Newcastle United - What A Waste

It should perhaps be no surprise that Newcastle United find themselves embroiled in a relegation battle, given that they only avoided this fate last season after a memorable 2-0 win against West Ham on the final day, but it still feels wrong that a club of their resources is in such a position.

Just four years ago Alan Pardew guided Newcastle to fifth place in the Premier League, the highest since the Bobby Robson days, thus qualifying for the Europa League, where they reached the quarter-finals before being eliminated by eventual finalists Benfica.

Since those heady days, Newcastle’s ambitions have seemed to be limited to surviving in the top flight, where they can continue to benefit from the lucrative Premier League TV deal. This focus on the bottom line was perhaps best encapsulated after Pardew’s departure, when the board opted to elevate the assistant manager, John Carver, to the hot seat, where he looked hopelessly out of his depth.

"Four seasons in one day"

After a few painful months, Carver was replaced by Steve McClaren, who proved to be another poor choice. He was duly sacked last month with Rafael Benitez being given the opportunity to keep Newcastle in the Premier League. Although Rafa is a manager with a fine pedigree, his arrival might yet prove to be a case of “too little, too late”.

Newcastle had never been relegated from the Premier League before owner Mike Ashley bought the club in 2007, but they are now facing their second demotion in eight years. Admittedly, Ashley’s financial support helped the club bounce back at the first time of asking on the previous occasion in 2010, but the consequences could be severe this time round.

Although Ashley has turned around the club financially, this is man that clearly favours profit over performance. Given the financial issues of the past, few would begrudge him running Newcastle United as a business, but his very prudent approach has gone too far, bringing to mind an old song from The Clash, “we’re cheapskates, anything will do.” At times it has felt like the club is little more than a billboard to advertise Ashley’s tawdry Sports Direct retail empire.

"It's OK Jonjo"

The owner’s nine-year reign has been a fairly disastrous period that has only succeeded in sucking the joy out of a massive club. By Ashley’s own words, he has been a failure: “I wanted to help Newcastle, I wanted to make it better, but I haven’t seemed to have that effect.”

In fairness, Newcastle have belatedly started to splash the cash, investing nearly £80 million on new signings in the last season, the second highest net spend in the Premier League behind Manchester City, to purchase the purchase of Georginio Wijnaldum, Aleksandar Mitrovic, Chancel Mbemba, Florian Thauvin, Jonjo Shelvey, Andros Townsend and Henri Saivet.

However, they have clearly spent very badly, failing to address the obvious inadequacies in their defence, leading to an unbalanced squad that has once again struggled.

Much of the blame for these poor signings could be attributed to managing director, Lee Charnley, who appears to be a very good example of the Peter Principle, whereby “managers rise to the level of their incompetence.”

"A sad lament"

This certainly seemed to be Ashley’s view, when he describe his job in this way: “I make sure that the football board have the maximum financial resources and it is their job to get the best pound-for-pound value of those resources.”

That may be the case, but it is also Ashley’s job to appoint the right people to run the club. In any case, he has admitted that the ultimate responsibility for Newcastle’s poor performance stops at “my door”.

Moreover, the club’s strategy of signing players on the cheap from foreign markets, mainly France, with a view to putting them in the shop window, then selling them for large profits, has not exactly been a glittering success. In fact, only two players have commanded transfer fees above £10 million, namely Yohan Cabaye and Mathieu Debuchy.

The other point worth making about Newcastle’s recent higher spending is that it has been financed by their Premier League profits, as opposed to Ashley putting any more money into the club.

This was highlighted by Newcastle reporting a £17 million increase in profit before tax in 2014/15 from £19 million to £36 million (£32 million after a tax charge of £4 million). This is a record high profit for the club, so no wonder Charnley described the financial results as “positive”.

The main reason for the improvement was a £13 million (17%) reduction in the wage bill, largely due to “the absence of bonus payments”, reflecting the feeble displays on the pitch. Other expenses were also cut by £3 million (13%) from £24 million to £21 million, but player amortisation rose by £1 million (5%) from £20 million to £21 million.

Revenue was £1 million lower at £129 million, which Charnley almost seemed to think was some kind of achievement: “Turnover remained fairly constant compared to the prior year, falling less than 1% overall.”

Both broadcasting and commercial income dropped by £1 million, broadcasting by 1% from £78 million to £77 million, commercial by 3% from £26 million to £25 million. In contrast, match day increased by £1 million (3%) from £26 million to £27 million.

Profit from player sales rose £3 million (22%) from £14 million to £17 million, mainly due to the sale of Mathieu Debuchy to Arsenal.

Newcastle’s £36 million was actually the second best profit reported in the Premier League for 2014/15, only surpassed by Liverpool’s £60 million. Making so much money when the team is not up to scratch is not ideal, so Charnley even seemed apologetic when speaking about these figures, “We appreciate that, at the present time, football results and not financial results are what our supporters want to see from us.”

Of course, the Premier League these days is a largely profitable environment, thanks to the fortuitous combination of increasing TV deals and Financial Fair Play (FFP) regulations. As a result, fourteen clubs have so far reported profits in 2014/15 with just five clubs losing money and two of those (Manchester United and Everton) only lost £4 million.

Newcastle would actually be top of the profitability league if (once-off) player sales were excluded. Although Newcastle made £17 million from this activity in 2014/15, Liverpool made £56 million, largely due to the mega sale of Luis Suarez to Barcelona.

Making money is nothing new for Newcastle with the club’s stated objective being “to achieve a sustainable financial position, able to operate without reliance on external bank debt or additional long term financial support from our owner and meet UEFA’s Financial Fair Play requirements.”

In fact, this is the fifth consecutive year that Newcastle have been profitable and they have accumulated total profits of £99 million since 2011. The first three years of the Ashley era saw losses between 2008 and 2010, but since then the club has been very firmly in the black.

Not only that, but Newcastle have made more money than any other club in that five-year period with the only other clubs that come close to them being Tottenham £89 million, boosted by the huge sale of Gareth Bale to Real Madrid, and Arsenal £85 million, the unofficial poster boy for financial success in the football world.

Indeed, Newcastle are one of only three Premier League clubs that have managed to report profits in each of the last five years (Arsenal and WBA being the other two). It’s little wonder that supporters are enraged by this level of profit, especially when they compare it with the absolute poverty of the playing squad.

Part of the improvement in profits is down to the elimination of exceptional charges. Between 2007 and 2011 the club had to pay £29 million for what could be loosely described as mismanagement, but nothing since then.

This included £11 million in pay-offs to former managers (Glenn Roeder, Kevin Keegan and Sam Allardyce), £12 million in player impairment (i.e. writing down the value of players), £2 million to former directors and £3 million for costs relating to aborted financing project and takeover bids.

