Newcastle United Finances - 2008 Accounts Recently Filed

[Baggio]

So Mort was lying when he said they’d undertaken due diligence and Ashley decided to sign up at least three players on big wages before he knew what the clubs financial position actually was?

 

I don't know if they took due diligence or not, SJH has said they didn't so it's possible that they didn't look into it fully which was the whole point of the review, that's just a guess btw.

 

What it looks like they done was came in and tried to keep the club running as normal with Allardyce picking his targets and Kenny Shepherd negotiating them while Mort worked on the review in the background, again that's just a guess from memory.

 

Although pinning individual signings on people isn't really important at the moment because the club was a financial mess when it was sold, it's how they go about turning it around now to make us stronger in the future which is important.

[Mick]

 

Do you know much about the due dilligence process? Serious question becasue i remeber Mort also saying how it wasnt as simple as they'd first thought witht he 'incoming money' business - would due dilligence of revleaed this beforehand?

 

To anyone out there?

 

They didn't do a full "Due Diligence" before buying the club as they didn't have the time because of deadlines set by Sir John Hall.  They did go through the books before buying the club but other than looking at figures, they had no time. 

 

Once the club was Ashley's Chris Mort came in and performed a strategic review, that's when the problems were found.  The loans and overdraft were known about but what wasn’t known was the fact that the money that hadn’t came into the club from Northern Rock and Adidas had already been spent.

 

[Mick]

 

I don't know if they took due diligence or not, SJH has said they didn't so it's possible that they didn't look into it fully which was the whole point of the review, that's just a guess btw.

 

What it looks like they done was came in and tried to keep the club running as normal with Allardyce picking his targets and Kenny Shepherd negotiating them while Mort worked on the review in the background, again that's just a guess from memory.

 

Although pinning individual signings on people isn't really important at the moment because the club was a financial mess when it was sold, it's how they go about turning it around now to make us stronger in the future which is important.

 

Mort gave the OK to all deals done once Ashley had bought out Sir John because they thought they still had sponsorship money to come in which would cover additional wages.

[fredbob]

 

Do you know much about the due dilligence process? Serious question becasue i remeber Mort also saying how it wasnt as simple as they'd first thought witht he 'incoming money' business - would due dilligence of revleaed this beforehand?

 

To anyone out there?

 

They didn't do a full "Due Diligence" before buying the club as they didn't have the time because of deadlines set by Sir John Hall.  They did go through the books before buying the club but other than looking at figures they had no time. 

 

Once the club was Ashley's Chris Mort came in and performed a strategic review, that's when the problems were found.  The loans and overdraft were known about but what wasn’t known was the fact that the money that hadn’t came into the club from Northern Rock and Adidas had already been spent.

 

 

Arent there any stock exchange rules to ensure that due dilligence is allowed to be completed?

[Mick]

 

Arent there any stock exchange rules to ensure that due dilligence is allowed to be completed?

 

The offer was take it or leave it.

[Guest fading star]

So Mort was lying when he said they’d undertaken due diligence and Ashley decided to sign up at least three players on big wages before he knew what the clubs financial position actually was?

 

Do you know much about the due dilligence process? Serious question becasue i remeber Mort also saying how it wasnt as simple as they'd first thought witht he 'incoming money' business - would due dilligence of revleaed this beforehand?

 

To anyone out there?

Just the translation… due (expected) diligence (legal carefulness).

 

It’s doesn’t really matter much. Everybody knew the club wasn’t in good health on or and off the pitch when it was sold. Investment was needed across the business. If Ashley didn’t have enough money to address the on the field problems he shouldn’t have bought the club, but he did and now we’re heading for complete financial meltdown.

[fredbob]

 

Arent there any stock exchange rules to ensure that due dilligence is allowed to be completed?

 

The offer was take it or leave it.

 

I realise that but surely any buyer of a PLC business should have the right to complete due dillignece in its entirety? Just wondered if it was in the rules as im not an expert in this field.

[Mick]

Just the translation due (expected) diligence (legal carefulness).

 

Its doesnt really matter much. Everybody knew the club wasnt in good health on or and off the pitch when it was sold. Investment was needed across the business. If Ashley didnt have enough money to address the on the field problems he shouldnt have bought the club, but he did and now were heading for complete financial meltdown.

 

Financial meltdown is something that is being felt around the globe, we're not unique.  The only difference is that most people who invest in struggling companies win praise for doing so, we kick our investor in the bollocks.

 

It's called biting the hand that feeds you.

