Relegation will be costly

Chief Sports Writer Scott Wilson examines the impact relegation will have on each club’s balance sheets.

IF the reality of relegation has not hit Mike Ashley and Steve Gibson yet, it will be crystal clear once they begin to plan a budget for next season.

If the economic outlook was bleak on Sunday morning, it is positively cataclysmic now.

“The financial implications of relegation are huge,”

said Professor Tom Cannon, a football finance expert at the Univeristy of Liverpool. “Both Newcastle and Middlesbrough will notice a major difference in terms of their revenue next season.

“There will be a drop off in three main areas – income from television, income from merchandising and sponsorship and income from the supporters who pay through the gate.

“The exact figures will vary from club to club, but you are talking about a drop that will be somewhere in the region of £30-40m.”

Given that Middlesbrough and Newcastle already boast considerable debts as it is, that is a sum that could prove crippling if it is not ameliorated successfully.

Because Middlesbrough do not publish their annual accounts, it is easiest to use Newcastle as a template for what is likely to occur next season.

The Magpies’ most recent accounts, which related to the year ending June 2008, showed that the club’s annual turnover was a little over £90m.

More than a third of that came from television revenue, which is distributed according to where a club finishes in the Premier League table.

The 20th-placed club currently receives £35m, while a 14th-placed finish, which would previously have been regarded as something of a worst-case scenario for Newcastle, secures £40m.

Next season, the Magpies will receive £12m from the Championship’s television deal, a sum that includes a parachute payment that is designed to provide partial compensation for relegation from the Premier League.

Even with that payment, however, the sum still represents a £23m drop from the minimum income that is guaranteed in the top-flight.

If Newcastle fail to win promotion next season, they will receive another £12m in their second season in the Championship. After that, however, the parachute payment disappears, and the Magpies’ TV income will drop to £3m a season, a drop in the ocean when compared to the riches on offer in the top-flight.

Matchday revenue will be the second area to suffer, although the fall-off should not be as severe as the drop in the TV deal.

In the year leading up to June 2008, Newcastle earned £32m from matchday revenue, chiefly through season-ticket sales, individual match sales and merchandise and refreshment sales in the stadium.

That money will not disappear overnight, but this season’s average attendance of 48,750 is sure to decline markedly in the Championship.

The drop will be partially tempered by an increase in fixtures – Newcastle will play 23 home league games next season instead of 19 – but most estimates suggest an annual income of £32m will drop to around £20m next season. Add on the missing TV money, and you now have a £35m hole to fill.

The third area in which the Magpies will suffer next season is the realm of commercial income and sponsorship.

Their most recent accounts show £27m was secured from this area, chiefly through merchandising, shirt sponsorship, advertising and corporate tie-ins.

Again, this sector will not disappear completely, but prices will have to be reduced and a number of corporate clients are expected to turn their noses up at Championship football.

Industry experts predict a drop to around £15m, a sum that will see total revenue fall by around £50m next season.

Does that really matter?

The simple answer is yes, unless expenditure falls accordingly.

If Middlesbrough and Newcastle are to stay afloat next season, they will have to trim their outgoings, and in the world of professional football, that means cutting wages.

In the year to June 2008, Newcastle’s total wage bill stood at £74m. Given that their total revenue is about to drop to around £40m – before player sales are added – it does not need a professional accountant to deduce that the imbalance is unsustainable.

The departure of the outof- contract Michael Owen and Mark Viduka will reduce the wage bill by around £9m, but Newcastle will still have to sell a number of players this summer in order to raise much-needed revenue and reduce the wage bill to a manageable level.

Middlesbrough’s wage bill is understood to be around £33m, a much more realistic level for the Championship, but still too high in relation to the total income that can be expected next season.

Boro will still have to sell players – just not as many as Newcastle.

The problem, of course, is that you can only sell a player if someone else wants to buy them. And to make matters worse, the player will probably only move if the buying club is able to match their current wage level.

In a worst case scenario, and this is where comparisons with Leeds United become relevant, Newcastle could be forced to give players away and continue to pay a proportion of their wages, just to get some of their pay packet off their books.

If they are unable to do that, the only choice available could be a stark one. Either Mike Ashley would have to meet the club’s expenditure from his own pocket, or he would be forced to put Newcastle into administration. And from there, anything would be possible.