CONTRARY to popular opinion, Mike Ashley did spend big this summer. Never mind Newcastle United’s modest outlay, Ashley signed off on the seven-figure acquisition of designer clothes shop Flannels back in July – the latest sign that his voracious business empire is not resting on its laurels.
Could he say the same about his football club, however? It has the potential to be the biggest money drain in his business portfolio but he has stemmed the losses with a simple, yet ingenious, business blueprint. Critics think this summer’s transfer business will see the Ashley doctrine hit a glass ceiling.
The latest Deloitte survey placed Newcastle as the 25th-richest club in Europe, with revenue streams of some 98million (approx. £77.2million). They are the eighth-richest in England behind Liverpool, the two Manchester clubs, Arsenal, Chelsea, Tottenham and Sunday’s struggling opponents Aston Villa. It is a stark reminder of how far Newcastle are punching above their financial weight when they finish fifth in the Premier League – and a testament to the way that the current philosophy is beginning to bear fruit on the field.
The philosophy is a simple one of living within its means while trying to grow revenue streams in other areas to support sustainable growth of the club. It relies heavily on people within the club over-achieving or – at the very least – achieving to the top of their abilities.
That means chief scout Graham Carr must continue to unearth rough diamonds and team manager Alan Pardew must repeat the feat of turning James Perch from a failing right-back into a versatile jack-of-all-trades who looks at home in a top-half Premier League club. A culture of rewarding achievements underpins everything, with Ashley handing out generous contracts to those who succeed.
It pushed Newcastle to the brink of the Champions League last season, but the next step is the hardest to take. As The Journal’s research shows, it took consecutive nine-figure net spends to push Manchester City into the upper echelons of the Premier League, while Tottenham were reliant on sustained investment over four years to take them into the top four. Newcastle will attempt to do it a different way. They have decided they cannot afford to chase the dream with money, but yet the ultimate aim – we are assured – is still to deliver Champions League football.
How can this be done? And do the people at the top really still believe that it is possible when they are sanctioning a net outlay of just £3million?
“For Mike Ashley, the finance of the club and the growth of the club is all about the Champions League,” Pardew reassured the media on Friday as the transfer window swung shut.
Almost a year ago, the manager spoke of his hope that success would encourage Ashley to invest more. In October 2011 he said: “I’m trying to get that feeling he had when he first walked in, when he thought ‘you can make it massive’. He came in wanting to do that.”
But Pardew discovered this summer that it will take more than fifth in the Premier League and a dalliance with the top four to encourage Ashley to invest more generously. Ashley sanctioned spending this summer, but it was not much. Newcastle will have to continue to overachieve.
The good news is that they have already shown that gains can be made on the back of good management and a new culture is in place at St James’ Park.
One of the key strands of United’s recruitment policy has been to bring in players who do not require eye-watering wages to convince them that Newcastle is the place to play.
In theory it brought a higher calibre of player to the club but in reality Newcastle were to discover that there is nothing productive about flinging money at players to convince them to come to a place they’d rather not be.
The Sam Allardyce squad that Ashley funded unravelled in subsequent years because too many of its key men had signed solely for the payday. Now the litmus test is hunger. Newcastle still pay comparatively large wages but they have moved away from the QPR model, which sees finance and mega-contracts as a way to fast-track a club towards success. You only needed to be one of the sun-kissed supporters who were present on Sunday to understand that Newcastle fans find little to fault in the Ashley blueprint.
More than 47,000 were at St James’ Park and, for the most part, they have bought into the approach. The energy and buoyancy that makes Newcastle such an exciting place to play remains, but new themes have emerged in recent years – not least an increased patience when things are going against the team. The patience was to be borne out when Hatem Ben Arfa equalised with another special strike, but the jury is still out on whether Newcastle can push on this season.
What most supporters have damned Ashley for is the inflexibility of the policy. While no one is advocating a return to the bad old days of flinging money at Michael Owen until he could ignore his reservations about leaving Real Madrid, there is frustration that there is so little give from the hierarchy.
With his businesses, Ashley has made a habit of spotting opportunities and taking leaps of faith. He bought Lillywhites in 2006 and turned it from a failing prestige brand into a cheap and cheerful extension of Sports Direct – but it worked. Faced with a similar opportunity this summer, Newcastle have – uncharacteristically – opted to play it safe. Their net outlay of £3million added a fringe member of the Dutch squad and several junior additions, not least impressive Premier League debutant Gaël Bigirimana.
It looks like smart business, but it ignores a historic opportunity that was presented over the close season. With Arsenal weakened by Robin van Persie’s departure and Liverpool facing another season of transition, was this not the year to allow a little bit of flexibility in the Ashley blueprint?
They clearly considered it, as moves for Mathieu Debuchy and Luuk de Jong were in the pipeline at various points. But United reeled it back when the values went slightly over what they felt represented value for money.
Inevitably, it brought questions over how much Ashley really wants a club operating regularly in the Champions League. Ambition, the critics say, is lacking in the current spending plans, while The Journal’s expert Vinay Bedi points out that over-achievement can only usually be sustained for a maximum of two seasons.
Ashley will be undeterred. Uefa’s financial fair play rules have given both him and Liverpool owner John Henry something to cling to whenever the level of their investment is criticised and football’s reckoning is still believed to be around the corner.
In the meantime, Pardew and his players have their work cut out if they are to become semi-permanent fixtures in the Premier League’s top four. They are entitled to dream, but football in the modern era doesn’t give much allowance to romantics.
Page 3 - Financial reform presents an opening >>
Financial reform presents an opening
FOOTBALL finance expert Vinay Bedi is a divisional director for Brewin Dolphin, the UK’s largest independent client investment managers. He has been involved in the flotation of a number of companies including several within the football sector.
“The simple fact is that across Europe it seems to be the clubs that spend the money that do tend to compete in the Champions League.
“The Deloitte survey backs that up. It shows that since the Premier League came into force, the clubs that spend the most money are consistently forming the top four. The top four is reflected in terms of transfers fees and also in terms of wage bill too. It is a simple formula, really.
“There’s always exceptions to the rule, and they are the clubs that overachieve. A lot of people believe that Newcastle United did overachieve last season because they weren’t fifth-highest spenders last season in terms of either fees or wages but they managed to beat teams that had spent a lot more.
“The question is whether it is possible for a club to overachieve on such a consistent basis that they can become a part of that top four and so far, you’d have to say that no club has been able to do that in recent years.
“The strategy that is currently being followed does make you think that they will need to consistently overachieve but I am sceptical about whether that is possible because other factors come into play.
“If the players are overachieving they might want to move on to a club that has a more generous spending policy and that may extend to other parts of the club. Financial Fair Play could change things profoundly, but we need to know more about how Uefa will enforce it. Will they really tell Manchester City that they are banned from the Champions League if they win the Premier League? How long would it take before Manchester City and other elite clubs in Europe set up their own competition if that happens?
“If Uefa are going to be as tough as they say they are, it might open the door for the next tier of clubs and that would give Newcastle, Liverpool and others an opportunity to make the top four.”