All stood still – Newcastle United’s financial position
Posted on June 4, 2020
NEWCASTLE United are still waiting for their proposed takeover to go ahead, a transaction that will surely herald a new direction for one of the English game’s great underachievers. The sale to the Saudi Arabian Private Investment Fund looks set to go ahead – regardless of misgivings about the Middle Eastern state’s human rights record.
As everyone waits for the deal to be rubber-stamped – and supporters must wonder if the club will ever actually change hands – Newcastle United have released their financials for 2018-19 season.
There are a number of positives about the way Newcastle run their finances, but very few will ever give owner Mike Ashley credit for that on Tyneside. Turnover, at £ 176.4 million, was just over 2% down on the previous season, but the club made a pre-tax profit of £ 41.2 million, the third highest in the Premier League in 2018-19. As an investment vehicle, this looks like a fairly sound business, but Newcastle United lack competitiveness and appear to lack ambition – criticisms that fall at Ashley’s door on a regular basis. This has very much been the story of his era.
Scratch the surface and there are some concerns. Firstly, Newcastle’s reliance on broadcasting revenues is way too high. This stream contributes 70% of the club’s overall income, a marked difference from the top clubs in the Premier League – the average among the “big six” is 46% and there’s a big gap between them and the rest of the division. Basically, the clubs outside the top six have a higher level of dependence because their matchday and commercial revenues cannot compete with the bigger clubs.
Five years ago, Newcastle earned £ 77 million from broadcasting, but since then, media revenues have grown by 60%. While this instantly makes Premier League members of Europe’s wealthiest, it also means that relegation is an absolute disaster for clubs like Newcastle United. Furthermore, it also explains why Championship clubs will risk everything on securing promotion, resulting in the financial “basket case” that is the second tier of English football.
For example, In 2016-17, a campaign that saw Newcastle win promotion back to the Premier after being relegated 12 months’ earlier, the club’s income fell by a third even though they received some £ 40 million in parachute payments. At the same time, they were paying out very high wages for the Championship.
In 2018-19, Newcastle’s matchday income increased by 3.7% to £ 24.8 million, but looking back across the decade, they have scarcely grown – in 2010 matchday amounted to £ 20.9 million. Are Newcastle getting the most out of their healthy and intensely loyal crowds? St. James’ Park has had a 50,000-plus average in 14 of the last 20 seasons yet their matchday revenues of £ 24.8 million are a fraction of Chelsea’s (40,000) and Paris Saint-Germain’s (47,000). Season ticket prices have been unchanged for some time which may have prevented Newcastle from truly monetising their huge support.
Similarly, the club is yet to capitalise on its commercial appeal and this income stream declined by around 2% in 2018-19. This lack-lustre performance is not unusual – in 2014, commercial cash totalled £ 25.6 million, just 8% lower than the £ 27.7 million generated in 2019. Commercial income contributed 16% to the pot in 2018-19 while the top six English clubs derive an average of 37% of their earnings from this area of activity as a result of substantial growth over the decade. This not only emphasises that Newcastle are some distance from the very top clubs, but also, once again, waves a red flag on the subject of overreliance on broadcasting income.
Newcastle fans bemoan the fact Ashley hasn’t spent enough in trying to bring success to the North-East, yet the club owes him £ 111 million which is booked as interest free loans. Newcastle have made a loss just once in 10 years and their wage-to-income ratio was 54.9% in 2018-19 – it has rarely been lower. Their wage bill of £ 96.8 million is modest for a club that attracts 50,000-plus crowds and consequently, they have struggled to keep pace when it comes to player compensation. Wages have risen by more than 60% since Mike Ashley took over, but this pales into insignificance compared to the growth rate at the bigger clubs.
One might conclude Newcastle United has been run as a tight ship, one that looks appealing to potential investors, but the football industry invariably translates prudence or caution as a weakness.
In the transfer market, Newcastle have had spells when they have spent heavily, such as in 2015-16 when they outlaid £ 88 million on a group of players that included Giorgino Wijnaldum, Aleksandar Mitrović and Andros Townsend, but they have really become a selling club. In fact, over the past decade, they have made £ 174 million in profits on player sales, including £ 25 million in 2018-19. In 2019-20, they paid Hoffenheim a record £ 40 million for Brazilian Joelinton and £ 20 million to Nice for Allan Saint-Maximin, but they recouped £ 30 million when selling Ayoze Pérez to Leicester City.
Newcastle United, when they are eventually sold, will probably become the next monied contender in English football. They do need a European presence to take the next step and they’ve not managed to qualify for Europe since 2012-13 when they reached the quarter-finals of the Europa League, the only European campaign under Ashley. They also need some stability when it comes to hiring and firing managers. As it stands, Newcastle are not only under-performing on the field, but also off the pitch. However much money gets pumped in from the Middle East, and whoever arrives at St. James’ Park as part of the new broom sweeping clean, the “Magpies” should be faring much better. It has been 51 years since they last caught a glimpse of serious silverware on the banks of the Tyne, 65 years since the FA Cup was won and they were last champions in 1927. The 2018-19 season may represent the beginning of the end of an uninteresting era, although it will be two years until the accounts start to see radical change. One thing is certain, the club’s new owners won’t be happy with sepia-tinted memories and claims of being a “sleeping giant”. They will expect far bigger things from “the Toon”.