In a quite staggering distortion of the truth, Mike Ashley has presented the latest Newcastle United finances as a triumph for the club and almost all of the media have lazily/slavishly fallen for this illusion.
No wonder a number of supporters are also unable to grasp the reality with the poor lead given by what they rely on in the mainstream media.
The normal way of looking at the health of a football club is to add up all of the money the club brings in from three areas; Media (TV deals etc), Matchday income (all tickets sales and related matchday income) and Commercial (pretty much everything else including shirt sponsor, (paid for!) advertising, kit deal and so on).
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So you add up all that money which comes in and see if it totals more or less than all your operating costs – wages, buildings upkeep, pitch maintenance, gas/electric etc etc – just like any other business.
That gives you your normal operating profit or…loss.
Only after that has been done is player trading taken into account; have you made a profit on buying and selling players? This is totally separate to the normal revenues and costs of running the business, it simply tells you the story of whether you have invested in the squad or…not.
So in the 2010/11 season Newcastle United made an operating loss, when TV/Matchday/Commercial were all added up they didn’t cover the running costs of the club by a few million. However, Andy Carroll was sold for £35m and so the loss becomes a big ‘profit’ because you have sold your most valuable player.
So the question is, was that season a success in terms of the financial way it was ran? I would guess most of you would agree, turning a loss into a profit only by selling your most valuable player isn’t a great triumph for the running of the club (obviously a fee that was far more than Carroll was worth but that isn’t what we are talking about here).
So yesterday you will have no doubt seen headlines of Newcastle United’s £9.9m ‘profit’ for last (2012/13) season.
So bearing in mind what happened in that Andy Carroll season with the club finances, this is what really happened last season.
The club brought in a total of £95.9m from TV/Matchday/Commercial but actually had operating costs of £96.5m, so as seen in normal business practice they actually admitted to a LOSS of £616,000. Just as in the Andy Carroll 2010/11 season, the £9.9m ‘profit’ only comes about because of players bought and sold.
In this latest example, the only difference this time is that the club actual paid out more (£28.7m) on players than they brought in (£11.1m), but then this bizarrely (to non-accountancy types like most of us) can end up being shown as a profit in the books/accounts of £10.6m on player trading, because of the accountancy process of ‘amortisation’ with the club’s explanation of this process;
‘The (player trading) profit equates to the sums received for players in relation to what the club initially paid for them, with outgoing players’ value having increased during their time at the club.’
So what this means is that players such as Fraser Forster and Demba Ba cost nothing and then were sold for some £10m between them and so in the books this can make a massive difference to the figures and the player trading ‘profit’.
So just to repeat, any ‘profit’ Mike Ashley has shown in these accounts has not come from the football club doing really well with its finances, the club made an operating LOSS.
The only way they are presenting a ‘profit’ is via selling players and the way those player sales/buys are presented in the books.
The massive TV deal, 50,000 fans every weeks and the feeble commercial deals were not enough to pay for the running of the club.
This is disastrous and not a triumph, the extra tens of millions the club should be bringing in on Commercial deals and Matchday income could see our club surge forward.
Accountancy practices and selling players most definitely won’t.
Make sure you also read this article from yesterday – Mike Ashley Claims Great Newcastle United Financial Figures But Reality Is Somewhat Different