There was a piece in the Journal yesterday on Newcastle’s finances, but we couldn’t understand all of it.
Mike Ashley – £111M loan to the club – interest free
Although the exact amounts are open to variance, it seems that the Newcastle club owe Mike Ashley around £111M, and most of that was the £100M he found that Newcastle owed, when he bought the club in May of 2007.
Mike didn’t do enough due diligence with the club’s finances before he bought the club, and the £100M debt was only one of some financial shocks Chris Mort got, when he did a full financial study of the books in 2007.
Chris also found that all the money coming in from Northern Rock had already been spoken for – and was going directly to Real Madrid to pay the transfer fee for Michael Owen.
Just to remind Newcastle fans – Michael cost about £17M from Real Madrid as well as costing the club about £22M in wages over four years, and of course we didn’t get much of a return with just 30 goals and 70 appearances for that £39M.
My right arm just started to hurt again. 😀
Mike is saving Newcastle money by making the loans interest free – and will save Newcastle about £11M a year if the loans were with a bank for say 10% interest.
The amount owed the owner is probably more than £111M now, since the Journal reported that the transfer and loan fees this summer were paid by Mike himself, but that was only around £6M by our reckoning – £3.5M for Tiote, £1.5M for Perch and around £800K for Ben Arfa’s season-long loan deal.
The club seems to be doing quite well in stabilizing the financial books, although Newcastle fans want to see more investment in the club fairly quickly. But when you already owe over £100M, that’s difficult, and we think the club has done quite well this summer in getting in 5 new players for just around £6M.
And of course European clubs will soon be forced to make ends meet and balance their books, when UEFA President Michel Platini’s new financial rules start to be implemented next year.
Ashley put in around £25M of his own money last season to keep the club ticking over in the Championship, because of the reduced revenues, and still having a fairly massive wage bill at the club, even though the club were in England’s second tier.
But it paid off big time, in that Newcastle were easily promoted back to England’s top league. We now have to hope the club can generate enough new revenues, so that they can loosen the purse strings a little, to allow more new players to arrive at the club.
They seems to be doing that full steam ahead at the moment , but they’ll have to be careful with some of the things they seem to be contemplating.
The naming rights of St. James’ Park is one example, and the Board already seem to have decided to rename it Sportsdirect.com@St.James’Park, and that’s not being well received by the Newcastle faithful.
The new business plan depends on Newcastle avoiding relegation this season, which seems obvious, but it will put pressure on Chris Hughton to keep the side afloat this season. The Journal says that Newcastle will be financially self-sufficient by this time next year, with all of the extra revenue generated earmarked for squad improvement.
But we don’t know exactly what that means – if it means the spending will only meet the increased revenues, then we can see that – but there is also the little problem of still having over £100M in debts. As long as Ashley doesn’t want that money back anytime soon, it will give the club some breathing room, and indeed money can be made available to improve the squad.
However, we do agree with the Journal that if the lads do well this season, transfer money will be made available by the club next summer, and hopefully that will be the extra revenue the club generates and will not be another Mike Ashley loan.