[Guest fading star]

 

Arent there any stock exchange rules to ensure that due dilligence is allowed to be completed?

 

The offer was take it or leave it.

Then he should have left it. Ashley chose to take on this responsibility and has to live with the consequences of buying an institution and a buisness.

[Dr Venkman]

 

Arent there any stock exchange rules to ensure that due dilligence is allowed to be completed?

 

The offer was take it or leave it.

Then he should have left it. Ashley chose to take on this responsibility and has to live with the consequences of buying an institution and a buisness.

 

to be fair he's spoken of being responsible quite a few times. if he was left with such a shambles, forgetting who's fault it was or wasnt, does he have a choice but to try and steady the ship until we're back on a level footing from which he can put money in to push us up the league?

[fredbob]

 

Arent there any stock exchange rules to ensure that due dilligence is allowed to be completed?

 

The offer was take it or leave it.

Then he should have left it. Ashley chose to take on this responsibility and has to live with the consequences of buying an institution and a buisness.

 

And where would that of left the club? Isnt this the key issue here. If we have an uninterrupted summer of transfers who knows?

[Mick]

 

Then he should have left it. Ashley chose to take on this responsibility and has to live with the consequences of buying an institution and a buisness.

 

He is living with the consequences, he seems more able to live with it than most.  The only time he's really mentioned money is when we've had a go at him.

[Gottlob]

I don't have much knowledge when it comes to finances and accounts, so a sincere thank you to quayside and to everyone who has helped people like me in this thread thus far. I was just wondering if any of you could clarify a few things?

 

Regarding amortisation, I'm inclined to understand it, from what I've read in this thread, in one of two ways.

 

Either: it is where the money spent on buying a player (the player's transfer fee) is drawn out and shown bit by bit on the profit and loss accounts, over the period of the player's contract. So a player is bought for £10 million on a four year contract, and this £10 million spent is shown, on the profit and loss accounts, as a £2.5 million loss for each of four years. The money may go out immediately, as a lump sum, but it is drawn out as a cost for the purposes of the accounts. In this case, the club has lost actual money - money has been spent, and its loss has been drawn out on the accounts.

 

 

Or: it is where a player is simply valued by the club as an asset, with the valuation of the player equating to the amount spent on buying him, and the loss shown on the profit and loss accounts is based on the player theoretically (in accordance with financial practice or whatever) losing value over the years of his contract. So a player is valued at £10 million, and his value decreases by £2.5 million for each of four years, until he's finally valued at nothing. In this case, the club doesn't lose actual money - the £10 million they've actually spent is a seperate issue - this amortisation involves only the loss it suffers in terms of the valuation of its assets.

 

If anyone can specify which of these two options amortisation is, or can point out where and why I'm entirely wrong with both options, I will be really grateful.

[Offshore]

I don't have much knowledge when it comes to finances and accounts, so a sincere thank you to quayside and to everyone who has helped people like me in this thread thus far. I was just wondering if any of you could clarify a few things?

 

Regarding amortisation, I'm inclined to understand it, from what I've read in this thread, in one of two ways.

 

Either: it is where the money spent on buying a player (the player's transfer fee) is drawn out and shown bit by bit on the profit and loss accounts, over the period of the player's contract. So a player is bought for £10 million on a four year contract, and this £10 million spent is shown, on the profit and loss accounts, as a £2.5 million loss for each of four years. The money may go out immediately, as a lump sum, but it is drawn out as a cost for the purposes of the accounts. In this case, the club has lost actual money - money has been spent, and its loss has been drawn out on the accounts.

 

 

Or: it is where a player is simply valued by the club as an asset, with the valuation of the player equating to the amount spent on buying him, and the loss shown on the profit and loss accounts is based on the player theoretically (in accordance with financial practice or whatever) losing value over the years of his contract. So a player is valued at £10 million, and his value decreases by £2.5 million for each of four years, until he's finally valued at nothing. In this case, the club doesn't lose actual money - the £10 million they've actually spent is a seperate issue - this amortisation involves only the loss it suffers in terms of the valuation of its assets.

 

If anyone can specify which of these two options amortisation is, or can point out where and why I'm entirely wrong with both options, I will be really grateful.

 

I'm in the same boat as you when it comes to finances and accountancy, having read this thread i'd taken it that if a player is 'bought' then he's included on the accounts as being worth that amount, but like a car depreciates over time, the players asset value would decrease by the transfer fee/years of contract.

 

If bought for £10m on a 4 year contract he would be counted on the books as.

