true faith : THE COST OF MIKE ASHLEY!

by • August 26, 2017 • tf blogsComments (10)1764

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 …..

  1. Dismissals

Ashley has admitted he made some ‘unacceptable’ decisions in his early days at the club as a result of his “naivety”. These decisions came with huge financial consequences.

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.

  1. “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.

  1. 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.

  1. 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.

  1. Deloittes Money List

The Deloittes Money List ranks all clubs in the world according to the income they generate. Back in 2007, Newcastle sat 14th (6th in England).

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?

  1. 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.
  1. Match Day income

AsUnited’s commercial income has failed to keep pace with other clubs, how has NUFC’s match day income held up under Ashley?

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.

  1. 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.

However after ironically opening the purse strings for the first time since he bought the club, Newcastle were relegated.

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

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10 Responses to true faith : THE COST OF MIKE ASHLEY!

  1. Peter Ward says:

    Brilliant Michael. How can anyone still defend Ashley and also claim the present negative publicity is ‘fake’ news. They ought to be forced to read this and if still in denial …….

    • Dave le Freak says:

      The comments on the strategy to deal with debt is a strange one. The increased income has stayed in the business but for the relegation no.1 loan.

      I’m not sure why 100pc owner would need to transfer debt into equity.

      Outsourcing does not = “not making money” it means income may be lower but it’s all profit.

      Pop concerts are at the Sol rather than SJP because the stands at SJP are looking sided and the acoustics are challenging. Access for setting up is far easier at SOL too.

      As for match day income, are you really complaining of cheaper ticket prices?

      • nick says:

        Turning your question around, are you saying it’s a good thing that Newcastle United has seen falling non-tv income?

        The club haven’t pegged season ticket prices, introduced a big cheap family area, distributed reduced price tickets via the universities etc simply because the people running it are nice guys with a deep interest in NUFC’s role in the community. Prices have fallen because demand for the product has fallen.

        • Dave le Freak says:

          The Commercial income being the much the same as 2007 can be seen as a good thing. Take catering, if the club gets £300k to rent out the kiosks where it used to make £250k in profit, that would be seen as better (figures are just to illustrate, no idea what the kiosks take / took or what the licence fee is)

          You may well be right, the prices are lower because of a fall in demand but if the club is reducing prices to ensure the ground is full that’s fine by me. I’d been many a time in the latter part of the Shepherd and Hall era and realised that L7 and the back of the Gallowgate were very sparsely populated but the reported attendance was said to be near capacity.

          • Nick says:

            Let’s stick to the bottom line. Under mike ashley, Newcastle united has lost ground on other clubs in terms of the resources it can generate to invest.

          • Dave le Freak says:

            Not really Nick. It wasn’t generating enough money to pay it’s bills under the old regime.

            Other clubs may have pulled away but I think that was already happening pre-Ashley. We were already outside the top 6 and we were losing a lot of money and nobody was putting any money in.

  2. Steve says:

    Another great article. God, it makes for depressing reading, though…

  3. Peter Hope says:

    Im not fan,..but reading this article.Ashley shouldn’t be allowed to be in business,,like football as he the way he has treated ,managers has cost the club is reputation,affected its whole loyalty from the paying fans ,that have to put up with this . Its a crying shame for Newcastle fans,,

  4. Marc Cameron says:

    Disgraceful state of affairs, the fat man should be ashamed yet he parades himself on SKY telling us fans we cannot compete with Man City, a situation we have no illusions of anyway. This club will be relegated again and again under his stewardship. He is a cancer and must be removed if we are ever to be successful again. What a sad state if affairs for such a great football club.

  5. Toonslim says:

    I think he’s done ok