Mike Ashley’s tenure at Newcastle United has had its ups and downs and there are no doubts about how the Toon Army feels about their cockney owner.
But maybe it’s time he was give a bit of credit for the job he has done behind the scenes. Yes, he’s presided over more pr disasters than even Kerry Katona could hope to achieve, but taking on Newcastle was never going to be easy.
When Ashley took over at Newcastle he was hailed as the new messiah, the reclusive billionaire owner of Sports Direct turned club owner who sat with the fans in his replica shirt. He showed that owning a football club could be fun, no need to be so serious.
But the truth is, the business of football is serious and this quickly became apparent.
When Ashley took over Newcastle in 2007 for £133m he was widely criticised for his failure to complete a full period of due diligence which would have revealed the true extent of the financial problems affecting the club under the previous regime.
But who at that time wouldn’t want to own a Premier League football club, especially one as big as Newcastle? In Deloitte’s Football Money League 2007, Newcastle were 13 in the top 20 of European clubs according to revenue generation.
Newcastle, who under the guidance of extrovert Freddy Shepherd following on from Sir John Hall had long been seen as one of the Premier League’s glamour clubs. But the exuberant spending on players had become an ingrained part of the Newcastle United’s culture and the rot had already set in long before Ashley arrived.
So, having bought into a club, which for all its success in the previous years, was on the wane, Ashley, realising the depth of the club’s problems set about implementing a series of structural changes in a bid to create management efficiencies off the field.
As ever, change is unpopular and the outsourcing of key management functions such as the club’s turnstile and stewarding operations proved so. And I won’t even begin to go into the appointment of Dennis Wise. But the thinking behind it was in tune with a man who had brilliantly built up a vast fortune in the retail sector.
But onwards we go and Ashley, seeing his love affair dwindling and popularity at an all time low, put the club up for sale in 2008 revealing it costing him around £20m a year to keep as a going concern. Valuing it at around £400m he expected a quick sale. But the world was in recession, the result of lax controls over the world’s banks and all the billionaires were keeping their money to themselves.
Unable (or unwilling) to keep the club in the manner the fans were used to, and with growing discontent Newcastle slid further, along with its market value into the Championship.
But maybe that’s just what the club needed.
Having took the club back off the open market in 2009 and instead staying for the foreseeable future much to the annoyance of the fans, Ashley forced a period of austerity in response to the reduction in total turnover. Operating expenses of the club were tightly managed to ensure that it operated within the limits of its financial resources.
So as expected, the club’s accounts released on 30th March revealed the extent of the problems the club faced last year. For the accounting period ending June 30th 2010, the club posted an operating loss of £33.5m down from £37.7m the previous year. Not bad for a club that spent that year in the Championship.
The overall loss for the year after player trading was £17.1m, compared to £15.2m the year before.
Relegation to the Championship resulted in a 39% reduction in the club’s turnover with the biggest losses coming from Corporate Hospitality and TV revenue (down 58% and 57% respectively). The club also suffered a reduction in season ticket revenue of 29% however, the increase in games played in the Championship helped increase gate receipts by 18% with over 1 million fans visiting St James’ Park during the 2009/10 season, with an average league attendance of 43,388, the fourth highest football attendance in England.
But the cost of relegation is well documented, and the club took a gamble to maintain some kind of competitive advantage over its Championship rivals in a desperate bid for a swift return to the Premier League. Despite reducing their wage bill by £23.6m (33%) from £71.1m to £47.5m their wages to turnover ratio increased by 8% to an incredible 90.6% in a bid to keep a strong core of their Premier League squad.
The gamble paid off, but had it not the club would have been faced with a prospect of reducing its cost base further.
“It has been a significant achievement to keep our overall loss at a level similar to the year before despite the impact of relegation, and our ability to do this has been helped immeasurably by the continued financial support of Mike Ashley, who injected a further £42m into the Club last year interest-free.“ said Derek Llambias, the club’s Managing Director.
But Newcastle’s overall level of debt between the start and end of the financial year remained at £150m. Quite significant sum, however, bank borrowings fell by £25m replaced by a £25m increase in interest free loans from Mike Ashley.
In total, Ashley has given £139.8m in loans at the year-end, all of which remain interest free.
With a return to the Premier League achieved Newcastle are now in a position in which they can continue reduce their total debt and achieve the dream of falling into the black. The efficiencies the club has achieved during its time in the Championship will help it to control its operating expenses.
However, we all know that being in the Premier League comes a high cost. And Ashley has shown his ruthless streak on more than one occasion this season with the head scratching sacking of Chris Hughton and the sale of Andy Carroll for an astonishing £35m.
Now most Newcastle fans will be expecting that money to be reinvested in the squad. But do you seriously believe it will?
Yes, money will be made available but don’t bet against that money being used to help reduce the debt burden of the club. Next year’s accounts will prove an interesting read especially if they manage to remain in the Premier League. Newcastle are, in the words of F.C. Business Editor, Ryan McKnight “in real danger of posting a profit”.
Ashley may well remain an unpopular figure on Tyneside, but the rest of the football world should be knocking on his door and asking him for a copy of his guide to running a football club because there are some serious lessons that can be learned from the man who used to wear a replica shirt in the directors box.