 

1st year - asset worth £10m

2nd year - asset worth £7.5m

3rd year - asset worth £5m

4th year - asset worth £2.5m

 

The way i'd read this thread means that in theory if he signed another contract then he'd still be counted in accounts as being worth £0m. Presume this applies to free transfers and anyone we've brought through in the ranks.

 

I'm prepared to have this all wrong though.

[quayside]

Gottlob - I read both secanarios and neither is wrong. You can't write up the value of a player (you get the accounting credit for a good signing only when he's sold) but there are situations where the  club can take a view on the value of a player and accelerate the write down process. It rarely happens but we did it with Luque. Generally when it comes to this sort of stuff accounting rules require you to take a "prudent" or "conservatve" approach. Discretion and judgement can still play a part - but only downwards  .

 

[quayside]

I don't have much knowledge when it comes to finances and accounts, so a sincere thank you to quayside and to everyone who has helped people like me in this thread thus far. I was just wondering if any of you could clarify a few things?

 

Regarding amortisation, I'm inclined to understand it, from what I've read in this thread, in one of two ways.

 

Either: it is where the money spent on buying a player (the player's transfer fee) is drawn out and shown bit by bit on the profit and loss accounts, over the period of the player's contract. So a player is bought for £10 million on a four year contract, and this £10 million spent is shown, on the profit and loss accounts, as a £2.5 million loss for each of four years. The money may go out immediately, as a lump sum, but it is drawn out as a cost for the purposes of the accounts. In this case, the club has lost actual money - money has been spent, and its loss has been drawn out on the accounts.

 

 

Or: it is where a player is simply valued by the club as an asset, with the valuation of the player equating to the amount spent on buying him, and the loss shown on the profit and loss accounts is based on the player theoretically (in accordance with financial practice or whatever) losing value over the years of his contract. So a player is valued at £10 million, and his value decreases by £2.5 million for each of four years, until he's finally valued at nothing. In this case, the club doesn't lose actual money - the £10 million they've actually spent is a seperate issue - this amortisation involves only the loss it suffers in terms of the valuation of its assets.

 

If anyone can specify which of these two options amortisation is, or can point out where and why I'm entirely wrong with both options, I will be really grateful.

 

I'm in the same boat as you when it comes to finances and accountancy, having read this thread i'd taken it that if a player is 'bought' then he's included on the accounts as being worth that amount, but like a car depreciates over time, the players asset value would decrease by the transfer fee/years of contract.

 

If bought for £10m on a 4 year contract he would be counted on the books as.

 

1st year - asset worth £10m

2nd year - asset worth £7.5m

3rd year - asset worth £5m

4th year - asset worth £2.5m

 

The way i'd read this thread means that in theory if he signed another contract then he'd still be counted in accounts as being worth £0m. Presume this applies to free transfers and anyone we've brought through in the ranks.

 

I'm prepared to have this all wrong though.

 

You have got it right. Hence the desired "business model" for someone owning a football club is the though the ranks route and pretty much what Wenger has done, and what Ashley is trying to do. But do we have a Wenger in our current management structure?

[madras]

also £2.1 mill paid out to doug and bruce for "loss of office"

 

The black hole at the heart of Newcastle United’s finances has been revealed with the first set of figures from Mike Ashley’s disastrous spell as owner showing that the company set up to run the club made a pre-tax loss of £34.1 million.

 

The report also discloses that, of the annual turnover of £100.9 million, the wage bill amounted to £73 million, or 72 per cent of Newcastle’s income. About 50 per cent is generally accepted as the safe limit. This may explain why the club have been eager to cut the salaries of senior professionals such as Michael Owen, Nicky Butt and Steve Harper, all of whom are out of contract this summer, provoking disaffection in the dressing-room.

 

The accounts for St James Holdings Limited, the company established to buy and operate Newcastle, which it wholly owns, put into perspective recent problems on and off the pitch. While Ashley has promised to support the club through trying economic circumstances, it is clear that previous levels of spending are unsustainable.

 

The deficit of £34.1 million for the year ended June 30, 2008, includes £20.3 million that arose directly from the running of the club. It confirms that, after buying Newcastle for £134 million, Ashley has spent another £100 million to keep them afloat, including £70 million on cutting debts.

Related Links

 

    * Kinnear begs for more reinforcements

 

    * N'Zogbia desperate to leave Newcastle

 

    * Newcastle hand trial to Lovenkrands

 

Ashley recently announced that the club were no longer for sale, having failed to find a buyer. The limited activity in the transfer market this month may be because the owner appears caught between a desire to slash costs and the need to revitalise a team caught in a relegation battle. As the report states: “the acquisition of players and their related payroll costs are one of the most significant and high-profile risks facing the Group.”

