RICH LIST: Results hide a terrible truth

Yesterday saw the publication by Deloitte of their annual report into the richest clubs in world football. These results are widely seen as the most reliable view of club finances across the game and are held up by many as the barometer of how healthy each ‘business’ is in the modern economic world of our beautiful game.

This years results, based on the financial performance of club in the season 14/15, continue to focus on ‘revenue’ generated by clubs and excludes transfer dealings. The report focusses on the 20 richest clubs in Europe with 9 of the 20 being Premier League (considerably more than any other county with Italy coming in second with 4 - whilst 17 English clubs make the top 30 list).

For Newcastle there was, apparently, great news with a rise from the 19th richest club in 13/14 to 17th in this report.

This fact, however, HIDES A TERRIBLE TRUTH.

Newcastle United’s revenue has not risen at all as you might expect form an improved position.

Revenue 13/14 = £129.7

Revenue 14/15 = £128.8

Our position against the rest of Europe’s elite has been artificially inflated due to one primary factor, the exchange rate between sterling (£) and the Euro (€).

Revenue 13/14 = €155.1m

Revenue 14/15 = €169.3m

Whist of course this effect will have been felt by all English clubs it does account for why we have risen in position against other European teams. For example, whilst in real terms our revenue is down, Inter have actually grown their business from €162.8m to €164.8m and yet purely because Newcastle have benefitted from the exchange rate they have swapped places with Newcastle United and moved from 17th to 19th. To be clear, Newcastle would have remained 19th behind Inter and Galatasaray without this international monetary quirk.

So how have Newcastle managed to reduce revenue when so many factors were in their favour. You only have to look at the indications from social media that football brands are continuing to grow at a meteoric rate. Newcastle’s presence on Twitter rose by 40% whilst Facebook likes rose by 20%. And we can testify that this is not just though British growth as we have seen a considerable increase in hits from overseas over the last 6 month in particular as football brands grow.

Then there is the increased saturation in international broadcasting of Premier League games, we will come onto this direct revenue stream in a moment, but surely the increased expose of a brand like Newcastle United must have lead to a financial growth? In fact, for a number of reasons we have seen Newcastle’s brand diminish in recent years. A recent survey shows that the NUFC brand is now 11th in the Premier League BEHIND the likes of Villa and Southampton. We discussed the affect this may have long term on the club in an article here.

Here are the ups and downs that show Newcastle’s actual performance:

Broadcasting Revenue: £77.1m (down £1.1m)

Commercial Revenue: £24.9m (down £0.7m)

Match Day Revenue: £26.8 (up £0.9m)

NET: Overall Revenue: 128.8m (down from £129.7)

The reduction in broadcasting revenue is perhaps the most disappointing and is a simple result of our poor league position at the end of last season. More disappointing as our live TV appearances actually rose to 20 from 14 in the previous season giving a huge opportunity to increase this particular revenue steam.

Likewise the club failed to grow their commercial revenue at all (a slight reduction of £0.7m in the period). This after a 50% growth had been registered in the previous year. Of course some of the potential to grow further here had already been taken in the previous season by signing up to multi season deals. Even so, some minimal growth would have been expected.

Overall, the results must be a disappointment to Mike Ashley and his Board. And it is pretty clear that this season will prove equally as tough for the underlying business by the time next the next report comes around. Attendance are down, sponsorship deals are under threat and there is no sign of increased Commercial Revenues. Whilst, of course, things are hardly any better results wise on the pitch.

If things continue as they are we can expect to be outside the top 20 richest clubs soon enough, a sad inditement indeed.

So what can be done?

TV Revenue

IF we retain our Premier League status then the Golden Goose that just keeps on laying will of course mask the underperformance of our other commercial activities and match day revenues. Next season our TV revenue streams are likely to increase by £40m to £50m per annum (plus any increase in overseas TV rights). This staggering increase will be achieved without Ashley, Charnley or any of their people getting out of bed. We would love to see if Ashley has set Charnley any stretch targets for growth as you would expect in any normal business. If so, he has certainly failed to deliver so far.

The trouble with TV revenue increases is, of course, the same benefits apply to all Premier League clubs. Therefore our position against our direct rivals fighting for on the pitch success has not strengthened one bit.

A league of our own

In reviewing the overall results it is clear to see that the top 6 English clubs have already left us behind. From Manchester United who earn a huge £520m to Spurs who already generate £258m, the gap between them and us at £163m is huge.

Our immediate target therefore has to be to stay ahead of the rest. With Everton, West Ham, Southampton and Villa all within £20m of our revenue (the rest being £30m or more behind), turning our performances on the pitch into a positive story will go a long way to ensuring this is the case. Of course, European football, in either competition right now, would also be a huge boost for any club in this mini league and whilst Newcastle United are some way off this right now this must be the target for match day, TV, commercial and branding reasons if we are to make any strides forward without something clever being done off the pitch.

Stadium

This could be the killer for Newcastle in the longer term. Whilst NUFC fans continue to fume at the lack of transparency from the club and the seemingly relentless progression towards building on the land behind the Gallowgate, therefore killing ANY possibility of ever expanding St James Park, our rivals progress with their expansion plans.

For West Ham this means a move to the Olympic Stadium. And for a club currently £9m behind NUFC on the rich list West Ham can expect increases in match day and related commercial revenue of around £20m per annum following their move. That puts them well ahead of Newcastle in two years time.

Elsewhere the gap between ourselves and Spurs, Chelsea and Liverpool will also grow further as those clubs continue to actively expand their stadia. This will mean that Newcastle will move from 3rd in the attendance table to at least 7th in the coming years and with it one of our competitive advantages has also gone.

SUMMARY

West Ham in particular are a club that can be seen as actively trying to close the gap on the big six. And good luck to them, as whilst they show initiative and action to build a successful future, Ashley and Newcastle continue to sleepwalk into the abyss. God help us if and when the TV revenues ever start to reverse or disappear as our position in English football continues to diminish by the season.

*Graphics provided by Deloitte