Alisher-Usmanov-001

Alisher is coming to town but not bringing new signings like Cavani or Falcao

“.. he sees you when you’re sleeping, he knows when you’re awake, he knows if you’ve been bad or good, so be good for goodness sake!”

Alisher Usmanov gave his time to CNBC to talk about the controversy surrounding the IPO for his cell phone company MEGAFON, the controversy surrounding the IPO and his subsequent billion dollar sale of shares in Facebook, the controversy surrounding Arsenal and the Arsenal board, and why controversy dogs everything he does (hint: jealousy). It’s an extensive set of interviews with Russia’s richest man and minority owner of Arsenal football club. If you have a chance, I suggest watching everything above and reading all of the articles on CNBC about the man and his massive investment portfolio.

Few things were clear from the CNBC pieces but it looked like Usmanov was doing some PR damage control as shares of his cell phone company MEGAFON have taken a dive after the IPO. A similar plight to what happened with the Facebook share prices after their IPO though not on quite the same scale.

What is clear from the interviews is that Usmanov is a very successful investor who buys stocks via private vehicles, floats them on the market, and sells to make huge profits. Stating that he got a taste for investing in 1997 when Goldman Sachs “gave me my training as a financial investor, and I’m actually very grateful for what they did.” That training must have been something special as he has since been very prescient and fortunate in most of his business dealings. The Facebook IPO is a great example, as Usmanov made over $1bn by buying into the private sale and then selling off a significant number of those shares in the IPO.

Part of the reason that controversy dogs everything Usmanov does is that strange things keep happening, such as the sale of Facebook shares which earned him a cool billion. That Facebook IPO has led to fines for the banks connected to the offer, like Morgan Stanley, for certain irregularities.

Usmanov’s Arsenal comments were almost an aside in this interview but he was very clear that he feels the board didn’t do enough to give Arsene Wenger the resources he needs to compete over the last five years and that selling Robin van Persie was a mistake:

I openly want to tell he have many, many difficulties. Of course today less [so], but before in the last five years he not have enough support to provide his conceptions of his game in Arsenal from board; his resources for transfer and for keeping players etc. This is my view.

This decision [by] Mr Wenger also a mistake. If I’m in his place I [make him] stay to the finish. But he explains this [by saying] Robin wants to go to win trophies.

Arsene Wenger was asked this question at his press conference today and refuted Usmanov’s notion that the board didn’t support him, “I believe I have always had the support from the board, and am very grateful for that.” But Arsene did admit that money drove many of the decisions saying:

We have worked over the years in respecting in what we did, which is to always work within our financial resources. Therefore we made decisions which, from outside, looked not based on purely football reasons, but it was based as well on financial reasons.

Arsenal’s self-sustaining model came up in the interview and Usmanov was asked if he would put his own money into the club and his answer was simply, no – not unless Stan Kroenke is willing to sell him control of the club:

I want to take this opportunity to just reaffirm that in order to help the team, we would be ready to buy more shares, to buy control, to buy all shares,

This is simply a repeat of the “rights issue” offer that Usmanov has been making since 2009. The rights issue deal is simply that Arsenal print shares out of nothing and offer them at a discount to anyone who wants to buy them. An inflationary tactic that companies often use when they are on the verge of bankruptcy and cannot borrow money. Another way of looking at this is as a sort of an IPO of shares that already exist: initial public offerings are used to generate capital and in much the same way a rights issue would generate capital.

A rights issue is highly unlikely as it would simply devalue (much like printing money devalues currency via inflation) the shares already owned by Arsenal’s current owner. But Usmanov does “dream” of one day owning Arsenal outright so that he can fix certain things, like… improving effectiveness of the commercial earnings:

We are ready to do all that we can in order to help the company, in order to consider any form of co-operation or ownership with the team. If I have a big stake in Arsenal of course I have my opinion what we must do, for example in the commercial side there are many questions over the effectiveness of the commercial side of Arsenal today, but we will see, we will wait and maybe when I wake up some day I have this Arsenal club.

The timing of this “commercial side” statement is a bit odd. I was contacted today by a member of the Arsenal Supporter’s Trust (not Tim Payton) who was talking to Tom Fox, Arsenal’s Chief Commercial Officer, at the last meeting between the AST and the Board. What my source revealed is that Arsenal’s stadium naming rights deal with Emirates included the recapture of certain advertising hoardings inside the stadium back to Arsenal’s hands for sale to third party advertisers. This, Tom Fox estimated, will bring a few million extra pounds to Arsenal over the next few years. I say this only to highlight that Arsenal are well aware of this “effectiveness of commercial earnings” issue, as had been highlighted by the Arsenal Supporter’s Trust for a few years now, and are working diligently to increase this revenue stream.

