Tuesday, May 3, 2016

Queens Park Rangers - They Can't Buy The Sunshine


Given that Queens Park Rangers were relegated from the Premier League, it would be difficult to disagree with co-chairman Tony Fernandes’ assessment that the 2014/15 season was “a very disappointing and challenging one”.

The West London club’s supporters have been put through a torrid time recently, experiencing the dreaded drop from the top flight twice in the last three seasons, sandwiching a (somewhat fortuitous) promotion.

The poor performances have resulted in numerous managerial changes. In fact, when Jimmy Floyd Hasselbaink replaced Chris Ramsey last December, he became the fifth manager that Fernandes has recruited since he bought a majority shareholding in the club in August 2011.

Fernandes had arrived with great fanfare, stating that his “goal was to turn QPR into an established Premier League club.” The club has invested heavily in the playing squad in pursuit of this objective, but it has pretty much squandered its money, only to end up pretty much where it started, i.e. languishing in mid-table in the Championship.

"Hail to the Chief"

Even though they have spent three of the four completed seasons in the Fernandes era in the lucrative Premier League, in that time QPR have somehow managed to accumulate £143 million of losses (£203 million excluding debt write-off), in spite of generating £249 million of revenue. They have frittered away an incredible £285 million on wages and £114 million on player purchases, while the debt surged to a peak of £194 million.

Despite all this expenditure, there is still no new stadium or training ground. Instead, the money has basically gone on a series of ageing, demotivated players that have failed to deliver – and incidentally had negligible resale value.

This has all flown in the face of Fernandes’ original promises of financial prudence and sustainability: “Football needs to change. There are clubs who are spending money that if they were in a real business they could not afford.”

"Running' around"

As if that were not sufficiently incongruous, his comments on Financial Fair Play (FFP) have also come back to haunt him: “It’s ironic for me that I’m being hammered for wages, because I’m one of the guys who wants FFP. I am pushing for it. It’s the right thing to do.”

Of course, a spending strategy is not completely unjustified, given that there is usually a strong correlation between the size of the wage bill and success on the pitch, but QPR’s execution of this strategy has evidently been a spectacular failure.

So much so that the club has not only massively under-performed on the pitch, but is also being threatened with a substantial fine being imposed by the Football League if they are found guilty of breaking Financial Fair Play (FFP) rules in the 2013/14 Championship promotion season.

"Chery Oh Baby"

However, as ABC once sang, “That was then, this is now.”

There has been a clear change in QPR’s approach since relegation became inevitable with a focus on placing the club on a more secure financial footing. In particular, the club has introduced a more sensible wage structure with a weekly ceiling of £20,000. Crucially, players now have relegation clauses in their contracts, unlike the last time QPR were relegated.

Moreover, the club trimmed the wage bill last summer by offloading high earners, including Joey Barton, Bobby Zamora, Richard Dunne, Rio Ferdinand, Shaun Wright-Phillips, and Adel Taarabt. Similarly, loan players Niko Krancjar, Eduardo Vargas, and Mauricio Isla have all returned to their parent clubs.

As chief executive Lee Hoos observed, “The club is working hard to cut costs across all areas of the business in order to operate in a more sustainable fashion.” He added, “This includes how we act regarding player acquisitions. We are now looking to sign young, hungry players, and in doing so return the club to its roots.”

"Do you come from a land down under?"

This was reinforced by Fernandes, “No more cheque book”, which has effectively meant that QPR now look in the lower leagues for value purchases. It also requires a change in the way that the club has dealt with agents, so that they do not get ripped off, as has been the case in the past.

This was explained by Director of Football (and club legend), Les Ferdinand: “For a few years, agents have been used to dealing with executives at this club, but they’re now dealing with someone who knows a little bit about football.”

In fairness to the owners, they have pumped vast sums of money into the club. In the past few months they converted £181 million of debt into capital, which took the amount of debt they have effectively written-off to £246 million, i.e. near enough a quarter of a billion.

This money has been largely spent on covering QPR’s losses, most recently seen in the 2014/15 figures, where the loss increased from £10 million to £36 million, despite revenue more than doubling from £39 million to a record £86 million following promotion to the Premier League.


Broadcasting revenue rose £38 million (135%) from £28 million to £66 million, thanks to the Premier League TV deal, while there were also significant increases in the other revenue streams: commercial up £7 million (137%) from £5 million to £12 million; gate receipts up £2 million (44%) from £6 million to £8 million.

However, this improvement was completely offset, as there was no repeat of last year’s £60 million exceptional credit for the write-off of some of the shareholder debt.

Surprisingly, the wage bill was actually lower in the Premier League than the Championship, falling by £2 million (3%) from £75 million to £73 million. This somewhat puzzling phenomenon is known to economists as the “Harry Redknapp effect”.

In contrast, other expenses surged by £20 million (186%) from £11 million to £31 million. This sizeable increase was not explained in the accounts, but one factor might be severance payments and pay-offs to departing players. To reinforce this theory, player impairment, i.e. writing-down the value of players, cost the club £12 million in 2014/15.

On the other hand, profits on player sales were £6 million higher, though this only brought in £2 million, as the club actually made a £4 million loss from this activity the previous season.


QPR’s £46 million loss was by far the largest reported in the Premier League for 2014/15, comfortably ahead of Aston Villa’s £28 million and Chelsea’s £23 million. In years gone by, this would not have raised eyebrows so much, as traditionally most football clubs lost money, but the increasing TV deals allied with Financial Fair Play (FFP) mean that the Premier League these days is a largely profitable environment.

In fact, 14 clubs reported profits in 2014/15 with just six clubs losing money and two of those (Manchester United and Everton) only lost £4 million. It really was some kind of a special “achievement” for QPR to lose so much money in today’s Premier League.

One highly relevant comparison for QPR would be Burnley, given that the Clarets also gained promotion in 2013/14, only to be immediately relegated the following season. In contrast to QPR’s £46 million loss, Burnley produced a £35 million profit, i.e. just the £81 million better than the Hoops.


This sort of financial performance is nothing new for QPR, as they have posted the largest loss in their division in four of the last five seasons. Remarkably, in 2013/14 their £70 million loss (excluding the debt write-off) was more than three times the loss of any other Championship club except Blackburn Rovers.

Even more notable, in 2012/13 not only was QPR’s  £65 million deficit the highest in the Premier League, but their (reported) loss that season has only ever been surpassed in English football by Manchester City and Chelsea, which underlines just how big it really was. Similarly, QPR’s £25 million loss in the 2010/11 promotion season was also the highest in the Championship.

