The True Price Of Buying Newcastle United

12 By Ian  |   The Ball  |   June 22, 2009  |     12

With Setanta now collapsing, this close season is getting more and more difficult for Premier League clubs. Some of these problems, however, have been due to own ill-thought out decisions, meaning that the cost of relegation has become almost unbearable. Rob Freeman has been looking at Newcastle United’s relegation from the top flight and concludes that the sums just don’t add up.

It’s been a week since it was revealed that prospective buyers for Newcastle United had to provide proof that they had the finances to meet owner and chairman Mike Ashley’s asking price of £100m. Those that did meet the Tuesday evening deadline have been given access to an online “data room” containing the club’s books. Considering the mistakes that Mike Ashley has admitted to so far, it’s almost a surprise that the contents haven’t been all over the internet, which suggests that any offers received have been genuine, and the password isn’t either “newcastle” or “shearer9”.

The concerns so far are the rumoured bidders. Former owner Freddie Shepherd is believed to be interested in taking advantage of regaining ownership of the club he sold for considerably more than the current asking price. While Shepherd was far from being the most popular owner in football, his tenure is now seen as halcyon days compared to the shambolic mess that Mike Ashley has presided over. However, Shepherd sold 28% of a Premier League club for £37.6m, and the difference in turnover in the Championship, plus all the additional outgoings that Newcastle will have to spend to reduce the wage bill, maybe Shepherd will only be interested if the asking price lowers. After all, while people consider that Ashley is making a huge loss on the club, he only paid £131m for the club in 2007. The £100m that Ashley loaned the club to clear the debts he inherited is in the form of an interest-free loan which only becomes payable once Ashley sells the club. Whether that is the £100m that Ashley is selling the club for is unclear. That will be the real test of just how desperate Ashley is to sell the club. And the more desperate Ashley is to sell, the more wary buyers will be.

The biggest reason Ashley is desperate to sell is that the cost of relegation from the Premiership at the moment is the most financially expensive it has ever been. Newcastle received £37.2m from the Premier League last season – £2.3m in prize money, £22.9m from televised games and £12m in overseas licensing. Next season, they will receive just the £12m parachute payment that all clubs relegated within the last two seasons will receive. This is the very large tip of the iceberg where the drop in income is concerned. Season ticket prices have been reduced by an average of 9%, even with the longer Championship season. This means that the club will make less per game, as expenditure will be the same for most games, and it will have to be spent an extra four matches. In terms of attendance, the only teams over the last six seasons who have not seen a reduction in their home attendances of between 8% (Wolves in 2003-04) and 31% (Sunderland in 2002-2003) have been those who have been promoted back as champions. Last season, Derby’s attendances dropped 9%, Reading’s 16%, and Birmingham’s dropped 27% despite finishing second.

The number of away fans per game will also reduce as, unlike a lot of Premiership clubs, most Championship teams don’t sell their allocations. Crystal Palace only took 534 fans to the relatively short trip to Ipswich last season and they’re unlikely to sell out their allocation at St. James’ Park, especially as the price for tickets will be around £30, although the club is believed to be moving away fans away from the Leazes Corner.

In many respects that’s the good news because in football there are a lot of hidden outgoings – ones that any prospective buyer will need to find out, either during the due diligence that Ashley famously failed to undertake, or through other research. Hidden outgoings that will increase the amount of money any prospective buyer will need to take into account, because a lot of these will come into play over the next season, as Newcastle look to reduce their wage bill, and this is almost certainly where Ashley’s desperation to sell will come into play.

Newcastle’s wage bill is rumoured to be in the region of £1.2m per week. And that is just for the players, before employer’s tax and national insurance is taken into account. This will be reduced at the end of June, as the contracts for five players expire (Caçapa, David Edgar, Peter Løvenkrands, Michael Owen and Mark Viduka). On the plus side, that is approximately £305k a week less that Newcastle will already need to pay next season. The bad news is that those players will have been paid over £1.5m for the six weeks between relegation at the end of the contract, and then comes a sting in the tail. Or at least the first sting in the tail, as players have loyalty bonuses written into their contracts – often referred to as signing on fees. These are (usually) a year’s salary spread across the length of the contract, paid at the end of each season and these have to be paid to a player in full before they leave, unless they submit a written transfer request. For the five players out of contract, these are likely to be in the region of £3.2m. In other words, when relegation was confirmed, Newcastle realised they would have to pay those five players around £4.8m in the full knowledge that they would never play for the club again because they could not afford to renew their contracts.

