The Newcastle United accounts (2013/14) have been made available through Companies House.
For the uninitiated, it is a legal requirement to produce accounts in a consistent format from year to year. Both domestic football bodies and UEFA require the same information to assess how compliant football clubs are with their own ‘Fair Play’ rules.
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The main components of the accounts are:
Directors’ Report – a written statement summarising significant activity during the previous year
Profit and Loss statement – summarising sales and costs
Balance Sheet – a statement of what the company owns and owes
Cash Flow statement – summarising key cash flows in and out of the company
Notes to the accounts – provide further detail of key areas
An obvious question might be why both Profit and Loss and Cash Flow have separate sections. For the sake of ease, in the case of football clubs, a few particular cases are highlighted below.
Player sales are often paid for on an instalment basis, paid over the lifetime of the player’s contract. Although the transfer may have a headline fee of, say £10m, if the instalments are spread equally over the 4 years (£2.5m per year) then the sale is seen as revenue. £2.5m will be counted as cash, the remaining £7.5m will be counted as ‘debtors’. Where the profit or loss is shown for one year, the debtors will repay in the 3 subsequent years, becoming cash at a later date.
Players purchased are accounted for differently and it is worth bearing in mind that Ashley is considered to typically pay cash up front for players signed. In the unlikely event that NUFC pays £15m cash for a player on a 3 year contract, the cost of that player is accounted for in Profit and Loss as a cost of £5m per year, even though £15m cash has gone out in the first year. The process of spreading the cost over the player’s contract is known as ‘amortisation’.
Armed with the basics, we can now look at some of the highlights of the latest NUFC accounts covering last season.
As expected, the P&L account shows a significant increase in revenue to £129.7m (up £33.9m), largely due to the TV deal that came in providing £78.3m (up £27.2m) even after losing UEFA Cup coverage in the previous year.
Commercial income rose to £25.6m (up £8.5m) largely due to the new sponsor and kit deals.
Matchday fell to £25.9m (down £1.9m) with similar league attendances but again without the Europa League.
Where the surprises come is in the expenses. These come in at £105.5m (up £21.8m) with the amortisation figure £19.6m (up £6.8m). Staff costs increased, largely explained by Wages and Salaries being £69.3m (up £15.3m).
At this point, we divert from the accounts to look at player movement. The rise in wages, as well as amortisation, can partly be explained by some of the signings in January 2013 being with us for a year, rather than 6 months in the previous season. These are of course Debuchy, Sissoko, Gouffran, Haidara and Mbiwa. In addition, the loan players, Remy and Luuk de Jong have to be factored in. Against that, major wage earners off the books were Harper and Xisco, as well as Cabaye for the second half of the season.
Elsewhere, the playing and support staff for the club, including junior levels, rose from 115 to 133, with Charnley proving significantly cheaper than Llambias.
The P&L, with the accompanying notes, provides us with partial answers to the question of how the club can show a total profit of £18.7m when expectations had been higher (this will be summarised later).
The balance sheet provides more revelations as well as what has perhaps been the biggest question, how can cash have gone from an overdraft of £4.5m to a cash surplus of £34.1m, a swing of £38.6m? Elsewhere, little in the Balance Sheet has changed significantly, with the exception of ‘accruals’ which increased by £7.7m. These typically relate to interest payments, although this figure seems improbably high. This could be a question for local journalists to pursue, with a variety of potentially innocent answers including pre-contract fees for Colback.
Otherwise, from the Balance Sheet, we see that Ashley still has an outstanding loan to NUFC, repayable on demand or at his whim, of £18m in addition to a further loan of £111m, repayable at a later date.
So back to the questions why profit was not as high as expected and how cash rose by twice the level of profit.
The first comes down to expenses. The biggest elements include the increase in players’ wages. Whether this is justified by current performance is another debate. By finishing in the top 10, bonuses will also have been paid. High profile disposals might be expected to reduce the figure this season.
We can also see that the higher provision for amortisation similarly decreases the profit level. In total, those 2 components account for around £23.5m. ‘Other operating charges’ account for £5.8m, another question for the journalists.
The costs that do not incur cash flows include depreciation and amortisation. These go a long way to explain the difference between the increases in profits and cash, the remainder being explained by a relatively small increase in ‘creditors’, largely through ‘accruals’.
Another small point to note financially is that Charnley purports to have invested in “sports medicines and science facilities to ensure that players return to fitness more quickly”. Clearly, coaching staff have overestimated the benefits for this season.
Finally, the local community will be grateful for the £44,000 given to charities, a massive 0.03% of revenue. How much of that comes from player fines?
So there we have it. There are still some questions for our local heroes of the Press to diligently challenge and seek out the answers. Over to you, lads.