the fall in number of foreign visitors to the UK expected to emanate from more stringent visa restrictions. Finally, the decline in quality signaled by more restrictive sourcing policies will culminate in a diminished product.

With two exceptions, Arsenal’s response to Brexit has been animated by the hope that the rinsing tide of isolationism will recede naturally. The first exception is that the Club has sought to suppress the extent to which its global distribution model relies upon foreign players, by building the global popularity of its brand independent of its access to foreign players. Arsenal has achieved this through the means of pursuing exhibition matches across the globe, hosting training camps internationally and enrolling foreign corporate sponsors. Furthermore, the Club has increasingly enacted a strategy of fostering home-grown talent, through cultivating a pipeline of young footballers and subsequently awarding those players opportunities to develop their talents. In doing so, Arsenal has further extricated itself from its historical dependence on foreign talent and has ascribed to the FA’s 2016-designed regulations on homegrown players. (5)

To maintain the success of the club’s supply chain going forward, Arsenal must address the origin of concerns regarding the distribution of its product through maintaining the quality of its players. This can be achieved through two means: lobbying the British government to replicate the existing access to athletic labour following Brexit, and committing additional resources to developing local talent.

From a structural perspective, the Club should explore the possibility of enhancing supporters’ ability to participate in the governance of the organization, in order to reorient around local interests and talent. The representation of supporters within the management of German football clubs has contributed to a culture that affords more opportunities to players from within the country. (6)

The Club should, also, investigate the opportunity of hosting competitive Premier League matches outside of London, in a manner similar to that in which the NFL has held matches in London, in order to further cultivate international support.

How will Arsenal cope with the demands associated with the English Premier League once more becoming English? In an industry in which localization is not a plausible strategy, how do you retain support in international markets amidst a groundswell of isolationism?

800 Words

Endnotes:

(1) Arsenal Holdings PLC, Statement of Accounts and Annual Report, 2016-17, p. 16

(2) Arsenal Holdings PLC, Statement of Accounts and Annual Report, 2016-17, p. 16

(3) The Economist, The English are Bad at Playing Football- but Brilliant at Selling it, September 2nd 2017

(4) ESPN, Premier League Third-Most Reliant on Foreign Players in All of Europe, October 9th 2017

(5) The Telegraph, Brexit Disappointing and Will Damage Premier League, 25th June 2016

(6) The Economist, The World’s Game, Not England’s’, May 3rd 2017

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12 thoughts on “Arsenal Football Club: The Accidental Victim?

  1. I love it, Eric! Your definition of a football club’s supply chain is spot on. Certainly, Brexit posses challenges for Arsenal given the high proportion of foreign players/products in its roster, but I also believe that the premier league in itself has an interest in ensuring lax labor restriction under Brexit. Aside from Sheffield United, whose roster is composed entirely of English and Irish players, all the football clubs in the top two divisions in England are reliant on foreign players. (1) Moreover, a recent study by the International Centre for Sports Studies’ (CIES) Football Observatory, assessing percentage of minutes played by foreign footballers at 466 clubs in the top divisions of 31 different European leagues so far this season, found that the Premier League is third-most reliant league on foreign players in all of Europe. (2) Thus, since cultivating national talent will entail a long lead time and might potentially be fruitless (given the English national team’s performance during recent major cups), the premier league relative skill level is prone to decrease unless labor restrictions on football players are eased under Brexit. This will have severe consequences for the top clubs in the premier league (e.g. Manchester United), who are used to leave an impression on the international football stage through Champions League. I hope your country can make an exemption here!

    (1) https://talksport.com/football/premier-league-clubs-highest-number-foreign-players-revealed-170824251725
    (2) http://www.espnfc.com/english-premier-league/story/3224746/premier-league-third-most-reliant-on-foreign-players-in-europe-study

  2. Eric,

    Thoroughly enjoyable read (though undoubtedly the article would have packed more of a punch if written about Liverpool).

    I was surprised to see how many of the Premier League’s current starts would be effected by the work permit descriptions you described above, such as Juan Mata and Ander Herrera of Manchester United, amongst others. However, given the influence that football holds in the UK, both in terms of it’s economic and social value, I do believe the Football Association will ensure that there is not a major disruption to teams like Arsenal, and to the EPL as a whole, as a consequence of these restrictions. Though, that is not to say that there will be no effect here as a result. There is certainly evidence to support that there will be an impact to the clubs’ ability to source international players without restriction. Greg Clark, the chairman of the Football Association, recently said when asked about the situation “It won’t be an open-door policy, it won’t be no foreigners. It will be, ‘Let’s let world-class Premier League teams bring in world-class players but not average international players’.”(1) I guess we will have to wait and see how this plays out (pun intended).