The contracts can’t afford to be renewed because even with those five players leaving the club, the wage bill is only reduced to £860k per week (£44.7m per year). Newcastle were already paying out 75% of their turnover at wages (£74.6m) according to their last annual accounts. The recommended wages to turnover ratio is in the region of 60-66%, and the wages being paid at the moment are well beyond the reach of a Championship club. On the last day of last season, “Match of the Day” claimed that fifteen Newcastle players were on more than £50k per week in the Premier League, and that is a figure that would dwarf the wage bill of certain Championship club’s playing staff as a whole. Certainly without a sugar daddy, a club in the second tier cannot really afford to pay more than a handful of players more than £10k per week, even with a parachute payment. Newcastle have 19 players alleged to be on at least £20k per week, even after the expiry of the contracts of Owen et al. Newcastle also famously did not include relegation clauses in the contracts during the Shepherd era. It has, however, been claimed that Jonás Gutiérrez has a relegation release clause, so this may be true for other players signed under Ashley’s watch. That said, releasing players comes at a cost – this is the second sting in the tail.

Before a player leaves a club, the club must ensure two payments have been paid in full – the player’s signing on fees/loyalty bonuses and any outstanding transfer fees. This is what appears to have caught Ashley out when he bought the club. A player’s signing on fee is guaranteed. So, even if a player leaves a club at the end of the first year of a five year contract, he receives all of the payments due to him, unless he asks for a transfer in writing, and with agents working behind the scenes, how many players do that these days? So, for example, if Fabricio Coloccini (signed in 2008) leaves this summer, he would receive the entire signing on fee for his five year contract, which would be about £3.1m. Alan Smith (signed in 2007 on a five year deal) would receive four of his five payments were he to leave this summer, a mere £2.5m. To get rid of all 19 players that are reputed to earn (well, get paid) more than £20k per week could cost as much as £31.3m in owed signing on fees.

And then come the transfer fees. Transfer fees are rarely paid in full up front. For a player transferring from outside an English league, a transfer fee has to be paid in up to four instalments over three years (at least 25% up front, then another quarter each year). Between English clubs, that can be spread across the length of the initial contract (so a player bought on a five year contract is paid in up to six instalments). Ashley has stated that the players signed in January (Kevin Nolan and Ryan Taylor) were paid for up front. This still leaves ten players with an approximately outstanding bill of £29.2m waiting to be paid out, which is likely to be a lot less than the club will receive from transfer fees. Every club in the country (and most of the main players across Europe) will be aware of the club’s financial position, which will reduce the values of these players. The fact that Newcastle have to pay out as players leave will mean that they will have to negotiate to receive the transfer fee up front – which will reduce the value of players even further, and this impacts on the income for future seasons if they don’t get promoted straight away. And that’s if they can find buyers for players prepared to meet the high wages Newcastle had been paying – Newcastle had the fifth highest wage bill in the country in 2007-2008, £20m (36%) more than the Premiership’s sixth highest payers Portsmouth, with a smaller squad. Failing that, Newcastle could loan out some of their players, but even if clubs were prepared to meet the wages, Newcastle would still have to pay the loyalty bonus and transfer fee for next season.

One other type of payment needs to be taken into account as well. Image rights – essentially merchandise sold by the club with the player’s face included. Players can either be paid their image rights based on exactly what is sold, or they can receive a lump sum – usually 10% of their yearly wage. There is one exception to this at St. James’ Park – Joey Barton reputedly has the largest image rights at the club, 20%, instead of 10%. There are few worse ways of spending £675k per year than paying for Joey Barton’s image rights. Overall, the image rights come to £122k per week (£6.2m per year) for the whole playing staff.

All of this means that any new owner has a choice. Do they risk keeping the players and pay out £74.9m next season in wages (£44.7m), transfer instalments (£15.4m), image rights (£6.2m) and next season’s loyalty payments (£8.6m)? Or the £60.5m in outstanding loyalty bonuses and transfer fees to get rid of the players? Not to mention any associated tax that needs paying out at the same time. And as a side note, this summer Football League chairmen have voted to introduce a transfer embargo if a club falls behind on its payments to the Inland Revenue (which if nothing else, will give fans an earlier warning that there are financial problems at their club, regardless of the club involved).