In the last eight seasons QPR have reported aggregate losses of £207 million, but this rises to £274 million if exceptional debt write-offs of £66 million are taken into consideration. Financially this is a real tale of woe, but it’s the Fernandes era that has really set the cat among the pigeons with the club making total losses of £203 million in that period alone (excluding the fancy footwork in the accounts).


That would mean that QPR have lost more money than any other English club in the last four years, even ahead of big-spending Manchester City £163 million and that other well-known financial basket case Aston Villa £101 million.

Fernandes justified this thus, “The financial results reflect the club’s focus on trying to achieve on-pitch success”, but there’s a big difference between “trying” and “achieving”.


Profit from player sales can have a major influence on a football club’s bottom line, as best shown in 2014/15 by Liverpool, whose numbers were boosted by £56 million from this activity, largely due to the sale of Luis Suarez to Barcelona.

However, QPR reported less than £2 million here, even though they made some reasonable sales, e.g. Loic Remy to Chelsea for £10.5 million, Jordon Mutch to Crystal Palace for £6 million, Esteban Granero to Real Sociedad for £4 million and Danny Simpson to Leicester City for £2 million.

Profit from player sales is obviously not as much as the sales proceeds, because any remaining value in the accounts has to be deducted, but the low figures in the accounts imply that other players left at a loss.


Many clubs that run at an operating loss try to reduce the shortfall through player sales, but QPR have made virtually no money from this activity: less than £6 million in the past decade.

Year after the year the accounts include a lengthy list of players that have been released for no money, either retiring, leaving by mutual consent or departing when their contracts expired, which is a pretty good sign that the club has made some terrible purchases.

It should be different in the 2015/16 accounts, as they will benefit from the 20% sell-on fee for Raheem Sterling, which is reportedly worth £8.8 million following the winger’s transfer from Liverpool to Manchester City. Next season’s books will also include the sales of Charlie Austin to Southampton and Alex McCarthy to Crystal Palace.


To get an idea of underlying profitability, football clubs often look at EBITDA (Earnings Before Interest, Depreciation and Amortisation), as this strips out player trading and non-cash items. In QPR’s case, this has been consistently negative, though it did at least improve from minus £47 million to minus £18 million in 2015.


Nevertheless, QPR’s EBITDA was the lowest of all the Premier League clubs in 2014/15 – and the only one that was negative. To place it into perspective, Manchester United’s EBITDA is a mighty £120 million, as an example of a club that is in a genuinely strong cash position. In fact, only two other Premier League clubs did not manage to generate double-digit EBITDA, namely Aston Villa and Swansea City.


What makes QPR’s financial performance so disappointing is that they have spent three of the last four seasons in the Premier League, thus benefiting from the TV deal, either directly in the top flight or via a £24 million parachute payment in 2013/14, and generating around a quarter of a billion of revenue in this period.

This is a far cry from the preceding years in the Championship when revenue was stuck in a range of £14-16 million. Of course, relegation does have a significant impact on revenue, not just broadcasting income, but also leads to reductions in gate receipts and commercial income. This was seen in 2013/14 when revenue fell by 36% (£22 million) from £61 million to £39 million.


Even after their considerable revenue growth in 2015, QPR’s £86 million was still among the lowest in the Premier League, only ahead of Hull City £84 million and Burnley £79 million. From that perspective, perhaps their relegation  should not have come as a great surprise, as it is very difficult to compete with others who have more spending capacity.

Just look at the financial might of the elite clubs, who earned at least £200 million more than QPR: Manchester United £395 million, Manchester City £352 million, Arsenal £329 million, Chelsea £314 million and Liverpool £298 million.

Clearly, this season Leicester have shown that money is not the sole indicator of success, but even their revenue was £18 million more than QPR last season. Moreover, it is no coincidence that the three relegated clubs in 2014/15 were those with the lowest revenue.


The vast majority (77%) of QPR’s revenue in the Premier League came from television with just 14% from commercial income and 9% from match day. It was similar in in the Championship, though broadcasting “only” accounted for 72%, (inflated by parachute payments) followed by match day 15% and commercial 13%.

In fairness, this reliance on TV money is fairly common in the Premier League with half the clubs in the top flight dependent on broadcasting for more than 70% of their revenue. That said, this revenue is derived from the central deal and QPR have admitted that they do “not have any influence on the outcome of the relevant contract negotiations.”


In 2014/15 QPR’s share of the Premier League TV money was £64.9 million, compared to £26.0 million in the Championship (£24.1 million parachute payment plus £1.9 million from the Football League pool). Note: if a club receives parachute payments, then it does not also get the £2.3 million solidarity payment from the Premier League that other Championship clubs have.

The distribution of Premier League funds  is based on a highly equitable methodology, so the top club (Chelsea) received £99 million compared to the bottom club (QPR) getting £65 million, a ratio of around 1.5.


Most of the money is allocated equally to each club, which means 50% of the domestic rights, 100% of the overseas rights and 100% of the commercial revenue. However, merit payments (25% of domestic rights) are worth £1.2 million per place in the league table and facility fees (25% of domestic rights) depend on how many times each club is broadcast live.

In this way, QPR’s TV money was adversely impacted by not only finishing in the relegation zone, but also only being shown live just 11 times, just one more than the contractual minimum.

The blockbuster new TV deal starting in 2016/17 only reinforces the benefits of promotion to the Premier League. My estimates suggest that QPR would receive an additional £28 million under the new contract, if they finished in the same place as 2014/15, increasing the total received to an incredible £92 million, though even that might be conservative, given the size of the overseas deals announced.


Clearly, this works both ways, so QPR’s 2015/16 revenue in the Championship will be much smaller, falling by an estimated £38 million from £65 million to £27 million, even though the first year parachute payment is now worth £25 million. Obviously, this is still considerably higher than those Championship clubs without parachute payments, who receive only £5 million.

This huge difference in revenue doesn’t quite excuse QPR’s profligacy, but it does explain it to a certain extent. As Fernandes has explained in the past, “A critical driver of any club’s value is its presence in the Premier League.”


Another point worth noting is that from 2016/17 clubs will only receive parachute payments for three seasons after relegation, although the amounts will be higher. My estimate is £75 million, based on the percentages advised by the Premier League (year 1 – £35 million, year 2 – £28 million and year 3 – £11 million). Up to now, these have been worth £65 million over four years: year 1 – £25 million, year 2 – £20 million and £10 million in each of years 3 and 4.


Even with the benefit of parachute payments, it’s still a considerable reduction in revenue for QPR, which has necessitated major cuts in the cost base. Of the three clubs relegated the previous season, Fulham is probably the closest comparative to Rangers and their revenue fell by £49 million, with a consequent £32 million cut in the wage bill.

