The authoritative Swiss Ramble takes his usual forensic look at the recently published accounts of Newcastle United. Promotion brought the club back to 'a healthy financial position', moving from £47m loss before tax to £23m profit, as revenue more than doubled from £86m to a record £178m and no repeat of prior year £32m exceptional costs: £10m promotion bonus and £22m onerous contracts.
The club's £93m revenue growth very largely driven by broadcasting’s £79m increase to £126m, reflecting vastly higher TV money in the Premier League, while commercial also increased £13m (90%) to £28m, but match day flat at £24m. However, profit on player sales dropped £39m to £4m. This was one of the lowest gains in the Premier League, in stark contrast to clubs like Liverpool £124m, Arsenal £120m and Chelsea £113m.
Over the years player sales have had a decent impact on profits, contributing £184m during the Ashley era. That said, only three years were above £20m. If such profits were excluded in 2017, the loss would have been as high as £89m. This year will include Mitrovic and Merino.
Newcastle were one of 13 Premier League clubs to report a profit in 2017/18. Although their £23m profit before tax (£19m after tax) was pretty good, it was actually only the 9th highest in the top flight, a long way below Spurs £139m and Liverpool £125m.
Newcastle have been profitable in seven of the last eight years, the only exception being the Championship season in 2016/17, amounting to £79m. Since Mike Ashley bought the club in July 2007, Newcastle have had total profits of £27m, as there were £53m losses in his first three years. Looking at the last eight years, they have posted sixth highest profits in England of £79m, despite the chunky £47m loss in 2016/17.
On the one hand, the club's £178m revenue is the eighth highest in the Premier League, only behind the Big Six and Everton £189m, but on the other hand they are a long way below the leading clubs, e.g. around half of sixth placed Spurs £381m and less than a third of Manchester United £590m. Before Ashley’s 2007 takeover, Newcastle had the 14th highest revenue in the world, just £19m lower than the 10th placed club. In 2018 this gap has soared to £201m, around 10 times as much, as the club has been left behind by others’ growth.
The club have only qualified once for Europe under Ashley, earning just €5m in 11 years. In contrast, they qualified in 10 of the 13 years before he became owner, including three times for the Champions League. As an example of what they could have won, Spurs got €128m in the last three years.
Not only is Newcastle's £24m match day revenue lower than the last time in the Premier League in 2016, but it is also nearly a third less than the £34m in the last season before Ashley’s arrival. Others have surged ahead in this period via stadium developments or success on the pitch. As testament to the Toon Army's loyalty, the 2018 average attendance of 51,992 is the highest since 2006. The previous season, they averaged a very impressive 51,108 in the Championship.
Commercial income nearly doubled from £15m to £28m, as performance-based clauses were triggered by promotion. Comprises commercial £26.7m (including central Premier League sponsors) and other income £1.4m. This was the ninth highest in top flight, but way behind the elite clubs. Ashley has only managed to grow commercial income by £0.5m in 11 years, so the club has fallen way behind rivals, e.g. Big Six have grown by £65-220m in that period. Accounts say that Sports Direct will now pay for stadium advertising, but a similar promise was made in 2015.
Newcastle enjoyed the fifth highest wage bill in England before Ashley bought the club in 2007, but since then this has risen by just £34m (57%) from £60m to £94m, while others have increased wages by significantly more, e.g. Spurs up £104m (237%) from £44m to £148m.
They spent £51m on player purchases in 2017/18, including Murphy, Lejeune, Atsu, Merino, Joselu amd Manquillo. This means they have spent £207m in the past three seasons. All well and good, but Newcastle still had the third lowest spend in the Premier League last season, only above WBA and Burnley. They were at pains to justify their transfer spend and it is true this has tripled in the last four years to an annual average of £55m. However, this is still a lot less than leading clubs. Average net spend over the entire Ashley era is a measly £13m.
Debt was reduced from £152m to £145m, almost all (£144m) owed to Mike Ashley, as the £8m bank overdraft was eliminated. The owner’s additional £10m cash injection was repaid during the year, while a further £33m was also repaid after year-end, leaving £111m. The club said that Ashley considered the remaining £111m debt 'to be long-term in nature, having been in place for over a decade, and repayable only in the event of the sale of the club.' However, unlike many owners, Ashley has not converted any debt into equity.
The £144m debt is almost twice as much as £77m Ashley took on in 2007, including £58m mortgage for stadium development, and is the seventh highest in the Premier League. In addition, an overdraft facility was taken out in January 2019 in advance of the Premier League TV money payment.
Managing director Lee Charnley concluded, 'These positive financial results give the club a strong platform on which to build', but manager Rafa Benitez cautioned, 'We need a team that can compete in the Premier League and not just survive' in a far from subtle plea for a decent transfer budget. The Swiss Ramble's verdict is 'Ashley has been looking to sell the club for some time, but apparently his hefty asking price has put potential purchasers off. From a purely financial perspective, he’s run the club well, but the chronic lack of investment has clearly hampered Newcastle’s prospects.'
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