    (1)http://www.telegraph.co.uk/football/2017/04/06/brexit-premier-league-fa-odds-immigration-exemptions-foreign/

  3. Eric, thank you very much for your article, it was a very interesting read. I would like to offer a different perspective and point out that Brexit will not only impact local teams in the UK, but other football teams outside the UK can also suffer the consequences of it. For those of you who are not familiar, La Liga (Spanish league) rules stipulate that clubs have no more than three non-EU players in their squad. Britain’s withdrawal from the EU would re-classify UK players in the Spanish League as non- EU players.

    Let me use Real Madrid as an example: before Brexit, in 2016, Real Madrid’s non-EU players were James Rodriguez, Casemiro and Danilo. Britain’s withdrawal from the EU would re-classify Gareth Bale as a Non-EU player, and this would have pushed Real Madrid’s number over the La Liga quota in 2016. This meant one of those four players would have had to be sold to avoid breaching league rules.

    Fortunately for the football team, Brexit is taking time to be official and the summer after the voting took place Real Madrid sold Danilo, and James was given on loan. As a result, if no other non-EU player signs for Real Madrid, Brexit will no longer be a problem for the team.
    Some could argue that one of these two movements already factored in Brexit…

  4. I think the best method English football clubs could fight the tariffs is through lobbying of the British government. Given the immense popularity of the sport in England and Europe as a whole, I have to imagine there would be significant public backlash against any tariff that might diminish the quality of the sport and consequently of the ability of English clubs to compete on a global scale. Arsenal and its fellow teams should leverage this public sport to persuade law-makers to ensure adequate protections are in place when Brexit is executed to ensure no additional tariffs on their international supply chain.

    I believe the purpose of the homegrown talent rule is to both ensure some level of quality for the English national team and to keep the identity of the league British. However, given the size of professional football rosters (over 25), I do not see the current requirement of 5 as having a significant adverse impact on the quality of the fielded side.

  5. Thank you, Eric! Brilliant essay!

    The biggest question that your topic raises for me is ‘who will benefit from the EPL becoming more English?’. The US’s recently rising interest in football leads me to believe that perhaps a potential competitor market for foreign players will be the US Major League Soccer. However, since the US is also adopting increasingly isolationist policies, perhaps the opportunity does not lie there but in other European or Asian clubs.

    I think the revenues generated from viewing rights and ticket sales perhaps present too much of an incentive for the status quo to be changed too much; if the highest revenues come from the best entertainment, the best entertainment comes from the best players and the best players come from outside the UK, it’s hard to envision a world where exceptions aren’t made to accommodate foreign talent in the EPL. (Though I fail to see why such talent would choose Arsenal with White Hart Lane little ways down the road)

  6. Thanks Eric the the insightful read and creatively explaining Arsenal’s supply chain. I have a couple of thoughts to simply provide a different perspective.

    The first is related to ‘Brain Drain’. While you are focusing on Arsenal’s perspective, there is also the perspective of the soccer leagues in Africa and South America that are losing talent. While the selling clubs are usually compensated generously for producing high quality players, it does cause a detriment to those leagues to lose top talent to the UK.

    The second is tied to the success of the English national team. You mention that football is critical to the morale of the country, but England hasn’t won a World Cup since it hosted it in 1966. I find it difficult for England to develop its talent if ~80% of the playing time at the top team is taken by internationals. Therefore, Arsenal’s response of creating a larger pipeline of domestic players may help the country’s national football team.

  7. Very interesting analysis of the impact of Brexit on Arsenal and English soccer in general. Are they now in a disadvantaged position to compete in the Champions League with other European clubs? Beyond having to adapt to this new reality, can Arsenal and other British teams be key players in fighting isolationism more broadly? By having not only Europeans but players from all over the world playing side by side, relying on each other, can’t they help demonstrate that regardless of nationalities, races, sexual orientation, religion, and any other characteristic, we are all equal? Soccer is a passion. Can’t it make an isolationist cheer for a Nigerian, a German, a Colombian? In that sense, can’t it help reduce the isolationism sentiment that pressures governments to adopt more and more extreme measures?

  8. I greatly enjoyed this wonderful essay, Eric! (JJ, couldn’t agree more about Liverpool….)

    With that said, I want to push back a little on your analysis regarding the potential negative effects of this challenge for Arsenal. I agree that these changes are likely to cause a loss of talent, and that Arsenal and others should fight them, as others have suggested. However, I am not sure that the results will be as deleterious on the bottom line as you suggest, because it is not clear whether people both in the UK and around the world watch Arsenal (or the rest of the Premier League) because of international players, or because they are Arsenal!

    Arsenal’s customer promise – and the customer promise of all sports teams – is to create the best possible product they can. When a team is as good as Arsenal, this entails doing everything it can to win within the Premier League, as well as to complete in the European Championship. But, even when Arsenal loses consistently, Arsenal sells out its stadium. Fan loyalty runs wide and deep, and people will tune in to watch no matter what, whether there are players from all over the world / their home country, or that supply is much more limited. For example, there are no Americans on Arsenal – or on Manchester United, Liverpool, or any of the other top teams – but we still all watch.