QPR’s match day revenue rose by £2.5 million (44%) from £5.6 million to £8.1 million in 2014/15 as ticket pricing was increased to reflect that they were playing in the Premier League (though this was held to the 2012/13 levels from the previous time they were in the top flight).


This was one of the lowest in the division, only ahead of WBA, Swansea City, Stoke City (all around the same £8 million level) and Burnley £6 million. Gate receipts will inevitably decrease again in 2015/16, as the prices were frozen from the last time that QPR competed in the second tier of English football.

Fernandes commented, “People always talk about the atmosphere at Loftus Road – we want to make sure our fans can afford to come to the games to help create that.” That’s an admirable approach, but QPR’s ticket prices are still among the highest in the Championship.


The 2014/15 match day revenue was also boosted by QPR’s average attendance rising by 1,153 from 16,656 to 17,809 (including more than 10,000 season ticket holders), though they obviously hosted fewer home games in the Premier League than the Championship.

As might be expected, QPR’s attendances are higher when they compete in the Premier League, but they still had the smallest crowds in the top flight. To place this into context, their attendance was around 1,300 lower than Burnley, their fellow relegated team, despite the club’s claim that they are “confident that our pricing structure will help to encourage fans to attend.”


Part of the problem is the very low 18,489 capacity at Loftus Road, which is far from ideal for a club with aspirations of competing at the top level. It is therefore no surprise that the club has been looking to move to a new 40,000 seat stadium with the Old Oak Common site in north-west London being identified.

There has been some talk about the club moving there for the 2018/19 season, but this is nowhere near a fait accompli, as there is strong opposition from the site owner, Car Giant, coincidentally a former QPR sponsor, who stated that they had no plans for a football stadium in their development.

There is also the small matter of how the club would finance a new stadium. Interestingly, the accounts include £10 million spent on Rangers Developments Limited in the last two years in the note on Related Party Transactions, though this is not further explained.

Furthermore, chief executive Hoos has implied that the club’s focus is more on the new training ground at Warren Farm: “Kevin Keegan once said if you have to choose between the stadium and the training ground for an investment – do the training ground. The stadium is once a fortnight, but the training ground is every day for players where we can train and develop young players. We’ve got to have it.”


QPR’s commercial income surged following promotion, more than doubling from £5.0 million to £11.8 million, comprising sponsorship and advertising £5.1 million, commercial income £4.3 million and other income £2.5 million. This is maybe not that big a surprise, given that the club had previously stated that it “believes that its Premier League status will help it to significantly increase its commercial revenue.”

Nevertheless, it was still one of the lowest in the Premier League, only ahead of Southampton, WBA, Swansea City, Burnley and Hull City. To put this into context, commercial giants like Manchester United and Manchester City earned £197 million and £173 million respectively, though, to be fair, only the elite English clubs can expect to earn vast sums commercially.


QPR’s shirt sponsorship deal with Tony Fernandes’ airline AirAsia was extended in 2014/15 season and was worth £2.5 million in the Premier League, comparing favourably with clubs like West Ham and Stoke City, though obviously miles behind the deals for Manchester United, Arsenal, Liverpool, Manchester City and Chelsea.

The club will have a new kit supplier at the end of the current season, as Canadian brand DRYWORLD will replace Nike in a 10-year deal. Although the commercial director was keen to emphasise that the priority for this deal was “complete autonomy” over the kits, it does seem strange to commit for so long with no scope for securing a better offer if QPR do manager to gain promotion.


What has really damaged QPR’s finances is their unbelievable wage bill with the club shelling out £285 million in the four years under Fernandes. On the plus side, wages actually fell by £2 million (3%) from £75 million to £73 million in 2014/15, but that only underlined how ridiculous the wage bill was in the Championship.

In the last four seasons the wage bill has risen by £43 million (145%), while headcount has exploded from 114 to 163, including a 34 increase in the number of players, managers and coaches from 74 to 108.


Although the wages to turnover ratio improved from a completely unsustainable 195% in the Championship to 85%, this was still the worst in the Premier League, miles higher than the next club, WBA 73%.

In fact, QPR’s wage bill was the 9th highest in the Premier League, which was out of all proportion to their revenue (and indeed their performances on the pitch). It might be argued that relegation was quite likely for Hull City and Burnley, given their low wage bills (£56 million and £29 million respectively), but QPR have punched well below their weight here.


It was even worse in the Championship in 2013/14, when QPR’s wage bill of £75 million was at least twice as much as every other club in the division. The other clubs to achieve promotion that season managed this on significantly lower wage bills: Leicester City £36 million and Burnley £15 million.

The good news is that the club appears to have learnt its lesson from the last time they went down, as confirmed by Fernandes: “Apart from the legacy players – and most of their contracts have finished – every player has relegation clauses.”


Hoos has confirmed that the wage bill is under review: “Player payroll is the single biggest expense that we have by a long, long shot. Part of my job coming in here was to rationalise the pay bill. It’s simply trying to get the most bang for your buck.”

This will be facilitated by a number of players seeing their contracts come to an end this summer, including Junior Hoilett, Alejandro Faurlin, Armand Traore, Karl Henry, Samba Diakite, Rob Green, Paul Konchesky and Clint Hill.


Other expenses are also very high at QPR. Excluding wages, player amortisation, impairment and depreciation, these increased by £20 million to £31 million, which was the 7th highest in the Premier League in 2014/15.

One factor here is the stadium operating costs, as Hoos explained: “There are huge costs in terms of stewarding and police, because of two tiers. Most stadiums of this capacity are single tier. It’s double here than what you might expect and makes it a real inefficient operation to run.”


Another cost that has hurt QPR’s numbers is player amortisation, which has risen from £3 million in 2011 to £16 million in 2015, reflecting the high expenditure on player purchases. As a reminder, when a club buys a player, it does not show the full transfer fee in the accounts in that year, but writes-down the cost (evenly) over the length of the player’s contract via player amortisation.


To illustrate how this works, if QPR were to pay £10 million for a new player with a five-year contract, the annual expense would only be £2 million (£10 million divided by 5 years) in player amortisation (on top of wages).


However, QPR’s player amortisation of £16 million was still among the lowest in the Premier League, just behind Swansea City. To place this into perspective, player amortisation at a really big spender like Manchester United is around six times as much, with the massive outlay under Moyes and van Gaal driving their annual expense up to £100 million.


In the first four years of Fernandes’ reign (2011-15), the club “made a significant investment in relation to bringing new players to QPR”, amounting to gross spend of £105 million, net spend of £68 million. There is no doubt that the board has provided substantial financial backing to its various managers, though ironically one of them, a certain Harry Redknapp, repaid this generosity by accusing the owners of “having their pants taken down”.

