Why FFP is stalling Newcastle United right now

Eddie Howe said this was going to be our toughest transfer window yet and for sure he wasn’t wrong.

Despite a positive start to the Summer with the exciting and promising acquisition of Sandro Tonali, things have seemingly ground to a halt with lots of rumours but little in the way of substantial transfer dealings on the horizon. Frustration is rife amongst not just the fanbase but even the manager, who voiced his concerns after the game at Gateshead on Saturday about the need for new faces sooner rather than later.

I’m absolutely certain that Dan Ashworth and the group are working hard behind the scenes on not only new incomings but also essential outgoings from an unbalanced (in quality terms) squad.

Unfortunately, the spectre of FFP compliance is a very real one, and I’ve reached the conclusion that as we stand right now, undertaking some very rudimentary calculations, that we’re absolutely right on the limit, hence the need for some necessary outgoings before new faces arrive.

Accurate FFP calculations are very hard to do based on a lack of published or concrete financial information, so there has to be a certain degree of guesswork in the calculations, so I will apologise in advance if someone with greater financial insight / ability is able to rebuke my claims!

I’m going to keep it simple and top-level, also worth noting that this view does not include any additional constraints placed on the club in respect of ‘wages to turnover ratio’ by either the Premier League or UEFA.

What is Financial Fair Play?

FFP essentially is in place to ensure that clubs can’t overspend over a consistent period, in this case a three-year rolling period where no club can exceed a total £105m loss in that three-year period. The calculation is based on a number of factors with operating profit / loss being the primary driver with then a number of deductions (provisions) that can be made against this to improve the position.

The operating profit / loss is simplistically annual revenue (income) minus costs.

Revenue is money coming in from TV rights, matchday income, merit payment from the PL (and CL) and commercial deals such as Sela and Noon etc.

Costs are primarily, wages, amortisation (purchase cost of a player over the term of their contract), and operating costs (for example the costs of operating the stadium on matchday etc…).

Finally, the provisions (deductions) that can be made to improve the overall position would be player sales, infrastructure costs (e.g. training ground rebuild), women’s football and even some Covid relief is still possible, I believe.

Where do we stand right now?

Using some base data from the consistently excellent Swiss Ramble, I’ve been able to roughly calculate where we stand right now.

Due to Mike Ashley’s shoestring budget approach in the past, the club actually turned a £51m profit for the financial year ended 2019 and an £11m profit for the combined 2020 and 2021 seasons (they were combined to lessen the impact to clubs of the Covid crisis), however, the first year after takeover and following the necessary January splurge to avoid relegation, the bottom line result was a £63m loss.

Adding those three years together with some simple maths and you would say we’re looking good as that’s pretty much break-even, you’d be right, but the problem with FFP is that this calculation is ‘rolling’ and once the next year accounts are reported we’ll lose that bumper £53m profit from 2019. The accounts for the season just concluded won’t be published until March or later next year, however, undertaking a rough calculation, I would say our loss for last year to be in the £30-40m range.

You could point to increased revenue (better league position, new commercial deals etc..), however, we are still burdened with a large and unbalanced wage bill and some expensive 2022/23 season signings (Isak, Botman) that will have pushed up the amortisation number. Offloading Wood and Shelvey in January will have helped, however, this would probably have been offset by the arrival of Gordon in the same window.

So, our rolling FFP position at the end of last season I calculate to be running at somewhere between £82-92m, ultimately meaning our maximum loss for the season to come can be no more than somewhere between £13-23m.

Revenue next season should be up, assuming we are still in and around where we finished last season, along with new commercial deals (Sela) and of course Champions League qualification should push revenue up, I estimate total revenue of around £300m.

The problem is still the overburdened wage bill, which I calculated to be about £185m last season, with the addition of Tonali that will now be up to £192m, also increased amortisation from the Tonali deal pushing it up to about £100m and with standard operating costs of £30m, resulting in total forecast expenses right now of around £322m and you can see we are right at the allowable limit of losses to remain compliant.

What can be done?

Obviously reducing, or I would say, rebalancing the wage bill; getting rid of the ‘dead wood’ players that won’t feature in the first team or would be on the periphery, not naming names but we all know who they are, I reckon there are at least seven or eight of them.

Also, getting what transfer fees you can for these players (difficult), and identifying a current squad member or two that doesn’t necessarily fit with the system perhaps. Maxi’s departure that appears increasingly likely, however controversial, for £30m for example could enable purchase of another two £50m players (£10m on 5-year amortisation and £5m salary).

Some additional commercial revenue would also help, training kit sponsorship for example, truth is we really have no idea what other deals they might be working on in this regard.

As you can see, it’s not easy, a real balancing act, however, we’re heading in the right direction, have a great squad and manager and the future’s bright.

We just might have to rely on Eddie Howe working his magic again on the pitch for the next couple of seasons until the finances properly even out.