The Usmanov interview with CNBC did little to quell the debate on either “side” of the argument over whether Arsenal need a sugar daddy or should prefer the “self-sustaining” model that they have been operating under since moving from Highbury. Clearly Usmanov will not be adding any of his own money to the club unless they want to sell to him and even then he seemed more interested in maximizing commercial revenue rather than buying big players.

When asked if Arsenal should buy Messi, he equivocated saying only,

For Messi! Any club would play any money for Messi! Now particularly today. But you cannot pay enormous price, nor unrealistic price. You need to give this to the hand of professional people like Wenger or his successors.

This talk of “realistic” prices for certain players and of maximizing revenue streams is precisely the kind of talk that the current Arsenal board and manager are criticized for every single day. It remains to be seen what Usmanov’s intentions are with Arsenal but on the basis of this interview it looks more like Arsenal are just another part of his diversified investment portfolio rather than the chimney for Saint Usmanov to climb down and give gifts of Cavani or Falcao.

Qq

23 thoughts on “Alisher is coming to town but not bringing new signings like Cavani or Falcao

  1. Vote -1 Vote +1James

    Rights issues (or some variation thereof, including an IPO) are actually pretty common for companies. And since you are buying primary shares (as opposed to secondary shares from other holders), the money that gets invested goes directly to the company (as opposed to in another shareholder’s pocket). Of course, equity offerings are not undertaken lightly, as they do result in dilution.

    Nice final paragraph in that rights issue link:

    Gazidis stressed that Arsenal’s best players would not be moving on this summer, reaffirming as much by confirming that Robin van Persie had signed a new, long-term deal at the Emirates. The Dutchman, the club’s leading scorer with 20 goals in 44 appearances last season, is now contracted until 2014. “One of the main reasons I signed was to lift a big trophy,” said Van Persie. “I do not want to do it with a different team. I want to lift it with Arsenal.”

    Sigh.

  2. Vote -1 Vote +1Bunburyist

    So…Garrulous Usmanov looks like he’d be about as sugar-daddyish as Silent Stan?

    Also, any thoughts on the Munich draw?

  3. +1 Vote -1 Vote +1craig

    A rights issue is Usmanov’s way of seeming to offer his money to help the club, when in reality it is Kroenke’s money more than Usmanov’s that he is so generously offering up. In a rights issue new shares get issued, Usmanov buys them, his percentage of ownership goes up and he gets more power. Seems like his money going in, right? But he pays in and gets something in return for his investment, its not a gift, its just him increasing his holding, something he is otherwise hard-pressed to do. Kroenke on the other hand allows the rights issue and thereby decreases his ownership percentage, which he purchased fairly. Kroenke is essentially giving ownership of the club away and getting nothing in return. He is the one who would actually be generous in this case.

    Usmanov is clever, and realizes that many fans see this as a way Usmanov can show his generosity to the club, while in reality there is no generosity here on his part at all. It’s just one more power play, and one of the last available to the man who lost the power struggle. For Kroenke to go along with this would be truly magnanimous, and truly stupid. If Usmanov wants to generously provide money, he is free to do so. Cut the check and stop the chatter. If he wants to wage a takeover, he should fund it honestly and stop with the BS. He has no interest in being a sugar daddy or providing funds to the club, he says as much in the interview.

    1. +4 Vote -1 Vote +1James

      Almost all of this analysis is incorrect. In the event of a rights issue, Kroenke (and in fact, all shareholders) would have the ability to purchase their pro rata amount of shares. Usmanov would only increase his shareholdings if he purchased more than his pro rata amount. It’s of course reasonable to assume that Usmanov would gladly take up all of the new shares in a rights offering and also reasonable to assume that Kroenke will take up none of the shares. This is partly why a rights offering will almost never happen under Kroenke’s majority ownership.

      A rights offering, in the highly unlikely event that it would occur, has nothing to do with anyone’s generosity. If Kroenke were to allow it, it’s because of a fundamental belief that the money invested would improve the results on the field and, more importantly for him, the value of the club and his shares. Similarly for Usmanov, he would acquire additional shares and improve the value of his shares. Interestingly, a rights offering is at cross purposes, to a certain degree, with his ultimate goal of acquiring the club outright — one could argue that the best strategy there would be to let the club fail/stagnate, let the share price drop, let dissatisfaction with Kroenke grow to a level that was no longer tolerable for Kroenke, and then offer to buyout Kroenke’s shares at a somewhat depressed value. A rights offering gets Usmanov more shares but probably enhances the overall value of the club, increasing the value of his still minority shareholding but also increasing the value of Kroenke’s shares and potentially making an eventual takeover more difficult/expensive.

