April 2013

INTRODUCTION
1.
2.
In March 2013 Arsenal Supporters’ Trust appointed TrioPlus Limited to undertake a short independent research project to assist the Trust in reviewing the corporate governance and supporter engagement arrangements at Arsenal Football Club.
The Trust was formed in 2003 with the following objectives to:
 Promote the interests of supporters who own shares in Arsenal Football
Club;
 Facilitate wider supporter involvement in the Club;
 Facilitate and promote mutual supporter ownership of Arsenal Football
Club.
3.
4.
5.
6.
7.
8.
During the past ten years the Trust has been successful in that it has developed a positive working relationship with the Football Club, raised the profile and understanding of ownership and financial issues relating to the
Club, and founded the Arsenal Fanshare scheme which has been commended by other interested partners, and attracted almost 2,000 supporters as Fanshare holders.
The Trust aims to liaise with Arsenal Football Club’s major shareholders, directors and executives, and with other Arsenal supporters and supporters’ representative organisations. Its objective is to act as both a critical and constructive friend of Arsenal to ensure long term success and sustainability both on and off the pitch.
The Trust, when appropriate, also makes representations to Government and other interested parties on issues that are of interest to Arsenal supporters, and the football supporter in general.
Arsenal Football Club has a consistent record of success stretching back to the 1930s and more recently has won the Premier League title on three occasions since its introduction in 1992-93, been runner up on five occasions, won the FA Cup five times in the corresponding period, and qualified to play in the UEFA Champions League 15 seasons in succession, reaching the Final in 2005-06 and the Semi-Finals in 2008-09.
The Club has not won a trophy since 2005.
The Club is owned by its parent company, Arsenal Holdings plc.
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TRIOPLUS LIMITED
9.
TrioPlus is a small niche consultancy working in the sport and leisure sector with specialist skills in governance; programme and project start ups; and grant funding. All three Directors held senior positions in the sport and leisure industry before successfully moving into consultancy some 10 years ago. TrioPlus Limited was formed in 2005 and has among current and recent clients major National Governing Bodies of Sport including the Football Association, England and Wales Cricket Board, Lawn
Tennis Association, Rugby Football League, many other National Governing
Bodies of Sport, London 2012, Sport England, UK Sport, local authorities,
Universities and national charities. TrioPlus has wide experience of the
Governance arrangements that exist within sport both nationally and internationally.
THE BRIEF
10.
Arsenal Supporters’ Trust requested that TrioPlus undertake a short independent Review of the Governance arrangements pertaining to
Arsenal Holdings plc and the Football Club in a sporting and sports politics context.
11.
The assignment has been undertaken as a desk research study using material supplied by Arsenal Supporters’ Trust, Annual Reports of Arsenal
Holdings plc, information drawn from websites of organisations such as the
Premier League, The Football Association, Supporters Direct and the
Football Supporters Federation, Government Reports including the recent
Department for Culture, Media and Sport Select Committee Reports on
Football Governance [July 2011; Jan 2013]; Sport England Governance
Guidance to Sporting Bodies. Significant additional website interrogation of relevant documentation and articles has also been undertaken.
12.
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The approach taken has been from a positive standpoint in that Arsenal is a successful organisation both on and off the pitch with a worldwide fan base but that the Club has fallen behind its main competitors in recent years.
This Review forms part of a wider study being undertaken by Arsenal
Supporters’ Trust, the Review complements a more legalistic Governance
Study being undertaken by Corporate Governance Limited [CGL].
ARSENAL: CONTEXT
14.
Throughout its history Arsenal Football Club has been at the forefront of developments within football, both on and off the pitch.
15.
For example the Club has been at the forefront of:
 New formations on the field of play as long as 80 years ago;
 Original experiments with floodlighting during a similar period and, years later, the first Diamond TV Replay screen in the game;
 The first use of shirt numbers;
 The upgrading and naming of Arsenal station on the Piccadilly Line;
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 Football and the Community developments in Islington during the
1980s and 90s;
 The appointment in 1996 of the first foreign Manager in the Premier
League in Arsène Wenger and the subsequent signing of outstanding players of overseas origin that led to outstanding success on the pitch;
 Foresight in developing the Emirates Stadium;
 Supporting (initially) the development of the Arsenal Fanshare scheme and creating good liaison with supporters;
 Investment in a women’s team that has been highly successful on a continuous basis.
