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New strategy makes its impact at Newcastle

Newcastle’s pre-tax loss widened from £14m to a club record £73m, despite revenue increasing by £40m (28%) from £140m to £180m and profit on player sales rising £4m to £6m. This was because operating expenses shot up by nearly two-thirds (£102m) from £156m to £258m.  The club said this was “driven mostly by investment in the playing squad, in alignment with a long-term strategic objective to improve the competitive position of the team.”

All three revenue streams improved, led by match day, where the return of fans to the stadium led to a steep increase from only £176k to £27.5m. Commercial also rose £8m (37%) to £28m, while broadcasting was up £5m (4%) to £124m.

Unsurprisingly, Newcastle’s £73m pre-tax loss is one of the highest in the Premier League, only surpassed in 2021/22 by Manchester United £150m, Chelsea £121m and Leicester City £92m.

Newcastle regularly posted profits under Ashley until the pandemic struck in 2020, the only exceptions being 2010 and 2017, when they were playing in the Championship.   In the nine years up to 2019, this added up to £120m profit, which is impressive from a financial perspective, though the Toon Army would have surely liked to have seen more of that money on the pitch.

One area where Newcastle have plenty of room for improvement is player trading, considering that they have made less than £8m profit from player sales in the last two years. It will be a similar story this season, as there have been no big money departures.

Following the increase, Newcastle’s £180m revenue is now 11th highest in the Premier League, just behind Everton £181m.  They are miles below the Big Six, less than half of the sixth highest club, Arsenal £369m. Furthermore, the top three clubs all earned at least £300m more than Newcastle, led by Manchester City £613m.

Currently, Newcastle’s £28m commercial income is firmly in the bottom half of the Premier League, even below clubs like Leicester City, Watford and Aston Villa. Even more depressing, the gap to the Big Six clubs is absolutely huge, e.g. Manchester City lead the way with £309m, while sixth placed Arsenal are more than £100m higher.

Newcastle’s 95% wages to turnover is the highest (worst) in the Premier League, ahead of Everton 90% in 2021/22. This important ratio is well above UEFA’s recommended upper limit of 70%, but this is somewhat inevitable with the new ownership’s investment strategy.

Newcastle’s squad cost, based on amounts paid per the club’s balance sheet (as opposed to market value), shot up from £233m to £354m. This has more than doubled in just three years and will have further increased after this season’s expenditure. Newcastle’s new owners provided £79m of capital in 2021/22 then a further £127m after the accounts, adding up to £206m. After paying £305m to purchase the club, that means that PIF have now spent over half a billion (£511m).

Until the club manages to significantly grow its revenue, it will have to use some fancy financial footwork to stay within FFP rules.

 

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