There has been a distinct transformation this season with QPR more than covering the £12 million cost of their purchases with sales of £16 million, leading to net sales of £4 million. The highest amount paid for a player was £2.5 million to Peterborough United for Conor Washington, while there have been some astute signings like the Swindon duo, Massimo Luongo and Ben Gladwin, and others have arrived on free transfers, e.g. Jamie Mackie and Jay-Emmanuel Thomas.


In fact, QPR’s net spend/sales were only the 15th highest in the Championship in 2015/16, which is distinctly different from previous campaigns. It is also a long way behind those clubs who are still gambling on spending their way out of the division, e.g. Derby County £26 million, Middlesbrough £17 million and Sheffield Wednesday £11 million.

Recently the FA released a list of agent fees, which showed that QPR paid the most to agents in the Championship for the period October 2015 to February 2016. At first glance, this seems to suggest that QPR have not changed s much as advertised, but this was explained by Sir Les: “It is important everyone understands that historical transfers are responsible for a large proportion of our current payments.”

All of this spending has been built on a mountain of debt, which rose from £14 million in 2006 to £194 million in 2014. That is pretty shocking given that the club has spent three years in the Premier League in that time.


Incredibly, the figure would have been even higher at £260 million if the shareholders had not written-off £60 million and converted £5 million into equity (the maximum permitted by FFP rules) in 2014.

The good news is that a further £181 million of the outstanding shareholder loans was converted into capital subsequent to the year-end, so the current debt is substantially lower.

At the balance sheet date, most of the debt (£173 million) was owed to the club’s owners, comprising £130 million to QPR Asia Sdn Bhd (a company controlled by Fernandes), £33 million to Sea Dream Limited (a company owned by the Mittal family) and £10 million to Amulaya Property Limited (a company entirely owned by Tune QPR and Sea Dream). This is non-interest bearing.


However, the club has also taken on £21 million of bank loans, secured on the Loftus Road Stadium, which charges interest at 3.5% plus LIBOR, resulting in a £1 million payment in 2015. This is due to be repaid in a year, though could be rescheduled.

In addition, net transfer debt increased from £1 million to £21 million in 2015.

Before the debt conversion, only two Premier League clubs had more debt than QPR: Manchester United, who still have £444 million of borrowings even after all the Glazers’ various re-financings; and Arsenal, whose £232 million debt effectively comprises the “mortgage” on the Emirates stadium.


As we have seen, QPR have consistently reported operating losses, even after excluding non-cash items like player amortisation, impairment and depreciation. In 2014/15 they actually generated £12 million of cash from operating activities, but that was largely down to working capital movements, especially a £23 million increase in creditors. Despite this, they still ended up with a net cash outflow, mainly due to net payments on player acquisition.

In the Fernandes era, the club has had £205 million cash available to spend, but all of this has come from increasing debt: £184 million from the owners and £21 million from the bank. Around half of this (£107 million) was spent covering operating losses with a further 40% (£84 million) on player purchases (net).


Strikingly, only a feeble £8 million (4%) has been spent on infrastructure investment in the last four years, despite all the fine talk of a new stadium and a new training complex.

To add insult to injury, QPR are still facing the threat of a hefty Financial Fair Play fine from the Football League, who have queried the “treatment of certain items in their accounts”, namely the £60 million debt write-off in 2013/14.

Under the rules prevailing at the time, clubs were only allowed a maximum annual loss of £8 million (assuming that any losses in excess of £3 million were covered by injecting equity). Any clubs that exceeded those losses were subject to a fine (if promoted) or a transfer embargo (if they remain in the Championship).

If the £60 million debt write-off is not allowed, that would imply an enormous fine of £58 million, though it has been suggested that deducting allowable expenditure like youth development and promotion bonuses would reduce that to £43 million. Either way it’s a huge amount of money.

"White car in Germany"

However, QPR have challenged the legality of these rules. Their defence might include a number of factors, especially the fact that the Football League has already modified the rules that were applicable in 2013/14, while UEFA have also recently relaxed their version of FFP.

As is usually the case, Fernandes is expecting a favourable outcome: “I’ve always been very confident that a positive resolution will come out of the FFP case that is fair to everyone.” His view was reiterated in the recent accounts: “The directors are of the opinion that the claim by the Football League can be successfully resisted.”

Other Championship clubs would obviously be unhappy if QPR “got away with it”, especially those that have strived to stay within the rules, or those like Nottingham Forest and Blackburn Rovers, who were both subject to a transfer embargo for their own breaches of FFP rules. That said, it would not be a major shock if some form of compromise settlement on a lower sum were to be agreed – with a figure of £8 million being bandied about.

In many ways, QPR are fortunate to have Fernandes, who cannot be accused of under-funding the “project”, but for a long time he gave the impression of being one of those successful businessmen that seem to forget the strategies that have worked so well in their day job once they enter the world of football.

"Jesse James Symphony"

Despite the best of intentions and a massive amount of money spent, it is arguable that the club has not made any progress at all since Fernandes turned up in 2011. However, there does appear to be a new mood at Loftus Road, one where the board has finally appreciated that they need to operate in a far smarter manner. As the late, very great Prince once sang, “All that glitters ain’t gold.”

Certainly, Jimmy Floyd Hasselbaink is optimistic about the future: “I feel that this is a club on the up – it has an exciting feeling about it.”

That might be dismissed as exactly the sort of thing that a new manager would say, but in a way it was more encouraging to see Fernandes’ restrained New Year message to fans: “Undoubtedly there will be ups and downs along the way in an effort to get the long-term right, but with your unwavering support, we can achieve our goals of building a competitive squad and being a competitive club.”

Not the most thrilling of manifestos perhaps, but it is imperative that QPR put the right foundations in place for a stable football club, because their previous, somewhat chaotic approach has plainly not worked. It has only succeeded in wasting a lot of money, so the move towards a more sensible strategy is not before time.

Tuesday, April 19, 2016

Newcastle United - What A Waste


It should perhaps be no surprise that Newcastle United find themselves embroiled in a relegation battle, given that they only avoided this fate last season after a memorable 2-0 win against West Ham on the final day, but it still feels wrong that a club of their resources is in such a position.

Just four years ago Alan Pardew guided Newcastle to fifth place in the Premier League, the highest since the Bobby Robson days, thus qualifying for the Europa League, where they reached the quarter-finals before being eliminated by eventual finalists Benfica.

