Newcastle's focus is on the bottom line not the pitch

The authoritative Swiss Ramble reviews the latest accounts of Newcastle United.  Although the financial picture is relatively healthy, essentially the club is stagnating.

The club swung from £41m pre-tax profit to £26m loss, as revenue fell £23.8m (14%) from £176.4m to £152.6m, partly due to COVID, while expenses increased £45m (28%), including an additional month of accounts. Profit on player sales was up £2m to £26m. Loss after tax was £23m.

At an operating level (i.e. excluding player sales and interest), Newcastle deteriorated from £15m profit to £54m loss. This is the club’s worst ever performance, but is still in the top half of the Premier League with no fewer than 5 clubs having operating losses above £100m.

Main driver of revenue reduction was broadcasting, which fell £18m (14%) from £124m to £106m, while match day dropped £7.4m (30%) from £24.8m to £17.4m. However, commercial rose £1.4m (5%) from £27.7m to £29.1m, including £1.2m from government job retention scheme.

Even after the steep decrease in broadcasting income in 2020, this was still by far the most important revenue stream for the club, accounting for 70% of total revenue, followed by commercial 19% and match day 11%.

Although the £26m loss is obviously not great, it is actually one of the better financial results in the Premier League, as all clubs have been adversely impacted by COVID with many posting much higher losses, especially Everton £140m, Manchester City £125m and Aston Villa £99m.

Without COVID, revenue would have been £14.4m higher at £167m, due to broadcasting rebate and lost match day income. Along with £12.7m additional costs incurred for 13th month in accounts, the net impact was £27.1m, so club’s underlying profit was a healthy £1m.

The bottom line was boosted by £26.3m profit on player sales, up from £24.6m prior year, mainly due to Ayoze Perez’s move to Leicester City. This was the 7th highest profit in the Premier League from this activity, though far below Chelsea £143m.

Newcastle have made money in eight of the last 10 years, the only exceptions being 2017 (Championship) and 2020 (COVID). They posted £94m profits in this period, which is impressive from a financial perspective, though the Toon Army would have liked to see more of that money on the pitch.  The focus on the bottom line is very well illustrated by them reporting the 4th highest aggregate profit in England in the last decade of £94m.

Despite the fall in 2020, the £153m revenue has grown £27m (21%) in last four years, entirely due to the new TV deal that started in 2017/18. It’s a similar story since Ashley’s arrival in 2007, as revenue has grown £66m, but £80m is from centrally negotiated TV contracts.

The £153m revenue was 8th highest in the Premier League, only behind the Big Six and  West Ham. However, there is a substantial gap to sixth place with Newcastle being less than half of Arsenal £343m and less than a third of top of the (financial) table Manchester United £509m.

Newcastle have only qualified for Europe once under Ashley, earning just €5m in 13 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 €272m in last four years.

Ashley has barely managed to grow commercial income at all in 13 years, so the club has fallen way behind rivals in this important revenue stream, e.g. the Big Six have grown by £100-230m in this period. Newcastle outsourced catering in 2009, but that was only worth £6m.

Ashley did pay the club £141k, though this was down from prior season’s £1.1m and less than the £594k the club spent on purchasing goods from the owner’s companies. Previous accounts said the club would receive payment from Sports Direct for stadium advertising, but not quantified.

Player sales have had a decent impact on profits, contributing £185m in the last decade. The five years £85m. There was very little money in the 2020/21 season, as largely free transfers.

The reported wage bill rose £24m (25%) from £97m to £121m, mainly because accounting period was extended to 31st July, thus covering 13 months. Increase would have only been £15m to £112m if adjusted for 12 months. Increase also driven by 14 growth in headcount.

As testament to fans’ loyalty, average attendance has been around 50,000 for last 10 years, including a very impressive 51,108 in the Championship.  Despite the decrease in 2019/20, the attendance of 48,248 remained the 7th highest in the Premier League, but it is worth noting that the club reportedly had to give away around 10,000 half season tickets to present a full stadium to broadcasters (and potential purchasers).