Home 5 News 5 Why Newcastle United's losing streak threatens Mike Ashley's bid to sell Premiership club

Why Newcastle United's losing streak threatens Mike Ashley's bid to sell Premiership club

In the glamorous world of football, Newcastle United’s game on Saturday against fellow Premier League laggard Swansea City is hardly a clash of titans.

But in the winter chill of industrial northeast England, the result could help to determine the sale price of the last heavyweight English football club yet to be snapped up by a wealthy investor from overseas.

Newcastle’s owner Mike Ashley has been negotiating with a possible buyer, said to be prepared to bid about £250m. 

Then the math got more complex. A winless streak saw the team slide down the league. Being dumped out of the world’s richest football competition could halve the club’s valuation, according to people close to potential bidders.

It leaves any investor at risk of losing the cachet of the Premier League, and that threat already deterred at least one. Blackbridge, which helped broker the recent sale of lower-ranked Barnsley to a group including the US baseball executive and “Moneyball” star Billy Beane, had been acting for a potential bidder from the United Arab Emirates, according to a person familiar with the situation.

“The risk of being outside the top flight makes any sale more complicated, as buyers may be less willing to conclude a deal without comfort that the team is safe,” said Daniel Geey, a partner at sports and media law firm Sheridans.

Newcastle has been ripe for a takeover. The city oozes football, though has seen little success of late. Fans pack the 52,000-capacity downtown stadium – and boost the Premier League’s television viewing figures.

Yet their idols in black-and-white striped shirts last lifted a trophy in 1969, and famous supporters like musician Sting say it’s time to win another one. 

Most of the other major English clubs were bought by wealthy foreign buyers over the past dozen years. As Chelsea was taken over by Russian billionaire Roman Abramovich, Manchester United by the Glazer family and Liverpool by the owners of the Boston Red Sox baseball team, Newcastle went from a contender for qualification for Europe’s elite Champions League competition, to an also-ran.

Ashley, 53, has said he would sell, though so far failed to get the right price. He paid about £130m for Newcastle in 2007 and has invested another £150m roughly.  

A few weeks ago, it appeared that Amanda Staveley, a British financier with connections in the Middle East and Asia, was readying an offer. And fresh funds would allow Newcastle to buy new players to help keep its top-flight status, because coaches only have until the end of January to strengthen their squads under European rules.

While the bid was likely to be well short of Ashley’s initial £400m valuation, the approach was good enough to get them talking, according to people close to the negotiations. Spokespeople for both sides declined to comment on the talks.

The problem, though, is that Newcastle could be valued only at about £120m by suitors if it became one of the three teams to fall out of the Premier League, based on other recently relegated clubs Sunderland, Fulham and Aston Villa, said one person. Newcastle United declined to comment.

Ashley is familiar with the cost of falling out of the Premier League and the particularly painful hit to revenue from television companies and sponsorship. Under his 10-year tenure, Newcastle suffered relegation twice, though managed to bounce back after one season away each time.

It spent last term in the second tier, known as the Championship. Revenue dropped by 35 per cent to £82m, according to the sale documents. 

That included £41m of aid given to relegated teams known as parachute payments, according to the Premier League. The money lasts two or three years, and clubs rely on it because broadcast income in the Championship is a tiny fraction of the Premier League’s, with a top second-tier team earning less than 10 per cent of the bottom team in the top flight. ok 

When US businessman Randy Lerner sold Aston Villa to Tony Xia from China in May 2016, the team’s relegation fate already had been decided. Lerner sold the club, a European Cup winner in 1982, for about £70m, according to football finance consultant Tom Markham, after being valued at £162m in the Premier League.

Mansour bin Zayed al-Nahyan of Abu Dhabi in 2008, is still said to be a keen buyer at the right price, according to a person familiar with the situation.

Indeed, Manchester City shows the potential for success – provided the money is there. The club was playing in the third tier of English football in 1999. It’s since won two Premier League titles and is unbeaten this season under the tutelage of former Barcelona icon Pep Guardiola.

Total net spending on players in the August trading window alone was £221m – more than any other club in Europe, according to data from Deloitte. 

The question is whether Ashley, whose business meetings were exposed in a recent court case as often degenerating into heavy drinking sessions, can see eye to eye with Staveley over the negotiating table. If so, they might still be able to see their way through the relegation maze. A solution might be to have two prices, one if the club stays up and another if it is relegated, said Geey, the lawyer.

In the meantime, Newcastle sits 13th of 20 teams, though only six points – the equivalent of two wins – above bottom team Swansea.

Coach Rafael Benitez, a veteran of giants Real Madrid, Chelsea and Liverpool, wants money to buy players. What might have been a routine match this weekend now looks pivotal to Newcastle’s fortunes on and off the field.

“There are a few ways for a potential buyer dealing with a club that is in relegation trouble,” said Geey. “The simplest is a wait-and-see approach so that a deal is only concluded once the club is mathematically safe from relegation.”

Bloomberg


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