“WHY doesn’t Mike Ashley sell Newcastle United?” It’s a commonly-asked question, and one that until now has been difficult to answer definitively.
In many respects, it’s easy to see why the Magpies might provide a massive headache for the hugely-successful sportswear magnate, whose attempts to guard his privacy and maintain a low individual profile have been undermined by his controversial ownership of the club.
Does he really need to have his name dragged through the gutter whenever Newcastle’s perceived lack of ambition is discussed? Can he derive any enjoyment at all from having to sit at matches with his minders close by? And might he not have better uses for the £300m or so that he has tied up in the club?
MONEY-MAKER: Mike Ashley’s Sports Direct empire
All of those are powerful negatives to set against his continued ownership of the Magpies, yet there is one key positive that appears to conclusively override them, and for the first time, the minutes of a fans’ forum held in St James’ Park’s Sir Bobby Robson Suite on Monday provided an insight into Ashley's major motivation for retaining sole ownership of Newcastle United.
Advertising. Free, or at least cash-neutral, advertising that enables Ashley to spread the Sports Direct branding message on a truly worldwide scale.
Glance around St James’ Park on a match day, and you do not have to be a marketing genius to deduce that Newcastle are effectively a glorified billboard for Sports Direct. The electronic advertising hoardings are beamed in front of a global television audience of around 4.7bn. That’s a lot of potential customers looking to buy sportswear.
Of course advertising in football is nothing new, but what makes it such a controversial topic at Newcastle is that, as the owner of the club, Ashley is perfectly entitled to award himself the advertising space for nothing. Or at least for a sum that has never been publicly disclosed.
Instead of selling it off to the highest bidder in order to increase revenue for Newcastle United, Sports Direct exert a near monopoly over the advertising space. As a result, Ashley’s main business enjoys a prominence and exposure, in a market perfectly tailored to its needs, which would be hard to replicate in any sphere other than Premier League football.
The issue was discussed at this week’s forum, with the club effectively conceding for the first time that it views the arrangement as good value for money given the investment Ashley has made in the form of an interest-free loan, and the previous funds he has committed in order to wipe out historic debt that was necessitating significant interest payments each year.
The exchange went as follows: Steve Cole (Supporters’ branch representative): “What is the saving that Sports Direct makes on advertising around the stadium?”
Club response: The club suggested that while it is always proactively looking to attract new commercial partners and to sell that advertising space, in the current climate, it could not command a sum for that space anywhere close to the £129m invested into the club interest free by the owner.”
Andrew McClay (Members’ representative): “Can the commercial value of that advertising not come off the debt that the club owes the owner?”
Club response: The board explained that the owner’s position is clear, and that the club is not attempting to hide it. To add context, it was explained that the club’s debt cost £8m in interest alone every year before Mike Ashley purchased the club.”
So there you have it. In a nutshell, Newcastle regard the ongoing advertising agreement with Sports Direct as a justified trade-off for Ashley's continued financial support in the form of an interest-free loan, which in theory could be called in at any minute.
It's a mutually beneficial relationship. Newcastle get financial stability, as reflected in the latest set of accounts released on Monday which displayed a £9.9m profit after tax; Ashley gets the chance to promote his business interests at way below the market rate.
Given that he owns the club lock, stock and barrel, he's perfectly entitled to do as he likes, and while some might bemoan the lack of investment in the playing squad in recent years, particularly in light of the recent £20m sale of Yohan Cabaye, stability is not to be sniffed at given the extent of the financial mess that was bequeathed by the previous regime.
Yet Newcastle's argument that the current arrangement is a win-win situation is undermined by their own comments.
In a statement released alongside this week's accounts, the Newcastle board said: “Ultimately, the income the club generates - particularly, given the restrictions of the Premier League Financial Fair Play rules, from matchday, commercial i.e. non-TV income - will directly impact on the strength and quality on the pitch.”
Financial Fair Play (FFP) regulations mean a club's commercial revenues effectively dictate their ability to spend money on transfer fees and wages, yet in Newcastle's case, one of the biggest commercial revenue streams available – match-day advertising – is effectively off limits.
By failing to sell at the market price, Ashley is handicapping his own club's ability to compete with its Premier League rivals. And as the full effect of the FFP regulations begin to take force, that can only achieve the self-defeating result of making it more and more difficult for Newcastle to achieve the board's minimum ambition of finishing in the top ten.
In the short term, it is easy to see why Ashley believes his current arrangement makes financial sense. And once that is concluded, it is equally easy to see why he regards Newcastle United as an asset worth retaining.
But the sums only work if a minimum level of success is achieved on the pitch. And whichever way you look at it, that would surely be easier if advertising revenue was increased.