There is just one sentence in the Newcastle statement that has fans worried, but is it really something that is worth worrying about?
Mike Ashley – getting Newcastle’s financial house in order
The statement that has fans concerned is the following:
“The first team squad that won the Championship this year will form the basis of the team for next season in the Premier League. There is no plan for new capital outlay on players.”
Notice it says forms the basis of the side, and that infers there are additional players coming in.
Not just a digression about capital costs as contrasted to day to day expenses or running costs in managing a business.
Capital assets are usually big ticket items that are not put on the books in the year they were bought, because they’d skew the books too much. So the costs are spread over a certain period of time and the capital costs are different from the running costs of a business, which are things like wages, heating costs and the like – which tend to be fairly constant each year.
Capital costs are things like big tractors for farmers and the like – things that are needed for the business and are usually high cost.
Capital cost for players are probably the transfers of players that the Newcastle club has bought, but the fee was not paid up front, but spread much like a capital cost over several seasons.
It seems that in the past this is what the Newcastle club did to buy their players, so in the case of Damien Duff, as one good example, they paid his fee off – probably over 4 years – and we still owed Chelsea oney when he was transferred to Fulham last summer.
The shock that Mike Ashley, Chris Mort and others got after they had bought the club, and didn’t do the due diligence necessary, was they found they had all kinds of costs each year at the club, based on players who had been signed years before. Certainly Chris Mort and others kept mentioning the Newcastle books were hardly normal, and not like you’d see in most businesses.
And we know that the money from Northern Rock had already been spent or at least spoken for to buy Michael Owen from Real Madrid.
What that probably meant was that Newcastle didn’t have the £17M to buy Owen, but cited the money they got each year from Northern Rock as how they could pay for Michael, and the money they got from Northern Rock each year was allocated to Real Madrid to pay for Owen – and was not available to Chris Mort, representing the new owner of the club.
We also know that in the case of Spaniard Albert Luque – the club was still paying off his transfer fee to his former club Deportivo La Coruña – after he was transferred to Ajax – and remember the cost to Newcastle for him was a ridiculous £9.5M.
So the club was still paying for him after he had left the club, and had turned out to be a complete dud in terms of a player for Newcastle United.
No wonder Chris Mort and others associated with Mike Ashley got the shock of their lives when they delved into the club’s books – because the money coming in was all already spoken for – or at least a large chunk of it.
The difference this summer seems to simply be that whichever player comes in will be paid for fully and up front – and portions of his transfer fee will not be allowed to be put onto the following years’ balance sheets as a cost.
That seems to us to be a decent explanation of what the statement means, and when journalists approached Newcastle for clarification they were told there were no more capital expenditures for players – and that it was self-explanatory and needed no further explanation.
But what it doesn’t say is that there will be no transfer money made available this year for new players by the Newcastle club – just as long as the players are paid for up front – just like they were in January, albeit with Ashley’s money.
So all this nonsense about needing to sell Steven Taylor and others at Newcastle to be able to fund new players coming in – is just that – nonsense.
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