Staggering cost of relegation is hard to swallow: Special Report

CHRIS WAUGH ON UNITED’S FINANCIAL GAMBLE WHICH PAID OFF – BUT AT A PRICE

EVERYONE knew Newcastle United’s accounts, once they were finally filed, would show a significant financial loss.

Yet I don’t think anyone on Tyneside quite comprehended just how significant a hit the Magpies took following relegation in 2016.

It is not just the drop in TV revenue which is staggering, but the wage bill.

The fact it is the highest ever maintained in the EFL appears startling to an extent but, given the relative increase in revenues in recent years, that is understandable.

Yet for it to increase, year on year – and by £37.5million to £112.2m – is absolutely astounding.

There are some who will look at the figures with suspicion, given the fact high earners such as Moussa Sissoko, Georginio Wijnaldum and Daryl Janmaat departed during that financial year.

Sissoko in particular had been on Tyneside since 2013 - his wages were relatively modest given the exponential rise Premier League TV revenues over the last few years.

The likes of Dwight Gayle and Matt Ritchie, meanwhile, were recruited on top-flight wages – while you need only reference the fact Matz Sels was the highest-paid player in the history of the Belgian league during his loan spell at Anderlecht to understand how significant a figure his wages are.

Let us not forget, too, this is the first set of accounts which includes the entire value of Rafa Benitez’s £6million-a-year wages.

He is paid six times more than former head coach Steve McClaren was and the Spaniard would have found himself comfortably within the top 10 for best remunerated managers in England.

There were also 14 players sent out on loan during that campaign, the majority of whose wages were being supplemented – or, in a couple of examples, covered entirely – by United during their temporary spells away.

It is also understood staffing levels at St James’ Park – in all areas including the playing squad, Academy, coaching staff, medical-support staff and busi-ness operations – actually increased during the 2016/17 campaign. That £112.2m figure also includes the £9.9m which was handed out as a bonus to every member of staff at the club and Foundation, bar managingdirector Lee Charnley himself, as well as social-security costs and pension contributions. Interestingly, though, there is also a ‘provision for onerous contracts.’ In essence, the wages for the entire length of a player’s contract are included in this figure. The reason for this is that when a player is no longer deemed to be a member of the first team, their value is essentially written off.

Examples would include Emmanuel Riviere, even if he had been sent out on loan, as well as Fabricio Coloccini, who left on a free transfer to San Lorenzo.

It still seems difficult to comprehend quite how all this adds up to £112.2m - but that is the figure released.

Newcastle’s expenditure on salaries was at a wages-to-turnover ratio of 130.9 per cent, a figure which appears colossal given the fact the previous year it stood at just 59.4 per cent.

Even if that is an unsustainable number, it is not uncommon for clubs in the Championship to have a wages-to-turnover ratio of 100 per cent or higher.

Yet the actual numbers involved here – United spent three times that of Brighton and Hove Albion and six times that of Huddersfield Town in wages – are unprecedented in the second tier of English football.

Even if we forget all the quibbling about how exactly Newcastle’s wage expenditure increased by a half following relegation, the numbers involved here are staggering.

Turnover dropped by a third from £125.8m to £85.7m, while the slender £0.9m operating profit United made in 2015/16 has nosedived to a £90.9m loss.

All of this shows the roll of the dice Newcastle made following relegation. Managing-director Charnley refers to the “financial gamble” with United took following demotion.

In the club’s view, they could have either pared back and taken the Norwich City approach of reducing costs and hoping to come back at

the first time of asking. The Canaries are still marooned in Championship mid-table mediocrity.

Or there was the alternative approach, the one they took – and which was mirrored by Aston Villa to an extent. They threw money at the problem and hoped that an immediate Premier League return would arrive.

That punt was not without risk. Just five of the 18 sides who have been relegated across six seasons bounced back at the first attempt – and four of those were via the lottery that is the play-offs.

Newcastle could have found themselves in Villa’s situation, desperately trying to stave off EFL Financial Fair Play sanctions and praying they win the play-off final later this month.

It was a flutter which, in the end, paid off for the Magpies.

Whether fans would like to hear it or not, Mike Ashley played a vital role.

In Charnley’s statement, he refers to the “support and backing” Ashley provided – in the form of a one-off £15m interest-free loan, taking the total money the club owe the Sports Direct billionaire to £144m – while he also stresses such an approach was “only made possible by the continued financial support of the owner.”

This should not diminish the fact Ashley’s long-term under-investment in the first team, and repeated mistakes her has made over the last few years, directly contributed to relegation in the first place.

He spent in order to attempt to clean up his own mess but at least he did so, unlike Ellis Short at Sunderland – and look where the Black Cats are now.

Newcastle’s approach was not without risk. Had the Magpies failed, not only would there been an exodus of players, Benitez would almost certainly have departed – and, more pressingly, the club would have been standing over a precipice financially.

It does not even bear thinking about what would have happened had this gamble failed. “Catastrophic” is the term one insider used.

Thankfully, that did not turn out to be the case - but the after-effects of relegation are clearly still being felt even since promotion.

Given the huge losses in 2016/17, it places into at least some context the financial constraints on transfers last summer – particularly given the fact the owner clearly has no interest in putting any further funds into the club.

Understandably, Magpie fans will be concerned about what this means for Benitez’s potential transfer budget going forward, too.

The Spaniard has maintained all year survival will ensure Newcastle are bolstered financially and, though survival was essential, it could well take another two years for the club to make up the shortfall and really become fully competitive in the market again – if the owner will not bankroll them.

Benitez, however, will rightly point to the fact Newcastle barely spent any of the payment they received from the Premier League in January and demand the money they will be paid in July is also offered for transfers, too.

It will not be a cliched ‘war chest’ but money should be available.

Remember, too, that Newcastle were outside of the top flight for the first season of the current TV deal, which is the most lucrative in history.

So, even though United’s media income is understood to have dropped by more than £25m, in real terms they actually fell at least £55m behind every e Premier League club – given top-flight sides earned an additional £30m from TV revenue during that campaign when compared to Newcastle.

It is unclear whether the wage budget remains as inflated as it was in 2016/17 but, if it is, then the £123m prize money Newcastle have received from the Premier League this season only just covers that figure.

All of this highlights just how damaging it was that United were relegated at a time when Premier League revenues reached a new high.

Ashley was merely mopping up his own mess – but he did so by ensuring Newcastle maintained a mid-table Premier League budget in the Championship.

The aftereffects of all this are still being heavily felt.