Originally Posted by Maple Leaf Mackem
I 'Ahem' borowed this from the "When Saturday Comes" forum, it brings the Mags financial mess into cold reality
Question: So, how bad is the financial situation at Newcastle, anyway? With big salaries and not much prospect of getting rid of them (Xisco, presumably, is the new Benito Carbone), are they destined for financial ruin or are Ashley's pockets big enough to carry them through? Inquiring minds want to know.
Their current wage bill is at least £1.1m a week (before employers tax and national insurance). But with TV money slashed (the parachute payment and Championship deal is worth less than half the Premiership TV deal), and other income going the same way (clubs can charge a lot more for corporate hospitality of the opposition is Manchester United or West Brom than they can for Sheffield United or Scunthorpe), Newcastle desperately need to clear the wage bill.
When Leeds went down, income was less, but their highest players were on £30-50k a week. Newcastle have (according to Match of the Day) fifteen players on £50k a week or more. These include Michael Owen (£115k), Mark Viduka (£80k) and Damien Duff (£70k).
As a comparison, when Ipswich were relegated, their five highest earners were on £32k (Sereni), £32k (Finidi) and £20k (Hreidarsson, Holland and Stewart) a week. Ipswich entered administration the following February.
Part of that reason was because not enough wages had come off the books (Sereni was on loan to Lazio, Finidi had settled his contract for less than half it's worth, and Stewart had been sold to Sunderland).
As well as those at Newcastle, on over £50k a week, there are another eight on between £15-40k a week. All 23 will need to go if Newcastle are to stay afloat.
The good news is that Cacapa, Michael Owen, Peter Lovenkrands, David Edgar (not one of the 23) and Mark Viduka are out of contract.
The bad news is that between now and the end of June, they will have to be paid six weeks wages (£1.5m+). The further bad news is that before a player leaves a club two things need to be paid. Any outstanding transfer fee to his previous club, and any outstanding loyalty bonus to the player.
How these works are as follows:
Transfer fees (even fixed fees) are rarely paid up front. They have to be paid over three years (cross-country) or the length of the contract (between English clubs). One payment up front, then another after each year. For a three year deal, usually four of 25%, but a minimum of 25% is paid as the first instalment.
Loyalty payments: Usually the signing on fee, although some players can command both. Usually a years salary (in the case of 4/5 year contracts) spread across the contract paid in instalments similar to the transfer fee. The only way a player waives their right to these payments are if they submit a written transfer request, otherwise, if they are sold early, they get anything outstanding because it's not their fault the club has sold them early, so they should not lose out. Players have been known to agree to recieved what they are owed over the original length of their contractm, but this isn't always wise(see United, Leeds).
These are usually the two things that cripple clubs that get relegated.
Now in the case of the five out of contract players, there are no outstanding transfer fees (Owen's was paid up by 2008, the others all arrived on free transfers). However there are loyalty bonuses worth anything up to £4m oustanding - don't forget Viduka and Owen are the two highest paid players. So, Newcastle have to pay £5.5m to players that will never play for the club again, on the grounds the club cannot afford to renew their contracts.
Which is half of the six of the TV parachute payment, or almost double the Championship deal.
And that leaves a wage bill of at least £860k a week (£44.3m). And a lot of players on long contracts - of the other 18 that need to go, Geremi, Beye and Butt have deals until 2010, Martins, Duff, Bassong and Stephen Taylor until 2011, Enrique, Barton, Guthrie, Harper, Smith & Ameobi until 2012, and Coloccini, Nolan, Ryan Taylor, Gutierrez, Xisco and Carroll until 2013.
Taking two assumptions (that all transfer fees are paid in the stages outlined above, except Nolan and Ryan Taylor who arrived in January, and according to Ashley whose fees were paid in full in Jan), there is £29m outstanding on the transfer fees of the other 17 players, and approximately £34.4m on the loyalty bonuses. £63.7m in total. (Over £10m more than the estimated income for a season for a Championship club Newcastle's size). In that respect, it would almost certainly be cheaper to give it a try. However, if it fails...
In other words, if the wages of the players concerned don't cripple Newcastle, the fees the club will need to pay to get the players off the books will - because Bassong may have been worth £8m last week, but once clubs know that a side is desperate for cash - and no-one in football is under any illusions about Newcastle's position - player values drop by about 75%.
And because of the need to settle fees and contracts, Newcastle will need to ask for all fees up front - reducing the fees even more, and reducing the income for future years.
(all estimates are based on reported fees, wages and contract lengths, anything inflated to please the fans at the time, will inflate estimates here, £10k a week max assumed for Edgar, Tozer and Krul)