This may explain why so few people have been linked publicly with buying the club.

Of those that have been linked, one appears to be an outright hoax. A Rick Parkinson was linked with a £150m buyout, but appears to be a creation of some Sunderland fans who wanted to take advantage of the club being for sale via email. Apparently the name Parkinson was chosen, because someone with the name R. Park or R. Parker (as in Roker) may have been identified as a hoax too easily. The other named consortium is the Singapore-based Profitable Group. The Guardian recently claimed that the Profitable Group are being behind the purchase of a protected plot of land in Colchester with the view to selling it on at a large profit, with the suggestion that the land can be developed. Whether they would try a similar deal with Newcastle United remains to be seen.

Part of the reason for that is that Newcastle United own very little land. The ground is owned by the club, but the land upon which the ground is built is owned by the council. The club part-owns the car park at the back of the Gallowgate end (with the council and Nexus – the owners of the city’s Metro system), which was proposed as one of the sites for the City’s casino, but later rejected. Freddy Shepherd proposed a redevelopment weeks before the club was sold, but an planning application was not submitted, and Ashley shelved the plans upon buying the club. The only other land the club owns is the training ground at Darsley Park, and the youth academy at Little Benton.

Right now, those are the only assets the club have, and £100m is a lot to pay for a small amount of land and a lot of potential. At least in that respect, they should be safe from predators and asset strippers, as the assets are worth a lot less than Ashley’s asking price. Newcastle are looking to avoid following in the footsteps of other clubs who overspent in the Premiership: Leeds, Nottingham Forest, Sheffield Wednesday, Ipswich, Leicester, Derby, Southampton, Bradford, Charlton and Norwich. All found themselves broke and unable to compete with clubs at the top of the Championship. For Newcastle to avoid joining that list of clubs, their best hope is for a benefactor or a businessman looking for a plaything, but with the economy as is, Newcastle could find themselves going the same way as their sponsors – only without the chance of the government bailing them out.



Ian began writing Twohundredpercent in May 2006. He lives in Brighton. He has also written for, amongst others, Pitch Invasion, FC Business Magazine, The Score, When Saturday Comes, Stand Against Modern Football and The Football Supporter. Ian was the first winner of the Socrates Award For Not Being Dead Yet at the 2010 NOPA awards for football bloggers.

  • June 22, 2009 at 9:56 am

    Mark H

    A note on the Profitable Group. The issue with the Colchester or London land isnt that Profitable want to make a huge profit (they do) but that investors most likely cant make money. Potential investors are sold by Profitable on the idea that protected low value land can be converted to high value land by a touch of of the Profitable magic wand for which they pay a very high mark up. (1500% reported on Hounslow). None of Profitables UK sites have shown any hint of converting and investors are getting a bit grumpy. Profitable have also moved into the area of engine oil additives an area historically which has shown the ethical approach of snake oil salespeople. They may be different of course.

  • June 22, 2009 at 10:07 am


    Some of this article may be true but there is a lot of guesswork going on!

  • June 22, 2009 at 2:30 pm

    davy Paulson

    does the club own Darsley Park?

    I was under the impression that it was leased to them by the Civil Service Sports Council about 10 years ago, on a 99 year lease. I could be wrong mind – they may have bought it later…..

  • June 22, 2009 at 2:58 pm

    Newcastle United - Anyone going to take a gamble? - Ajarn Forum - Living and Teaching In Thailand

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  • June 22, 2009 at 4:06 pm


    Alan: all of the values used in calculations have come from those speculated by other sources – where two values have differed (or it hasn’t been clear if it has been included, as in the case of things like tax, and even appearance, goal and clean sheet bonuses), I’ve taken the lower one, so that it is more of a conservative estimate. In areas such as image rights, signing on fees and transfer fees, I’ve assumed the norm in football, unless other sources have contradicted it. Nobody will be able to state for a fact what all of the figures are without having access to Newcastle’s payroll and other accounting sheets. The last publicly available figures (as at June 2008) show Newcastle’s entire wage bill was £74.6m. Last season’s will be in a similar region, and all Premiership clubs had a higher wage bill in 2007-2008 than in 2006-2007, and I expect this season to be no different. Regardless of how accurate or not my calculations have been, their wage bill is not sustainable for a club in the Championship, without the aid of a benefactor.

