Allardyce and Fans Disappointed at Ashley Investment – It Depends

The Daily Telegraph is reporting today that Mike Ashley’s £134M takeover of Newcastle United was recommended by the club’s previous Board of Directors only after he promised to invest in the team.

Documents detailing Ashley’s bid for the club suggest Freddy Shepherd only backed Ashley’s bid after becoming sure they offered “the best possible opportunity for the club to flourish in the future”.

Let’s take a look at this important story but this may be nothing more than a media over-reaction to sell newspapers and the conclusion we reach is very simple.

In fact we are pleased Ashley and Mort seem to be running the company professionally.  Please read on   😀


Newcastle Owner Mike Ashley

On June 7, in a letter to shareholders Freddy Shepherd, on behalf of the then Newcastle board wrote:

“The Newcastle United board believes that a critical factor in improving the performance of the club on the pitch is Newcastle’s ability to invest in its player squad.””The company’s publicly listed status has placed certain constraints on its ability to invest in players, notwithstanding the fact that over the last five years the company has spent approximately £104M on player acquisitions.”

“This has become more acute in recent years as football clubs have significantly increased the amount they are able to invest in their squads, with a resulting escalation in the level of transfer fees being paid for players, and in particular highly rated players.”

“The offer from SJHL is at a level which fully reflects both the performance of Newcastle United and its prospects and ambitions for the future, and the board believes SJHL and Mike Ashley will be excellent custodians of Newcastle United’s heritage and will provide the best possible opportunity for the club to flourish in the future.”

The offer document submitted by Ashley is 52 pages long and when reviewed for references to investment in the club this is what it says:

“Mike Ashley has funds to make available, through SJHL, for investment in Newcastle.

However, before finalizing the amount he is willing to invest, Mike Ashley will want to undertake a thorough strategic review, including its existing infrastructure, contractual arrangements, playing staff and financial position.”

It’s smart business not to say exactly how much you are willing to invest before you take a club over – and the review has now been completed.  New Newcastle Chairman Mort has indicated the reduction in the club’s £80M debt is a priority and he has indicated:

“The debt’s too high and it’s something we’ll look to address quickly.”

Good we agree with that – it’s too high, but not a good reason not to invest in the transfer market this summer and back Manager Allardcyce.

Ashley should not have been surprised at all by the debt at Newcastle as the most recent set of accounts, for the six months to December 2006, show Newcastle’s net debts to be £77M. On this site several months ago readers were quoting our debt at £80M before any takeover activity.

This should have all come out during the due diligence all companies are required to do before acquiring any other company. It’s at their peril if they don’t do this thoroughly because due diligence is meant to stop things like this happening (being surprised how more the debt it once you have acquired a company). Those with business experience on acqusitions and mergers will know this procedure is very important.

The above actions show Mike Ashley and his people will run the club much more professionally than in the past – and that’s good. If Ashley is still willing to invest say then £25M in transfers for Sam – and Sam is OK with that – everything in the garden will be rosy. Given the accuracy of newspaper reports on Newcastle over the last few weeks there may be no such £10M restriction on Big Sam. A savvy business action now to reduce the debt may be to reduce the transfer fund this summer – but not to the levels suuggested in the media.

As long as sufficient funds are made available to Big Sam and he is happy with what he gets we don’t see any problem at all.  But reducing the transfer fund to levels of £10M is too low and would be a concern if true.  Good executive management of a football club would suggest that sufficient transfer funds be made available now – whatever the debt.

Comments on this important story are very welcome. Just a reminder to keep comments civil with decent language 😀

14 comments so far

  • Hammy

    Aug 2, 2007 at 9:57 AM

    Comment #1

    Ed and Darren…just read the Telegraph article…it looks well cobbled together, lots of facts and figures…as Darren says could well explain why the toon have not been splashing the cash, maybe Ashley isn’t as rich as we think he is and maybe he’s a bit of an impulse shopper…….thing is how do you take it back if you don’t want it? I’m right in thinking the stadium belongs to the council? The toon don’t really have any tangible assets apart from the squad, 52k season ticket holders and maybe the training ground, oh and Sky’s pot of cash.
    I would have thought it would have been cheaper to wipe the debt out if you could afford to, either that or sell a couple of your best players.
    You’ve got to take your hat off to BSA though he’s been very diplomatic about the whole thing………..just hope someone else does not make him a better offer.