    In addition, I think the Premier League has become popular not because its teams have won UEFA Champions League – which is where having the best players in the world matter most – but because it is extremely competitive within the league, within which everyone sources players by the same rules, and because they have an incredibly powerful marketing arm. (The Premier League remains the most popular league globally despite having no championships in the last 5 years; Arsenal has never won and has only played in one final!)

    With the above in mind, these rules may diminish Arsenal’s ability to compete across Europe, but I think Arsenal need not to be too concerned about lost revenue, even if the British government doesn’t acquiesce to Premier League’s demands.

  9. Dear Eric,

    I love your use of TOM concepts here in such an unexpected setting. With regards to the threats you outline to the “upstream supply chain” (sourcing talent), it sounds like your recommendation is to do a better job of sourcing and training talent within Britain — or in TOM terms “vertical integration”.

    My question is, to what degree has local sourcing and training been a key factor for success for Arsenal in years past? Do you believe that they have the capability to source locally and remain competitive? And perhaps most importantly from a business perspective, if they can’t continue to be internationally competitive how will that impact their status at home and abroad?

    Best,
    John

  10. Hi Eric Blair, thank you for a very interesting and well written article! I actually disagree with you: I don’t believe that Brexit will have a significant impact on player recruitment in the English Premier League. Currently, Arsenal and other EPL clubs have to demonstrate that international players have outstanding talent and are international-level players. These clubs have been securing permits for players from outside of the EU for years (for example from Russia, Ecuador, and Brazil), as the Home Office wants these big-spender and high-profile players to come to the U.K.
    However, I do worry about the impact of Brexit for Tier-2 teams like Hull and Wolverhampton Wanderers, as they will have to make a stronger case to the Home Office and demonstrate that the player is of a high-enough quality.
    I hope this reassures you, and that we can discuss it one day (even if I am a Manchester United Fan myself!).

  11. Eric! Delightful. While I’m a passive and secondary soccer fan, I do appreciate your view into the mechanics of the business of the sport.

    I am curious, however, whether Arsenal (and the other Premier League clubs) have pursued an exemption from the British government. Something along the lines of an “athletic visa” that would simply require a sponsoring club. Ironically, while the British public did narrowly vote to leave the EU, I would be shocked if they would stand for a degradation of the talent in the EPL, even if it is made up of foreign players. For an American parallel, I’d simply point to the great state of Alabama, which has deep and lasting racial divides, but no one who is anything but proud when Derrick Henry wins the Heisman Trophy.

    All in all, a great article. Thanks for sharing!

  12. Eric,

    Thanks for your tour de force on the English Premier League and Aresenal FC.

    I, too, respectfully disagree with the conclusion that Brexit will have long-lasting pernicious effects on the pan-European (and indeed global) nature of the English Premier League. If ever there was a sport that generated outsized returns for the country where it was born, it is soccer. If ever there was a sport that was inextricably linked with the role of a country in the world, it is soccer in England. Among many interesting things about Brexit is the notion that, when polled today (vs. when the actual Brexit referendum took place), a plurality of voters (47%) would not vote in favor of Brexit. [1] This has led to an unstable political consensus, wherein it appears that the UK is angling for a “Brexit in name only,” i.e., a formal Brexit per the will of the voters at the official vote without the wide-ranging consequences of a “full Brexit.” Though a bit incongruous, I think this dynamic political consensus coupled with a “house view” about the value of soccer (and its internationalization) in the UK is likely to result in a much softer impact on the player realities facing Arsenal today.

    To your second, more general question, about what export-oriented industries do in a national context that turns inward, I’m afraid that the answer is bleak. It is abundantly clear that market access is quite valuable to companies irrespective of where the markets are and how they are formed. [2] The cost of isolationism comes in three flavors. The first of these is the direct deadweight loss associated with not being able to sell into customers who are willing to pay for the goods and services that the exporting company is willing to sell. The second is the cost associated with not being able to benefit from the flow of ideas and commensurate knowledge acquisition that is inherently associated with trade across national and regional borders. Additionally, the cost to produce for all national firms is likely to go up in an isolationist context, as these firms become starved of potentially lower cost, more efficient suppliers in international markets. The analogues to Arsenal’s predicament in a world where Brexit hurts them are clear: less revenue from international customers as they stop watching, less dynamism in the game itself as players stop interacting with new players, and a suboptimal “supply of labor” as many players become inaccessible. Thankfully, I do not think we will live in this world, and English soccer will live on.

    [1] Matthew Weaver, “Labour Flags Up Brexit Poll Suggesting Public Regrets Decision,” October 2017, https://www.theguardian.com/politics/2017/oct/13/labour-flags-up-brexit-poll-which-suggests-public-regret-decision, accessed November 2017.

    [2] Stephen Redding and Anthony Venables, “The Economics of Isolationism and Distance,” July 2002, http://www.princeton.edu/~reddings/pubpapers/isodist2002.pdf, accessed November 2017.

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