    Davy: All other sources I’ve seen are unlear, but imply Darsley Park’s is Newcastle’s, but now you’ve brought CSSC’s name into it, I can find a couple of areas that point out exactly what you have said, and it appears you are right, and there is no suggestion anywhere that Newcastle have bought Darsley Park, so thanks for brining that to my attention.

  • June 23, 2009 at 9:33 am


    Regardless of the actual figures, an excellent column. truly damning. i thought southampton’s fate was bad enough.

  • June 23, 2009 at 10:16 am


    Interesting stuff. Perhaps the ridiculous player payments you describe at Newcastle could finally be the case that explodes the football creditor rule. I really can’t see the PFA being able to afford them and you can imagine the reaction of all the other players to having to bail them out.

  • June 23, 2009 at 1:47 pm


    Absoulte tosh the whole thing. Heresay, speculation and founded on 2 + 2 = 5 philosophy. None of it adds up.

    You claim that the wage bill last year was 74.9m. Later in the piece you attempt to show how the 74.9m is made up. You offer the following:

    £44m wages, £15.4m transfer installments, 6.2m image rights and £8.6m loyalty. All of this very conveniently adds upto £74.9m

    This is pure fantasy of how to get to that figure as your piece totally contradicts itself. In your very own piece you claim 15 players were paid £50,000 a week or more and 19 were paid £20,000 a week or more. By my calculation of basic salary alone, assuming that all of them were actually only paid £50k and £20k respectively, based on a 52 week calender year this would have the basic wage bill at £58.7m a year alone. Now we know 1 certain miscreant was paid in excess of a £100k a week which would increase that figure further.

    I suppose the point I am making is your article is nice try but its just another piece of mischief making based on spurious London headlines. Facts are nobody knows the extent of the mess Newcastle are in. But lets all be truthful here…it shouldn’t be levelled at Fat Ashley alone. This club has been a cash cow well before ashley got his hands on it…..unfortunately for him he has been left holding the baby.

  • June 23, 2009 at 5:11 pm


    Martin: Unlikely, as players aren’t part of the football creditor rule. They are treated as employees, and get the same rights as any non-playing worker should get from their clubs and any other worker should get from their employer.

    Sven: Thank you for your comments. My article says the wage bill for 2007/8 was £74.6m. I made no attempt to show how that is made up. (If I did I would have mentioned the wages and payoffs of Sam Allardyce and his backroom army for one). Nor have I included (as the club accounts would have) people like Chris Mort and any off field staff. Nor have I tried to break down the 2008-2009 season figures. This article is looking at what would need to be paid out next season.

    Transfer installments would not be included in a wage bill, because they’re essentially payments to a supplier, rather than a wage, so the aspects that would be include in a prospective 2009-2010 wage bill would be £59.5m (and would not include the certain miscreant being paid a rumoured £115k per week, as he is out of contact next Tuesday), but like I said in the article, I have been conservative in my estimates, I haven’t added any extra tax or National Insurance, and I’ve only looked at players.

    “Facts are nobody knows the extent of the mess Newcastle are in.”

    Correct, as I said in the article.

    “But lets all be truthful here…it shouldn’t be levelled at Fat Ashley alone. This club has been a cash cow well before ashley got his hands on it…..unfortunately for him he has been left holding the baby.”

    That is very true. Newcastle fans have been very unfortunate with the owners that they have had down the years, but it’s good to see that they have now taken the route of getting a Supporters Trust established.

  • June 25, 2009 at 11:53 am


    Apologies. I thought players were and that is why ex-players were paid in full when clubs like Leeds escaped most of their other debts (including the PAYE and NI due to HMRC on those wages).

  • June 28, 2009 at 2:11 pm


    As far as I am aware players are paid by the PFA if a club goes into administration. If I were a new owner, a 10 point deduction to clear the decks might be worth considering.

  • June 30, 2009 at 12:04 am


    Players are only paid by the PFA is the club do not pay them – whther they are in administraion or not, administrators will sell players to pay the wages where possible though, for whatever is needed, rather than for the player’s value.

    But, when the PFA pay the players wages, the club owes the PFA, and it is treated as a football debt, so they still have to be paid in full after coming out of administration, and if they don’t, they stay under a transfer embargo until outstanding wages are paid.

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