Whilst Newcastle United may have struggled on the pitch under Mike Ashley, the perceived wisdom is that he has completely turned the finances of the club around. Don’t expect this narrative to be challenged any time soon by the likes of Sky or the national media.
The latest available accounts (15/16) do indeed indicate a profitable club as opposed to the financial basket case Mike Ashley inherited back in 2007.
But start to dig a little deeper under the headline figures and you start to see a slightly different picture emerging. A picture of numerous failures and missed opportunities resulting in huge financial costs to the club.
And this is the real reason why we struggle to compete with the likes of Watford and Bournemouth. Newcastle United is still paying the price for Ashley’s failures. Let’s take a look at those failures …..
One of his first decisions was to sack Sam Allardyce. He told David Craig: “I probably rushed in too early. The first thing, letting Sam Allardyce go, I was probably too keen to get going and make a difference, and I was a bit naïve about how football worked.” Allardyce famously built a villa, “Casa St James” in Spain with his £4m pay-off.
Next came the constructive dismissal of Kevin Keegan. An absolutely damning verdict from the Employment Tribunal which basically found that Keegan had been lied to over the signing of players forcing him to walk out of the club.
This time a bill of a mere £2m compensation (plus interest) for the club.
- “Wise” signings
The constructive dismissal of Keegan was directly as a result of the club appointing Dennis Wise as Director of Football. Rather than relying on Keegan’s expert eye in spotting a player, the Tribunal found that it was clear that Dennis Wise had the responsibility for signing players. With catastrophic financial results.
Take the signing of González, a Uruguayan midfielder, on a 12-month loan from Valencia. The Tribunal were told that Wise wanted to sign González to enhance relations with South American agents. Wise advised Keegan to look at videos of González which had been posted on YouTube.
“I resigned because I was being asked to sanction the signing of a player in order to do a favour for two South American agents,” said Keegan. “No one at the club had seen the player play and I was asked to sign him on the basis of some clip on YouTube. This is something I was not prepared to be associated with in any way.” Keegan noted.
González played 38 minutes of first-team football for Newcastle, making two substitute appearances before suffering a serious Achilles injury. His loan cost the club £1m in wages in a season.
The refusal to go after the players Keegan wanted and further laughable Wise signings (for Exhibit A see Xisco for £6m), led to Keegan’s walkout and ultimately relegation for the club.
- Relegation number 1
Ashley’s disastrous decision making (appointments, dismissals and transfer strategy) culminated in relegation for a club that had qualified for the Champions League only six years earlier. The costs were enormous.
A drop in income of £33.6m and an increase in the club’s debt of £42.8m to over £150m (a loan from Ashley).
This millstone of debt was still around the club’s neck when Chris Hughton miraculously led Newcastle back to the top flight. He was rewarded with the sack whilst the club was sitting comfortably in 12th place in the top flight. Another one to add to the costs of dismissal.
- Ashley attempts to reduce debt
Despite being responsible for the increase in debt, Ashley refused to capitalise (basically write off) any of his loan to the club like so many other wealthy football club owners have done previously (for example, Ellis Short wrote off £101m of SAFC’s debt).
He was determined that his personal loan should be repaid out of the club’s funds. What was his strategy for doing this?
By selling our best players, cutting costs to the bone and hoarding the unprecedented Sky TV money. This resulted in NUFC being the most profitable club in the Premier League from 2011 to 2015 and the net debt reducing to £80m.
There was an alternative and less painful way to reduce the debt. This involved actually growing the club’s income. This is how the likes of Arsenal and Man Utd have managed to reduce their massive debts.
Growing the club would have prevented the need to sell our best players and in turn generated more income through merit payments, prize money, increased merchandising, gate money etc. Let’s see how Ashley fared with this.
- Deloittes Money List
The latest rankings available (2016) have shown that they have dropped to 21st place (9th in England). The 2017 figures are unavailable but will undoubtedly show we’ve plummeted out the top 50 without the Premier League TV income. More on that later.
But returning to 2016, not only did Leicester, West Ham and Man City surpass us but the gap between the “big 6” in 2007 widened to a chasm.
Take Tottenham Hotspur as an example. In 2007, Spurs income was £16m more than ours. After 9 years of Ashley leadership, the gap has widened to £85m.
How has this happened?
- Commercial income
Ashley took over the club with a fine reputation for business acumen. He had grown Sports Direct from nothing to the biggest sports retail store in the UK. So it would be expected that he would increase the club’s commercial revenue (sponsorship etc).
In 2007, the club’s commercial revenue was £27.6m. After 9 years of Ashley’s leadership, the latest figures available (2016) show that NUFC were actually generating less commercial income (£25.1m) than they were in 2007.
Newcastle’s brand has become so toxic under Ashley that sponsors just don’t want to be associated with the club. Whilst other clubs have exploited the popularity of the Premier League and the unique marketing of their stadium to the full, Newcastle have gone backwards under Ashley.
Worth noting a number of items here contributing to the failure to grow our commercial revenue:
- Newcastle United receive absolutely no income from the Sports Direct advertising at St James’ Park
- United outsourced their catering facilities in 2009 so no longer make any money from this activity
- The renaming of St James’ Park to the Sports Direct Arena (which Ashley has again admitted was a mistake) generated no commercial revenue but a load of negative publicity for the club.
- Even Sunderland have managed to innovatively increase their commercial revenue by using the SoL for pop concerts. Yet St James Park, with it’s unique city centre location, is only slowly catching up with utilising this funding source.
- Match Day income
In 2007, match day income was £33.6m. After 9 years of Ashley, match day income has crashed to £24.7m, or by 26%.
In fact, the only income growth that the club has seen is as a result of the Sky TV deal. And this has absolutely nothing to do with Ashley, it is centrally negotiated between the Premier League and Sky.
So why is this important? Because generally those clubs with higher income perform better on the pitch. And this brings us to relegation number 2.
- Relegation number 2
Ashley gambled that he could keep the club in the Premier League whilst running it on a shoestring and starving the club of funds that were so desperately needed by successive managers. The gamble worked for 6 years.
The costs of relegation have never been higher. The accounts for last season have yet to be released but we know that the impact will be massive.
Lee Charnley set the scene for this summer’s transfer spending when the club released a statement accompanying the release of the accounts for 15/16.
“The financial impact of relegation is difficult to overstate and this will become evident in our next set of financial results for the year ending June 2017,”
“The biggest impact by far is the dramatic reduction in centrally distributed income that comes with dropping down a division; the reality being our income in this area is forecast to fall by over £30m compared to 2015-16.
“To highlight the differences, our 16 live TV games last season earned us £12m in revenue. Contrast this with 2016/17 EFL live fees which, based on our current number of confirmed appearances (12 away and 6 home), will earn us a total of £720k.
“To illustrate further the cost of relegation, 2016/17 marks year one of the new Premier League TV deal and the team that finishes in 18th place this season is expected to receive in the region of £30m more revenue than we did for the same place finish last year.
And so the cycle of failure under Ashley continues. We can see from the last two transfer windows that Ashley has already returned once more to failure number 4. The only way to break this cycle of failure is for him to sell the club.
ANDREW TROBE – Follow Andy on @tfandy1892