And, very importantly, always trying to treat the supporters correctly as people. During the ‘dark days of football’ in the 1970s and 1980s Arsenal never contemplated ‘fencing the fans in’. It cost the Club commercial income foregone in respect of FA Cup Semi-Finals and other representative matches but the Club remained resolute in respecting supporters.
17.
The Club has also demonstrated resolute stability both in terms of ownership and finances.
18.
Until the 2010-11 financial years the Football Club, latterly through
Arsenal Holdings plc, has experienced a plurality of ownership. The majority shareholding had for nearly 75 years been dominated by two families, the Hill-Woods, and the Bracewell Smith/Carrs. In addition approximately 10% of shares were owned by Arsenal supporters.
19.
20.
Currently, at 19 th April 2013, Mr Kroenke owns 66.83% of Arsenal
Holdings plc through his KSE UK Incorporated wholly owned vehicle. Red and White Securities Ltd, a vehicle owned by Russian billionaire Alisher
Usmanov and Ardavan Moshiri on a 50/50 basis has a 29.99% holding, the remaining 3% is in the hands of individual supporters and the Fanshare scheme. Arsenal Holdings plc is the majority shareholder in a further 11 wholly owned Companies that cover Shareholding, the Professional
Football Club, Property Development, Stadium Operations, Retail
Operations, Financing, and the Ladies Football Team.
21.
American entrepreneur Stan Kroenke, owner of real estate and a significant sports and entertainment empire in the USA, first acquired shares in Arsenal Holdings in 2007, by 2008 he was invited to join the
Board, and in April 2011 when Danny Fiszman died he was in a position to launch a takeover from within the Boardroom and persuade the other
Directors to sell to him. Other Directors relinquished their minority shareholdings at this point.
The debt profile of Kroenke Sports Enterprises, the ultimate owner of
Arsenal, is uncertain. The KSE takeover document made it clear that a loan facility was in place with Deutsche Bank to fund the acquisition of shares but, because of the secrecy of companies registered in Delaware, it is not known how much was borrowed to acquire the Arsenal shares or whether there are any key dates for repayment or interest bearing pressure.
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22.
Arsenal Supporters’ Trust continually tries to encourage both Mr Kroenke and Mr Usmanov to release small numbers of shares that can be purchased by minor supporter shareholders or released as part of the
Arsenal Fanshare scheme. Neither has yet responded positively.
23.
Mr Kroenke has to date chosen to operate Arsenal Holdings plc and the
Football Club on a very similar basis to a USA sports franchise, and his particular franchises in Denver, on a wider basis in Colorado, and with the
NFL’s St. Louis Rams. He has a local Board, an empowered Chief
Executive, a Head Coach/Manager and plays little role in the day to day running of the business. He is keen to drive up commercial revenues, keen to keep costs as low as possible and is a firm supporter of the
Financial Fair Play initiatives being taken by both UEFA and The Premier
League. He and the Arsenal Board are committed to running a sustainable business model that does not involve any higher risk debt. He appears to have adopted a similar long term investor view to his USA Franchises whereby eventual returns will be realised through increasing domestic and worldwide television rights, worldwide commercial income, and more locally based commercial income. The stated objective for the Club is a
‘shared ambition’ to win silverware.
24.
In 2011-12 Group revenues were £243million and Arsenal Holdings plc posted a profit of £36.6million. Football operations actually posted an operating loss largely due to an increase in the wage costs to
£143.4million, the fourth highest in the Premier League, but a profit of
£65.5million was recouped on player sales. Ticket revenue was
£95million, broadcast revenues £84.7million and commercial and retail income £52.5million. Arsenal are ranked in the top three in the Premier
League for ticket and broadcast revenues, but only eighth in terms of commercial and retail revenues. Average ticket sales per home game
[excluding Capital One Cup] were 59,772. Group revenue is expected to rise above £300million in 2014-15 given increased broadcast revenues, renegotiated sponsorship deals and an increase in commercial revenues assuming a position in the top four of the Premier League is retained with attendant qualification for the UEFA Champions League.
25.
The profile of current Directors is as follows:
 Peter Hill-Wood is Chairman of the Board. Aged 77, he was educated at Eton College and had a career in the Military and in banking where he rose to be Vice Chairman of Hambros Bank. He is the third member of the family to be Chairman of Arsenal following his father and grandfather. Chairman since 1982 he sold most of the family shareholding in Arsenal during the 1980s and 1990s and the remainder to Mr Kroenke more recently.
