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No Capital Outlay Means Newcastle Will Pay For Players Up Front

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.

Comments very welcome.

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29 comments so far

  • Robby Bobson

    May 11, 2010 at 6:11 PM

    Comment #1

    If this is the case why has NUFC released a statement saying that Ashley will not take any money out of the club …..but hasn’t denied the many reports that there is no money to be spent.

    But then again if this is the case, then surely there will be money left over to strenghten the squad.

    The clubs statements are always disasters and leave us with more questions than before.

  • geordiehammer

    May 11, 2010 at 6:17 PM

    Comment #2

    Interesting take on this ed, it seems everyone is behind Mike Ashley in trying to run the club in a more business like way. Our debts were running out of control before ashley came and put some money into the club.
    Dont get me wrong, i hate Ashley as much as anyone for all the mistakes he’s made, and the way he has communicated with supporters is nothing short of pathetic!
    At the end of the day, most fans, like myself, are only interested in what happens on the pitch and results.
    If ashley is’nt going to splash money we have’nt got yet, then thats a good thing, but it still doesnt answer the question, is he going to make any money available for new players ??

  • birdyNUFC

    May 11, 2010 at 6:20 PM

    Comment #3

    I hope so!!!

  • Bucks mag

    May 11, 2010 at 6:29 PM

    Comment #4

    Someone on nufc.com said this as well. Makes sense I suppose, we’ve had a lot players on the margin.

    Despite it being a “clarifying” statement we are all still clueless.

  • Howay The Lads

    May 11, 2010 at 6:39 PM

    Comment #5

    It would be pretty class if they brought out a statement to clarify this new statement.

    Also capital outlay has a few different meanings, so this isn’t definite but it’s probably true.

  • geordiehammer

    May 11, 2010 at 6:42 PM

    Comment #6

    Should there be no money available, who would you like to come in? heres a few of the players available on a bosman free

  • Holmes182

    May 11, 2010 at 6:57 PM

    Comment #7

    Good article, although that said the money that we received from Northern Rock Freddy had paid up front and that all went instantly to Real Madrid. In terms of business deals that really was awful, the new regime is far far better.

  • noir9

    May 11, 2010 at 7:11 PM

    Comment #8

    Time & again transfer fee’s I’ve read that we have had ex-amount for a player & then the question is asked “where has that money gone”, for example the £12 mil for milner but very few clubs write you a cheque for the fee it’s normally spread over the term of the players contract. So the sale of milner probably gives us £3 mil a year for 4 years less what ever we still owed leeds for him. We are also probably still paying for a few players we bought on the never never and also theres the interest & payments on the £3 mil loan with barclays & the interest on the £20 mil overdraft.

  • noir9

    May 11, 2010 at 7:13 PM

    Comment #9

    Don’t know why I put transfer fee’s in the first line

  • quagmire

    May 11, 2010 at 7:39 PM

    Comment #10

    I can’t even begin to describe how wrong you are.

    Forget what a two-bit online dictionary of nufc.com have said- capital expenditure is how you account for the fees incurred in signing players.

    When you pay cash is irrelevant. If the useful life (ie contract) is more than 1 year you HAVE to capitalise it and spread the cost over the useful life. That’s not optional. Choosing to expense it all would be fraud.

    Cost is not cash.

    You record the cost in the Income Statement and reduce the asset gradually over time until the end of the life (ie contract expiry).

    This whole article is complete and utter nonsense.

    The club statement, on face value, means no signings longer than a year!

  • The_Legend_Of_Jonas

    May 11, 2010 at 7:51 PM

    Comment #11

    Narrowing the whole Capital Outlay thing down, it basically means we’ve got about 15 million max to spend..

  • Ezedoesit

    May 11, 2010 at 7:57 PM

    Comment #12

    The only way I’ll be happy with us not spending (and getting STEVEN FLETCHER) is if we grab some of the better free agents this summer, as well as some quality loan acquisitions. Apart from that if anyone is interested in reading a blog by a Newcastle Supporter about music here you go: http://raverantreview.wordpress.com/


  • bojous

    May 11, 2010 at 8:20 PM

    Comment #13

    I hope that your explanation turns out to be what they actually mean, if it is then it’s a good thing but I wish they would clarify it not with a statement but by providing CH with some cash to go out and buy players just like in January. I would just like to ask one question, how come MA was willing on splashing the cash while we were in the Championship but all of a sudden feels that it’s not necessary now that we’re back in the PL? That doesn’t make much sense to me.

  • stuart no9

    May 11, 2010 at 8:32 PM

    Comment #14

    if he s not taking any money from the club, where is the millions we got for getting promoted going too ?

