This article analyses Newcastle United finances in respect of the 2020/21 season.
Season Review
Newcastle’s 2020/21 season represented the final full season under the ownership of the notorious Mike Ashley. It also represented the end of an era of financial austerity, with the takeover by the Saudi Arabia Public Investment Fund (PIF) launching Newcastle United into an exciting time whereby they have overnight become the richest club in football.
The 2020/21 season therefore isn’t as exciting as the times to come. Newcastle United recorded its second consecutive loss during the COVID hit seasons. Since the takeover, PIF has already injected £168m into the club, highlighting what is to come.
Please note that Newcastle United extended its 2020 financial year to cover the 13 months to July 2020. This meant that the 2021 financial year was only 11 months (1 August 2020 to 31 July 2021). This has therefore had an impact on the finances outlined, particularly in respect of costs which are overstated in 2020 relative to 2021.
Newcastle United Finances – Revenue
The Toon army saw its revenue fall 8% from £153m to £140m as it felt the impact of games behind closed doors.
Matchday
Newcastle United had almost non-existent matchday revenue, falling 99% from £17.2m to £0.2m. This was due to the season being played behind closed doors. The return of fans in 2021/22 and renewed optimism, driving increased attendance and fan spending, will see revenue return, if not exceed 2020 levels.
Broadcast
Broadcast revenue rose from £106m to £119m (12%). This was largely due to the club featuring on TV three more times than in 2020 and finishing one place higher. The club also benefitted from rebates relating to the 2019/20 season no longer being paid. While most other Premier League clubs had significant revenue deferrals as a result of a portion of the 2019/20 season falling into the 2021 financial year, Newcastle United extended its 2020 financial year to 31 July, meaning the full 2019/20 season fell into the 2020 financial year. Most other clubs’ financial years ran to 31 May or 30 June.
A strong second half of the season has seen Newcastle finish mid-table. Therefore, broadcast revenue will remain at a similar level in 2022. Newcastle united will have strong ambitions of pushing for Europe in the coming seasons, which would boost revenue significantly if achieved.
Commercial
Commercial revenue fell from £29m to £20m (29%). This was due to lower value achieved from its main sponsors, in addition to the reduction in corporate hospitality and retail sales due to games behind closed door and club shop closures respectively.
A new era should provide plenty commercial opportunities for the club.
Newcastle United Finances – Revenue summary
The Toon Army will be less concerned with its current revenue profile given the expected investment in the squad over the coming years. While revenue growth is less of a concern for sustainability, the need to remain sensible is key given the need to comply with financial regulations.
The renewed optimism of its fans will provide matchday and commercial revenue boosts, while an improved squad and sporting performance will drive broadcast growth.
Newcastle United Finances – Operating costs
Newcastle United saw its operating costs fall from £148m to £123m (17%). This was primarily driven by the 2021 financial year only being 11 months, compared to 13 for 2020.
Wages
Wages fell from £121m to £107m (12%). This was driven by the accounting year being 11 months vs. 13 months in 2020. In reality, wages increased slightly on a monthly basis, from £9.3m per month to £9.7m.
The wages to revenue ratio fell from 79% to 76%, due to the fall in wages relative to revenue.
Wages will likely grow considerably in 2022 given investment in the January transfer window and return to a 12-month accounting period.
Other costs
Other operating costs fell from £27m to £16m, driven by matchday cost savings due to games behind closed doors.
Newcastle United Finances – Operating costs summary
The shorter accounting period in 2021 undoubtedly impacted the costs incurred relative to 2020.
With the increased investment in 2021/22 and return to a 12-month accounting period, costs will rise considerably.
With investment expected to continue, Newcastle United is very aware of the restrictions imposed by financial regulations and will therefore have to remain sensible in respect of its investment plans.
Newcastle United Finances – Transfers
There were no notable outgoings at St. James’ Park in the 2020/21 season. The club did however spend £35m, predominately on Callum Wilson (£20m) and Jamal Lewis (£15m). This was substantially dwarfed by its spending in January 2022 following PIF’s takeover.