      For Usmanov to write a big check to Arsenal, no strings attached, would not be generosity but sheer stupidity. You don’t become as wealthy as Usmanov by simply giving away very large sums of money and with no oversight/control/input. Arsenal isn’t a charity or a non-profit institution. It’s a business.

      1. +1 Vote -1 Vote +1craig

        You obviously didn’t catch what I was saying. and are in fact mistaken. In a rights issue, Kroenke gives away share of the club for no benefit to him. He already owns a controlling share and doesn’t need to buy more shares or do a rights issue. His shares become less value, and for no benefit to him. Therefore, it would be a generous gesture by him to raise funds for the club, essentially giving up part of his ownership percentage to raise funds for the club.

        A rights offering does not “improve the value of his shares” for Usmanov. It would dilute the value of his existing shares. Of course we all know he would be the main buyer of any issued shares and therefore be the primary beneficiary of a rights issue. And a rights issue is great for Usmanov. It allows him to increase his ownership percentage, which he can’t currently do because there are no large sellers, and potentially drops the price of existing shares by diluting their value… which would allow him to purchase them more easily if he could find a seller.

        As for your argument the rights issue raises the value of the club enough to balance the dilution of value caused by the presence of additional shares.. maybe, but I don’t think so. I don’t think a couple new players will appreciably raise the value of Arsenal as a club, and definitely won’t raise it enough to balance the loss of ownership percentage Kroenke would suffer… smaller shareholders also will not see higher prices paid for their shares because of the presence of additional shares on the market… that’s just not supply and demand.

        While the way you describe a rights issue is in part correct, overall, you are very wrong. For Kroenke to do a rights issue would raise funds for Arsenal, benefit Usmanov, and dilute his ownership percentage (because why would he issue more shares only to buy them up himself? He wouldn’t, he would just donate money to the club if that were his purpose)… therefore a rights issue would indeed be generous by Kroenke.

        As for your argument Usmanov would never give money away for no benefit… well the benefit would be increased value of the club, just like the rights issue you say would benefit him by increasing the price of the club. And in this instance, you’re correct in thinking the gifted money won’t result in a significant increase to his share value. Clearly, he won’t do it, because he isn’t going to be a sugardaddy, and it doesn’t make business sense… exactly what I was saying. So, while I appreciate the debate, I think you’ve missed on pretty much every critique you made.

  4. -1 Vote -1 Vote +1Zeddington

    Little sense to be made of this, except that Usmanov is not particularly interested in ploughing his own money into the club. Wants to come across as being responsible and prudent, but doesn’t really succeed in convincing anyone that he has any ‘love’ for the club.

    Bit of a muddle, with no good coming of it.

  5. -1 Vote -1 Vote +1Reddies

    Why isn’t the board used as a way of making more money?
    Make it a 12 man board with 4 places voted for each season.
    You pay £1 million to put your name forward and £3 million a year if elected.
    That’s £40 million a year from something that at the moment gives us nothing, and to the megarich would be small change.

  6. +1 Vote -1 Vote +1Craig G.

    There is no reason why a rights issue would need to be a problem for Stan. He is the majority owner and therefore controls the proceeds of the share sale. He could structure the deal so that he would pocket some of the cash, and/or create a separate class of shares with limited voting rights.

    The assumption when a company sells new shares is that the money received will be used to create something of value, and will therefore increase the value of the company in total. In the case of Arsenal the proceeds could be used to retire stadium debt (which has an ongoing debt service cost), buy players, pay scouts, etc.

    Arsenal currently sells out a large stadium at the highest prices in the league, if not Europe, but wins nothing. This won’t continue forever. Investing in the team now will pay dividends down the road.

    Of course Stan could save a lot of trouble by simply investing his own billions in the club but why bother when you can sell mid table football for top prices?

    The gold standard for a self sustaining football operation is Manchester United and even they can’t compete for the top players in the transfer market. Unless we are planning to add 20,000 more seats to the Emirates and somehow attract a million more fans globally despite winning nothing, that is not really a model we can expect to emulate.