  • Kash

    Aug 2, 2007 at 10:02 AM

    Comment #2

    The impression I am getting is that the structure of the debt is hindering what the new owners would like to do. So they’ve got a £55m, 15 year mortgage which is fair enough. But having £25m in short term debt is quite bad i.e. a 1/3 of the debt! Imagine you’ve got £300k of debt for your household, of which £200k is your house mortgage and then you’ve got £100k of loans and credit cards. The mortgage won’t cripple you because it’s structured around your circumstances. But the £100k will! I’m assuming servicing this short term debt is causing the hinderence, so in that case I can see why the owners are being cautious.

    However, I am slightly concerned of suggestions that a complete due dilligence was not performed and only recently it has come to light the extent of our debts.

  • Kash

    Aug 2, 2007 at 10:03 AM

    Comment #3

    The stadium DOES NOT belong to the council!

  • Bosck

    Aug 2, 2007 at 10:26 AM

    Comment #4

    look at the report on the journal website by luke edwards.

    its an interview with chris mort, where he admits that the debt is larger than they 1st thought, but thankfully he says that he sees the debt and the transfer budget as 2 entirely different issues.

    Its all positive stuff, says that the calibre of player they are aiming for are those with premiership or champions league experience, and whilst they will not pay silly money they understand that you will have to pay to get these kind of players in.

    also says there is no intention of selling the club and that they are looking at both short term goals like improving the squad as well as long term property development etc goal.

    this is the kind of stuff we wanted to hear, the last couple of days has made me far more positive about everything.

  • Bev

    Aug 2, 2007 at 10:38 AM

    Comment #5

    I now don’t believe this 10mil only rubbish, sky sports have said we are in talks with Smith today which will cost around 6mil (yes i know we have money from dyer) but Sam has already said that he has one or two in the pipeline this week and hopes to sign two or three more, so to get the ‘quality’ or premiership experience of 2 to 5 players will cost more than 10mil (especially including wages) and the interview with Chris Mort in the Journal has brightened my mood slightly today 🙂 maybe last nights result (probably done on purpose by Sam) has opened their eyes about our squad!

  • Rob Kirton

    Aug 2, 2007 at 10:46 AM

    Comment #6

    Hammy: Ashely pocketed 950 million or so in cash just over 12 months ago when Sports Direct floated, keeping a large shareholding and day to day control. The shares in that busines that he kept were worth another 900 million or so at time of floatation, now down to about 500 million, due to him basically falling out with City investors, not keeping them informed or using a slick PR operation. His recent quotes about that suggested he couldn’t give a toss. So basically he does have the dosh.

    The ground and the land around it is owned by NUFC, I beive on a long trem leashold basis which in effect amounts to the same thing. Prior to the Halls re-developing the ground we used to rent it from the City Council. So no problems there

    As a general point:
    I cannot believe how fickle some fans are, welcoming Ashley one minue and already bad mouthing him alreday. When I saw some comments yetsreday about telling him to clear off back down south, I nearly fell off my perch. What else should we do? tell him to knock down St James’s and move the club lock stock and barrell? It is his 100% to with what he likes. The club has never belonged to the fans and almost certainly never will. Some things change, some things don’t…

  • Phil

    Aug 2, 2007 at 10:48 AM

    Comment #7

    We are stongly linked with Smith and Dioup today so if we get them ok but thats 2 non defenders. So we still would need to sign 2-3 Defenders after that.

  • Chris M

    Aug 2, 2007 at 10:59 AM

    Comment #8

    Kash: According to the crack MA took over the club aggressively and could pay cash, so didn’t even get into a due dilligence stage what-so-ever That is why Freddy did not even see it coming on his radar.

    If you ask me he should stick his hands in his pockets and cough up that 25mill you mentioned. Tight sod…..its like buying a packet of crisps for most of us…..he he.

