Thread by @SwissRamble

Newcastle United recently published financial results for the 2016/17 season, when they won the Championship to secure immediate promotion back to the Premier League after relegation from the top flight in 2015/16. Some thoughts in the following thread #NUFC

#NUFC relegation “had a huge impact on the club’s financial results”, moving from pre-tax £4.2m profit to £46.7m loss, as revenue dropped by almost a third from £126m to £86m, though loss inflated by £32m exceptional items: £10m promotion bonus & £22m onerous contracts provision.

Main reason for #NUFC £40m revenue decrease was £25m reduction in broadcasting, due to lower TV money in Championship, though commercial and match day also fell £13.6m and £1.3m respectively. Largely offset by £39m increase in profit on player sales from £3m to £42m.

#NUFC underlying wage bill went up £5.6m (8%) from £74.7m to £80.3m despite relegation, while player amortisation also rose £7.4m (26%) to £35.8m and other expenses were £6m higher at £25m. As MD Lee Charnley said, club took “a financial gamble on securing immediate promotion”.

As a consequence of this strategy, #NUFC pre-tax £47m loss (£41m after tax) was the largest in the Championship. Compared to other promoted clubs, it was not much bigger than runners-up Brighton £39m, but more than twice Huddersfield Town’s £22m. Only 5 clubs were profitable.

However, #NUFC loss would have been even higher without a significant £42m profit on player sales, including Moussa Sissoko, Gini Wijnaldum, Daryl Janmaat and Florian Thauvin. This was the highest in the Championship, way ahead of Aston Villa £27m and Fulham £17m.

Last time #NUFC reported a loss was also in the Championship in 09/10. Before the 15/16 relegation they had 6 consecutive years of profit, amounting to an impressive £103m. Interestingly, since Mike Ashley bought club in July 2007, it has essentially broke-even: total profit £4m.

Despite #NUFC hefty loss in 16/17, club has still made the 6th highest overall profit in England in 7 years between 10/11 and 16/17, only surpassed by Tottenham, Manchester United, Arsenal, WBA & Southampton. Supporters would argue that more should have been spent in this period.

Part of profit improvement was due to elimination of exceptional charges (£29m for “mismanagement” between 2007 and 2011). There was nothing more for 5 years until £22m onerous contracts provision in 2017, which obviously inflates the 2017 reported loss (though no cash impact)

Over the years player sales have had a decent impact on #NUFC profits contributing £180m since 2008. The club would have made small losses without this activity until 2014. If these profits were excluded in 2016/17, the loss would have been as much as £89m.

Excluding exceptional items. #NUFC EBITDA (Earnings Before Interest, Depreciation and Amortisation), which strips out player sales and non-cash items to give underlying profitability, dropped £52m from £32m to minus £20m.

In fairness, just 4 Championship clubs managed to achieve positive EBITDA in 2016/17, but #NUFC minus £20m was the 2nd worst in the division, only better than Nottingham Forest £(20)m.

#NUFC financials will improve significantly in the Premier League in 17/18. Each club promoted to top flight in 15/16 (Burnley, Hull & Middlesbrough) converted losses to profits (average £19m loss to £23m profit). Helps explain Ashley’s willingness to fund losses in Championship.

#NUFC revenue has decreased by £1m since Ashley’s arrival in 2007 from £87m to £86m, despite £22m more central TV money. Commercial has fallen by £13m (46%), while match day is £10m (30%) lower. In fairness, 2017/18 revenue in PL will be much higher, estimated at £175-180m.

#NUFC £86m revenue was the highest in Championship in 2016/17 (record for the division) , ahead of the other 2 relegated clubs (Norwich £75m & Aston Villa £74m), then with a sizeable gap to QPR £48m & Reading £37m. Top club not benefiting from parachute payments was Leeds £34m.

Championship revenue is greatly influenced by those Premier League parachute payments, e.g. £41m to #NUFC, Aston Villa & Norwich in 16/17 (up from £26m in 15/16 thanks to the new three-year PL TV deal).

This was undoubtedly good news for #NUFC, as most Championship clubs only receive £7-8m TV money, as opposed to their £47m. That said, they did miss out on the first year of the spectacular new Premier League deal in 2016/17 with clubs receiving between £93m and £151m.

2017/18 Premier League distributions have already been published with #NUFC receiving £123m, the 8th highest, even though they only finished 10th in league. Due to club’s popularity, as facility fees boosted by being shown live 18 times. Have earned £627m during Ashley era.

As per the Deloitte Money League #NUFC had the 14th highest revenue in the world in 2007 before Ashley’s takeover, just £19m lower than the 10th placed club. In 2017 this gap has soared to £263m. Based on 17/18 estimate, Newcastle would be in 19th position, just ahead of Napoli.

#NUFC match day revenue fell by 5% (£1.3m) to £23.4m, as the 10% reduction in season ticket prices offset a higher number of home games. This was still more than twice as much as the next highest in the Championship (Aston Villa £11m) and above all but 7 Premier League clubs.

Not only did the attendance hold up in the Championship, it actually increased by 3% from 49,754 to a very impressive 51,108. This was nearly 8,000 higher than the last time #NUFC were in the Championship in 2009/10.

#NUFC attendance of 51,108 was by far the highest in the Championship, nearly 20,000 more than the closest challenger, Aston Villa 32,107. The Toon army nearly filled the stadium to its 52,354 capacity back in the Premier League in 2017/18, as ticket prices were frozen.