Over the years player sales have had a decent impact on Newcastle’s profits contributing £117 million since 2008, including £85 million in the last five years alone with Andy Carroll’s move to Liverpool in 2011 being the standout transfer.

Newcastle would have made small losses without this activity until 2014, when the latest increase in the TV deal meant that the club would have been profitable even without player sales, especially in 2015 (£19 million).

Given that it can have such a major impact on reported profits, it is worth exploring how football clubs account for transfers. The fundamental point is that when a club purchases a player the costs are spread over a few years, but any profit made from selling players is immediately booked to the accounts.

So, when a club buys a player, it does not show the full transfer fee in the accounts in that year, but writes-down the cost (evenly) over the length of the player’s contract. To illustrate how this works, if Newcastle paid £15 million for a new player with a five-year contract, the annual expense would only be £3 million (£15 million divided by 5 years) in player amortisation (on top of wages).

However, when that player is sold, the club reports the profit as sales proceeds less any remaining value in the accounts. In our example, if the player were to be sold three years later for £18 million, the cash profit would be £3 million (£18 million less £15 million), but the accounting profit would be much higher at £12 million, as the club would have already booked £9 million of amortisation (3 years at £3 million).

Cutting through the accounting complexities, basically the more that a club spends on buying players, the higher its player amortisation. Therefore, Newcastle’s increased activity in the transfer market has resulted in this expense rising from £13 million in 2013 to £20 million in 2015. It should be even higher next year, as this figure does not reflect this season’s spending spree.

Nevertheless, Newcastle’s player amortisation of £20 million is one of the smallest in the Premier League, though it should also be acknowledged that Newcastle do tend to sign players on long-term contracts, which reduces the annual amortisation charge.

It is way behind the really big spenders like Manchester United, whose massive outlay under Moyes and van Gaal has driven their annual expense up to £100 million, Manchester City £70 million and Chelsea £69 million, but perhaps more relevantly it is also lower than the likes of Southampton £30 million and Sunderland £27 million.

The other side of the player trading coin is player values. Given the ever higher transfer fees, most clubs have reported increases in player values in recent years, but this has not really been the case at Newcastle.

The 2015 “assets” of £47 million are lower than the £55 million high in 2013 and only just above the £44 million reported in 2009, though this figure should rise significantly next year.

As a result of all the somewhat confusing accounting treatment, clubs often look at EBITDA (Earnings Before Interest, Depreciation and Amortisation) for a better idea of underlying profitability excluding player trading.

This highlights the improvement in the profitability of Newcastle’s core operations, as EBITDA steadily declined from 2006 and was actually negative in 2009 and 2010, but since then it has been rising and jumped from £27 million to a solid £43 million in 2014/15 alone.

That is not bad at all, only outpaced by the two Manchester clubs, United £120 million and City £83 million, Liverpool £73 million, Arsenal £63 million and Tottenham £48 million. Given that Spurs’ revenue is £67 million more than Newcastle, the fact that their EBITDA is only £5 million higher highlights the effectiveness of the Geordies’ cost control – or alternatively how tight their board has been.

In stark contrast, Newcastle have not done so well with revenue, failing to significantly grow this under Ashley. Before the big man arrived, Newcastle’s revenue was £87 million in 2007, which has since increased to £129 million in 2015. On paper a 48% (£42 million) growth is reasonably impressive, but the devil is in the detail.

Put bluntly, this increase has been entirely driven by the centrally negotiated Premier League TV deals, which have helped produce a £51 million growth in broadcasting income in this period. The leaps in revenue in 2008, 2011 and 2014 simply follow the three-year cycle for the Premier League TV deals (2011 obviously also impacted by the promotion from the Championship).

Both the other revenue streams have actually fallen under Ashley’s command with match day revenue decreasing 20% (£7 million) from £34 million to £27 million and commercial income dropping 10% (£3 million) from £28 million to £25 million (though this was also impacted by the outsourcing of the club’s catering operation sin 2009). To be fair, commercial income has grown by an impressive 81% since the low point in 2012, but it still has not returned to the pre-Ashley levels.

Given Ashley’s reputation as a smooth business operator, this is highly embarrassing, especially as a previous set of accounts included this gem: “Match day and commercial revenue is a key driver, because that’s where the club can compete with – and outperform – its competitors to enhance its spending capabilities.”

Newcastle’s under-performance in 2014/15 is particularly telling, as they are one of only six Premier League clubs whose revenue fell last season. Granted, there is less chance for clubs to massively grow revenue in the second year of a TV deal, but it is obviously disappointing when revenue actually declines.

Nevertheless, Newcastle’s revenue of £129 million is still the seventh highest in England, which sounds great, but the problem is that it is miles behind the other leading clubs. To place this into context, they are still around £250 million below Manchester United (£395 million), £200 million below Arsenal (£329 million), £170 million below Liverpool (£298 million) and £70 million below Tottenham (£196 million).

This massive financial disparity shows how difficult it is for Newcastle to challenge at the highest level, however they are still the “best of the rest”, ahead of Everton £126 million, West Ham £121 million, Aston Villa £116 million, Southampton £114 million and (most meaningfully) Leicester City £104 million. In short, Newcastle should be doing much better on the pitch.

Despite the marginal decrease in 2014/15, Newcastle actually rose two places in the Deloitte Money League to 17th, partly helped by the strengthening of Sterling against the Euro. Amazingly, they generate more revenue than famous clubs like (deep breath) Inter, Galatasaray, Napoli, Valencia, Seville, Hamburg, Stuttgart, Lazio, Fiorentina, Marseille, Lyon, Ajax, PSV Eindhoven, Porto, Benfica and Celtic.

That’s obviously a fine accomplishment, though not as good as 2003 when Newcastle were as high as 9th in the Money League. Furthermore, it merely highlights a new challenge for clubs like Newcastle, as no fewer than 17 Premier League clubs feature in the top 30 clubs worldwide by revenue, thanks to the TV deal. This means that the mid-tier clubs have more purchasing power than ever before, so are more competitive as a consequence.

All that lovely Premier League money means that 60% of Newcastle’s revenue comes from broadcasting with 21% from match day and 19% from commercial.

Newcastle’s share of the Premier League television money was virtually unchanged at £78 million in 2014/15, despite smaller merit payments for finishing five places lower in the league (15th compared to 10th), as this was offset by being shown live on TV 20 times (compared to 14 the previous season), which increased the facility fee. This is where Newcastle’s “box office” (or “soap opera”) reputation helps them financially.

Interestingly, if Newcastle had managed to repeat their feat of finishing 5th in 2011/12 in the last three seasons, they would have banked around £30 million more money.

Even though the Premier League deal is the most equitable in Europe with all other elements distributed equally (the remaining 50% of the domestic deal, 100% of the overseas deals and central commercial revenue), this underlines the price of failure.

