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Newcastle could be about to give Liverpool a £230m headache
Newcastle United’s 0-0 draw at home to Leicester City was enough to book the club a foray into Champions League football for the first time since the 2002/2003 season.
During that hiatus from European football’s elite competition, the fortunes of the North East’s biggest club have been tumultuous, with the Magpies twice relegated to the Championship and the fans having endured the deeply unpopular tenure of former owner Mike Ashley.
In October 2021, following a long-running takeover saga, Ashley finally relinquished control after 14 years, selling the club to the Saudi Arabian Public Investment Fund in a controversial deal that was eventually given the green light by the Premier League and UK Government after they were happy that there was clear separation between the gulf state and the ownership group.
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The PIF takeover heralded a new era for Newcastle, although with financial fair play regulations in effect, the club still had to spend within the confines of the revenue streams that it generated; revenue streams that were far smaller than what the so-called big six were able to rely on.
But the project under Eddie Howe has achieved at a quicker pace than many expected, and a third-placed finish is in the sights of the Magpies. With that comes Champions League qualification which, in turn, creates a huge revenue boost for the club to allow them to spend greater sums on both transfer fees and, probably more crucially, its wage bill.
Unless Manchester United lose to both Chelsea and Fulham in their final two games of the season, and Liverpool win at Southampton on the final day of the campaign this weekend, it will be the Europa League for the Reds next season.
The belief inside Anfield and among the ownership group of the club, Fenway Sports Group, is that this season’s struggles are something of a blip and with appropriate investment in some key areas of the pitch this summer they can be back challenging at the summit and back in European football’s elite knockout club competition by the time the 2024/25 season comes around.
Liverpool’s financial growth in recent years has been strongly linked to their return to, and continued qualification for, and success in, the Champions League.
The club’s revenues have grown from £364.2m in for the 2016/17 financial year – the season when it was last absent from the Champions League – to £594m for the financial year ending May 2022; a season when the Reds reached the final of the competition and raked in more than £100m in revenues as a result.
The wage bill growth has also been stark during that period, too. The wage bill stood at £207.5m in 2016/17, a figure that has shot up to £366m for the 2021/22 financial year, although that figure does include bonus payments paid to players for competitive success both in European competition and domestically. It is a rise of 76.4 per cent over a six-year period that included consecutive appearances in the Champions League for Liverpool.
In contrast, Newcastle’s wage bill in 2016/17, a season when they won the Championship title to return to the Premier League after a season’s hiatus, stood at £112.2m. For the Magpies’ most recent financial year ending June 2022, the wage bill stood at £170.2m against revenues of £180m, a rise of 51.7 per cent.
Liverpool, as per the club’s most recent accounts, were spending 61.6 per cent of revenue on the wage bill, well below the 70 per cent limit that UEFA recommends. In contrast, Newcastle’s wages to revenue ratio stood at 94.5 per cent.
For the Magpies, aside from growing commercial revenues through new sponsorship deals that could be aided by the simpatico relationship that exists with Saudi Arabia, raising revenue enough to support the sustainable growth of wages to revenue will be aided significantly by qualification for the Champions League, which will deliver a minimum of £50m for the club when taking into account basic prize money and TV market pool etc.
New financial stability regulations came into force last summer by UEFA, with one of the key themes being the push toward getting club to comply with a 70 per cent limit to club revenue on spending on transfer fees, wages and agents fees.
Ensuring compliance with such measures is already achievable for Liverpool, but for the likes of Newcastle, who seek to bridge the gap between the ‘big six’ and the rest, the only way to do that is to grow both commercial revenues, which still have to comply with the Premier League’s fair market value rule, and also by competitive performance.
The Magpies lost £70m in the most recent financial year but, with Champions League football set to arrive on Tyneside, appear to be on a path to profitability in the coming seasons.
Last year Howe’s side finished 11th in the Premier League. By finishing third this season, which they can do if they win their final game of the season and Manchester United slip up in one of the last two matches of their campaign, Newcastle will earn £35m in Premier League merit payments compared to the £22.3m that they pulled in for the 2021/22 season, a rise of £12.7m.
Other costs that were incurred during the last financial year, such as the £8m compensation paid to former boss Steve Bruce, as well as new commercial deals with the likes of Noon and Saudia, will encourage a far stronger financial performance that will allow for greater spend on wages and transfer fees.
For the likes of Liverpool, herein lies the challenge. Newcastle have enormous wealth behind them through ownership, but with financial regulations in place there is only so much that can be affected by that wealth in the short term. But in securing Champions League qualification, at a time when the Reds look almost certain to have missed out, unlocks a new wage bracket for Newcastle to move into and still be compliant with UEFA’s new guidelines, with the Magpies likely to push into the £200m-£230m bracket with some ease moving forward.
Tottenham Hotspur look like the first team to be sent scrambling and fearing their position for the longer term as part of the ‘big six’, while Chelsea, after a woeful season, face a huge campaign next time out to return to elite competition to ensure revenues grow to match the enormous outlay on transfers and wages that has been seen over the past 12 months.
For Liverpool, next season takes on greater significance already as another season without Champions League football would be financially impactful. The success of Newcastle this season, and the impact that will have moving forward if the Reds, and others, can’t find a way to wrestle back a place in the top four, would create a major headache, one that owners didn’t anticipate having to deal with so soon.
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