Newcastle United’s capital spending crisis mapped

Football is a funny business. The annual revenues of Europe’s top 20 clubs are roughly half of what Google earns each quarter. profits, but its disproportionate cultural space in our day-to-day life means that every business move in the beautiful game is making headlines.

This is how Newcastle United, the club of this FT Alphavillain, was bought Thursday by a consortium led by a Saudi sovereign fund for 305 million pounds sterling.

Now, we’re going to avoid getting into the ethical debate here – we’ll leave that to the geopolitical strategists who spend their black days as Fleet Street football reporters. But one thing we want to talk about is how much Newcastle United had been ignored by their previous owner: Chimney sweep nemesis Mike Ashley.

It would be easy to focus on transfer expenses, with Newcastle regularly opting for free transfers, players going over their bonuses and loan deals said to have been done as favors to agents.

But instead, we’re going to dwell on one of our favorite topics in finance: capital spending.

You see, despite all the attention paid to the playing staff, football is arguably a business with great potential. Stadiums need to be maintained, training facilities need to be at the cutting edge of sports science and, especially for smaller clubs like Newcastle, the academy needs to regularly convert young players on teams into full-time professionals. A constant flow of capital must therefore be deployed in the company.

The ripple effects, if you don’t, can be disastrous. The pipeline of local academy players is drying up, shaking the sense of local pride in a team. The training ground ages, to the point that ice baths get caught up in inflatable tubs, pushing back potential signings. As the stadium slowly begins to resemble a colosseum-like relic. At worst, years of financial neglect can lead to a tearing point between a city and its club.

And, under Ashley, that’s exactly what happened. FT Alphaville woke up this morning expecting to have to scour Companies House to assemble the cumulative capital spending of every current Premier League team over the past decade to demonstrate exactly that. But it turned out we didn’t need it.

This is because Kieran Maguire, senior professor of accounting and sports fanatic at the University of Liverpool, tweeted this graphic this morning. And, to be honest, it was even worse than we thought.

Talk about parsimony:

Spot Newcastle and the new Spurs stadium.

Yes that’s right, Norwich City – a club that have spent half the last decade outside the Premier League – have spent almost triple what Newcastle (who only spent one season outside) during the same period. Let your eyes drift over the graph and it gets even more mind-boggling. Wolves, arguably a club of comparable stature, have spent six times as much as the Geordies.

So what are the takeaways here besides Mike Ashley’s obvious love for running all businesses like his beloved Sports Direct? Well, this investment deficit could explain the relatively low price paid for the club by the consortium. After all, neglect of capital, like investing, is compounded. It’s likely that whatever the consortium has allocated to infrastructure will be way below standard once the hood is lifted.

Then there is also some management of expectations to be done on behalf of the fans. Training facilities cannot be improved overnight. It took two years and £ 200million to build Etihad’s state-of-the-art Manchester City campus. Only seven years after its completion, academy players such as Phil Foden begin to make their way into his first team.

Still, there is an argument to be made that Newcastle fans just wanted some dignity restored in the way the club was run. Under the new owners, it’s hard to argue that this won’t be the case. Even though the wider reputation of the Toon, and its impact on the sport, is now highly concentrated.

Related links:
Newcastle training ground retained club – that could change – The Athletic

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