 

Under Ashley and Dennis Wise, the executive director (football), the club have bolstered their academy, although it was a dispute over transfer policy that led to the departure of Kevin Keegan as manager in September. Joe Kinnear, Keegan’s successor, has made similar criticisms of Newcastle’s wildly unbalanced first-team squad and the concern is that refusing to invest further in players will cause the cycle of underachievement to continue.

 

The figures provide an insight into the dangerous position Ashley inherited when he took the club into private hands and, while he remains an unpopular figure among supporters, the tenure of the Hall and Shepherd families, who previously controlled Newcastle, invites scrutiny.

 

Ashley has admitted publicly that he was unaware of the financial difficulties that faced him, having chosen not to study the club’s books before his purchase.

 

The accounts filed at Companies House show that more than £2.1 million was spent in compensation to former directors, including Douglas Hall and Bruce Shepherd, for “loss of office”, a huge sum for a company of Newcastle’s stature, while Ashley’s impatience at the slow rate of progress on the pitch also came at a high cost. The dismissal of Sam Allardyce, the former manager, and his backroom staff 12 months ago resulted in a payout of nearly £4.6 million.

 

If there is some empathy for the position in which Ashley found himself and a recognition that he has attempted to run Newcastle on a sounder footing, it will be balanced by the tactical blunders that have characterised his regime. A lack of communication with supporters has roused anger, as did the appointment of Wise and the undermining of Keegan with the signing of players such as Xisco and Ignacio González, which he had not approved.

 

While Ashley bought the club and took on the debt with his own money, at some stage the sportswear retailer expects to be reimbursed. The report shows that St James Holdings Limited was loaned money to buy and re-finance Newcastle and owes Ashley £238 million. He was understood to be seeking about £250 million when the club were officially for sale and would still accept a similar sum.

 

Matters are unlikely to improve during the present financial year, with Newcastle’s season-ticket sales and home crowds dropping appreciably, their income from corporate boxes also falling and a low finish in the Barclays Premier League table beckoning. In protest at Ashley’s management, the Newcastle United Supporters Club has been promoting a boycott of all official club merchandise.

 

Kinnear has been pressing Ashley to sanction the signing of five new players this month to “protect his investment”, but has stated that he will be be given only £10 million to spend on top of what he generates through sales. Kinnear’s first signing as Newcastle’s manager is expected to be confirmed today when Peter Lovenkrands, who is out of contract, joins until the end of the season.

 

http://www.timesonline.co.uk/tol/sport/football/premier_league/newcastle/article5570167.ece

 

sorry if already posted.

[Stu]

Excellent stuff Quayside - you (and the other accountants - Chez, Colos, LLLO) are doing a great job in breaking this down so people can actually take in what Ashley has done for the club.

 

As far as I'm concerned, there may not be a Newcastle United without Ashley's cash, it certainly wouldn't be in the same guise as we know it today. You're welcome to hold your grudge against Ashley for as long as you want, but the facts point that his model was appropriate all along and those grumbling about him trying to take money out of the club (!!) are simply not grasping the severity of the situation and the turmoil of the credit markets since the summer of 2007 (funnily enough, just after Ashley took over).

[madras]

Excellent stuff Quayside - you (and the other accountants - Chez, Colos, LLLO) are doing a great job in breaking this down so people can actually take in what Ashley has done for the club.

 

As far as I'm concerned, there may not be a Newcastle United without Ashley's cash, it certainly wouldn't be in the same guise as we know it today. You're welcome to hold your grudge against Ashley for as long as you want, but the facts point that his model was appropriate all along and those grumbling about him trying to take money out of the club (!!) are simply not grasping the severity of the situation and the turmoil of the credit markets since the summer of 2007 (funnily enough, just after Ashley took over).

you maybe taking it a bit far. i think the banks would have allowed more debt,probably restructured but the position you envisage was on its way the way things were going.

[quayside]

The Times is quoting figures from the parent company St James Holdings btw, which was formed in May 2007. So the accounts cover 13 months hence there are some differences in stuff reported on this thread, which are purely from the club accounts (which cover a 12 month period). Same basis though...

[EthiGeordie]

Excellent stuff Quayside - you (and the other accountants - Chez, Colos, LLLO) are doing a great job in breaking this down so people can actually take in what Ashley has done for the club.

