Newcastle United: In Deeper Trouble Than First Thought

After the dust has settled and it has sunk in for most Geordies that they have been relegated, the astounding financial trouble the club face is starting to come to light.

Football finance is a very complex market, with transfer fees and contracts not always as black and white as they seem (no Newcastle pun intended).

The first problem Newcastle face is their huge wage bill, something made worse by the clubs famous position of arrogance claiming in would not use relegation clauses in contracts.  Something the club must now be regretting.

Some positive news is that a few of the top earning players are coming to the end of their contracts.  Owen, Viduka, Lovenkrands and Cacapa, as well as the lower paid Edgar all look set to leave the club on 30th June at the end of their contracts. 

What this does mean is since relegation at Aston Villa, the Magpies will have paid around £1.5 million to these few, who will never play again, and that is just their wages.

A couple of things many Newcastle (and football) fans will not realise is a common part of a contract is a ‘loyalty bonus’, a fee paid to a player who sees out his contract at a club, or is sold by the club without him requesting a transfer.

The second is the outstanding transfer fee’s from purchases.  Usually when a club buys a player they pay the fee in instalments, one sum of at least 25 percent when the player is bought, and one at the end of each year, which in football terms is June 30th. 

With players bought from abroad, this must be done over three years, but with domestic transfers, it is usually completed over the length of the contract.

This is where Newcastle’s problems are starting to emerge.  Luckily Owen’s transfer fee is paid in full, and it was reported the £4million fee for Kevin Nolan was also paid in one sum, which eases the burden, but still, this leaves Newcastle, assuming they have not already paid their fees in full (not likely because of the debt at the club) the club could be looking at around £29 million in unpaid transfer fees.

The loyalty payments for players usually equates to a years salary, which for players like David Edgar will not be a major issue, but with Owen and Viduka on combined wages close to £200,000 a week, their payment will be a lot bigger issue.

The loyalty fee (often referred to as a signing bonus) is likely to be paid across the contract length in yearly instalments, but still, Newcastle could be liable to pay anything up to £5 million to their out of contract players, in addition to their £1.5 million wages since the end of the season, that’s getting close to half of their parachute payment just for players who are leaving anyway.

After these out of contract players have left, and the club’s worries have ‘eased’, figures suggest their wage bill is still somewhere between £800 and £860 thousand per week, which is still way too high, at close to £45 million a year, for a Championship club.

This means there is still more to be done, and if BBC reports are to believed, there were 15 players this season earning over £50,000 a week, three of whom are out of contract, leaving 12, and with Steven Taylor, Nicky Butt and Kevin Nolan signing new deals in January, it has to be assumed they have a relegation clause built into their contract (although even that isn’t certain).

That leaves nine players earning far to much money at Newcastle, and it would appear that they and probably some of those earning close to 50,000, simply have to go if Newcastle want to survive as a football club.

But is that the best thing Newcastle can do?  Of course some of the players many fans will want out, more because of their performances than their wages, but keeping these players could aid their return to the top flight.

Take Fabricio Coloccini for example, the ten million pound signing might be top of a list of ‘replaceable’ players for many Newcastle fans, but with only two payments made on his transfer fee by the summer, his sale would mean Newcastle will be required to pay the remainder, a hefty £5 million, to Deportivo if they sell him on. 

This will be on top of his remaining loyalty payments (assuming he doesn’t request a transfer), likely to be in the region of £2.7 million. 

Now you see the problem, Newcastle will need to sell the Argentine for around £8 million to just break even, and not be spending more money on getting rid of him.  A fee like this is highly unlikely, with any transfer likely to bring in around £3 million due to the clubs desperate position.

The same goes for others, Barton, Enrique, Beye, Ameobi, Smith and Geremi are big earners, but with Newcastle’s position, and apparent ‘need’ to sell the players they are unlikely to receive much more than £8 or £9 million for the six players (also stated in the Telegraph), while the fees and bonus’ that will be due if these players leave could be as high as £20 million.

With a parachute payment of around £15 million replacing the £40 Premier League broadcasting money, just how many players can Newcastle afford to sell? 

After the release of those players out of contract, and the seven mentioned above, the Geordies could have spent all of their parachute payment in fees and bonuses, even taking into account the transfer fee’s they recoup.

This leaves the management of the club with an extremely difficult decision.  They could sell off their major earners and take the financial hit this season and build a new squad from the remaining players, but be in a far more stable financial situation come the start of the 2010/11 season.

The second option is to keep the majority of their big earners and bank on an immediate return to the Premiership. 

The first option makes the most business sense, cutting their losses and taking a hit this year to provide long term stability, starting again with wage structures and contracts, but is likely to mean more than one season in the Championship.

The second is a big risk, the club can no doubt afford to continue with a large wage bill for one season in the Championship, absorbing the cost on the premise they will receive a big payday upon their return to the Premier League.

Where the risk lies is if they fail to gain promotion after one year, and they face a second season of huge wage bills then the club will almost certainly face financial ruin and administration.

With Oba Martins the only player likely to provide a welcome financial relief for the club, and that is if Newcastle get a fair bid for the player (as oppose to a very low bid due to relegation) the club from the North East face a very difficult summer of decisions and financial planning, especially with the potential sale of the club. 

Perhaps Newcastle’s only hope is to bring in a super rich Russian or Arab as owner, but as time goes by, this seems more and more unlikely.