Newcastle United club accounts reveal state of play

Jan 23 2009 by Adam Jupp, The Journal

THE state of Newcastle United’s finances since Mike Ashley’s takeover are revealed for the first time in the club’s latest accounts.

They show the sports retail tycoon has kept the Magpies afloat with a £100m loan, which would have to be paid back to him by any future new owner.

The Journal understands Ashley is not charging any interest on the loan and has also recently pumped £10m of his own money into the clubs’ coffers to help with running costs.

But it has also emerged United’s wage bill, including players, directors and other staff, has shot up by nearly £5m to just under £70m.

That swallows-up around 70% of the company’s annual revenue, a situation football finance experts last night voiced concerns over.

And, had it not been for the £6.5m the club received in compensation for striker Michael Owen’s World Cup knee injury, the balance sheet would have looked even worse last year.

Richard Slack, principal lecturer in accounting and finance at Newcastle Business School, Northumbria University, said: “Newcastle is continuing as a going concern and that is largely based on a £100m loan that has been paid in by Mike Ashley, on which no interest is being charged.

“That would be payable on demand if the control of the club was to change. So, any would-be buyer, as well as paying the asking price for the club, would have to secure a re-financing deal to ensure the on-going commercial viability of Newcastle United.

“And looking at the accounts, you are talking about £100m being needed, or more. The reason I say ‘or more’ is that the wage costs is 70% of total revenue, which is high.

“This is in the context of being out of the FA Cup in the third round, out of the League Cup in the early rounds, no European football on the horizon, season-ticket sales probably down and, of course, looking to the future, they are not immune from relegation, which would of course severely impact on their top line.

“So, they are very reliant on that £100m.”

Ashley bought the Magpies from the Shepherd and Hall families in the summer of 2007, raising supporters hopes of a Roman Abramovich-style revolution at St James’s Park.

But his relationship with fans deteriorated after the departure of Kevin Keegan and Ashley launched an ill-fated attempt to sell the club to a host of potential suitors from around the globe.

Now, just weeks after he took United off the market, he has pledged to continue to bank-rolling operations for the foreseeable future.

Indeed, accounts for the period up to June 2008 have only been signed off on the basis Ashley will continue to offer financial support, in the form of loans and cash-injections.

A note to the accounts, prepared by Ernst & Young and signed by managing director Derek Llambias reveals Ashley’s fresh £10m investment and states: “This funding, together with newly-agreed bank facilities has been incorporated into the directors’ cash flow forecast for the group.

“These forecasts indicate that the group can continue to meet its debts as they fall due for a period of at least 12 months from the date of approval of these financial statements. The directors have also received a commitment from its parent undertaking, St James Holdings Ltd, and from the ultimate controlling party Mr MJW Ashley that they will continue to provide the group with financial support so that it can meet its debts as they fall due for a period of at least 12 months from the date of approval of these financial statements or up until the date of any changing control.

“On this basis, the directors have prepared the financial statements on a going-concern basis.”

A separate set of accounts for St James Holdings Ltd – the firm set up to handle Ashley’s takeover – confirm the total amount he has personally spent on the Magpies is £238m, taking into account what he paid to the Halls and Shepherds for their shares. The accounts tell of the payouts given to both Glenn Roeder and Sam Allardyce when they left the club. It states: “On May 7 2007, Glenn Roeder resigned as team manager, and subsequent to this, on May 15 2007, the appointment of Sam Allardyce as his replacement was announced.

“Costs relating to this change and subsequent changes to backroom staff totaling £1,280,000 were recognised in the financial statements for the prior year. In January 2008, further changes to the team management and backroom staff were announced. Costs relating to this reorganisation, totaling £4,597,000, have been recognised in the current year.”

The accounts state average league attendances at St James’s Park rose from 50,686 to 51,321. It costs £101.6m to run the club, compared to £87.1m the year before.

Touching on wages, the director’s report reads: “Although the total cost increased to £70m, our turnover to wage ratio, which remains a key performance indicator for the Group, fell to 70.4%. The 2007 ratio was 75.2%.”

The change reflects the fact media income rose from £26m to £41m.

United’s debt – displayed as net current liabilities – is £22.6m and the club last year made a loss of £20.3m, compared to £34.2m.

Fees of £1.34m were paid to London law firm Freshfields Bruckhaus Deringer for the services of former chairman Chris Mort between June 12 2007- June 11 2008.

Dr Slack said while the club may struggle to find a buyer, its long-term future is not at serious risk. He said: “The only way you can make money out of football is to be in Europe and Newcastle are not going to be in Europe in the near future If the club was to go down, clearly that is not good news but is it a Leeds United scenario? I don’t think so.”

Key points

Ashley's £100m loan to United

Billionaire's £10m cash-injection

Wage bill rises to £70m

Mort cost club £1.4m

Owen's £6.5m injury compensation

Allardyce's £4.6m pay-off

Magpies make £20.3m loss

United £22.6m in debt