 Ken Friar, 78, is an Executive Director who has served the Club in different capacities for over 60 years. He was Company Secretary from 1973 and became Managing Director from 1983 to 2000. He stepped down from this role to concentrate on the project of moving the Club from its previous stadium at Highbury to the Emirates
Stadium. In November 2011 the Club honoured him by naming the
North Bridge at the Emirates Stadium ‘The Ken Friar Bridge.’
 Ivan Gazidis, 48, is Chief Executive Officer. An Oxford Graduate who twice won a football blue, Gazidis is a lawyer who practised in the USA
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and became, in 1994, a founding member of the management team for
Major League Soccer [MLS]. He subsequently became Deputy
Commissioner. Joined Arsenal in 2009 and is responsible for enhancing the Club’s business and commercial operations.
 Sir John ‘Chips’ Keswick, 73, attended Eton College and the
University of Aix-Marseilles. He had a distinguished business career in banking being a Director at Hambros Bank, a non-executive Director of several FTSE 100 companies and a Director of the Bank of England.
He is a member of the Keswick family who control Hong Kong giant
Jardine Matheson.
 Stanley Kroenke, 65, is an American businessman with interests in retail and housing development, and head of and owner of Kroenke
Sports Enterprises. He is the owner of the St. Louis Rams NFL franchise and has interests in the Denver Nuggets NBA and Colorado
Avalanche NHL franchises. Kroenke Sports Enterprises also owns the
Pepsi Centre in Denver and a regional television network. He first became interested in Arsenal in 2007 and through an accumulation of shares now holds a controlling interest of 66.83%. As at March 2013,
Forbes estimated Mr Kroenke’s net worth to be in excess of
US$5billion.
 Phillip Harris, Baron Harris of Peckham, 70, is Chairman of
Carpetright and has over 40 years experience in carpet retailing. He holds a number of non-executive Directorships and joined the Arsenal
Board as an independent Director in 2005. He is a well known philanthropist who has contributed extensively to education and has interests in politics and horses, being a co-owner of a gold medal winning GB show jumper at London 2012.
In recent years there have also been notable departures from the Board.
David Dein left in 2007 and Lady Nina Bracewell Smith in 2008. The Carr brothers were also Board members and took a lead responsibility for some of the footballing operations at the club.
COMMENTARY
27.
In the brief we were asked to comment on whether or not the Board was representative of its stakeholders, in particular Arsenal supporters and whether or not the Board followed best governance practice being recommended by other sporting authorities and Government. Our observations are as follows.
28.
There is no question that the Board comprises distinguished people and businessmen in their own right. They are competent to oversee the Club and indeed follow a very successful business model. As we commented earlier in the Review, there is an ‘Arsenal Way’ of going about things and the Club is at the forefront of pioneering new projects and new methods of doing things. The Club has an excellent record of working in the community and does genuinely seem to value its support on a worldwide basis.
29.
Pose the question ‘could the Board be more representative of its stakeholders and supporters?’ and the answer is ‘yes’.
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30.
Although distinguished individuals, four of the six Directors are over 70 years of age, two are over 75 years of age. Most sporting organisations would now consider 70 years of age to be the limit for Board members, the Football Association has an age limit of 70 for its Chair and 75 for
Council Members. The Premier League considers 70 to be the correct age for its Chair to stand down.
31.
Several members of the Board are longstanding and again best practice would suggest that 8-10 years is the maximum that non executive
Directors should serve for. Sport England, in its most recent advice to sporting organisations, suggests that two terms of four years or three terms of three years should be the maximum that Directors should serve for. There is a continuity argument in the time that it takes to build relations with other organisations such as the FA, Premier League, UEFA,
FIFA and other international bodies but this can equally be done from a more Honorary role. If nothing else limiting the terms provide an opportunity to ‘freshen up’ the Board on a periodic basis and the opportunity to ensure continuity and prevent several retirements at the same time.
32.
Recently there has been considerable debate about the lack of female
Directors and it is correct to say that many sporting organisations across many sports are traditionally male. The Premier League fan survey shows that 1.3million [5% of the total adult female population] adult females regularly attend Premier League matches, a further 2.2million [9%] are fans not attending matches and a further 1.2million [5%] are casual fans.
