Elliot reveals past money difficulties

league is worth an extra £1.9million. So finishing five places up the table from one season to the next is worth £9.5million.

If we strip out TV income, then the income of the three clubs is:

Southampton were therefore sold for a non-TV multiple of 7.72 (262m/33.9) and Everton 4.49 (175m/39).

Applying these metrics to Newcastle gives a price range of £238£410 million. £410million intuitively looks too high; Southampton’s income figure excludes the conveyor belt of young talent they have sold at a profit in recent years.

If this was included in some way it would reduce the income multiple (and the related higher price for Newcastle).

Income multiples are flawed in many respects, especially as it ignores the ability of the business to control costs which, in the case of football clubs, is mainly wages and player transfer amortisation (transfer fees paid spread over the life of the player contract).

Profits are therefore seen as a better measure at valuing a club when using multiples.

Mike Ashley has proved to be very good at controlling wage costs for Newcastle. Wages only increased by 6.7% between 2008 and 2016, compared to a rise of 26% in income. That may be linked to the struggle the team has had to maintain competitiveness during that period as Everton’s wages grew by 89%, Arsenal 93%, Manchester United 93%, Liverpool 132% and Manchester City 264%.

Whoever buys Newcastle will have a major decision to make – and that is to decide against whom they want to compete. Whilst Ashley was effective at controlling wage growth, Newcastle had the 16th highest wage bill in 2016 and finished 18th.

This period has coincided with Ashley taking over a loss-making club (loss after tax £33 million in 1 Man United ................ 232,242 2 Chelsea ....................... 222,406 3 Liverpool ...................... 208,258 4 Man City .................... 197,584 5 Arsenal ....................... 195,387 6 Tottenham ................ 100,042 7 Aston Villa ................ 93,014 8 West Ham .................. 84,633 9 Everton ...................... 83,985 10 Sunderland ................ 83,937 11 Stoke City .................. 82,293 12 Southampton ............ 82,209 13 Swansea City ............ 81,778 14 Crystal Palace .......... 80,556 15 Leicester City ........... 80,352 16 Newcastle ................. 74,668 17 West Brom ................. 73,743 18 Norwich ...................... 67,193 19 Bournemouth ............ 59,557 20 Watford ...................... 57,900 TOTAL ............................... 2,241,737 Average ............................ 112,087 Median .............................. 83,115 2007) and converting it to a profitable one (profits after tax of £100 million since 2011).

There then comes a problem. Which profit should we use for a football club? In theory we could use either:

Operating profit (profit before interest and tax)

EBIT (operating profit after stripping out non-recurring costs, such as sacking managers)

EBITA (EBIT adjusted for amortisation of player registration fees)

Or EBITDA (Same as above but also adjust for deprecation)

In practice negotiators look at all of the above when trying to determine a price range. If we apply those relationships to the Southampton and Everton deals (if the profit figure is a negative them then ignore the figures) we end up with a value of Everton Multiple Southampton Multiple Newcastle Sale price 175.0 262.0 Using Everton multiples Using Southampton multiples Op Profit (20.6) (8.5) 8.6 30.6 4.1 £’m n/a 126.0 somewhere between £126-968 million, which is of little help.

These figures (see table above) look very high and the reason for this is why Newcastle have been profitable – it’s because they paid low wages and were relegated as a result. If the club had paid wages more comparable (causing profits to fall) then the values would be much lower.

This method involves calculating the cash that Newcastle would generate in future years and working out how much you would be prepared to pay now for that cash flow. There are two big problems with this: cash flows for football clubs are very erratic, they are significantly influenced by relegation, position in the league, and sales of players.

Secondly, which interest figure should we use to work out today’s value of future cash flows? This is a similar procedure to determining a credit score when lending money but is as much art as science.

It is highly unlikely that the Manchester clubs or the big London clubs would be relegated so they would have a better credit score than the likes of Newcastle, who have been relegated twice in the last ten years.

Working out a precise figure is very difficult, though.

For many clubs future cash flows may be negative (almost certainly the case for those in the Championship, where wages have exceeded income for the last three seasons). Therefore a discounted cash flow approach is unlikely to work for a club unless there is greater predictability of income.

Dr Tom Markham, in his PhD thesis, came up with the following formula for a club valuation. EBIT (9.3) (18.8) (16.4) (16.0) 0.9 £’m n/a n/a EBITA 5.3 33.1 14.6 17.9 29.2 £’m 967.4 523.9 EBITDA 7.1 24.6 17.3 15.1 32.0 £’m 784.7 483.4

Club valuation = (Revenue + Net Assets) x (Net Profit + Revenue) x (Stadium capacity %)/(Wage ration %) / Revenue

If we plug the figures into Newcastle for 2016 it gives a valuation of £568.2 million. The method has a lot of merit but assumes that the club continues to be a member of the Premier League. We have already seen that Ashley is good at wage control and so the wage ratio percentage (wages as a proportion of income) for Newcastle is relatively low.

This has a significant impact on the valuation but also increases the likelihood of relegation.

If, for example, Newcastle’s wage control was 71% (the average of the non-‘Big six’ clubs in the Premier League) and adjusting for Ashley’s loans to the club then the value would drop to £259million.

This still looks an appropriate value for the club. Any new owner wanting to make Newcastle competitive with the ‘Big Six’ and challenge for a place in Europe would have to increase the wage bill still further and that would still give no guarantee of success on the pitch.

Trying to value a club is far more complex than for many other businesses due to the volatility and unpredictability of the income and costs.

Looking at the mid-points of the calculations above, a figure in the region of £260-280 million would seem fair, especially if Mike Ashley wants to be out of the club prior to the new transfer window opening in January 2018.

What a club like Newcastle needs is not an investor who will use the above methods but a sugar daddy who will transform the club in a similar way to Chelsea under Abramovic or Manchester City under Sheik Mansour. If anyone has the phone number of a bored billionaire direct him to Sports Direct as quickly as possible .... NEWCASTLE United goalkeeper Rob Elliot has revealed one of the lowest points of his career – all in a bid to raise awareness about men’s mental health.

Elliot (pictured below) took part in a question and answer session for the Movember Foundation to help encourage other men to talk about their feelings.

Elliot, 31, touchingly revealed how early on in his career while at Charlton, he was struggling for money, even having to skip paying on the train, but felt that no one understood his problems.

When asked about his saddest moment, Elliot said: “I remember one instance at Charlton, I wasn’t doing great. Alan Pardew was the manager actually. Me and my mum bought a house together because we needed to move out from where we were to a nice area for my sister because she was a lot younger.

“I was only earning £400 a week at the time; all that was going towards the mortgage and then my car broke down and I couldn’t afford to repair it – I ended up bunking the train because I didn’t have enough money.

“I remember Pardew calling me up into his office and I had a great relationship with him – he’s a great guy – but he said: ‘See, I think your problem is you go home to your tea. Your mum makes your tea and all that and you have a nice easy life at home and I don’t think you really know what it’s like’.

“I remember thinking at the time ‘is that what people think of me?’ and it upset me for a really long time. Luckily I was really close with the goalie coach Andy Woodman and he obviously told Pardew about it and the situation changed drastically.”

The Movember movement – where men raise money by growing a moustache during November – is hoping to help those struggling with mental health.

And Elliot, who moved to Newcastle from Charlton in 2011, is encouraging people to open up to a friend or loved one about their problems. When asked what he would say to anyone struggling with issues, he said: “You have to tell people who you love and trust because they will help you and you might not need anymore help or to speak to someone else because that conversation with someone that you care about might put everything into perspective.”