It highlights the tricky balance between sustainable spending and investing for success. Spending money is obviously not a guarantee, but a safety first approach can end up leaving money on the table.

Furthermore, there will be even more money available after the mega Premier League TV deal starts in 2016/17. My estimates suggest that Newcastle’s 15th place would be worth an additional £37 million under the new contract, taking their annual payment up to an incredible £115 million. This is based on the contracted 70% increase in the domestic deal and an assumed 30% increase in the overseas deals (though this might be a bit conservative, given some of the deals announced to date).

That is why relegation would be such a big deal for Newcastle. This has been described by the club as a key risk, namely “team performance impacts all aspects of the club’s operations, not least the retention of Premier League status, which is critical to much of the club’s revenue.”

If they were to drop down, they would get around £38 million TV money in the Championship, including a £35 million parachute payment and £2 million distribution from the Football League, compared to the estimated £115 million in the Premier League, i.e. a £77 million reduction.

Obviously, this would be considerably higher than those Championship clubs without parachute payments, as they only receive £5 million, so Newcastle would almost certainly have the highest revenue in the division (though their commercial and match day income would also probably fall).

That said, it’s still a considerable reduction in revenue that would require major cuts in the cost base, so it is worrying to read reports that the club has not inserted relegation clauses in every player’s contract that would automatically cut wages in the Championship. Either way, they would likely still have to sell the club’s better players – if they can find buyers.

Another point worth noting is that from 2016/17 clubs will only receive parachute payments for three seasons after relegation, although the amounts will be higher. My estimate is £75 million, based on the percentages advised by the Premier League (year 1 – £35 million, year 2 – £28 million and year 3 – £11 million). Up to now, these have been worth £65 million over four years: year 1 – £25 million, year 2 – £20 million and £10 million in each of years 3 and 4.

Newcastle’s match day revenue rose slightly by £0.9 million (3%) from £25.9 million to £26.8 million. The accounts attribute this to “one additional home cup match this year”, which is puzzling as Newcastle did not host a single domestic cup tie in 2014/15, compared to one in the FA Cup and two in the Capital One Cup the previous season.

Their match day revenue is the seventh best in England, but it is a long way behind Arsenal £100 million, Manchester United £91 million, Chelsea £71 million, Liverpool £59 million, Manchester City £43 million and Tottenham £41 million.

This is despite Newcastle having a supporter base that is the envy of almost every other club with an average attendance of over 50,000 being the third highest in the country, the mismatch with revenue being due to lower ticket prices and corporate hospitality.

The club has implemented a number of initiatives as a “commitment to keeping ticket prices affordable for our supporters”, including a ten-year deal in 2011/12, freezing season ticket prices for the last three seasons and reducing prices for younger supporters. This is all very admirable, but Ashley’s detractors would point out that most of the initiatives were only introduced after attendances fell, as the board attempted to once again fill the ground.

Either way, since the promotion back to the Premier League in 2010 attendances have been steadily rising. The loyalty of the fans was shown by the fact that Newcastle’s crowds were the fourth highest in England even when they played in the Championship with a 43,000 average, which is an incredible statistic.

After an impressive 50% increase in 2013/14, thanks to a “lucrative” new deal with shirt sponsor Wonga and a long-term extension with kit supplier Puma, commercial income marginally fell in 2014/15 by £0.9 million (3%) from £25.6 million to £24.9 million, mainly due to once-off income from hosting the Kings of Leon concert in the prior year.

For a club of Newcastle’s magnitude, their commercial revenue of £25 million is on the low side, paling into insignificance compared to the top six clubs: Manchester United £197 million, Manchester City £173 million, Liverpool £116 million, Chelsea £108 million, Arsenal £103 million and Tottenham £60 million.

It might be argued that such comparisons are a tad unrealistic, but it’s a similar story if you lower your sights to the mid-tier clubs, e.g. Aston Villa £28 million, Everton £26 million.

Not only is commercial income lower than the £28 million that Ashley inherited eight years ago, but Newcastle are the only top ten Premier League club not to grow commercially in that period, even though the club apparently “continues to focus on maximising commercial revenue”.

Before Ashley arrived Newcastle’s commercial income was at a similar level to Tottenham, but the North London club has grown this revenue stream by 56% since 2007 while Newcastle have fallen by 10%. In the same period Aston Villa and Everton have overtaken Newcastle, while Liverpool and Arsenal have grown by £73 million and £62 million respectively.

In fairness, Newcastle’s £6 million shirt sponsorship with Wonga is only surpassed by the deals made by the top six clubs, even though the association with a provider of payday loans at extortionate rates feels horribly cheap. That said, the disparity is again enormous with Manchester United earning £47 million a year from their Chevrolet deal and (maybe a better comparative) Tottenham signing a £16 million agreement with AIA.

Even though the club said that it is working hard to add new sponsors, it is worth noting that they reduced their commercial staff from 54 to 35 in 2014/15. Moreover, the ubiquitous presence of Sports Direct advertising surely puts off other potential partners.

The accounts state that “advertising and promotional services were provided to Sports Direct” free of charge, but note that the club “anticipates receiving payment for these services in the future”, though without specifying exactly how much. What we do know is that the club purchased £2.3 million of goods from Sports Direct last season (down from £2.8 million), so the deal would have to be higher than that for a net benefit.

The wage bill was massively cut by £13 million (17%) from £78 million to £65 million, slashing the wages to turnover ratio from 60% to 51%. This reduction was due to the absence of bonus payments for finishing in the top ten of the Premier League plus “the cost and timing in the prior year of some significant changes to the playing and development squad”.

Based on their revenue level, we would expect Newcastle to have the 7th highest wage bill in the Premier League, but it was in fact the 17th highest, only ahead of Leicester, Hull City and Burnley. Mike Ashley’s fondness for a bet is well known, but this could be a gamble too far in the increasingly cutthroat top tier.

Of course, they are still miles behind the elite clubs, e.g. Chelsea £216 million, Manchester United £203 million, Manchester City £194 million and Arsenal £192, but they have also been overtaken by the other so-called mid-tier clubs.

Charnley has observed that “our wage bill for the year to 30 June 2016 will increase by a minimum of just under £9 million as a result of our activity during this transfer window”, but that would only take them to mid-table in terms of wages.

While it is praiseworthy to have a such a low wages to turnover ratio of 51%, this is normally due to high revenue (e.g. this is the reason for the same 51% ratio at Manchester United and Tottenham), but in Newcastle’s case this is purely down to cutting costs, so can actually be considered as a bit of a warning sign. The only club with a lower ratio than Newcastle in 2014/15 was Burnley.

In fact, Newcastle very much went against the wages growth trend in the Premier League in 2014/15 when they reduced the wage bill. Only two other clubs did the same (Manchester United and Manchester City were both 5% lower), but Newcastle’s decrease was the largest by some distance with a 17% cut.