 

As far as I'm concerned, there may not be a Newcastle United without Ashley's cash, it certainly wouldn't be in the same guise as we know it today. You're welcome to hold your grudge against Ashley for as long as you want, but the facts point that his model was appropriate all along and those grumbling about him trying to take money out of the club (!!) are simply not grasping the severity of the situation and the turmoil of the credit markets since the summer of 2007 (funnily enough, just after Ashley took over).

 

  I agree with most of the stuff you are saying I think people it is time to be United once again we have to back Ashley and his long term strategy. He bought back Keegan in a ways by thinking he would be great for us. HE WAS GREAT to some time but for what ever reason it didn't work out why are we so harsh on a person who spends 230 mil on us? It is really insane we think we are against Ashley but indirectly we are against Newcastle United. We have to stop this tit for tat know and move on. Time to be positive for Ashley

[quayside]

Excellent stuff Quayside - you (and the other accountants - Chez, Colos, LLLO) are doing a great job in breaking this down so people can actually take in what Ashley has done for the club.

 

As far as I'm concerned, there may not be a Newcastle United without Ashley's cash, it certainly wouldn't be in the same guise as we know it today. You're welcome to hold your grudge against Ashley for as long as you want, but the facts point that his model was appropriate all along and those grumbling about him trying to take money out of the club (!!) are simply not grasping the severity of the situation and the turmoil of the credit markets since the summer of 2007 (funnily enough, just after Ashley took over).

 

   I agree with most of the stuff you are saying I think people it is time to be United once again we have to back Ashley and his long term strategy. He bought back Keegan in a ways by thinking he would be great for us. HE WAS GREAT to some time but for what ever reason it didn't work out why are we so harsh on a person who spends 230 mil on us? It is really insane we think we are against Ashley but indirectly we are against Newcastle United. We have to stop this tit for tat know and move on. Time to be positive for Ashley

 

Whatever anyone may think about Ashley there is no doubt that work has gone in securing young players for the future. But none of us will know if this strategy has worked for a while yet. And in the mean time you look at the state of our first team squad and the fact that we have a management structure that is shall we say "unappealing" to a proven manager and you simply think wtf (well I do).

 

Arsenal have built from the bottom but they have always made sure that their first team squad is competitive. This area is being neglected by Ashley and you really can't discount the potential for it all to go seriously wrong.

[fredbob]

Excellent stuff Quayside - you (and the other accountants - Chez, Colos, LLLO) are doing a great job in breaking this down so people can actually take in what Ashley has done for the club.

 

As far as I'm concerned, there may not be a Newcastle United without Ashley's cash, it certainly wouldn't be in the same guise as we know it today. You're welcome to hold your grudge against Ashley for as long as you want, but the facts point that his model was appropriate all along and those grumbling about him trying to take money out of the club (!!) are simply not grasping the severity of the situation and the turmoil of the credit markets since the summer of 2007 (funnily enough, just after Ashley took over).

 

I agree with most of the stuff you are saying I think people it is time to be United once again we have to back Ashley and his long term strategy. He bought back Keegan in a ways by thinking he would be great for us. HE WAS GREAT to some time but for what ever reason it didn't work out why are we so harsh on a person who spends 230 mil on us? It is really insane we think we are against Ashley but indirectly we are against Newcastle United. We have to stop this tit for tat know and move on. Time to be positive for Ashley

 

Whatever anyone may think about Ashley there is no doubt that work has gone in securing young players for the future. But none of us will know if this strategy has worked for a while yet. And in the mean time you look at the state of our first team squad and the fact that we have a management structure that is shall we say "unappealing" to a proven manager and you simply think wtf (well I do).

 

Arsenal have built from the bottom but they have always made sure that their first team squad is competitive. This area is being neglected and you really can't discount the potential for it all to go seriously wrong.

 

Whats your professional view on the finances and how they were going and how do you view Ashleys method for addressing these issues?

 

Was there any alternative for Ashley like loans etc?

 

[Gottlob]

Thanks quayside and Offshore. So is it right to say that a player, bought for £10 million, will potentially constitute £20 million worth of loss on the profit and loss accounts over a period of time? £10 million being lost when the player is paid for (whether that is all in one go or over a period); £10 million being lost through his depreciation as an asset? And I presume of the two scenarios I outline, it is the latter - the depreciation of the asset - which is amortisation?

 

Thanks again for the help.

[ChezGiven]

quayside, any chance of breaking the figures down to annual cost and revenue excluding debt and amortisation? Would like to see the underlying strength of the business.