Since those heady days, Newcastle’s ambitions have seemed to be limited to surviving in the top flight, where they can continue to benefit from the lucrative Premier League TV deal. This focus on the bottom line was perhaps best encapsulated after Pardew’s departure, when the board opted to elevate the assistant manager, John Carver, to the hot seat, where he looked hopelessly out of his depth.

"Four seasons in one day"

After a few painful months, Carver was replaced by Steve McClaren, who proved to be another poor choice. He was duly sacked last month with Rafael Benitez being given the opportunity to keep Newcastle in the Premier League. Although Rafa is a manager with a fine pedigree, his arrival might yet prove to be a case of “too little, too late”.

Newcastle had never been relegated from the Premier League before owner Mike Ashley bought the club in 2007, but they are now facing their second demotion in eight years. Admittedly, Ashley’s financial support helped the club bounce back at the first time of asking on the previous occasion in 2010, but the consequences could be severe this time round.

Although Ashley has turned around the club financially, this is man that clearly favours profit over performance. Given the financial issues of the past, few would begrudge him running Newcastle United as a business, but his very prudent approach has gone too far, bringing to mind an old song from The Clash, “we’re cheapskates, anything will do.” At times it has felt like the club is little more than a billboard to advertise Ashley’s tawdry Sports Direct retail empire.

"It's OK Jonjo"

The owner’s nine-year reign has been a fairly disastrous period that has only succeeded in sucking the joy out of a massive club. By Ashley’s own words, he has been a failure: “I wanted to help Newcastle, I wanted to make it better, but I haven’t seemed to have that effect.”

In fairness, Newcastle have belatedly started to splash the cash, investing nearly £80 million on new signings in the last season, the second highest net spend in the Premier League behind Manchester City, to purchase the purchase of Georginio Wijnaldum, Aleksandar Mitrovic, Chancel Mbemba, Florian Thauvin, Jonjo Shelvey, Andros Townsend and Henri Saivet.

However, they have clearly spent very badly, failing to address the obvious inadequacies in their defence, leading to an unbalanced squad that has once again struggled.

Much of the blame for these poor signings could be attributed to managing director, Lee Charnley, who appears to be a very good example of the Peter Principle, whereby “managers rise to the level of their incompetence.”

"A sad lament"

This certainly seemed to be Ashley’s view, when he describe his job in this way: “I make sure that the football board have the maximum financial resources and it is their job to get the best pound-for-pound value of those resources.”

That may be the case, but it is also Ashley’s job to appoint the right people to run the club. In any case, he has admitted that the ultimate responsibility for Newcastle’s poor performance stops at “my door”.

Moreover, the club’s strategy of signing players on the cheap from foreign markets, mainly France, with a view to putting them in the shop window, then selling them for large profits, has not exactly been a glittering success. In fact, only two players have commanded transfer fees above £10 million, namely Yohan Cabaye and Mathieu Debuchy.

The other point worth making about Newcastle’s recent higher spending is that it has been financed by their Premier League profits, as opposed to Ashley putting any more money into the club.


This was highlighted by Newcastle reporting a £17 million increase in profit before tax in 2014/15 from £19 million to £36 million (£32 million after a tax charge of £4 million). This is a record high profit for the club, so no wonder Charnley described the financial results as “positive”.

The main reason for the improvement was a £13 million (17%) reduction in the wage bill, largely due to “the absence of bonus payments”, reflecting the feeble displays on the pitch. Other expenses were also cut by £3 million (13%) from £24 million to £21 million, but player amortisation rose by £1 million (5%) from £20 million to £21 million.

Revenue was £1 million lower at £129 million, which Charnley almost seemed to think was some kind of achievement: “Turnover remained fairly constant compared to the prior year, falling less than 1% overall.”

Both broadcasting and commercial income dropped by £1 million, broadcasting by 1% from £78 million to £77 million, commercial by 3% from £26 million to £25 million. In contrast, match day increased by £1 million (3%) from £26 million to £27 million.

Profit from player sales rose £3 million (22%) from £14 million to £17 million, mainly due to the sale of Mathieu Debuchy to Arsenal.


Newcastle’s £36 million was actually the second best profit reported in the Premier League for 2014/15, only surpassed by Liverpool’s £60 million. Making so much money when the team is not up to scratch is not ideal, so Charnley even seemed apologetic when speaking about these figures, “We appreciate that, at the present time, football results and not financial results are what our supporters want to see from us.”

Of course, the Premier League these days is a largely profitable environment, thanks to the fortuitous combination of increasing TV deals and Financial Fair Play (FFP) regulations. As a result, fourteen clubs have so far reported profits in 2014/15 with just five clubs losing money and two of those (Manchester United and Everton) only lost £4 million.


Newcastle would actually be top of the profitability league if (once-off) player sales were excluded. Although Newcastle made £17 million from this activity in 2014/15, Liverpool made £56 million, largely due to the mega sale of Luis Suarez to Barcelona.

Making money is nothing new for Newcastle with the club’s stated objective being “to achieve a sustainable financial position, able to operate without reliance on external bank debt or additional long term financial support from our owner and meet UEFA’s Financial Fair Play requirements.”


In fact, this is the fifth consecutive year that Newcastle have been profitable and they have accumulated total profits of £99 million since 2011. The first three years of the Ashley era saw losses between 2008 and 2010, but since then the club has been very firmly in the black.


Not only that, but Newcastle have made more money than any other club in that five-year period with the only other clubs that come close to them being Tottenham £89 million, boosted by the huge sale of Gareth Bale to Real Madrid, and Arsenal £85 million, the unofficial poster boy for financial success in the football world.

Indeed, Newcastle are one of only three Premier League clubs that have managed to report profits in each of the last five years (Arsenal and WBA being the other two). It’s little wonder that supporters are enraged by this level of profit, especially when they compare it with the absolute poverty of the playing squad.


Part of the improvement in profits is down to the elimination of exceptional charges. Between 2007 and 2011 the club had to pay £29 million for what could be loosely described as mismanagement, but nothing since then.

This included £11 million in pay-offs to former managers (Glenn Roeder, Kevin Keegan and Sam Allardyce), £12 million in player impairment (i.e. writing down the value of players), £2 million to former directors and £3 million for costs relating to aborted financing project and takeover bids.


Over the years player sales have had a decent impact on Newcastle’s profits contributing £117 million since 2008, including £85 million in the last five years alone with Andy Carroll’s move to Liverpool in 2011 being the standout transfer.

Newcastle would have made small losses without this activity until 2014, when the latest increase in the TV deal meant that the club would have been profitable even without player sales, especially in 2015 (£19 million).