One exception to the wages decrease was the highest paid director, presumably Lee Charnley, who saw his remuneration jump 40% from £107k to £150k.

Quite tellingly, Newcastle enjoyed the 5th highest wage bill in England before Ashley bought the club in 2007, but since then the wage bill has risen by just £5 million (9%) from £60 million to £65 million.

Every other Premier League club has increased their wages by significantly more in this period with almost all of them overtaking Newcastle. As an example, Liverpool’s wage bill has shot up by £88 million (114%), increasing the gap to Newcastle from £18 million in 2007 to £101 million in 2015. U2 once sang of “running to stand still”, but the Newcastle board has barely broken into a jog here.

For the initial stage of Ashley’s tenure Newcastle were a selling club, averaging net sales of £11 million in the first four years, though this did include the relegation to the Championship. In the following three years, they essentially broke-even, somehow managing to go 18 months without signing a full-time professional player, which is some going (and the height of optimism) in such a competitive league.

However, there has been a distinct loosening of the purse stings in the last two seasons with Newcastle averaging net spend of £45 million (gross spend £57 million, sales of just £11 million).

In fact, Newcastle have the third highest net spend of £90 million over the last two years, only surpassed by Manchester City £151 million and Manchester United £132 million. The problem is that they have been doing it very poorly, effectively achieving the opposite of getting “bang for their buck”.

As the club’s accounts so aptly noted, “Identification, negotiation and successful acquisition of the best players, in what is a highly competitive market, is one of the most significant and high profile risks facing the club.”

Net debt has been cut by £14 million from £95 million to £81 million, as cash balances rose from £34 million to £48 million. Gross debt was unchanged at £129 million, entirely owed to Ashley: £18 million repayable on demand and £111 million repayable after more than one year. This debt is interest-free, secured on future broadcasting income and repayable on demand.

Gross debt has therefore been cut by £21 million from the peak of £150 million, but this is still £52 million higher than the £77 million debt Ashley inherited in 2007. To be fair, the switch from external bank debt to owner debt has saved a lot of money in annual interest payments (which were as high as £8 million in 2008).

"Jackinabox"

In the past, the club has argued that Ashley’s free advertising is worth less than the savings made from removing the requirement to pay bank interest, which may well be true, but it’s not an overly compelling argument, particularly if you work on the principle that an owner should have the football club’s best interests at heart.

It is also striking that none of the debt has been converted into equity, as is the case with many other football club owners, e.g. Ellis Short has capitalised over £100 million of loans at Sunderland, while Randy Lerner has cancelled repayment of £180 million of loans at Aston Villa.

Newcastle have adopted a policy of paying transfer fees upfront, rather than spreading payments over a number of years, so they owed other clubs only £3 million, while other clubs owed Newcastle £22 million. In some ways, this is an admirably prudent approach, but it does restrict Newcastle’s ability to spend more on bringing players in.

It should be noted that this season’s binge spending has not been included in these figures with the club stating that it had committed to a net outlay of approximately £80 million on additions to the playing squad subsequent to the balance sheet date.

Newcastle’s gross debt of £129 million was actually the 4th highest in the Premier League, though considerably below Manchester United, who still have £444 million of borrowings even after all the Glazers’ various re-financings, and Arsenal, whose £232 million debt effectively comprises the “mortgage” on the Emirates stadium. QPR’s debt of £194 million was higher, but their owners have now converted £180 million into equity.

Newcastle have been pretty good at generating cash in the last few years with £39 million from operating activities in 2015 alone. After spending £24 million on the playing squad (net of disposals) and £1 million on capital expenditure, they managed to produce £14 million of positive net cash flow.

However, this has all gone on this season’s player recruitment, so when Ashley was asked how much was left in the bank account, he responded, “Virtually nothing. They have emptied it.”

The last year that Ashley injected funds was £29 million in 2010, which facilitated promotion back to the Premier League at the first attempt. Not only has he not put any more money in since then, but the club actually made an £11 million repayment of Ashley’s loan in 2012.

That said, since Ashley bought the club, he has loaned £129 million, providing the majority of the club’s available cash. A further £60 million has been generated from operating activities, giving a total of £189 million to spend.

Around £72 million of that has gone on eliminating bank debt with a further £11 million in interest payments. Around £47 million has been spent on net player purchases, but less than £10 million invested in infrastructure, e.g. the promised new state-of-the-art training facility is still a pipe dream.

Newcastle’s £48 million cash balance was one of the highest in the Premier League, only behind Arsenal £228 million, Manchester United £156 million and Manchester City £75 million, though, as we have seen, that is no longer the case.

Even though Ashley has twice tried to sell the club, last season he said that he would categorically not be sell it until Newcastle won something. That seems clear enough, but it is difficult to believe that there isn’t a price that might tempt him.

To use his own words, Ashley is now “wedded” to Newcastle United, but it does feel like the ultimate marriage of convenience, especially as he has also lamented his decision to acquire the club: “Do I regret getting into football? The answer is yes.”

"Eyes wide shut"

However, any prospective purchaser would have to shell out at least quarter of a billion  to cover Ashley’s costs (original acquisition plus outstanding debt), which does not exactly make the club an attractive proposition, especially if Newcastle drop to the Championship.

Last month Ashley said, “To get a football club to be the best it can be, you have to get the sun, the moons and the stars to align perfectly”, but that seems to be a fairly obvious attempt to wriggle out of his responsibilities. He failed to invest in the club when it would have made a real difference and when he belatedly sanctioned player purchases, the people that he appointed to execute this decision made a hash of it.

Yes, it is no small achievement to put the club on what Ashley described as “a very sound financial footing” and supporters only need to look at Sunderland to see that big spending does not automatically deliver success, but a club of Newcastle’s resources should really be aiming higher.

"Spanish steps"

The ultimate goal of a football club is not to make profits, but to challenge for trophies. If that is a bridge too far for Newcastle, they should be capable of comfortably finishing in the top half of the table, and at the very least not having to fight against relegation.

When Rafa Benitez was appointed, he spoke of the club’s prospects with some optimism: “The future is brilliant because you have the power, the fans, the stadium and very positive things. You have the squad. You have to adapt a little bit, but there is great potential. This club is so big that we can improve for sure.”

That’s a rousing vision, but first the club has to avoid the dreaded drop, not least because there is a risk that Benitez might walk if that comes to pass. Last time round, Newcastle were immediately promoted, but few would be confident of a repeat performance with the current squad, whose commitment has been frequently questioned this season.

To paraphrase Bruce Springsteen, there’s darkness on the edge of Toon.

Tottenham Hotspur - Moving On Up

Although slightly obscured by Leicester City’s extraordinary story, Tottenham have also made significant progress this season, quietly establishing themselves as highly credible contenders for the league title, while moving forward in the development of their new stadium.

