‘The future is bright, the future is black and white’
Newcastle United are now confirmed as a Premier League club for next season.
Naturally, transfer facts and fiction generate click bait.
What will the view through the window really look like?
Eddie Howe has already moved to dampen ardour by recognising that there are constraints. The obvious is FFP, now labelled as Profitability and Sustainability. The rules for next season are yet to be published, although those outlined in the current Premier League Handbook have been well rehearsed.
Politically, other clubs have been seen to seek to restrict NUFC’s new found disposable wealth. However, the Covid situation has meant that the Premier League have had to show flexibility towards some clubs. We will come back to what that means in practice but it is hard to imagine that The Premier League will not, to some extent at least, reflect next season’s equivalent rules for UEFA competition.
Those new rules are grandly named as Financial Sustainability and Club Licensing Regulations (FSCLR). In short, the relevant components are that club expenditure on transfers, wages and agents fees can not exceed 70% of a club’s revenue, this is to be phased in, from 90% in the first year.
There is apparently pre-defined flexibility in FSCLR which means that a club can lose €60 million over three years, or an extra € 10 million if the club is in “good financial health”. For those of technical persuasion, clarification can be found in paragraph K.1.3 which translates as the system being interpreted as broadly consistent with the current system, notably that “amortisation” is treated as the cost of transfers.
In practice, to generate further flexibility, Newcastle United will have to address a couple of key issues, do they reduce costs, do they increase revenues or a combination of both?
It is a fact of 25 man squads that numbers have to be trimmed during the summer, whether by sale or loan. Contract renewals have been the subject of recent coverage, the likes of Schar and Dummett already confirmed. Hayden, Clark and Lewis are currently not registered to play as a part of that squad. Sean Longstaff is reported to be in negotiations with Targett’s loan term ending. Conversely, Hendrick, Woodman, and Matty Longstaff are out on loan.
Clearly there are some bodies to shift, even without considering further sales to make space for arrivals. FSCLR (as paragraph K.2.4.iii confirms) allows that profits from sales of players are treated as revenues, consistent with FFP.
Parsimonious financial management by the previous regime actually provides some help to the new owners. Making some assumptions to illustrate the point, Gayle has played little this season but has a reputation as a guarantee for Championship goals. Assuming he were to be sold for £10 million, his contract extensions effectively mean that almost all his fee would be profit.
If replaced by a player on a four year contract, that translates into his making way for a £40 million player, if on a five year contract for a younger player, such as Ekitike, that means £50 million can be bid.
Extending the analysis to a topical debate, with a player such as Saint-Maximin who apparently cost £16 million on a six year contract, his book value would be half that. A sale for the speculated £50 million would generate a profit of £42 million, generating potential fees for incoming players of £168 million if signed on four year contracts.
Given the range in the squad, from free transfer Fraser, contract extended Shelvey and dependable Hayden, there will be plenty of pub conversation for supporters and click bait for websites.
OK, so there is a catch as Everton have discovered. In year one following the transfer, all is well and good. In future years, to avoid sanctions, extra revenue has to be generated in following seasons. A club with confident aspirations to Champions League qualification might see that as an effective use of resources.
There are also the costs of the January window and Bruce’s mega pay off to absorb. We also have increased management costs with the depth of the new coaching team as well as the expanded internal management, although the latter examples are relatively insignificant.
Eddie Howe has been correct to point out that there may be limited budgets. In truth, those limits might be at a high level. Given his ability to develop players, future profitable player trading might make the situation even more sustainable.
So down to practicalities.
New sponsorship deals should at least contribute to wage growth. League position will also provide extra revenue. Qualification for UEFA competitions provides opportunity for further growth. Internal projections will be commercially confidential but column inches since the takeover increase commercial potential.
Player sales generate extra income and there are a few to clear out as well as some debate around the overtly more talented in the squad.
There is a flurry of free agents into the market, Tarkowski who was a January target, Nketiah whose best mate is already at the club, potentially Lingard if his wage demands are negotiable, and that’s just looking at the domestic market.
January saw a leaning towards experienced British players with perhaps the signing of the window, Bruno, being both established and a prospect, most certainly a talent. The reinvention of Joelinton adds the excellence of Brazil with the South American market being the “designer outlet” opportunity for value.
Targets will already have been established. The average age of the squad is at the higher end, the suspicion being that a hand has already been revealed, specifically a British core backed by genuine investment in quality with the potential for growth.
It could even be that those within the game have already speculated that after Howe’s remarkable turn around this season, he could be a future England manager, adding to the attraction of becoming a Newcastle player. What price on Ward-Prowse, Calvert-Lewin, or any other English player with or without a hyphenated surname?
What is certain is that we can look forward to an action packed summer. The focal points of the new consortium are clearly enthusiastic for the club and their investment.
The future is bright, the future is black and white.
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