NUFC accounts 2017-18

The Newcastle United accounts have finally hit Companies House. This year they make tough reading, not least since page 2 is shown upside down on the web site. Other than that, there have not been too many surprises.

Regular followers of NUFC accounts will be familiar with the format. The first main statement is of the Profit and Loss Account, a statement of where revenues come from and main outgoings. Next comes the Balance Sheet, essentially a statement of where funds have come from, what the club owns and what is owed.

As ever, the Notes to the Accounts provide further explanation. Potentially they have the ability to reveal little secrets about strategies behind the scenes. Something they merely produce more unanswered questions.

To complete the picture, it always helps to adopt different perspectives. Comparisons with previous years' accounts can be useful. In the case of Newcastle United, we have a couple of comparisons that may be useful, may be meaningless. The first is the comparison with the Championship season, the other is in the relegation year.

Another perspective is to recognise historic policies from Mike Ashley. Notable among these is his tendency to pay cash for newly signed players, enhancing the price for sales on occasion by settling on receipts in instalments. More will be revealed but it is important to realise the difference between profit and cash flow, so let's have a look. If players sold are paid for in instalments, this can not be spent straight away.

Profit and Loss Account
Revenues are pretty much as we expected. At £178.5 million. The largest part comes from TV, reaching £126.4 million, up significantly from both the Championship season

Operating costs, the everyday costs of running the club were also in line with expectations at around £119.5 million. To add context,comparisons with the previous premier league season are included:

The brief summary is that those 3 seasons demonstrated how much Newcastle United missed out on increased TV revenues during the Championships season, a part of commercial revenues being dependent on Premier League too. There is certainly little to suggest that Ashley's retail arm contributes anything for the promotional branding opportunity.

The Championship season saw unusually high wage costs as staffing was restructured, perhaps the best example being the termination of Coloccini's contract. Operating profit, before some technical considerations Putting the figures together, the relegation season saw a profit of  £0.9 million, the Championship season a loss of 

The P&L account is not complete until other technical factors are considered, first of these is the daunting word “amortisation”. This is quite simply an accounting technique for allocating the cost of players over the life of their contract. In simple terms, if a player is signed for £2 million over a contract of 4 years, then the cost per year is allocated as £0.5 million per year.

The other side to that is that when players are sold, a profit or loss can be made, therefore that also needs to be shown. Continuing with the example above, if a player is sold after 2 years, his book value will have reduced to £1 million. If his transfer fee is £30 million, then a paper profit on the player is shown as £29 million.

The increase in amortisation over time reflects increasing transfer fees. The profit on disposal in the Championship year offset other losses, mostly made up of Sissoko and Wijnaldum. Some of the purchases and sales will be in cash, others on instalments. However, we can reach a summary level of profit as follows:

The overall loss in the Championship season will naturally be seen as disturbing. However, from an accounting point of view and with Financial fair Play, it makes sense for the losses to have been accumulated in the Championship year. As for financial solidity, we need more information, hence the next part of the accounts.

Balance sheet
The balance sheet is essentially a statement of what is owned and what is owed. Conveniently, there is a further subdivision between short term, which the is next accounting period, i.e. the following year, and long term, i.e. due in more than a year.

Following on from the P&L account it will be remembered that some of the costs on paper do not necessarily mean that cash has gone out in that particular year. If a player was bought for cash a years previously, the amortisation may be a reflection of a historic cash outflow. Similarly, a sale does not mean cash sitting in an account.

Using an example to illustrate, let's assume that Sissoko was bought for £30million, paid over 5 years in equal instalments. The first £6 million is taken in as cash, the 2nd instalment will be counted as a short term payment within a year and the final 3 payments go down as longer term assets.

So what are the balance sheet highlights?

Foremost must be the “loan” from Ashley to the club, which fits into two categories. Out of £144million, £111million was listed as “long term”, the rest repayable on demand. It has been confirmed that the latter part was repaid to Ashley at some stage after 30th June 2018. This, at least partially, explains the transfer surplus last summer, given the cash surplus of £29.6 million in June 2018 (improved from £12.2million overdraft).

Looking at other outgoings already committed to, most significant are payments for players transferred into the club. These total £5.5million.

On the other hand, further incoming instalments add up to £49.3million, of which £23.9 was due after more than one season, leaving £20million for the season just finished.

Perhaps the biggest surprise is that for the regular accounts watchers, there were no major surprises. 
All of the separate sections were very much in line with expectations.

There are certainly disappointments, also to be expected. Commercial revenues have not significantly progressed despite a return to the Premier League. Any increases may be in line with Premier League deals rather than progress made by NUFC.

Even on the wage bill, against our own predictions, we were a mere £400,000 (0.5%) out. Our biggest margin of error was on cash level but this can be explained by timing of payments, creditors being underestimated by a similar level. Were bills paid late, in the same way that last year's accounts were significantly overdue?

What it gives us is room to speculate on what transfer funds might be available to Rafa or any potential successor might have to spend in the next transfer window, more of which to come after the season closes. Remember, this is the site that predicted to within 10% what resources would be used to back squad growth under McClaren.

Watch this space for further analysis.