They have built on the progress made in head coach Mauricio Pochettino’s first season in 2014/15, when Spurs finished fifth in the Premier League and reached the final of the Capital One Cup. After many years of managerial upheaval involving the varied, but ultimately underwhelming talents of Harry Redknapp, André Villas-Boas and Tim Sherwood, it looks like Spurs have finally found a good one in the young Argentinian.

As chairman Daniel Levy observed, “Mauricio and his coaching staff have created a great team spirit in a stable squad that encompasses both experience and youth. The results speak for themselves.” Not only does it look like Spurs will secure one of the elusive Champions League places, but their success has been built on an exciting brand of aggressive, pacy football, featuring many young talents, such as Harry Kane, Dele Alli and Eric Dier.

"Back on the Kane gang"

Tottenham’s improvement this season has not been at the expense of their finances, as they have just published another very solid set of financial results for the 2014/15 season with record revenue of £196 million and £12 million pre-tax profit (£9 million after tax).

Even though the profit before tax was £68 million lower than the previous season’s £80 million, that was a totally unprecedented figure, greatly enhanced by the blockbuster sale of Gareth Bale to Real Madrid. Indeed, profit on player sales decreased by £83 million from £104 million to £21 million.

On the other hand, revenue rose by £16 million (9%) from £180 million to £196 million, almost entirely driven by a £17 million (38%) increase in commercial income from £43 million to £60 million, including the first year of the new shirt sponsorship deal with AIA. Broadcasting was unchanged at £95 million, while match receipts were slightly lower at £41 million.

The wage bill was basically flat at £101 million, but other expenses increased by £6 million (15%) from £41 million to £47 million. Player amortisation was £3 million (7%) lower at £37 million, while the impairment charge was reduced by £7 million to £3 million.

In line with growing expenditure on the stadium construction, depreciation rose by £1 million to £6 million. Net interest payable was also £1 million higher at £5 million, largely due to a provision for early repayment of a loan.

Once again, Spurs booked exceptional charges for redundancy costs and onerous employment contracts. Last year’s £4.7 million was mainly for the pay-offs to Villas-Boas and his coaching staff, while the reasons for this year’s charge of £6.5 million are less clear, though it is likely that some will be a provision for paying-off Emmanuel Adebayor’s contract.

Tottenham’s pre-tax profit of £12 million is more than respectable, but is actually only the seventh highest in the Premier League in the 2014/15 season, behind Liverpool £60 million, Burnley £35 million, Newcastle United £32 million, Leicester City £26 million, Arsenal £25 million and Southampton £15 million.

Long gone are the days when Spurs were one of the few profitable clubs in the top flight. No, the Premier League is now a largely profitable environment with only five clubs losing money so far in 2014/15, thanks to the increasing TV deals allied with Financial Fair Play (FFP).

That said, there are still some appallingly run clubs that managed to lose a lot of money against all odds: step forward, Queens Park Rangers and Aston Villa, who somehow contrived to make losses of £46 million and £28 million respectively.

No football club is more aware than Tottenham of the impact that player sales can have on the bottom line, especially as they posted the highest Premier League profit in 2013/14 thanks to the highly lucrative Bale transfer. In 2014/15 it was Liverpool’s turn to benefit from a mega transfer, with the sale of Luis Suarez to Barcelona the main reason for the £56 million they earned from this activity.

Although Tottenham’s profits from player sales declined, they still generated £21 million of profits in 2014/15, including the transfers of Jake Livermore and Michael Dawson to Hull City, Sandro to QPR, Gylfi Sigurdsson and Kyle Naughton to Swansea City, and Zeki Fryers to Crystal Palace.

Of course, Spurs have always kept a close eye on their finances, so much so that they have only reported (small) losses twice in the last 11 years. Levy himself has commented, “Tottenham Hotspur have always been run on a rational basis. It’s one of the few clubs that has been consistently profitable.” In fact, Spurs have made aggregate profits of £146 million since 2007, including £96 million in the last three years alone.

Nevertheless, it should be acknowledged that much of that solid financial performance is down to player sales with Tottenham making an incredible £288 million from this activity in the last decade. On the one hand, Levy’s infamously tough negotiation skills have clearly reaped large financial rewards, but on the other hand, some supporters have expressed unhappiness that this turnover has weakened the team.

Levy explained the strategy thus, “Our pragmatic player trading has been important in the way we have run the business of the club and in getting us to the position where we have now been able to start work on a new stadium.” Indeed, without those player sales, Tottenham would have reported losses of £141 million.

Tottenham’s last significant profit before the Bale sale was the £33 million posted in 2009, which was also largely due to profits on player sales of £56 million with Dimitar Berbatov moving to Manchester United and Robbie Keane to Liverpool.

There should again be a fairly handsome profit on player sales in the next set of accounts following a high number of departures: Andros Townsend to Newcastle, Robert Soldado to Villarreal, Paulinho to Guangzhou Evergrande, Etienne Capoue to Watford, Benjamin Stambouli to Paris Saint Germain, Lewis Holtby to Hamburg, Vlad Chiriches to Napoli, Aaron Lennon to Everton and Younes Kaboul to Sunderland.

Tottenham’s reported profits will be increasingly impacted by property transactions, as a result of sales linked to the stadium development. The 2013 accounts already included £5.6 million profit on property disposals following a sale to another group company, while the 2015/16 accounts will include £8.6 million profit after selling the site of Brook House primary school (sales proceeds £11 million less net book value £2.6 million).

Given how important player trading is to Tottenham’s business model, it is worth exploring how football clubs account for transfers. The fundamental point is that when a club purchases a player the costs are spread over a few years, but any profit made from selling players is immediately booked to the accounts.

So, when a club buys a player, it does not show the full transfer fee in the accounts in that year, but writes-down the cost (evenly) over the length of the player’s contract. To illustrate how this works, if Spurs paid £25 million for a new player with a five-year contract, the annual expense would only be £5 million (£25 million divided by 5 years) in player amortisation (on top of wages).

However, when that player is sold, the club reports the profit as sales proceeds less any remaining value in the accounts. In our example, if the player were to be sold three years later for £32 million, the cash profit would be £7 million (£32 million less £25 million), but the accounting profit would be much higher at £22 million, as the club would have already booked £15 million of amortisation (3 years at £5 million).

This is horribly technical, but at its simplest, the more that a club spends on buying players, the higher its player amortisation. In this way, this increased at Tottenham from £25 million to £40 million in 2013/14 “due to the continued investment in the playing squad”, before falling back to £37 million in 2014/15, partly due to “the impairments of certain player registrations in the prior year”. This happens when the directors assess a player’s achievable sales price as less than the value in the accounts.