#NUFC commercial income almost halved from £28m to £15m, including central PL sponsors. Comprises commercial £12.1m & other income £2.7m. Only surpassed by Leeds £16m & Norwich £15m. Ubiquitous presence of Sports Direct advertising surely puts off other potential partners

#NUFC commercial income should increase in 17/18, thanks to new shirt sponsor Fun88, reportedly worth £6m a year, plus first sleeve sponsor MRF Tyres. Puma have been the club’s kit supplier since 2010.

Not only is #NUFC commercial income lower than £28m that Ashley inherited, but they have fallen way behind rivals, e.g. gap to #THFC has grown from £11m to £58m in that time. Unsurprisingly, annual report no longer says, “club continues to focus on maximising commercial revenue”.

#NUFC reported wage bill was £112.2m, but this is a bit misleading, as it included £9.9m promotion bonuses & £22m onerous contracts provision. Excluding these once-offs, underlying wage bill was up £5.6m (8%) from £74.7m to £80.3m, with wages to turnover ratio up from 59% to 94%.

#NUFC enjoyed the 5th highest wage bill in England before Ashley bought club in 2007, but in 10 years this has risen by just £20m (34%) from £60m to £80m, while others have increased wages by significantly more, e.g. #THFC up £83m (190%) from £44m to £127m, so dropped to 15th.

#NUFC £80m wage bill was miles above other Championship clubs – next highest were Aston Villa £61m, Norwich City £55m & Fulham £37m. In terms of other promoted clubs, it was 2.5 times as much as #BHAFC £31m and nearly 4 times as much as #htafc £22m (including promotion bonuses).

#NUFC £80m wage bill was the highest ever in the Championship, ahead of QPR’s £75m in 13/14, partly due to inexplicable failure to insert relegation clauses in player contracts. Also higher than 6 Premier League clubs in 16/17. Note: Newcastle’s £47m in 09/10 still 6th highest.

#NUFC reported wages to turnover ratio was 131%, but after excluding once-off factors, this falls to 94%, which was only the 15th highest in the Championship. In the previous 3 years in the Premier League, Newcastle maintained a solid ratio of 50-60%.

#NUFC player amortisation rose £7.4m (26%) to £35.8m, the highest figure ever reported by the club, reflecting “the significant spend on additions to the playing squad” in the last two seasons.

As a result, #NUFC player amortisation of £36m was the highest in the Championship. This is a much larger expense for clubs recently relegated from the Premier League, e.g. the next highest were Aston Villa £24m and Norwich City £17m, followed by Fulham £14m.

MD Lee Charnley said, “Our approach following relegation was to make further sizeable investment in our playing squad”, as evidenced by #NUFC £41m spend in 16/17 only being behind Villa £88m. That makes an amazing £156m in last 2 years, compared to just £45m in preceding 2 years.

#NUFC net spend has taken off in last 4 seasons, averaging £25m, considerably more than £6m net sales in previous 7 years. This means that net spend has averaged less than £6m a year during the Ashley era (“I am nowhere near wealthy enough to compete with the likes of Man City.”)

#NUFC debt rose £23m from £129m to £152m, almost all owed to Mike Ashley (up £15m to £144m), though there is also a new bank overdraft of £8.3m. In 2015/16 there was £1.7m cash in bank, so a £10m swing. Unlike many owners, Ashley has not converted any debt into equity.

#NUFC used to pay all transfer fees upfront, but now owe £25m. On the other hand, they are owed a mighty £61m by other clubs, which the board is at pains to emphasise has an impact on Rafa Benitez’s transfer budget, as the cash is not immediately available.

#NUFC £152m debt is about twice as much as the £77m Ashley took on in 2007 and is the highest in his reign. It’s the first time an overdraft has been required since 2013. It was the 2nd highest in the Championship, only below Brighton £207m (new stadium & training ground).

#NUFC only paid £33k interest in 2016/17. This was on the overdraft, as Ashley’s loans are interest-free. The switch from external bank debt to owner debt has saved the club a lot of money in annual interest payments (which were as high as £8m in 2008).

#NUFC operating activities resulted in £14m cash shortfall, while a net £11m was spent on players, so Ashley’s £15m loan was essential (Charnley: “approach only made possible by continued financial support of our owner”) – though net £10m deficit was then covered by overdraft.

To be fair, Ashley’s £144m loans have provided majority of #NUFC cash, though £70m also generated from operating activities. In early years, £82m used on bank loan/interest payments, but most has been spent on squad: £128m in 10 years. Less than £10m invested in infrastructure.

Despite the large loss in 2016/17, #NUFC had no problems with Financial Fair Play (FFP), as this is assessed over a 3-year period (current season plus previous two seasons), so is compensated by profits in Premier League. Promotion bonus also excluded from calculation.

The accounts note that #NUFC are under investigation by HMRC for underpayment of tax and national insurance, leading to an unquantified accrual in the accounts (excluding any penalties).

Ashley has been looking to sell #NUFC for some time with a reported £400m asking price, which seems optimistic, even after survival in the top flight. As Charnley said, “An immediate return to the PL was vital to restore the financial stability and future prospects of the club.”

Hopefully, the 2016/17 season in the Championship was just a blip for #NUFC. As Rafa said, “this club has to be in the top 10”. In fairness to the board, they did gamble financially to secure promotion, just not to the extent that the headline “smoke and mirrors” suggested.