Amortisation
Player amortisation charges fell from £59m to £32m (45%). This was primarily driven by a £11m impairment charge in 2020 which wasn’t present in 2021.
The signings in January 2022 will drive an increase in amortisation charges in 2022, however will be limited by fact they were purchased halfway through the financial year.
Profit on player sales
Limited players sales meant Newcastle United only generated a profit on player sales of £1.7m. This compares to a £26.3m profit in 2020.
Newcastle United once again had limited player sales in 2021/22 and therefore this will once again be limited in 2022.
Future player sales may be important to the ability of Newcastle United to spend within the financial regulations.
Transfer debtors / creditors
Newcastle United appear to typically pay its transfer fees upfront, with no transfer creditors outstanding at the end of either the last two financial years. This may change given the investments now being made.
The Toon Army is however owed £6.6m in transfer fees, (2020: £19.8m) given no major sales in 2021. Most of this balance (£6.2m) is payable by the end of the 2021/22 season.
Newcastle United Finances – Transfers summary
Fans are unsurprisingly excited by the new riches available to the club, highlighted by the significant spending in the January 2022 transfer window. While further spending is anticipated, the club’s new owners have publicly noted realism given constraints placed by financial regulations.
Newcastle United Finances – Profitability
Newcastle United have operated a model of austerity in recent years, intensified by Mike Ashley’s desire to sell the club. Therefore, and despite COVID-19, Newcastle’s losses remained relatively low in the last two years after two years (2018 and 2019) of profits.
Operating profit / loss before player trading
Before player trading, Newcastle United recorded an operating profit of £17m, up from £5m in 2020. This was driven by the reduction in operating costs because of a shorter accounting period. It is 50:50 whether Newcastle united will remain profitable as matchday revenue returns, given there will be significant pressure given increased investment and longer accounting period.
Operating profit / loss after player trading
After player trading, operating losses fell from £27m to £14m despite lower player sales due to the reasons above and reduction in player amortisation charges.
This loss will likely rise as player amortisation charges are likely to rise following increased transfers purchases.
Profit / loss before tax
Net finance income of £0.1m resulted in Newcastle United recorded a loss before tax of £14m (2020: £26m loss).
Newcastle United Finances – Profitability summary
The Toon Army recorded back-to-back losses after achieving back-to-back profits in the two periods before COVID-19 hit.
On a cumulative basis, Newcastle United recorded a profit before tax of £24m across the last four years, highlighting the austerity under Ashley.
The picture may be significantly different in the coming seasons as PIF invest in the club. It is however noted that PIF have sensibly expressed a need to invest sustainably, and it will be interesting to see how this develops.
Newcastle United Finances – Assets / Liabilities
Newcastle United remained under the ownership of Ashley in the 2021 financial year. Therefore, there was no investment from him in this period. This has changed considerably since, with PIF investing £168m already to pay back Ashely’s previous loans and provide further funding to Newcastle United.
Cash flow
Cash reserves fell from £63m to £18m. This was due to cash outflows in respect of its operations (£25m) and transfers (£25m) being slightly offset by £5m of new financing. Newcastle spent only £0.2m on capital expenditure.
Debt
The new £5m of financing relates to a factoring arrangement in respect of a previous transfer to receive the instalment quicker. At the end of the 2020/21 season, Newcastle United had an outstanding £107m loan from Mike Ashley. Since PIF’s takeover, they have repaid this loan while injecting a further £60m into the club to kick off this new era.
Newcastle United Finances – Final Remarks
It is all change for Newcastle United as it enters a new and potentially prosperous period for the club.
Investment has already begun, and is expected to continue, however financial regulations will need to be adhered to.
Newcastle will look to follow the path trodden by Manchester City and become a European powerhouse over the next decade and beyond. We are all watching and fascinated to see how the journey plays out…
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