Tottenham’s player amortisation is a fair bit below the really big spenders like Manchester United, whose massive outlay under Moyes and van Gaal has driven their annual expense up to £100 million, Manchester City £70 million and Chelsea £69 million, but it is essentially in line with their revenue. It should rise next year following the purchases of Son, Clinton N’Jie, Toby Alderweireld, Kevin Wimmer and Kieran Trippier.

The other side of the player trading coin is that player values have also shot up, nearly doubling from £58 million in 2012 to £109 million in 2015, though this actually fell from £122 million in 2014.

Even though player trading (and particularly profits from player sales) have such an important impact on Tottenham’s bottom line, the club is still highly profitable from its core business, as shown by EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation), which can be considered a proxy for the club’s profits excluding player trading. This has risen steadily in the last two seasons from £19 million in 2013 to £48 million in 2015.

That is not bad at all, but is still outpaced by the two Manchester clubs, United £120 million and City £83 million, Liverpool £73 million and Arsenal £63 million. Even though those clubs have much larger wage bills, they enjoy far higher revenue, so the net result is still better than Tottenham, which goes a long way to explain Spurs’ greater reliance on a player sales strategy.

Tottenham have grown their revenue by £83 million (74%) since 2009. Like most other Premier League clubs, much of this has simply been driven by the new TV deals with broadcasting income contributing £50 million of this growth. This can be seen by the increases in 2011 and 2014 in line with the new three-year cycles of the Premier League TV deals. The rise to £164 million in 2011 was also boosted by £37 million from the Champions League (prize money and gate receipts).

Commercial income has also begun to show some reasonable growth, rising £31 million in that six-year period, with more than half of the increase coming in 2015 alone. However, match receipts have essentially been flat, rising just 4%, once again emphasising the need for a new stadium.

Even after the 2015 revenue growth, Tottenham remain in sixth place in the English revenue league with £196 million. To place this into context, they are still around £200 million behind Manchester United (£395 million), £130 million lower than North London rivals Arsenal (£329 million) and £100 million below Liverpool (£298 million).

On the other hand, at the same time they are a long way ahead of their other Premier League rivals, being £70-75 million higher than Newcastle United (£129 million), Everton (£126 million) and West Ham (£121 million). As the late, great Ian Dury might have said, Spurs are basically the “Inbetweenies” of the Premier League, struggling to reach the highest echelon, but comfortably beyond the chasing pack.

Not only that, but their closest rivals (at least from a revenue perspective) are growing their revenue at a faster rate. While Tottenham increased revenue by £15 million (9%) in 2014/15, Arsenal’s rose by £31 million (10%) and Liverpool’s by £42 million (17%). Clearly, Champions League participation was a major factor for Liverpool (and also explains Manchester United’s significant decrease), but even so.

For the second year in a row, Tottenham moved up a place in the Deloitte Money League to 12th, just behind Juventus and Borussia Dortmund, but over-taking Milan, partly helped by the strengthening of Sterling against the Euro.

That’s obviously a fine accomplishment, but the Money League highlights a new challenge for clubs like Spurs, as no fewer than 17 Premier League clubs feature in the top 30 clubs worldwide by revenue, thanks to the TV deal. This means that the mid-tier clubs have more purchasing power than ever before, so are more competitive as a consequence, as amply demonstrated by Leicester City.

If we compare Tottenham’s revenue with the other clubs in the Deloitte Money League top twelve, this highlights their shortfall on match day income, but there is a far larger issue with commercial income. Tottenham’s recent growth to £60 million is praiseworthy, but this is still substantially lower than almost all of the elite clubs.

Granted, the £166 million shortfall against PSG (£60 million vs. £226 million) is largely due to the French club’s “friendly” agreement with the Qatar Tourist Authority, but there are still major gaps to the other clubs in commercial terms: Bayern Munich £152 million, Manchester United £141 million, Real Madrid £129 million, Barcelona £126 million and Manchester City £114 million.

Given the well-known TV riches in the Premier League, Tottenham fans might also be puzzled by their lower broadcasting revenue, but this is essentially due to the lack of Champions League money. In terms of domestic TV revenue, Spurs are very competitive with their £91 million only surpassed by other leading English clubs and the Spanish giants, Real Madrid and Barcelona, who benefit from individual deals.

Following the rise in 2015, commercial income’s share of total revenue has increased from 24% to 30%, though broadcasting remains the most important revenue stream with 49% (down from 52%). Match day income also fell from 24% to 21%.

Despite finishing a place higher in fifth, Tottenham’s share of the Premier League TV money slightly decreased by £1 million from £90 million to £89 million in 2014/15, as the additional merit payment was offset by a lower facility fee, as they were only shown live 18 times (compared to the previous season’s 24).

All other elements of the central TV deal are equally distributed among the 20 Premier League clubs: the remaining 50% of the domestic deal, 100% of the overseas deals and central commercial revenue.

Tottenham will see increases here in the future. First, the 2015/16 distribution will benefit from this season’s success, as they should finish at least third, while they will be broadcast live around 27 times (based on current scheduling). That should deliver an additional £9 million.

Then, there will be a substantial increase from the mega Premier League TV deal starting in 2016/17. My estimates suggest that Tottenham’s 5th place would be worth an additional £49 million under the new contract, taking the annual payment up to an incredible £138 million. This is based on the contracted 70% increase in the domestic deal and an assumed 30% increase in the overseas deals (though this might be a bit conservative, given some of the deals announced to date).

The other main element of broadcasting revenue is European competition with Tottenham receiving €6.1 million (£7.1 million including gate receipts) for reaching the last 32 in the Europa League where they were eliminated by Fiorentina. This was much lower than the Champions League, where the four English clubs earned an average of €39 million, ranging from Manchester City’s €46 million to Liverpool’s €34 million. This underlines the size of the prize assuming that Tottenham do cement their Champions league qualification.

Here it is worth noting the importance of the final league placing to the TV (market) pool calculation. Half of the payment depends on how far a club progresses in the Champions League, but the other half is based on where the club finished in the previous season’s Premier League, with the winners receiving a 40% share, second place 30% share, third 20% and fourth 10%.

Nobody needs to explain the impact that the Champions League can have on revenue to Tottenham, as their run to the Champions League quarter-finals before being eliminated by Real Madrid in 2010/11 generated €31 million of prize money (£37.1 million including gate receipts), but the club’s failure to qualify for Europe’s premier tournament more than once in the last five years has really hurt their bank balance.

In that period, Tottenham have earned €51 million from Europe, which is around €90 to €180 million less than the top four received – and that does not include revenue from additional fixtures and sponsorship clauses. That’s a huge competitive disadvantage and has made it all the more difficult for Spurs to break into the Champions League qualifying places.