Given that it can have such a major impact on reported profits, it is worth exploring how football clubs account for transfers. The fundamental point is that when a club purchases a player the costs are spread over a few years, but any profit made from selling players is immediately booked to the accounts.


So, when a club buys a player, it does not show the full transfer fee in the accounts in that year, but writes-down the cost (evenly) over the length of the player’s contract. To illustrate how this works, if Newcastle paid £15 million for a new player with a five-year contract, the annual expense would only be £3 million (£15 million divided by 5 years) in player amortisation (on top of wages).

However, when that player is sold, the club reports the profit as sales proceeds less any remaining value in the accounts. In our example, if the player were to be sold three years later for £18 million, the cash profit would be £3 million (£18 million less £15 million), but the accounting profit would be much higher at £12 million, as the club would have already booked £9 million of amortisation (3 years at £3 million).


Cutting through the accounting complexities, basically the more that a club spends on buying players, the higher its player amortisation. Therefore, Newcastle’s increased activity in the transfer market has resulted in this expense rising from £13 million in 2013 to £20 million in 2015. It should be even higher next year, as this figure does not reflect this season’s spending spree.


Nevertheless, Newcastle’s player amortisation of £20 million is one of the smallest in the Premier League, though it should also be acknowledged that Newcastle do tend to sign players on long-term contracts, which reduces the annual amortisation charge.

It is way behind the really big spenders like Manchester United, whose massive outlay under Moyes and van Gaal has driven their annual expense up to £100 million, Manchester City £70 million and Chelsea £69 million, but perhaps more relevantly it is also lower than the likes of Southampton £30 million and Sunderland £27 million.


The other side of the player trading coin is player values. Given the ever higher transfer fees, most clubs have reported increases in player values in recent years, but this has not really been the case at Newcastle.

The 2015 “assets” of £47 million are lower than the £55 million high in 2013 and only just above the £44 million reported in 2009, though this figure should rise significantly next year.


As a result of all the somewhat confusing accounting treatment, clubs often look at EBITDA (Earnings Before Interest, Depreciation and Amortisation) for a better idea of underlying profitability excluding player trading.

This highlights the improvement in the profitability of Newcastle’s core operations, as EBITDA steadily declined from 2006 and was actually negative in 2009 and 2010, but since then it has been rising and jumped from £27 million to a solid £43 million in 2014/15 alone.


That is not bad at all, only outpaced by the two Manchester clubs, United £120 million and City £83 million, Liverpool £73 million, Arsenal £63 million and Tottenham £48 million. Given that Spurs’ revenue is £67 million more than Newcastle, the fact that their EBITDA is only £5 million higher highlights the effectiveness of the Geordies’ cost control – or alternatively how tight their board has been.

In stark contrast, Newcastle have not done so well with revenue, failing to significantly grow this under Ashley. Before the big man arrived, Newcastle’s revenue was £87 million in 2007, which has since increased to £129 million in 2015. On paper a 48% (£42 million) growth is reasonably impressive, but the devil is in the detail.


Put bluntly, this increase has been entirely driven by the centrally negotiated Premier League TV deals, which have helped produce a £51 million growth in broadcasting income in this period. The leaps in revenue in 2008, 2011 and 2014 simply follow the three-year cycle for the Premier League TV deals (2011 obviously also impacted by the promotion from the Championship).

Both the other revenue streams have actually fallen under Ashley’s command with match day revenue decreasing 20% (£7 million) from £34 million to £27 million and commercial income dropping 10% (£3 million) from £28 million to £25 million (though this was also impacted by the outsourcing of the club’s catering operation sin 2009). To be fair, commercial income has grown by an impressive 81% since the low point in 2012, but it still has not returned to the pre-Ashley levels.


Given Ashley’s reputation as a smooth business operator, this is highly embarrassing, especially as a previous set of accounts included this gem: “Match day and commercial revenue is a key driver, because that’s where the club can compete with – and outperform – its competitors to enhance its spending capabilities.”

Newcastle’s under-performance in 2014/15 is particularly telling, as they are one of only six Premier League clubs whose revenue fell last season. Granted, there is less chance for clubs to massively grow revenue in the second year of a TV deal, but it is obviously disappointing when revenue actually declines.


Nevertheless, Newcastle’s revenue of £129 million is still the seventh highest in England, which sounds great, but the problem is that it is miles behind the other leading clubs. To place this into context, they are still around £250 million below Manchester United (£395 million), £200 million below Arsenal (£329 million), £170 million below Liverpool (£298 million) and £70 million below Tottenham (£196 million).

This massive financial disparity shows how difficult it is for Newcastle to challenge at the highest level, however they are still the “best of the rest”, ahead of Everton £126 million, West Ham £121 million, Aston Villa £116 million, Southampton £114 million and (most meaningfully) Leicester City £104 million. In short, Newcastle should be doing much better on the pitch.


Despite the marginal decrease in 2014/15, Newcastle actually rose two places in the Deloitte Money League to 17th, partly helped by the strengthening of Sterling against the Euro. Amazingly, they generate more revenue than famous clubs like (deep breath) Inter, Galatasaray, Napoli, Valencia, Seville, Hamburg, Stuttgart, Lazio, Fiorentina, Marseille, Lyon, Ajax, PSV Eindhoven, Porto, Benfica and Celtic.

That’s obviously a fine accomplishment, though not as good as 2003 when Newcastle were as high as 9th in the Money League. Furthermore, it merely highlights a new challenge for clubs like Newcastle, as no fewer than 17 Premier League clubs feature in the top 30 clubs worldwide by revenue, thanks to the TV deal. This means that the mid-tier clubs have more purchasing power than ever before, so are more competitive as a consequence.


All that lovely Premier League money means that 60% of Newcastle’s revenue comes from broadcasting with 21% from match day and 19% from commercial.

Newcastle’s share of the Premier League television money was virtually unchanged at £78 million in 2014/15, despite smaller merit payments for finishing five places lower in the league (15th compared to 10th), as this was offset by being shown live on TV 20 times (compared to 14 the previous season), which increased the facility fee. This is where Newcastle’s “box office” (or “soap opera”) reputation helps them financially.

Interestingly, if Newcastle had managed to repeat their feat of finishing 5th in 2011/12 in the last three seasons, they would have banked around £30 million more money.


Even though the Premier League deal is the most equitable in Europe with all other elements distributed equally (the remaining 50% of the domestic deal, 100% of the overseas deals and central commercial revenue), this underlines the price of failure.

It highlights the tricky balance between sustainable spending and investing for success. Spending money is obviously not a guarantee, but a safety first approach can end up leaving money on the table.

