Mike Ashley, Newcastle United and Sports Direct – The Unholy Trinity
While the focus is on Alan Pardew and his tactical and motivational failures, this week has also seen an interesting move in the Sports Direct empire of Mr Ashley, which brings the financial relationship between the two ‘businesses’ back into focus.
Owen Gibson has published an interesting article in The Guardian today, outlining the positives on the balance sheet with profits at £9m, wages £61.7m and turnover at £95.9m (underwritten by a debt of £129m to Ashley) but what does that really mean.
Firstly, there is the presence of the SD logo around St James Park and associated coverage for the brand from NUFC activity. While the scale of this has varied over the years, from Championship years to full naming rights, the reality is that there is around £10m of advertising value (at least) being taken for free.
The second income stream is the PR value which SD gets from national press and TV coverage. The brilliance is that the more we talk about this, the more coverage the brand gets. Higher awareness drives sales. At the moment you would have to say that Ashley through the struggles of NUFC is getting another £10m from this (a hell of a lot from Sky’s Sunday Supplement where they seem to name the retailer as much as the wonderful club they should be discussing).
Then there is the money coming direct from the club. I can’t find the numbers but did read recently that there is a profit coming from the retail relationship, so with catering etc being profitable businesses under the Ashley name, then you can round this up to £5m of further income into the coffers.
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So why is this important? There are two things to deal with here.
The first point is that Ashley/SD are getting circa £25m a year out of the relationship with NUFC. With the halo impact likely on sales at SD a further £10m at least in additional retail sales profit.
Without getting into the science behind it, there is at least £15m of pure profit being driven to them from NUFC via various sources.
We are in a really interesting position in that we are now solvent. That is a good thing. We should be building from there. A well run club could be bringing in an extra £15m of income a year now, rather than it going to SD as the structure is in place. That would be a direct £15m into the transfer coffers, increasing our turnover to £110-115m and therefore also allow the wage bill to comfortably move up making us more competitive.
But this is not happening. The club as we know is being sacrificed for Sports Direct and, “the profitable relationship for the shareholders.”
Once you look at the balance of the income MA is getting from this ‘deal’ and the new opportunities available to him in Glasgow, you can easily see that it makes sense to keep the income coming until a point where he could easily write off the loan value against income if needed (unlikely that it is).
Come the summer of 2016 he will have comfortably made his £129m loan back. Any sale of the club above the £134m mark would be a profit. And there is a lot more money to be made for him with a new venture in Glasgow.
It makes no sense to keep Pardew. Ashley needs us in the top flight next season. He wants to sell.
Bring on the 2016/17 season if I’m right!
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