It must have therefore been particularly galling when they finished fourth in the Premier League in 2012, which would normally have guaranteed a place in the Champions League qualifying round, only to be deprived of this opportunity following Chelsea’s unlikely victory against Bayern Munich.

The financial significance of a top four placing is even more pronounced from this season with the new Champions League TV deal worth an additional 40-50% for participation bonuses and prize money and further significant growth in the market pool thanks to BT Sports paying more than Sky/ITV for live games.

Tottenham’s match day revenue fell slightly by £1.2 million (3%) from £42.4 million to £41.2million. Premier League gate receipts were flat, while income from domestic cup competitions rose as a result of reaching the Capital One cup final, but there was a reduction in the Europa League receipts.

Tottenham generate less than half of the revenue of their rivals Manchester United and Arsenal, who earn £90-100 million a season in their far larger stadiums, despite charging the second highest season ticket prices in England (only behind Arsenal).

However, they have frozen ticket prices for three seasons in a row, noting that “the club fully recognises the need to keep football affordable and facilitate a fantastic atmosphere in the ground”, though pressure from supporters was required before they dropped the idea of a proposed 2% increase for 2016/17.

In fact, Tottenham have only the 9th highest attendance in the Premier League with around 36,000, behind the likes of Sunderland, Chelsea and Everton, but this is effectively full capacity with the club selling out all Premier League home games. This underlines the need for the new, larger stadium, which would satisfy a waiting list that has risen to over 50,000.

As Levy put it, “In respect of driving higher revenues in order to enable greater investment in players, it is clearly evident that we need a ‘game changer’ to lift this club to the next level  - namely an increased capacity stadium. Currently we are competing for Champions League qualification whilst driving revenue in the smallest stadium of the top six clubs in the Premier League. The new stadium is, therefore, critical.”

The proposal for a 61,000 capacity stadium adjacent to White Hart Lane was finally approved in December 2015 by Haringey Council. This will be the largest club ground in London, exceeding the capacity at Arsenal by around 1,000, and will be built as a multi-use facility in order to maximise potential revenue.

"Hit the ground running"

It will therefore have a fully retractable grass pitch, allowing a synthetic surface to be used for other events. Indeed, the club has already signed a 10-year partnership with the NFL to host a minimum of two regular games a season.

The aim is to have the new stadium ready for the 2018/19 season, though Spurs will have to move to temporary premises for the 2017/18 season. Their preferred option would be Wembley (at an annual rent of some £15 million), but Chelsea are also keen on the national stadium while Stamford Bridge is being redeveloped, so they might have to look elsewhere with the MK Dons Stadium also being considered.

This is a massive project with the latest cost projections up to £500 million for the stadium, but between £675 million and £750 million for the entire development, including land purchase, residential property, hotel and other facilities, which is double the original estimate.

Tottenham have already spent £100 million, while financial adviser Rothschild have arranged £350 million of loans from three banks, leaving a gap of £300 million to be funded (assuming the higher cost).

"Shine on"

Tottenham will hope to emulate Arsenal’s model when constructing the Emirates Stadium by signing front-loaded commercial deals, including naming rights. There has been talk of £30 million a season, though that sounds ambitious, even if the club says it has “received expressions of interest from credible counterparties.”

Other options include a further round of debt financing or even an equity investment, but the latter seems unlikely, as that might complicate a future sale and the current owners would probably prefer to sell after the stadium is completed and the value has increased.

According to press reports, the club has estimated that the new stadium would generate an additional £28 million match day income a year, largely from corporate hospitality, though this seems a little on the low side, given the significant capacity increase and the high ticket prices.

They have also emphasised the difficulties in completing this project. Levy commented, “We know that our North London neighbours experienced delays and setbacks during the delivery of their stadium and their challenges were far less than ours with no site constraints and with significant enabling development.”

This was confirmed by Pochettino: “I have read a lot about Arsène Wenger saying the toughest period for Arsenal was in the period that they built their stadium and I think the people need to know that this is a very tough period for us.” In investment terms, this is the classic risk and reward situation.

As we have seen, the other area that Tottenham need to address is commercial income. Even after an impressive increase of £17 million (38%) from £43 million to £60 million, this is still a long way below the top five clubs: Manchester United £197 million, Manchester City £173 million, Liverpool £116 million, Chelsea £108 million and Arsenal £103 million.

Tottenham have always behind the “big boys” commercially, but the magnitude of this disparity is a relatively recent phenomenon. Since 2012 Tottenham have the lowest growth of the top six English clubs, both in absolute and percentage terms, with an increase of only £18 million (44%). As a painful comparative, in the same period Arsenal have grown by £51 million to £103 million. Mind the gap, indeed.

The 2014/15 season was the first in a five-year shirt sponsorship deal with AIA, an insurance services provider, worth around £16 million a season. That’s not too bad, but is a lot lower than Manchester United £47 million (Chevrolet), Chelsea (Yokohama) £40 million and Arsenal (Emirates) £30 million.

It’s a similar story with Tottenham’s kit supplier, Under Armour, who have a five-year deal worth a reported £10 million a year, running until the end of the 2016/17 season. Again, that’s pretty good, but it pales into significance next to Manchester United’s “largest kit manufacture sponsorship deal in sport” with Adidas, which is worth an average of £75 million a year, or Arsenal’s Puma deal (£30 million).

That said, there have been reports in the media about Spurs trying to negotiate a £30 million agreement with Nike, which would make a big difference to the comparatives. Of course, if Spurs start to deliver success on the pitch, this would boost them commercially, e.g. sponsorship contracts are likely to include more money for Champions league participation.

Tottenham’s wage bill rose vey slightly by £0.4 million from £100.4 million to £100.8 million, reducing the wages to turnover ratio from 56% to 51%, the lowest since the 46% achieved in 2008. Wages have only risen by a cumulative £10 million (11%) in the last five years, which is a striking demonstration of Spurs’ ability to control costs.

The last time that there was a substantial increase came in 2011, when the wage bill shot up from £67 million to £91 million. This was partly due to the club “augmenting its squad of players to be able to compete both at home and in Europe”, but also an attempt to retain core players on long-term deals with higher, competitive salaries.

Mirroring revenue, Tottenham’s wage bill is much lower than the top five clubs: Chelsea £216 million, Manchester United £203 million, Manchester City £194 million, Arsenal £192 million and Liverpool £166 million. In other words, Tottenham have largely performed in line with expectation, though are punching above their weight this season.

In this way, Tottenham’s wages to turnover ratio of 51% is one of the lowest (i.e. best) in the Premier League, only matched by Manchester United and Newcastle United (also 51%) and beaten by Burnley (37%). Despite their much higher revenue, Arsenal’s wages to turnover ratio was worse at 56%.