Outside the Premier league some 2.6million adult females [11%] are classified as fans. Arsenal has not been backward in this area as Lady
Nina Bracewell Smith was a Director for many years but it is something that should be addressed going forward. Sport England is saying to
National Governing Bodies of Sport that 25% of Board members should be female from 2017 and that the Board should reflect the stakeholders in terms of equality and diversity. Arsenal has a proud record of diversity amongst its fans and players who represent the Club on the pitch but such diversity has yet to reach the Boardroom or the senior footballing positions. It should surely be feasible to find a highly competent female
Director with Boardroom skills and an affinity with the Club.
33.
It is also noticeable that the Board does not contain a distinguished former player who might provide an independent critical challenge on issues relating to the playing side of the Club. It is, for example, a role that is played with distinction by Sir Bobby Charlton at Manchester United and is widespread in Europe, particularly in Germany where for example Bayern
Munich has several distinguished former players on its Board and the most distinguished Franz Beckenbauer as its President. If the Club did not feel able to add such personnel to the Board then it could consider creating some form of football advisory sub-committee of the Board to make sure its decisions on footballing matters had the input of those with real life experience.
34.
Similarly there has been considerable discussion around supporter engagement particularly where examples of poor ownership and governance have surfaced. This has been discussed widely in the media and by the Department for Culture, Media and Sport Select Committee in both 2011 and 2013. Organisations such as Supporters Direct have issued
Guidance on Best Practice for Supporter Engagement. Good engagement
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between Club and supporters has shown to have many benefits.
Supporters can be a constructive and critical friend, guarantee that the
Club will be there in the future, put pressure on to ensure that the club is run competently by people with the best interests at heart, be direct stakeholders and shareholders, and ensure that the club has a cultural heritage and is an asset to its immediate area. During discussions with the Select Committee the Football Authorities agreed that a move towards regular meaningful fora at club level was a must and that each club must have a structured dialogue with its supporters.
35.
In the case of Arsenal, we studied the Kroenke Sport and Entertainment
[KSE] Takeover Document dated 2011 in which it states:
36.
‘Mr Kroenke has made it a priority to meet with supporters and fan groups in formal and informal settings. He recognises that fans are at the heart of the Club. Their opinions and involvement are important to him. Mr Kroenke fully expects himself, the Arsenal Directors and Club executives to continue to engage with supporters for the long term good of the Club.’
Members of Arsenal Supporters’ Trust inform us that the direct contact with Mr Kroenke has just not happened since the takeover and this is clearly a breach of the commitment made that he himself would meet supporters and this undermines good governance. There is a frustration growing as the Supporters’ Trust really believes it could be of great value to Mr Kroenke in increasing his understanding of the UK and worldwide fanbase, and also it is important that the owner engages not only with the
AST but with Arsenal supporters more widely for the good of the club. The
Trust would also like to ask Mr Kroenke for his direct support with the
Arsenal Fanshare scheme.
37.
The Trust acknowledges that they do have contact with the Chief
Executive and other executives, both formally and informally, and that these represent best practice in the Premier League but they quite reasonably would like a dialogue with the owner.
38.
Based on the evidence above it would not seem unreasonable to consider whether a longstanding supporter with Boardroom experience and qualities, should be either elected as a Club Director or given a formal liaison role to the Board, becoming a more structured link to supporters.
Alongside this, the owner should also have a dialogue at least once a year with supporter representatives. Alternatively, the Club could appoint a specific non-executive Director to lead in this area of stakeholder liasion.
CONCLUSION
39.
Our brief was to take a snapshot view at the governance of Arsenal from a sporting and political perspective and also look at how supporter engagement might be improved.
40.
Arsenal is a competent organisation with a distinguished (yet ageing)
Board and high quality executives.
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41.
The Board is currently very compact but will almost inevitably need to change in the not too distant future and Arsenal has another opportunity to lead where others have followed.
42.
The recommendation of TrioPlus is that the Club should create two or three new Director positions with specific skillsets to enable them to advise the majority owner:
 One to be occupied by a distinguished former player with appropriate boardroom skills who would be able to provide independent challenge and advice on playing issues;
 One to be occupied by a female who has appropriate Boardroom and commercial skills and an affinity with Arsenal;
 One to be appointed with the specific responsibility of engaging with
Supporters and wider stakeholders ensuring that supporters felt more of a sense of involvement with the Club and that there views were being considered in the Boardroom
43.
We also recommend that consideration be given to creating a football advisory board sub committee, to report to the main Board, that takes more of a strategic and supportive role on areas like youth development, player scouting and football coaching infrastructure.
44.
We are not necessarily suggesting that the Board should increase in size on a permanent basis but that there should be a transitional period to make the slight change of emphasis.
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