The great gamble that paid off
SIFTING through Newcastle United's latest set of accounts, and listening to the briefings that accompanied their release, two key issues become apparent. The first is rooted in the past, the second relates to the future. And while the first can be regarded as a stellar success, it is far too early to assess what the outcome of the second will be. Let's start in the 2009-10 season, the period covered by the accounts, and it only requires a cursory glance at the figures to appreciate the size of the gamble that was taken in the immediate aftermath of relegation, and the subsequent importance of achieving promotion at the first attempt. A wage bill of £47.5m might represent a significant reduction from the previous campaign, but it is still an astronomical financial commitment in Championship terms. It is understood to be the biggest ever recorded in English football's second tier, and just about accounted for the totality of turnover, which was officially recorded at £52.4m despite the receipt of a full parachute payment from the Premier League. Yes, high-profile players were sold. But plenty remained, and they remained on top-flight salaries of up to £70,000-aweek. For all his failings, Mike Ashley deserves credit for holding his nerve, funding an operating shortfall of more than £17m and giving Newcastle the best possible opportunity of winning promotion at the first attempt. Mind you, Chris Hughton also deserves similar credit for transforming the opportunity into a reality. In many respects, the gamble is the same one that has been taken at Middlesbrough, only with vastly different results. Hughton was allowed to keep his squad together, Gordon Strachan was given substantial funds to assemble a new one. Next season, with their full Premier League parachute payments disappearing, Middlesbrough are hoping to reduce their wage bill from £20m to £6m. Had Newcastle found themselves in the same position, their financial situation would have been even worse unless Ashley was prepared to fund losses of up to £30m a season. The key difference, of course, is that Newcastle won the title and find themselves back in the Premier League's promised land, which brings us to the second factor to emerge from this week's revelations, namely the grand plan going forward. In the short to medium term, Ashley and Derek Llambias clearly aspire to a model of financial selfsufficiency. Total turnover this season should return to the 2008-09 levels of around £85m, and while operating costs will increase slightly from last season's total of £74m, it should be possible to break even. That is why Llambias has been able to store the £35m raised from the sale of Andy Carroll into a separate account, and continually insist it will be made available for investment this summer. In fairness to Ashley, that commitment should not be dismissed as merely a minimum requirement, as it could have been used to refund some of the owner's interest-free loan, which currently stands at £139.8m. So, for this summer at least, Newcastle should be in a reasonably strong position when it comes to squad strengthening, and there is something very laudable in a desire to bring sustainability and self sufficiency to an industry and a club that has turned financial mismanagement into something of an art form in the past. In the longer term, though, there are some key concerns relating to Newcastle's new-found relish for financial fair play. The first is that there will not be an Andy Carroll to sell every season, and even if there was, it is debatable whether constantly disposing of your biggest asset is a viable model for progress and growth. In the future, provided operating costs remain roughly the same, purchases will be funded from any increases in revenue and any funds derived from selling players. Most seasons, it is unlikely to be a very big pot. Ashley has identified the potential for increased revenue naming rights to St James' Park, a standalone television station on the Sky platform, an improved shirt sponsorship deal more in line with the club's rivals but it is hard to see self-generated income rising by more than £5m or £6m a year. That leaves player dispersals, and Cheik Tiote has emerged as the blueprint for Newcastle's signing policy. Diligent scouting plus hard bargaining for a player still in the formative years of his career should equal the potential for considerable sell-on success. Fine. But for every Cheik Tiote there is a Xisco or an Ignacio Gonzalez, players who have lost Newcastle money under the Ashley regime rather than made them it. Transfers are not an exact science, and most managers reckon a 60 per cent success rate is good going. That would lead to some pretty lean years unless Ashley is prepared to dip into his pocket every now and then. Similarly, self-sufficiency would be fine if everyone else was doing it, but they aren't. While there is something to be admired in standing on your own two feet and surviving without a benefactor, is it really a viable approach when other clubs are being funded by an owner willing to write off his losses Llambias and Alan Pardew continue to talk about consistently competing for Europe, but as a club like Everton have learned, financial constraints will generally determine ambition in the end. If the rest of the league is spending money they haven't really got, then season by season, a selfsufficient Newcastle will slip further down the pile. Maybe, as we edge towards the imposition of UEFA financial fair play rules, that is wrong. Either way, it's the reality of the situation. The Magpies should be able to survive with their new approach, but it is just about impossible to see them reclaiming a place with the big boys. As a result, the spectre of a future relegation will remain, and with that in mind, the most alarming part of this week's briefings was the revelation that a number of key Newcastle players still do not have relegation clauses written into their contract. Consequently, if the club drops out of the top-flight again, it will be straight back to square one.
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