Since 2011, Spurs have managed to keep their wage bill in a tight range of £90-100 million, but other clubs have continued to spend ever-increasing sums on players. In particular, in that period Arsenal’s wage bill has grown by £68 million (55%) to £192 million, increasing the gap to Spurs from £33 million to £91 million. However, given the Gunners’ performances this season, you could hardly call that money well spent.

Next year’s accounts will be interesting, as the wage bill will benefit from the departure of some high earners (e.g. Adebayor, Soldado and Paulinho), replaced by younger, cheaper players, but there should also be higher bonus payments following this season’s improved results.

It’s worth noting that the directors’ remuneration continues to increase with Daniel Levy receiving £2.6 million, up from £2.2 million. This means that his remuneration has grown by nearly £1 million (or 57%) in just two years, which is not too shabby.

There has been a fairly dramatic turnaround in Tottenham’s transfer activity in the last five seasons with average annual net sales of £11 million, compared to average net spend of £19 million in the preceding five seasons (which you could loosely call the “Redknapp effect”).

In fairness, there has been over £250 million of gross spend in this period, but on the whole Spurs have been a selling club in recent times, only splashing the cash after a player has been sold. That’s not always their call obviously, as sometimes it’s the player that wants to leave, but, as Levy explained, “Tottenham is not a club that can consistently pay £50 million for a player. We have to make our players.”

In fact, every other club in the Premier League has spent more than Tottenham in the last five seasons, which is an unsurprising statistic, given that they are the only club with net sales (of £54 million). It is particularly telling how much more Spurs’ rivals for a Champions League place have spent in this period: Manchester City £303 million, Manchester United £288 million, Chelsea £199 million, Liverpool £149 million and even the traditionally frugal Arsenal £102 million.

Obviously, money is not the only ingredient in the recipe to build a good squad and Spurs have made some really astute, value signings, e.g. Dele Alli and Eric Dier, while Levy has pointed out that the lack of big money signings has also given the young players “space to flourish”.

Pochettino is fully on message: “You need to realise that to improve our squad today is a very difficult job. I have been very clear that we would only add players that we felt would improve us and if any one player was not possible then I prefer we do not add for the sake of it.”

That said, it’s difficult for Tottenham to keep up with the sort of financial firepower employed by the elite clubs and the concern must be that there will be even less cash available to spend in the transfer market while the new stadium is being built. Although Levy has promised to ring-fence a percentage of cash for buying new players, Tottenham fans need only look at their North London neighbours to see the impact while a new stadium is being financed.

The club has moved from net funds of £3.2 million the previous year to net debt of £20.8 million, though gross debt actually fell from £35.4 to £31.5 million, as cash decreased from £38.5 million to £10.7 million. The debt comprises a £13 million Investec bank facility repayable over five years tracking LIBOR and £18.5 million of 7.29% secured loan notes repayable in equal installments over 16 years from September 2007.

Daniel Levy has previously observed, “there is hardly a transfer concluded across Europe which doesn’t include staged payments”, and that is certainly demonstrated in Tottenham’s accounts. They owe other clubs £26 million, while they are themselves owed £53 million (largely due to the Bale sale) – though they have received £23 million of this since the balance sheet date.

Similarly, Tottenham have contingent liabilities of £13 million, which are potentially payable based on the success of the team and individual players, but also a contingent asset of £17 million.

Tottenham’s gross debt of £32 million is currently among the lowest in the Premier League, considerably below Manchester United, who still have £444 million of borrowings even after all the Glazers’ various re-financings, and Arsenal, whose £232 million debt effectively comprises the “mortgage” on the Emirates stadium.

As the new stadium progresses, this situation will obviously change, meaning Spurs will have one of the largest debts in the top flight. To give an example of the financial impact, Arsenal are even now still paying around £19 million a year in interest and loan repayments.

Tottenham have generated a lot of cash in recent years, though this would have been even higher if clubs had paid for transfers upfront, as we can see from the cash flow difference in net player purchases compared to the actual fees.

In 2015 they made £41 million from operating activities, having added back non-cash items like player amortisation, depreciation and impairment, but then invested £42 million in infrastructure and £11 million in player registrations. They also bought-back £10 million of preference shares, repaid £4 million of loans, made £2 million of interest payments and £1 million of tax. This produced the £28 million reduction in the cash balance.

Since 2007 Tottenham have had £415 million of available cash, largely generated from their own operating activities (£328 million), but also equity contributions from owners ENIC (£44 million) and long-term debt financing (£19 million) with the remainder coming from reducing the cash balance (£24 million).

The majority of that surplus cash £212 million (51%) has been invested in fixed assets, essentially the new stadium and the new training centre in Enfield. A further £157 million has gone on player purchases, £28 million on interest payments, £10 million to the taxman and £7 million dividends.

Tottenham’s need for external financing for the new stadium is shown by their relatively low cash balance of £11 million, compared to Arsenal £228 million and Manchester United £156 million. Arsenal’s high balance is down to their lack of appetite for spending, while United are a cash machine.

There has been some noise about the possibility of the club being sold, including an approach from US private investment company Cain Hoy to buy the club on behalf of a group of American businessmen, but there have been no concrete proposals. There might be more interest in the future, as overseas investors will be attracted by the booming TV rights, but they might be scared off by the price asked by Levy, which is rumoured to be an “aspirational” £800 million, and the investment required to finance the new stadium.

"From a whisper to a scream"

Evidently, a club as profitable as Tottenham has no issues with the Financial Fair Play (FFP) regulations, though Levy has stressed the implications in terms of revenue generation: “We are all eager to be challenging at a higher level. Whilst the popular view may be to spend money in excess of earnings or find a philanthropic investor to fund transfers, those scenarios are simply not possible under the new world of Financial Fair Play rules, whereby clubs can only spend revenues generated through operations.”

Going forward, Tottenham’s revenue will indeed rise, thanks to Champions League qualification and the new Premier League TV deal, but they will still struggle financially against the European elite.

Nevertheless, Levy spoke with optimism: “We are continuing with an ambitious growth strategy. Our player development, on pitch performances, enhancements to our highly rated Training Centre and commencement of the new stadium scheme which will also host NFL, signify an exciting future for the club.”

"Clap Your Hands Say Yeah"

There will have to be a tricky balancing act between the financial demands imposed by the stadium construction and the need to improve the squad, but it does feel as if something has changed at White Hart Lane. The team is no longer so, well, “Spursy”, and they have an excellent manager in Pochettino.

The Argentinian himself sounds bullish about the future, “When you compare Tottenham with big sides, people can see our approach is for the long term. We have the youngest squad in the Premier League, yet here we are fighting for the title. The project is fantastic, because we are ahead of the programme – we are only going to get better.”

They will need to hang on to their stars to match their ambitions, avoiding the temptation to cash in on the likes of Kane and Alli, so they are no longer considered a stepping-stone to more powerful clubs. If they can do that, then maybe they can genuinely dare to dream.