  • Hammy

    Aug 2, 2007 at 11:01 AM

    Comment #9

    Rob, thanks for the info on Ashley and who owns or does not own the ground……..most fans me included were doing cartwheels when the new “abramovich” bought the place……however most fans are a bit dismayed at the lack of squad investment…….the quality has improved while numbers haven’t, another injury hit campaign like last season and we will be in the brown stuff. We release 3 defenders (term used loosely) and buy 1, oh and we were short of defenders anyway…….we are buying 2 0r 3 last week, this week, next week……..

  • Andy T

    Aug 2, 2007 at 11:30 AM

    Comment #10

    “Those with business experience on acquisitions and mergers will know this procedure is very important. ”

    Absolutely agree, however there are a couple of things to be aware of – There are ways to “hide” debt and until you become the company accountant you cant always find these. Even if they were there, which in this case I think it is possible, you have to look at how the debt is structured. This is especially relevant in the current climate of raising interest rates and uncertainty in the financial market around different forms of debt security.
    I highlighted that portion in the offer letter when people were bandying around the 50 Million figure a few weeks ago. MA always said that more funds were available, but that the amount he was willing to ship out of his own pocket was dependant on a review of the business. In the medium and long term taking the debt off the balance sheet will free up more cash within the club for investment in players/facilities etc. I think you’ll also find that Ashley and Mort are backing Sam 100% in his back room expansion, which in itself will be casting somewhere in the region of £50M. So if they make that investment, remove the debt that’s 130M giving a total of £260M Ashley has forked out this month. I know he got £900M But Mr Brown will have had about £100M of that in taxes thank you very much, so if his “cash” wealth is about £800M – he just spent 1/3 of it on Newcastle united leaving him with cash of £540 – (Yeah yeah I know what a hardship being down to your last half billion in cash). But asking for an extra 25M isn’t like you or me buying a bag of crisps. Look at it more like buying a new car – then the company ringing you up and asking if you fancy paying 10% extra to get the engine fine tuned. If you’re not 100% sure of the car, you might want to wait a while to see if you need to spend the extra.

  • Kash

    Aug 2, 2007 at 11:47 AM

    Comment #11

    I really don’t like the “Newcastle-Mad-Online” website. They put some stupid articles on there which are quite antagonising at times and just plain stupid. They’ve really got a hard on for N’Zogbia and want him out, they”re always posting rumours about him. Getting sick of these guys.

  • david veitch

    Aug 2, 2007 at 11:51 AM

    Comment #12

    These people mean business and will invest incrementally when the time is right to bring us up to championship league level.
    I’ll put it another way the squad this year should be good enough to finish 6th, next year or possibly the year after that a top 4 finish, then as we move along gradually, better players will be purchased to achieve these aims. Read Luke Edwards conversation with our new chairman in the Journal today.

  • Rich

    Aug 2, 2007 at 12:14 PM

    Comment #13

    im a bit perplexed at this article, does it actually tell us anything we dont already know? apart from Freddy specifying that NUFC needs plenty of investment on the player front?

    Surely the new owners know the best way to sort our debts out is to build up a solid team and win something????

    Their is no point in getting NUFC back in the black if it means we become a relegation battling side or even a championship team!

    i have my reservations regarding Ashley & Mort, i was over the moon when Freddy left but so far ive been less than impressed with Ashley.

  • Toon2k

    Aug 2, 2007 at 12:27 PM

    Comment #14

    I can’t believe what short memories some so called fans have.

    Does anyone remember the quotes coming out of the press when MA first took over?

    “Mike Ashley is thinking big – and is willing to splash out ₤270M – over the next 5 years – to make Newcastle a European powerhouse.

    His plans for Newcastle are for them to be Premiership Champions within 3 years and challenging for the European Champions league within 5 years.”

    Anyone making bold claims like that must be prepared to pay the price. An average of £54million a season if the above figure is anything to go by. Thats the same sort of money Man U and Liverpool are paying out and it looks like we will be matching them pound for pound which not many clubs can do. So keep the faith, the transfer window doesn’t close on the 11th August like some people must have in their heads. BS has until the 31st August to get in reinforcements and if he doesn’t get everyone he wants you can can bet your bottom dollar he will be back in the market in January!


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