French revolution gone wrong in London - Wenger and the flawed wage policy

Winston Churchill once famously remarked, “The inherent vice of capitalism is the unequal sharing of blessings; the inherent vice of socialism is the equal sharing of misery.”

It’s a quote that sums up the sorry state of affairs at Arsenal with respect to their compensation policy for players. Before I go any further into this post, I must confess that I am a huge Arsene Wenger fan. Arsenal wouldn’t be where they are today if not for Wenger. He has revolutionised their playing style, transformed kids into world beaters and has achieved great success with the limited means he has got.

As the club’s most successful and longest standing manager, Arsene Wenger wields great control over issues both on and off the field. Wenger masterminding Arsenal’s move to the Emirates from Highbury and his transfer dealings show a glimpse of the free hand he is given at the club. They also testify the fact that he is a master strategist. But while most of his decisions and tactics have paid rich dividends for the club, there are certain exceptions as well. The most notable among those exceptions is the ‘socialist’ wage structure in place at Arsenal – another Arsene Wenger brainchild.

It is not common for football managers to hold a degree in economics. “Le Professeur” holds an economics degree from the University of Strasbourg. I am inclined to think that Wenger loves his economics as much as he loves his football. The economist in Wenger is very much alive and kicking. Follow his press conferences, you will notice him talking recession, excessive spending by clubs, financial fair play and player wages among a host of other things.

Last week saw Wenger discuss the pay structure at Arsenal. “We don’t have a big gap ­between what our players earn at Arsenal. We are more a socialist model and are vulnerable because of that. We have something that is defendable in front of every single player. We make exceptions, but the exceptions are maybe not as high as elsewhere. We have an amount of money that is dedicated to wages. Within that we try to do things that make sense and are defendable.”

Wenger owned up to the socialist wage structure in place. Has the economist in Wenger let him down big time? Has the Frenchman’s socialist evolution gone horribly wrong at North London? Here is a closer look at the pay structure to put things in perspective.

Arsenal’s wage bill in 2012 is £143 million, up 15% from £124 million in 2011. Comparing numbers with other clubs in the English Premier League, Arsenal are fifth behind the Manchester clubs, Liverpool and Chelsea. Despite the high wage bill, the highest paid player in Arsenal is rumoured to be Lukas Podolski at £107,000 per week. The highest pay per week in other top clubs is way higher than what it is at Arsenal. Rooney is on £200,000 per week and Eden Hazard is at £185,000 per week. Manchester United, despite paying astronomical wages of £200k per week to the likes of Rooney and Van Persie, have a wage bill that’s only £19 million higher than that of Arsenal annually.

The fundamental difference between Arsenal and other clubs is that Arsenal players are paid more equitably. Wenger’s logic behind this structure is that it fosters a sense of equity among players, promotes team ethos and does not put anyone on a monetary pedestal. A closer look at the wages at Arsenal reveals a lot of players earning in the wage bracket of £50k to £70k per week. While Wenger’s theory of equality and socialism seems all nice in theory, it has hit Arsenal hard in reality.

The problems arising out of this wage structure are two-fold. One, Arsenal are not able to attract top talent or retain top talent. Two, they are unable to get rid of the fringe players who wouldn’t be offered the same (high) wages elsewhere. Nasri and Van Persie have left Arsenal for the Manchester clubs where they have seen their wages getting doubled. Adebayor’s was a similar example. At the other end of the spectrum, Arsenal are stuck with players like Squillaci and Chamakh, whom they are not able to sell to other clubs; other clubs can’t afford their wages. Denilson exemplifies this problem at Arsenal. At £60k per week, Arsenal couldn’t find suitors for the Brazilian; as a result, they have been forced to loan him out for consecutive seasons. Chamakh and Bendtner have also been loaned out in similar circumstances. The worst part about such deals for the Gunners is that they have to bear a part of the wages for the loanees.

The issue is at least being recognized by the Arsenal Board. CEO Ivan Gazidis, in the recently concluded feisty Arsenal AGM, mentioned that the existing wage structure is flawed and that steps are being taken to match the players’ wages with the industry benchmark. Gazidis further noted that the transformation would take two to three years. Wenger’s recent comments, however, seem to defend the existing wage structure. From those comments, one gets the impression that Wenger sees no fault in it. The Board and the manager don’t seem to be on the same page with respect to the wage structure.

What seems most baffling though is the compensation received by the CEO of the club. Ivan Gazidis is one of the highest paid CEOs in the EPL, second only to the CEO of Manchester City. Peter Hill Wood, Chairman of the Arsenal Board, justified the CEO’s compensation, stating it was set according to the industry standards. Wenger also features among the highest paid managers in world football. When the CEO’s and the manager’s compensations are benchmarked against their peers, it begs the question why the players’ wages shouldn’t be benchmarked against their counterparts’ wages in other clubs. Despite RVP’s claims of Arsenal’s lack of ambition being the main reason behind him leaving the club, Arsenal’s inability to match the pay offered by Manchester United played a crucial role in his transfer. The mess surrounding Theo Walcott’s contract negotiations also has its roots entrenched in similar issues.

Clearly, it is not a problem of lack of funds but a problem of misappropriation of funds at Arsenal. Socialism will clearly not work in a market with clubs like Chelsea and Manchester City. Moreover, the model is also not an efficient one. Wenger needs to get his economics sorted. Arsenal need to act quickly to set right the flawed wage policy which has been in effect for the past six odd seasons.

A famous saying goes “An economist is an expert who will know tomorrow, why the things he predicted yesterday didn’t happen today.” Yesterday, the economist in Wenger predicted the socialist wage structure would augur well for the club. It’s clearly not working wonders for the club today. May this fact dawn at the earliest tomorrow for the Frenchman.