  7. +3 Vote -1 Vote +1jay tee

    I am not a fan of either men. For many it seems like a “grass is greener” or “devil you know vs devil you don’t”. Kroenke makes me nervous because he, even though he was successful as a real estate investor, is a billionaire through his sports ownership (the WalMart money is his wife’s and is separate). Now if you are a share holder for Arsenal that is probably a good thing (although I don’t think dividends are paid), it will mean increased value to the stock holder. That though does not mean winning. For him and I believe his actions stateside support this (NFL, NBA, NHL, NFL referee lockout as well as the continuous discussion of a work stoppage in MLS) profit is king. That is fine of course because they are his properties. Owning an NFL team (is a cash machine) is similar in the business structure to EPL in that TV deals are sold as a package and you are guaranteed your share of the pie, it differs in that non-guaranteed contracts and salary caps mean costs can be kept in check and no relegation. His Denver Nuggets being in the NBA means he can create his own RSN or sell his TV rights to any of the major networks to develop their own (see Lakers/TW deal 20yrs $3b or the Yankess YES network as examples) channel. In addition the NBA has a very stiff salary cap which rewards those owners who do not spend with money from those who overspend. Of course lastly the NHL which is now going to miss another season, because the owners locked in a deal, overspent and now want to take some of the money back they guaranteed to the players. This brings me to Arsenal, which in business terms was grossly undervalued at the time he became involved compared to other upper echelon football properties and had many opportunities to increase cash flow. My fear is that the Gunner fan base has been groomed to accept less than stellar results as a win. That along with the ability to push a club icon out in front to take the heat from result shortfalls is a dreamy situation for an owner looking to be as competitive as possible without ya know, breaking the bank and hurting his pocket.

    I do not know what kind of an owner Usmanov would be. He is extremely wealthy and good at generating profit for himself in each endeavor, yet has shown neither an astute footballing knowledge nor an amiable personality and none of us can say what he would do with, to or for the club. That being said I would like to see him with a board seat simply because I think dissension can strengthen decision making.

  8. +2 Vote -1 Vote +1piken79

    great analysis but I ‘ll have to disagree with you. Wenger will never come out publicly to criticize his current employers, but clearly something has been wrong with Arsenal since David Dein left the Club. I am not really a Usmanov supporter but I don’t think he’ll be any worse than Kronke who has not done much since he became majority owner. Kronke is at Arsenal for the money..lets not kid ourselves. When the shares are high enough he will eventually sell..2years or 20years. Arsenal can only be successfully under the current model if FFP works and I have my doubts about it

    1. +3 Vote -1 Vote +1Tim Post author

      Thanks, for me, I can smell the IPO. That’s what I think Usmanov wants Arsenal for. To do the same thing Man U did recently so that he can pocket a huge mound of cash. Watching those interviews I kept getting the feeling that he’s a one-trick pony and that we are being scammed.

  9. Vote -1 Vote +1Craig G.

    Also, there is loads of evidence that Usmanov is not a very nice man but the Facebook deal is hardly an example. He invested in the early rounds with the explicit purpose of cashing out in the IPO. That the underwriters screwed up the pricing has nothing to do with the minority investors.

    1. Vote -1 Vote +1Tim Post author

      You should read up on the Facebook IPO. It’s not about underwriters screwing up prices. There was some underhanded stuff going on there. That’s why they are paying millions in fines.

      1. +1 Vote -1 Vote +1Craig G.

        Usmanov is an investor in the VC firm Digital Sky. They had the Facebook investment. Even if it is true that the underwriters were able to squeeze a little bit more out of retail investors in the IPO and did so with knowledge that the mobile ad revenues were going to be less than perfect, it hardly implicates Usmanov. Why on earth would he rig a liquidation event for a deal where he was already up 10x?

        I don’t believe it is possible to make a billions dollars without shading some laws and it certainly isn’t possible to do so without pissing people off. That doesn’t mean AU couldn’t be an asset to Arsenal.

      2. +1 Vote -1 Vote +1Tim Post author

        I should be very clear. I am not saying Usmanov did anything, rather that controversy follows all of his dealings. Facebook is one, you can’t say that that was a controversy free IPO.

  10. +1 Vote -1 Vote +1Frode

    How much can really be said on the basis of this interview? His English is awful… You will probably hear just about whatever you want to.

    1. +1 Vote -1 Vote +1Tim Post author

      I watched the entire thing on CNBC. He spoke mostly in Russian and there was an interpreter. Probably to endear himself to the Arsenal fans he chose to answer those questions in English. It was weird because his English is terrible.

  11. +3 Vote -1 Vote +1Terry

    I can’t understand why so many Gooners think Usmanov is the answer. The club should be owned by the fans. Without us there is just an empty stadium. The trouble is the economics of the situation puts all the power in the hands of these oligarchs – whether it’s Kroenke, Usmanov or the people that own Man City etc. The fans are being treated as serfs, fodder … But how do we mobilise the fans to have a voice in what’s going on with their club? Boycott a few matches?

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