Furthermore, there will be even more money available after the mega Premier League TV deal starts in 2016/17. My estimates suggest that Newcastle’s 15th place would be worth an additional £37 million under the new contract, taking their annual payment up to an incredible £115 million. This is based on the contracted 70% increase in the domestic deal and an assumed 30% increase in the overseas deals (though this might be a bit conservative, given some of the deals announced to date).


That is why relegation would be such a big deal for Newcastle. This has been described by the club as a key risk, namely “team performance impacts all aspects of the club’s operations, not least the retention of Premier League status, which is critical to much of the club’s revenue.”

If they were to drop down, they would get around £38 million TV money in the Championship, including a £35 million parachute payment and £2 million distribution from the Football League, compared to the estimated £115 million in the Premier League, i.e. a £77 million reduction.

Obviously, this would be considerably higher than those Championship clubs without parachute payments, as they only receive £5 million, so Newcastle would almost certainly have the highest revenue in the division (though their commercial and match day income would also probably fall).


That said, it’s still a considerable reduction in revenue that would require major cuts in the cost base, so it is worrying to read reports that the club has not inserted relegation clauses in every player’s contract that would automatically cut wages in the Championship. Either way, they would likely still have to sell the club’s better players – if they can find buyers.

Another point worth noting is that from 2016/17 clubs will only receive parachute payments for three seasons after relegation, although the amounts will be higher. My estimate is £75 million, based on the percentages advised by the Premier League (year 1 – £35 million, year 2 – £28 million and year 3 – £11 million). Up to now, these have been worth £65 million over four years: year 1 – £25 million, year 2 – £20 million and £10 million in each of years 3 and 4.


Newcastle’s match day revenue rose slightly by £0.9 million (3%) from £25.9 million to £26.8 million. The accounts attribute this to “one additional home cup match this year”, which is puzzling as Newcastle did not host a single domestic cup tie in 2014/15, compared to one in the FA Cup and two in the Capital One Cup the previous season.

Their match day revenue is the seventh best in England, but it is a long way behind Arsenal £100 million, Manchester United £91 million, Chelsea £71 million, Liverpool £59 million, Manchester City £43 million and Tottenham £41 million.


This is despite Newcastle having a supporter base that is the envy of almost every other club with an average attendance of over 50,000 being the third highest in the country, the mismatch with revenue being due to lower ticket prices and corporate hospitality.

The club has implemented a number of initiatives as a “commitment to keeping ticket prices affordable for our supporters”, including a ten-year deal in 2011/12, freezing season ticket prices for the last three seasons and reducing prices for younger supporters. This is all very admirable, but Ashley’s detractors would point out that most of the initiatives were only introduced after attendances fell, as the board attempted to once again fill the ground.


Either way, since the promotion back to the Premier League in 2010 attendances have been steadily rising. The loyalty of the fans was shown by the fact that Newcastle’s crowds were the fourth highest in England even when they played in the Championship with a 43,000 average, which is an incredible statistic.

After an impressive 50% increase in 2013/14, thanks to a “lucrative” new deal with shirt sponsor Wonga and a long-term extension with kit supplier Puma, commercial income marginally fell in 2014/15 by £0.9 million (3%) from £25.6 million to £24.9 million, mainly due to once-off income from hosting the Kings of Leon concert in the prior year.


For a club of Newcastle’s magnitude, their commercial revenue of £25 million is on the low side, paling into insignificance compared to the top six clubs: Manchester United £197 million, Manchester City £173 million, Liverpool £116 million, Chelsea £108 million, Arsenal £103 million and Tottenham £60 million.

It might be argued that such comparisons are a tad unrealistic, but it’s a similar story if you lower your sights to the mid-tier clubs, e.g. Aston Villa £28 million, Everton £26 million.


Not only is commercial income lower than the £28 million that Ashley inherited eight years ago, but Newcastle are the only top ten Premier League club not to grow commercially in that period, even though the club apparently “continues to focus on maximising commercial revenue”.

Before Ashley arrived Newcastle’s commercial income was at a similar level to Tottenham, but the North London club has grown this revenue stream by 56% since 2007 while Newcastle have fallen by 10%. In the same period Aston Villa and Everton have overtaken Newcastle, while Liverpool and Arsenal have grown by £73 million and £62 million respectively.


In fairness, Newcastle’s £6 million shirt sponsorship with Wonga is only surpassed by the deals made by the top six clubs, even though the association with a provider of payday loans at extortionate rates feels horribly cheap. That said, the disparity is again enormous with Manchester United earning £47 million a year from their Chevrolet deal and (maybe a better comparative) Tottenham signing a £16 million agreement with AIA.

Even though the club said that it is working hard to add new sponsors, it is worth noting that they reduced their commercial staff from 54 to 35 in 2014/15. Moreover, the ubiquitous presence of Sports Direct advertising surely puts off other potential partners.

The accounts state that “advertising and promotional services were provided to Sports Direct” free of charge, but note that the club “anticipates receiving payment for these services in the future”, though without specifying exactly how much. What we do know is that the club purchased £2.3 million of goods from Sports Direct last season (down from £2.8 million), so the deal would have to be higher than that for a net benefit.


The wage bill was massively cut by £13 million (17%) from £78 million to £65 million, slashing the wages to turnover ratio from 60% to 51%. This reduction was due to the absence of bonus payments for finishing in the top ten of the Premier League plus “the cost and timing in the prior year of some significant changes to the playing and development squad”.

Based on their revenue level, we would expect Newcastle to have the 7th highest wage bill in the Premier League, but it was in fact the 17th highest, only ahead of Leicester, Hull City and Burnley. Mike Ashley’s fondness for a bet is well known, but this could be a gamble too far in the increasingly cutthroat top tier.


Of course, they are still miles behind the elite clubs, e.g. Chelsea £216 million, Manchester United £203 million, Manchester City £194 million and Arsenal £192, but they have also been overtaken by the other so-called mid-tier clubs.

Charnley has observed that “our wage bill for the year to 30 June 2016 will increase by a minimum of just under £9 million as a result of our activity during this transfer window”, but that would only take them to mid-table in terms of wages.


While it is praiseworthy to have a such a low wages to turnover ratio of 51%, this is normally due to high revenue (e.g. this is the reason for the same 51% ratio at Manchester United and Tottenham), but in Newcastle’s case this is purely down to cutting costs, so can actually be considered as a bit of a warning sign. The only club with a lower ratio than Newcastle in 2014/15 was Burnley.


In fact, Newcastle very much went against the wages growth trend in the Premier League in 2014/15 when they reduced the wage bill. Only two other clubs did the same (Manchester United and Manchester City were both 5% lower), but Newcastle’s decrease was the largest by some distance with a 17% cut.