  • Ed Harrison

    May 11, 2010 at 8:45 PM

    Comment #15

    stuart no9 – probably paying back the more than £111M the Newcastle club officially owes Mike Ashley. 😀

  • stuart no9

    May 11, 2010 at 9:12 PM

    Comment #16

    ED who said the club owes him all that money ? it didnt come from a certain Mr ashley did it? then it must be true , but then thinking about it , he has been known for telling teenie weenie porkies in the past, or has this slipped every bodies mind, ??? a leopard with spots springs instantly to my mind

  • Sgt. Heagerty

    May 12, 2010 at 12:16 AM

    Comment #17

    Look i think we all need to calm down for a minute and take a step back. I have been no supporter of ashley in the past and i have made that clear on this site several times. I know that all this stuff coming from the board room is agravating but lets just sit back and wait a few days before we start hunting ashley down. If Ed is right about this stuff then everything in that statement was exactly what we already new was gonna happen and really good news for the longterm future of our club. We need to get the finances under control and get the club back to even steven terms financialy. If we can do that and start turning a profit then we can win trophy’s while every other club is fighting off administration. As long as Ashley spends 10 to 15 million this summer all will be well. I think he will do that and i think in a few weeks all will be well again on tyneside. Just be patient. No matter what happens we have to stay behind our troops (players). No protests or interference during match days or we will be relegated for sure. We have to help carry this team this year cuz it will be the toughest no matter what happens with this mess. We get through this season we will be good. So stay true to our troops.

    Also Ed, I don’t understand the deal with ashleys loan. Is he saying he doesn’t plan to get the money back period or right now. I am confused on how him putting money into a club he owns to clear are debts requires the club to pay him back…somebody please help me here im lost…Also remmeber be patient lads…

  • xfer

    May 12, 2010 at 2:35 AM

    Comment #18

    I think MA is running the club in a more sensible way. No doubt he doesnt have the football knowledge, but everyone learns from mistake. He has made some big ones in the past, but i can see the team performance has improved, and off the pitch incidents has calmed down.

    We dont need huge transfer fee players, just like the ones we did in Jan, i would be happy. We got a decent squad to start with. A mid table finish would be an achievement to be proud of.

  • Warwick Toon

    May 12, 2010 at 2:45 AM

    Comment #19

    @ Sgt. Heagerty

    I like your post Sarge, and I’m going to help answer your final question.

    I own my own business and have recently created a new Company registered with Companies House, so I think I know my stuff here.

    Firstly, a Company (like St. James Holdings or whatever) is a “legal entity”. That means it is like a person in that it is accountable. This means that it can be loaned money, or lend money, and also be required to pay that money back, or be repaid by people who owe it money.

    When a Company is formed, it has to buy stock or machinery, or raw materials, or players etc to trade with….otherwise it is dormant, with zero transactions.

    Where does the money for that come from?…

    It comes from the people who own the company, either directly or indirectly through investors.

    When I started my business, the money needed came from me, personally.

    My Company now owes me several thousand pounds, legally and officially, on the books, which are repayable to me as I see fit.

    Of course, I could instruct my Company to repay me right now, or just delve into it’s bank account and take the money it owes me. However, if I did that, then it would not be able to pay its bills etc. So what would be the point? Instead I take the money in smaller monthly repayments that the company can afford. Hey presto, I’m happy, and my company is solvent.

    The term for this is repayment of a Directors Loan.

    Mike Ashley has loaned a Company a lot of money. That company is St James Holdings (or whatever it is called). He just happens to be the owner of that Company.

    It is not in his best interests to either demand repayment of the loan right now, nor to watch the club go down the pan financially.

    Hope that clears it up.


  • Sgt. Heagerty

    May 12, 2010 at 4:05 AM

    Comment #20

    Thank you warwick toon, im a simple soldier don’t have alot of business knowledge so don’t want to pretend as though i do. So do you figure he will take his money back in small onthly payments or something similar as you made an example for? Or just consider the loan an investment to balance the clubs books. Either way if he is not pulling the money out in lump sums then i have to figure he will have the 10 to 15 mil we all hope to strengthen the squad. Lads i think things will be ok lets just stay calm and wait and see. By the end of the week i think we will all feel better about this…


  • Captain Beefheart

    May 12, 2010 at 8:56 AM

    Comment #21

    This is a deliberately misleading statement and a one that I strongly suspect marks more a change in the accounting system at the club, and with it (perhaps) the contractual system.

    In other words there’s more than one way to define an asset, and just like the laptop (=revenue) / PC (=capital) divide, so the new accountants have obviously changed the way players are treat within this accounting system. There are several options, more than I can go into here.

    Another extreme alternative is that NUFC intend to lease the players from a separate contract holding company, like leasing a company car, it’s been done before.

    Either way, it’s all accounting jjgery-pokery. Ashley won’t want to risk Premiership status and the new potential valuation at £150m for the sake of £15m!!

    PS: If anyone sees Louise Taylor throw a custard pie in her face from me, better still a stale pork pie from 5 paces.

  • Cockney Magpie

    May 12, 2010 at 11:26 AM

    Comment #22

    I believe i said all this from the start? but will they listen?

