Now that the season is over, the Newcastle United hierarchy can complete planning for the summer 2024 transfer window and next season.
Under Mike Ashley, what went into the company accounts became predictable. Under new ownership, there is much we have to learn.
However, we can get some sort of idea about which media speculation is likely to be most accurate.
Financial Fair play (FFP has morphed into Profitability and Sustainability Rules (PSR). UEFA have changed their own rules to focus on wages and player contract costs. The Premier League will inevitably follow UEFA, perhaps with a period of adjustment which will be finalised by Premier League committees during June.
The new system will restrict clubs to a maximum proportion of revenues that can be spent on a combination of wages (including coaching staff), amortisation (transfer fees spread over the life of the player’s contract) and agents’ fees. That proportion is currently 90% but reducing to 70% by 2025-26. As with FFP, deviation is allowed up to €60 million over three years, an extra €10 million per year if owners are investing rather than borrowing.
It is possible, perhaps probable, that the Premier League will also include some form of salary cap, reputed to be a multiple of the revenue going to the lowest funded club.
Notably, investments in academies, women’s football and infrastructure can be offset.
Before going into more detail, it might be worth highlighting arguably the most farcical element of PSR for a club such as ours, investing in the future, not least in playing talent.
As the squad has been improved, the overall amortisation cost rose from just under £50 million to almost £87 million in the accounts to 30th June 2023. The book value of the squad was £262 million against purchase costs of £472 million, which might take a moment to sink in when you look at the players on the field. Their book value has gone down by £210 million since purchased.
Let’s take Bruno as an example, with a contract extension and a release clause . At first, his amortisation over the first 5 year contract was £8 million per year. After 2 years, his book value became £24 million. If his new contract is 5 years long, that £24 million is amortised at just under £5 million per year making his book value £19 million at the end of June. At the same time, his escape clause is speculated at £100 million. His true value, assuming that a European giant will be prepared to pay that, is grossly understated, after all, would we have been able to buy him now at £19 million?
There is no mechanism under current PSR to recognise the increase in value, unless he is sold. The same can be said for others who have renewed contract, such as Joelinton or those other players who have been improved, such as Gordon. This is why the media can easily speculate that we need to sell top players in order to meet PSR.
As we know, allowable losses over 3 years are not allowed to exceed £105 million, save for some “allowable adjustments”. For the 3 year period in which Everton had their first points deduction, losses for NUFC from 2020-21, 2021-22 and 2022-23 totalled around £150 million. Allowable adjustments include £26 million for Covid (much less than Everton’s reported £248 million)and £12.4 million for investment in the training ground and Strawberry Place, as well as other undisclosed costs for women’s football, the academy and sprucing up the stadium.
These assets can be seen to have added to the book value of the club. Investment in players is treated completely differently to those other assets.
Ostensibly, that Covid year drops out of the rolling 3 year period, a season which showed a loss of a mere £13.7 million. That means that a significant surplus has to be made in the season just finished, after 2 years showing a combined loss of around £140 million.
How have they done?
Turnover has been significantly higher than the Mike Ashley years, the last Covid affected Ashley year being at £140 million. This went up to around £250 million in the first full Amanda Staveley consortium year. Adding in sponsorship deals and the Champions League campaign, that should be in excess of £300 million for the season just finished, perhaps comfortably. On that note, yes, we don’t have UEFA football next season. However, the Adidas arrangements may well cover that particular revenue loss.
There will have been some relatively minor profits made from the sales of Manquillo, with Chris Wood possibly accounted for in the current financial year, not to mention Allan Saint-Maximin.
Outgoing transfers this summer 2024 transfer window can also add to the kitty. Addressing the media hype, if Bruno were to be sold for the £100 million release clause, understood only to be valid until 30th June, that would represent a paper profit of £75 million or so. Clearly that would increase the amount available to contribute to future years’ allowances for amortisation and wages.
With 5 year contracts being the norm, if a replacement’s wages were at the same level of Bruno’s, that theoretically would mean 5 times that figure, £375 million could be spent on new players. In reality, agents’ fees and signing on bonuses would reduce that, maybe to £300 million. Having been signed more recently, those others who are the subject of speculation, Isak and Gordon would fetch less profit, having not been amortised as much.
That may seem to be an accounting miracle but in the real world, we have other assets that may be expendable in the quest for the longer term vision. Players over 30 with low book value, Almiron, Wilson, Dubravka, might be attractive to different markets, such as newly promoted clubs, the Saudi league, or even European clubs.
Others on the fringe could include Targett, not to mention current loanees such as Fraser, Lewis, Hayden. A contingent of supporters may even add the likes of Longstaff and Trippier to the list of expendables.
Others will have ideas of their valuations in the market but if fees can be generated totalling a conservative (?) £40 million, that could produce a transfer budget in excess of £150 million. Also, bear in mind that a Toney transfer from Brentford might also add to that, in view of sell on clauses.
With out of contract players from other clubs, if rumours are to be believed our central defensive injury problems might already be sorted using that route, notably eliminating the need to amortise those players’ transfer fees. There will be some wage savings on those NUFC players who will be out of contract. To coin a phrase, Tonali would be like a new signing, Willock too, if he recuperates during the summer.
In short, we can expect an exciting summer.
We do not have full control over players’ wishes but we are in a position that we can hold out for top $ if any players were to be seeking a move away. We now have assets in the squad combined with desire from the Newcastle United owners to invest and improve, a manager in place who demonstrably develops players and adds value. We are high profile for talent from South America with academy players also coming through.
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