As Newcastle are reportedly in talks to retain the services of Rafa Benitez, toontoon.co.uk look at some of the financial considerations. 

Sinking into the Championship has a cost. Premier League TV revenues are lost, to be replaced by “parachute payments”. To put this in context, whereas over the last couple of years, Newcastle have received £75-80m annually, this goes down to an estimated £90m over 3 years. 

Additionally, the club received around £25m each from match day income and commercial deals, putting turnover in total at around £130m. Both of these can be expected to decline in the lower league. 

Some good news is that parachute payments are to be phased in a declining scale. The first season after relegation is expected to allocate roughly £40m, let’s call it a decline of £35m. Some commercial sponsors will be tied in to longer term contracts, some will want to renegotiate quickly. 

As for match day revenues, much depends on attendances, obviously. This season has seen an average gate in excess of 48,000. At first sight, we might expect a fall. Offset against that is that, in the league at least, Newcastle will be playing 23 matches against 18. Of crowds with Benitez average the same as under Hughton (43,384), the Toon could even be better off on this score. 

We might expect a drop in total income of something in the region of £40-50m. 

In the Championship, Newcastle will be subject to different rules on Financial Fair Play (FFP) which have been reviewed. In short, clubs can make average losses over 3 years of £13m per year. This is increased to £35m for every one of those seasons that was spent in the Premier League. 

In practice, this means that the sooner we get back up, the better. After 2 years outside the top flight, the average permissible loss is reduced. 

So what is the profit/loss situation? Newcastle fare well, having made over £50m profit combining the last 2 seasons. We of course have to wait for the figures to be reported for the season just finished. If the owner chooses to invest in a return to the Premier League, he can.
 

We know that in the past, Ashley has failed to inject new money into the club since the last relegation in 2009, some of that being withdrawn. On the costs side, wages 2 seasons ago reached £78.3m before reducing to £65.1m in 2013-14. We have yet to see the effect of purchases this season. 

We should also remember that some of the profit in recent years has come from player sales, as much as £19m in 2013-14. It seems reasonable to assume that some player sales might take place during the summer, which will also have the effect of reducing the wage bill. 

For a moment, we need also to consider not just profit, which is a paper figure but cash too. The biggest difference is the accounting technique of ‘amortisation’. This is the process of allocating the cost of transfers over the life of a player’s contract. For the last published accounts, this figure stood at £20m but will have almost doubled with this season’s purchases. 

It seems likely that some of the more recent additions to the squad will want to move on. Some will certainly be in demand from willing suitors, the Dutch trio of Wijnaldum, Janmaat and perhaps Krul. Sissoko has been rumoured for a while to be seeking Champions League football. Coloccini, Cisse and Tiote are high earners in the later stages of their careers, de Jong won’t have come cheap. 

Of course, Obertan and Marveaux have already been released. Of the bigger earners, Steve Taylor’s contract expires next month. 

The powers that be will already be doing the number crunching, realising that the club can actually afford to retain many of those who the new manager wants to keep. There may be an option to loan out some of those players which could prove sensible to retain their services on a return to the Premier League. 

There also going to be question marks over who will be prepared to play Championship football. They might include Townsend, Shelvey, Ayoze, Mbemba and Mitrovic. We would hope that the likes of Darlow and Lascelles stay too. 

What is certain is that some new blood will have to be brought in. Again, some of those could be satisfied by the loan market. We also need to develop players from inside the club. Players loaned out this year would certainly benefit from Rafa’s tutelage, Armstrong, perhaps, Bigiramana, Vuckic and Ameobi. 

In practice, Championship fees have been on the increase. It will not be forgotten that 3 strikers left Championship clubs last season for around £10m each. Quality comes at a price.
 

So we come to some very good reasons that the club should push the boat out to ensure that Rafa gets what he wants to stay:

1. Commercial pulling power to keep revenues buoyant, both in commercial sponsorship and gate receipts

2. Retention of the players we want to keep

3. Attracting new players

4. Developing players from Under 21 level/current loanees

5. To give the best chance of a speedy return 

Obviously, we can not forget the flip side of the coin, the financial hit. 

Going back to the accounts, any potential problems relate not to profit levels (which will certainly be within FFP rules) but to cash flow. At the end of this season, there should be something in excess of £20m in the bank. Cash does not come into the club at an even rate. Season ticket sales come in early, TV revenues come in later. 

Rafa will want to do some juggling and will have to accept some player sales. In any event, this is to be expected to ensure a squad with better balance than the current squad. 

Ashley is known for wanting the club to “wipe its nose”. It could be that he might need to put in a short term cash injection, in our own worst case scenario, as much as £30m. He could even provide the cash by paying sponsorship for his retail empire. 

In return, Ashley receives an almost guaranteed immediate return to the Premier League. In the Championship, his asset is worth perhaps as much as £100 million. In the Premier League, with current TV revenues, his asset goes up to around £1,000 million. 

As for the players, those in the squad under the age of 27 or so may wish to consider. It is as recently as 2 years ago when Leicester City won the Championship. 

Benitez won promotion in his first season with Extremadura, repeating the feat at Tenerife. Benitez won his domestic league in his first season with Valencia. Benitez won the Champions league in his first season at Liverpool. Benitez won the Europa League in his only season at Chelsea. Benitez won two domestic trophies in his first season at Napoli. 

The ball is in Ashley’s court. He has a winner who can add £1billion to his wealth. The time has come for Ashley to push the boat out and give Rafa whatever it takes. He can’t afford not to.