One exception to the wages decrease was the highest paid director, presumably Lee Charnley, who saw his remuneration jump 40% from £107k to £150k.


Quite tellingly, Newcastle enjoyed the 5th highest wage bill in England before Ashley bought the club in 2007, but since then the wage bill has risen by just £5 million (9%) from £60 million to £65 million.

Every other Premier League club has increased their wages by significantly more in this period with almost all of them overtaking Newcastle. As an example, Liverpool’s wage bill has shot up by £88 million (114%), increasing the gap to Newcastle from £18 million in 2007 to £101 million in 2015. U2 once sang of “running to stand still”, but the Newcastle board has barely broken into a jog here.


For the initial stage of Ashley’s tenure Newcastle were a selling club, averaging net sales of £11 million in the first four years, though this did include the relegation to the Championship. In the following three years, they essentially broke-even, somehow managing to go 18 months without signing a full-time professional player, which is some going (and the height of optimism) in such a competitive league.

However, there has been a distinct loosening of the purse stings in the last two seasons with Newcastle averaging net spend of £45 million (gross spend £57 million, sales of just £11 million).


In fact, Newcastle have the third highest net spend of £90 million over the last two years, only surpassed by Manchester City £151 million and Manchester United £132 million. The problem is that they have been doing it very poorly, effectively achieving the opposite of getting “bang for their buck”.

As the club’s accounts so aptly noted, “Identification, negotiation and successful acquisition of the best players, in what is a highly competitive market, is one of the most significant and high profile risks facing the club.”


Net debt has been cut by £14 million from £95 million to £81 million, as cash balances rose from £34 million to £48 million. Gross debt was unchanged at £129 million, entirely owed to Ashley: £18 million repayable on demand and £111 million repayable after more than one year. This debt is interest-free, secured on future broadcasting income and repayable on demand.

Gross debt has therefore been cut by £21 million from the peak of £150 million, but this is still £52 million higher than the £77 million debt Ashley inherited in 2007. To be fair, the switch from external bank debt to owner debt has saved a lot of money in annual interest payments (which were as high as £8 million in 2008).

"Jackinabox"

In the past, the club has argued that Ashley’s free advertising is worth less than the savings made from removing the requirement to pay bank interest, which may well be true, but it’s not an overly compelling argument, particularly if you work on the principle that an owner should have the football club’s best interests at heart.

It is also striking that none of the debt has been converted into equity, as is the case with many other football club owners, e.g. Ellis Short has capitalised over £100 million of loans at Sunderland, while Randy Lerner has cancelled repayment of £180 million of loans at Aston Villa.

Newcastle have adopted a policy of paying transfer fees upfront, rather than spreading payments over a number of years, so they owed other clubs only £3 million, while other clubs owed Newcastle £22 million. In some ways, this is an admirably prudent approach, but it does restrict Newcastle’s ability to spend more on bringing players in.


It should be noted that this season’s binge spending has not been included in these figures with the club stating that it had committed to a net outlay of approximately £80 million on additions to the playing squad subsequent to the balance sheet date.

Newcastle’s gross debt of £129 million was actually the 4th highest in the Premier League, though considerably below Manchester United, who still have £444 million of borrowings even after all the Glazers’ various re-financings, and Arsenal, whose £232 million debt effectively comprises the “mortgage” on the Emirates stadium. QPR’s debt of £194 million was higher, but their owners have now converted £180 million into equity.


Newcastle have been pretty good at generating cash in the last few years with £39 million from operating activities in 2015 alone. After spending £24 million on the playing squad (net of disposals) and £1 million on capital expenditure, they managed to produce £14 million of positive net cash flow.

However, this has all gone on this season’s player recruitment, so when Ashley was asked how much was left in the bank account, he responded, “Virtually nothing. They have emptied it.”

The last year that Ashley injected funds was £29 million in 2010, which facilitated promotion back to the Premier League at the first attempt. Not only has he not put any more money in since then, but the club actually made an £11 million repayment of Ashley’s loan in 2012.


That said, since Ashley bought the club, he has loaned £129 million, providing the majority of the club’s available cash. A further £60 million has been generated from operating activities, giving a total of £189 million to spend.

Around £72 million of that has gone on eliminating bank debt with a further £11 million in interest payments. Around £47 million has been spent on net player purchases, but less than £10 million invested in infrastructure, e.g. the promised new state-of-the-art training facility is still a pipe dream.


Newcastle’s £48 million cash balance was one of the highest in the Premier League, only behind Arsenal £228 million, Manchester United £156 million and Manchester City £75 million, though, as we have seen, that is no longer the case.

Even though Ashley has twice tried to sell the club, last season he said that he would categorically not be sell it until Newcastle won something. That seems clear enough, but it is difficult to believe that there isn’t a price that might tempt him.

To use his own words, Ashley is now “wedded” to Newcastle United, but it does feel like the ultimate marriage of convenience, especially as he has also lamented his decision to acquire the club: “Do I regret getting into football? The answer is yes.”

"Eyes wide shut"

However, any prospective purchaser would have to shell out at least quarter of a billion  to cover Ashley’s costs (original acquisition plus outstanding debt), which does not exactly make the club an attractive proposition, especially if Newcastle drop to the Championship.

Last month Ashley said, “To get a football club to be the best it can be, you have to get the sun, the moons and the stars to align perfectly”, but that seems to be a fairly obvious attempt to wriggle out of his responsibilities. He failed to invest in the club when it would have made a real difference and when he belatedly sanctioned player purchases, the people that he appointed to execute this decision made a hash of it.

Yes, it is no small achievement to put the club on what Ashley described as “a very sound financial footing” and supporters only need to look at Sunderland to see that big spending does not automatically deliver success, but a club of Newcastle’s resources should really be aiming higher.

"Spanish steps"

The ultimate goal of a football club is not to make profits, but to challenge for trophies. If that is a bridge too far for Newcastle, they should be capable of comfortably finishing in the top half of the table, and at the very least not having to fight against relegation.

When Rafa Benitez was appointed, he spoke of the club’s prospects with some optimism: “The future is brilliant because you have the power, the fans, the stadium and very positive things. You have the squad. You have to adapt a little bit, but there is great potential. This club is so big that we can improve for sure.”

That’s a rousing vision, but first the club has to avoid the dreaded drop, not least because there is a risk that Benitez might walk if that comes to pass. Last time round, Newcastle were immediately promoted, but few would be confident of a repeat performance with the current squad, whose commitment has been frequently questioned this season.

To paraphrase Bruce Springsteen, there’s darkness on the edge of Toon.
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