The national press and football pundits will point to Mike Ashley’s willingness to invest. What is the truth behind his transfer spend this season? 

The headlines are made by the transfers and the fees. At first sight, it would appear that purse strings have been loosened. The finances are less attractive to most but these are what make a football club tick. 

Transfer fees are much debated. What one club pays is not necessarily what another club receives. We have middle men to account for as well as professional association levies. This means that in compiling statistics, there will inevitably be a margin for error. 

Our starting point is the last published accounts for Newcastle United, those for the season 2013-14. The club posted a profit of almost £19m. At the same time, the cash situation improved from an overdraft of £4.5m to a cash surplus of £34.1m, a swing of £38.6m. 

Phase 2 in the investigation is to look at transfer fees from last season. One point of reference is the authoritative site who suggest that the net spend for 2014-15 was £17.2m, leaving a retained cash surplus of around £17m too. This is our first part of Ashley’s piggy bank.

There are things we don’t know. Rumours, whether accurate or not, at the time suggested that Joe Kinnear lost his job at Newcastle United over the terms for Cabaye’s sale. It may be more than coincidence that he left 3 days after the January 2014 window closed. 

Mike Ashley is known to prefer to deal in cash up front. It may be that phased payment terms applied to PSG in which case more cash would have been generated for this season. 

We of course have to wait another 7 weeks or so for the publication of last season’s accounts so, admittedly, there is a huge area for speculation. However, we shall try to keep that to a minimum.

It seems reasonable to assume that if normal trading activities can generate a cash surplus in one year of around £40m in one financial year, aided by a net transfer surplus of £17m, then that figure could be replicated in the next financial year. We now have a further £23m to add to the piggy bank, taking it up to £40m. 

For the next phase we have to look at Ashley’s business philosophy which boils down to some simple principles, increase revenue and reduce costs. For the sake of simplicity, we are not making huge assumptions over wages, even though some big earners have had loyalty payments on completing their contracts, such as Shola, Harper and Ryan Taylor. 

We also note that there may well have been some cost savings, even perhaps loan fees since Pardew departed and ben Arfa was ostracised. The compensation figure for Pardew was not made public but the lowest estimates were around £2m in compensation to add into the piggy bank. 

We have added in a somewhat mysterious one off figure, labelled under accruals, in the last published accounts. Assuming that this was non-recurrent expenditure, the piggy bank rises to around £50m. With another mysterious “other operating charges, this could rise to £56m. 

We also have some bits and bobs to add in for this season. It has been reported that Cabella’s transfer clause has been triggered, giving an estimated £6m. Conservatively, Abeid, Kemen and Ferguson between them may have generated an extra £2m and it seems likely that Tiote will also be sold for around £8m, topping up the piggy bank to £70m. 

Although TV income last season was more or less in line with the previous year, we have also been conservative in estimating growth in commercial income. With noticeable extra advertising around the ground, despite the assumption that Ashley’s own retail, brand will not have made a contribution, it seems reasonable to assume that the total investment in new players has been covered. 

So what of the Berahino bid? We know that there was an overdraft at the end of 2012-13. Short term borrowing is not a problem. The sneaky part is that the cash surpluses we have so far examined have been generated from previous year’s activities. What about this year? 

Quite simply, if normal trading activities generated a cash surplus, not including transfer activity, of £23m, then by the end of this financial year, his fee would have been covered. 

If looking to invest future incomes, indeed, Newcastle united could have gone even, as other clubs have done to protect Champions League revenues and even Premier League survival. 

There is of course another question that can be thrown into the mix, why have other clubs not spent the same? The answer comes down to Financial Fair Play (FFP). As was revealed in a recent interview with former finance Director, John Irving, the Ashley years have been frugal, affording a big spend this year. Newcastle have posted profits where other clubs made losses. 

As for FFP, how is it possible to spend £75-100m and not fall foul? Quite simply, the answer is in the concept of amortisation. This allows clubs to write off the cost of a transfer over the lifetime of a contract. If the average contract is 4 years, the accounting cost is £25m per year, more or less in line with profit levels before next year’s increased TV payments. 

Finally, it is in Ashley’s interests to have spent and reduce the profit level. Having paid a premium for the club over its asset value, as well as making losses in his early years here, he has been able to offset against tax. At some stage those tax allowances will run out. 

By investing club money on the playing side, he has contributed to securing his own increased income from the club for years to come. He has also added to the club’s capital value should he wish to sell. Ashley’s wealth has largely been accumulated through capital appreciation rather than income. 

In conclusion, before hailing Ashley as some sort of saviour, what he has done this season, sanctioning the purchases of more players, has probably come from revenues and ultimately is in his own interests. 

Newcastle United supporters are justified in pointing out that if he has had to dip into his own pocket for the first time in 7 years, relatively speaking it is not by much, not for long and it is his own wealth he is protecting.