  • Captain Beefheart

    May 12, 2010 at 12:21 PM

    Comment #23

    Cockney Mag, it’s a matter of a slow drip, drip, drip….. Panic and ignorance keeps the blogs alive anyway

  • rwpoynter

    May 12, 2010 at 12:48 PM

    Comment #24

    There is ,I am glad to see ,some good common sense coming through this blog. Yes MA did make some mistakes (expecting Keegan to put up with Dennis Wise , for example) but he is a successful businessman and I am beginning to like him. Why? Because if he can take a lead in stopping the ,quite frankly, obscene money spent on transfer fees, players wages and particularly, agents fees, then he will have been very good for football. Portsmouth won’t be the last PL side to go down the pan if people like Ashley don’t stand firm. We have a good squad at NUFC and I think some great talent coming through the academy. In the 50’s Matt Busby decided to play all his youngsters and what a team they were until the tragedy of Munich. More recently the Nevilles, Butt, Giggs, Beckham and Scholes all became fine stalwarts of that club. I am sure with a little bit of supplementing this club will be in a very good state for next season without any huge financial pay outs.

  • WLtoon

    May 12, 2010 at 1:46 PM

    Comment #25

    to save all the bullshit and speculation why does,nt MA just let us know what is available in the summer,then we all know where we stand.simple

  • danmcclew

    May 12, 2010 at 2:29 PM

    Comment #26

    Does anybody not think this Statement from the club could be designed purposefully to mislead the press and football world??

    They didn’t say that there will be no new players in, but they’ve suggested that the club have zero funds for players. Now all the national papers have hopped on the bandwagon that ‘Newcastle have no money to spend’.

    Yes, the days are gone for big money signings, but maybe this could be an attempt to help us pick up a few bargains in the transfer market.

    When every club knew Newcastle Utd would splash out millions on players they all upped the price for players whenever we came knocking!

    Just a thought, because the statement is totally baffling to the fans. The idiots create more questions for themselves!

  • Solaidback

    May 12, 2010 at 3:13 PM

    Comment #27

    quagmire // May 11, 2010 at 7:39 PM

    I can’t even begin to describe how wrong you are.

    Forget what a two-bit online dictionary of nufc.com have said- capital expenditure is how you account for the fees incurred in signing players.

    When you pay cash is irrelevant. If the useful life (ie contract) is more than 1 year you HAVE to capitalise it and spread the cost over the useful life. That’s not optional. Choosing to expense it all would be fraud.

    Cost is not cash.

    You record the cost in the Income Statement and reduce the asset gradually over time until the end of the life (ie contract expiry).

    This whole article is complete and utter nonsense.

    The club statement, on face value, means no signings longer than a year!
    And you’re so sure of this how???

    You come out with a statement that it’s all bogus but don’t give any reasons for it, is that because you have none or are you just an argumentative git who doesn’t even support the TOON!!

    I posted this ‘capital outlay’ thought yesterday morning while everyone else was saying we’d not get any players or money & I’m glad to see the crap-loids & Ed has taken it to the next level, as the way I see it is, Ashley seems to be coming out recently & quashing any rumours that aren’t true, so if this isn’t true, then we’ll find out soon by another official statement 🙂

    As for the £111m the club owes Ashley, haven’t you seen the 2nd statement yesterday that said, he doesn’t want that monies back, so we’re not in debt to him for £136m now, just the £25m he spent last season to keep us a float…

    If you want to know where the £60m promotion fund have gone, well £25m to Ashley (fare enough), £20m overdraft plus we’ve made a loss of nearly £70m, so in my books that makes around £115m, so we’re still down by around £55m… the sponsorship money we’ll get from Northern Rock & Puma will be spread over the contract period which I think is 4 years, so we’ll get about £2.5m from Northern Rock & £?? from Puma this summer, the rest will be paid to us yearly..

    So as for a transfer war-chest this summer, I reckon we’ll get around £5-8m from non-capital investments & more if we sell some of our fringe players too 🙂

  • Brewcastle

    May 12, 2010 at 3:25 PM

    Comment #28

    From the point of view that Mike Ashley lately have tried to sell the club, I can understand his behaviour right now. I guess he still wants to sell – for the right price. And for potentially buyers it’s better to have a take-over where they make the long term plans and investments. That Ashley let his money stay as a loan to the club can be financially good for him (I’m not sure about tax-rules in England, but in Norway it prob. would be…), and it gives him a good card to negotiate with a possible buyer.

    So far the club can avoid relegation next season, it seems Mike Ashley’s strategy can get much out from little in a short (by selling) or long term.

    As a supporer I have mixed feelings to this. A helthy economy in the club is needed, but bad results will give bad economy. So some investment to strengthen the squad is needed. It doesn’t need to cost a lot with picking from outside the major leauges. Then the question is; have the scouts done their job?

  • balubas1

    May 12, 2010 at 4:32 PM

    Comment #29

    Silly season in on I see..

    HELLO!! It is NOT smart for Newcastle United to reveal their exact amount of transfer funds. When NUFC buy a player, there are NEGOTIATIONS… where the selling club will try to suck us dry of cash. It is the major reason for transfers not being seen through.

    As curious as we are, it is quite painful not to know what to expect.. but not knowing might be the best for the club.

    Let the management in Newcastle do their job now without us nagging them constantly. If they so fail, let’s kick their asses then.


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