Is Debt really that bad?

[Joker]

This is in response to a comment in another thread, and from Wenger's repeated warnings about the so called dangers of debt. For example,

http://www.arsenal.com/usa/sh/news/n...r-stadium-debt

“I accept one basic principle for every company; that you can spend the money you make,” he said.

“It always looks like a massive surprise that I have to convince you of that. I think it is just natural common sense and logic.

“It is mathematical logic that what goes out has to equal what comes in. If that does not work then the company loses money.”

I think this is another example of Wenger being overtly dogmatic and rigid in his thinking. Of course, Man City levels of debt is probably not sustainable and is dangerous, but no one is asking for the club to adopt that model. Surely making another £30M available for transfers wouldn't result in financial meltdown? And it may well be self financing if that spending results in increased success for the club. Sure, there's a risk, but there's always uncertainty in any "business", and if you want to reach the top (which is what the move to the Emirates stadium supposedly was about) then we can't focus solely on "prudence" and need to take a risk with more debt IMO.

I'd like to see someone give a detailed answer of why reasonable levels of debt is so bad. Wenger is actually wrong when he says "it's mathematical logic that what goes out has to equal what comes in". No it doesn't, we're taking about finance and economics, not the law of conservation of energy. There is no "natural" law that says we must balance the books. Debt financing has been going on for centuries, and while clearly the financial crisis has shown what happens when you go into excess levels of debt, I doubt the amount of money needed to make us competitive again is so much that we'd no longer be on a sure footing financially.

[GP]

Depends

[Cripps_orig]

Wenger should worry more about whats happening on the pitch stuff and leave the off pitch stuff to others.

If hes given money, he shouldnt be thinking, how much of it should i spend so we dont go in to debt? He should spend it all if possible

[Özim]

Some would say you have to speculate to accumulate, you can play it safe as we always seem to do and stay where you are and never really grow, or you can invest a bit to increase your chances of winning, which could increase you marketability all over the world.

The long term gains of investment can be massive, there's a risk of course but we're not talking astronomical amounts we couldn't claw back eventually anyway.

[LDG]

Some would say you have to speculate to accumulate, you can play it safe as we always seem to do and stay where you are and never really grow, or you can invest a bit to increase your chances of winning, which could increase you marketability all over the world.

The long term gains of investment can be massive, there's a risk of course but we're not talking astronomical amounts we couldn't claw back eventually anyway.

I agree here. I think we should speculate to accumulate, but not in the fashion that is commonly held...i.e. using the bank.

What should be happening, is Kronke should be looking to be more ambitious. He should be putting money into the club, as he will be taking massive profits out of it when he sells.

Common sense would say that he would make more profit on his exit, if he stuck a bit more cash behind the team. Afterall, success on the pitch, and (much as I hate to say it) lucrative marketing on star players, would see his gains increase.

[Özim]

I agree here. I think we should speculate to accumulate, but not in the fashion that is commonly held...i.e. using the bank.

What should be happening, is Kronke should be looking to be more ambitious. He should be putting money into the club, as he will be taking massive profits out of it when he sells.

Common sense would say that he would make more profit on his exit, if he stuck a bit more cash behind the team. Afterall, success on the pitch, and (much as I hate to say it) lucrative marketing on star players, would see his gains increase.

I agree with this, there's risk but I think it's minimal, as you say star players are very marketable and often bring back their value multiple times to the club involved, we only really seem interested in the very cautious approach which whilst very safe will always make it very hard for us to compete and grow as a club.

If he's a businessman I don't really understand why he doesn't see this.

[Niall_Quinn]

Debt, not just in a football sense but generally, is the worst creation of humanity. It is always unsustainable but this basic and logical fact is hidden. The worst aspect of debt is it can never be repaid. When money is created (from thin air) to create debt it immediately attracts interest. Therefore debt based systems always have a shortage in the money supply. Think about it. In isolated terms debt can seem rational because within a larger system an individual or a company can accumulate more of the money supply in order to service the interest. But overall there is always a shortage. When you can repay your debt it automatically means somebody else can't, by design. This isn't a case of good creditors and bad creditors (as the media tries to imply when they speak on behalf of their friends). This is a case of the system being rigged from the outset.

So on principle Wenger is 100% correct when he says it is impossible to spend more than you earn. In this he understands money far better than most (so-called) economists. His logic is not only unimpeachable but it's the only moral approach you can take towards money. Labour and production produces wealth, not banks. Banks create unsustainable debt. That's all they do now they are entirely detached from their original purpose. However, in practical terms, provided you are prepared to harm others debt can be made to work in your favour.

I'm glad we run a sustainable policy. I'm not so glad we run such a vigorous profit model on top of that. Being sensible in business is not the same as being greedy.

[Marc Overmars]

Our debt has always been very sustainable, which is why there's no excuse as to why we have beaten around the bush in the transfer market for many years.

We didn't have a pot to piss in during the glory days. Apparently we couldn't even string together the 3m needed for RVP in January 2004 and had to wait until May to sign him.

I think that success has warped the board and Wenger into thinking it is a viable route to success now, when it's not anymore.

[Letters]

Some would say you have to speculate to accumulate, you can play it safe as we always seem to do and stay where you are and never really grow, or you can invest a bit to increase your chances of winning, which could increase you marketability all over the world.

The long term gains of investment can be massive, there's a risk of course but we're not talking astronomical amounts we couldn't claw back eventually anyway.

I don't think moving stadium was playing it safe...

I do think we're too cautious now but we're in a different football world. Teams like City aren't speculating, they're just spending, spending, spending till sheer weight of it brings them success. And there's no consequence or risk because their owners can bail them out. They spent 117% of their income just on wages last year It's completely ludicrous that a club is allowed to operate like that. Hopefully FFP will help but I'm sceptical.

[Özim]

I don't think moving stadium was playing it safe...

I do think we're too cautious now but we're in a different football world. Teams like City aren't speculating, they're just spending, spending, spending till sheer weight of it brings them success. And there's no consequence or risk because their owners can bail them out. They spent 117% of their income just on wages last year It's completely ludicrous that a club is allowed to operate like that. Hopefully FFP will help but I'm sceptical.

It's a relatively safe bet, reason being that we had a long waiting list so we knew we could sell out the stadium, there's an element of risk in any investment of course but noone is going to lend you that kind of money without a pretty solid business plan which almost guarantees a return of the capital. Spending money on players is no doubt viewed as riskier as there's much oless guarantees there, if a player fails to perform his value plummets and you lose your money, that's not going to happen to land or a stadium.

They can only have a squad of a certain, they can spend whatever they like but it doesn't stop us doing our own thing and signing quality ourselves at the end of the day.

Yeah the FFP, can't see it myself.