An article I read in the daily mail from June of 2013 suggested Mike Ashley was hoping to sell the club for £279 million. This got me wondering if that was a realistic sale price? Is Mike Ashley asking for too much, or is he asking for too little?
If the fans are going to develop a successful plan to purchase the club or a portion of the club from Mike Ashley it is important to have realistic targets. I am going to go through some details and known facts below to try and get a ball park range on the cost to buy Newcastle United.
Mike Ashley Purchase Price:
According to most reports Mike Ashley purchased the club for £134 million. After purchase he has loaned the club around £140 million to pay off the clubs debt and pay for the additional cost of relegation. According to the NUFC fan forum £11 million of that debt has been repaid. This brings his current total invested cost to £263 million (£134 million purchase and £129 million in interest free loans)
Cost to pay of Mike Ashley's Investments: £263 million
Note: According to the minutes from the fan forum Mike Ashley is hoping to have an additional £18 million repaid to wipe out the additional money he had loan the club due to relegation. This would bring the total loan amount he is owed to the club to £111 million. Any potential takeover should keep a close eye to see if he has withdrawn this additional £18 million.
Sale Price After Relegation:
Rumors were that Mike Ashly tried to sell the club after they were relegated for £100 million. However their is some debate as to whether or not he was actually willing to sell at this price. Clearly the club is worth more now and this number represents the absolute lowest number Mike Ashley was ever possibly going to take for the club..
Relegation Sale Price: £100 million?
Recent Premier League Club Purchases:
Another good reference point for setting a purchase price is to look at the market value of premier league football clubs.
- Liverpool: £300 million (By New England Sports Ventures 2010)
- Manchester City: £210 million (By the Abu Dhabi United Group in 2008)
- Manchester United: £790 million (By the Glazer Family in 2005)
I am not going to draw any specific number for Newcastle United from these numbers as I am not sure how much debt Liverpool and Manchester City had when they were bought out.
Newcastle United Valuations:
Below are some valuations of Newcastle United I found online.
- Forbes has an article valuing all of the premier league clubs. They have Newcastle United valued at £168 million.
- I also found this article on the Independent on the value of all the premier league clubs in 2011/12. This article has Newcastle valued at £275.8 million.
- As mentioned at the top of the article Mike Ashly has been said to value the club at £279 million as recently as the end of last season. That was after a relegation scare, but with increase premier league TV rights on the horizon.
- Deloitte had Newcastle United ranked 20th in the Money league in 2013 based on their revenue of £115.3 million pounds. This was after dropping out of the list for three years and subsequently dropping back out of the list in 2014. However the Deloitte reports clearly show that Newcastle United is one of the top clubs in the world from a revenue perspective.
3rd Party Valuations: £168 million - £275.8 million.
Estimated Maximum Investment Value:
Next lets look at the recent financial statements from Newcastle United to figure out the value of Newcastle United as a purely financial investment.
- 2008/2009: (£37.7 million) Loss
- 2009/2010: (£33.5 million) Loss
- 2010/2011: (£3.9 million) Loss
- 2011/2012: £1.4 million Profit
- 2012/2013: £9.9 million Profit
Based on the positive trajectory of the profits, limited player investment, and the increased TV deals it would be safe to assume that the size of profits will rise for 2013/14. Assuming a £5 - £10 million a year increase in profits for the next few years would put the 2013/14 profit and loss somewhere just below £20 million.
As an investor I will note that premier league revenue continues to rise at astonishing rates. I would also note that one bad year leading to relegation would cost me at least £50 million pounds. Historically I would be aware that most of the increase in revenue at other clubs goes to the players; because of this I would likely face increasing operating cost as TV revenues rise.
Based on the information above I would list this as a high risk investment. As such I would want to return my initial investment through profit (reinvested into the club or into my pocket) within at least 7 years. Given the generous 2013/14 estimate of £20 million and a target of 7 years that put the valuation at somewhere between £120 - £140 million. However I would be aware that requirements to invest in the playing squad will likely put a lot of pressure on these annual profits.
You may also point out that the club does have some valuable assets such as the stadium and the value of the players. I would counter that the playing staff value is required to stay in the premier league and as such I cannot make a profit off of this amount. The stadium and training facility clearly have value and as such I would be willing to increase my purchase price. Based on the loans Mike Ashley had to pay off that were secured against the stadium and training ground their value is somewhere in the ball park of a £100 million+.
Based on optimistic revenue projections and the value of the clubs assets I would not want to pay more than £220 million for the club. Remember this is a high risk and high maintenance investment so that number is probably on the high side.
Maximum Investment Value: £220 million
These are obviously very rough estimates for reference only. I would never suggest someone should set the value of the club for investment in such an unscientific way.
Based on the observations and estimates above the value of the club is realistically between £200 - £300 million. Mike Ashley has a secure financial situation and does not need to sell the club so he is unlikely to sell much below his total investment value. However, I am sure he has much better investment opportunities and clearly does not enjoy managing the club. Because of this I would assume that he be open to selling at a price that recoups his investments plus a small profit so that he can save face and call his investment a success (£279 million?).
Estimated Current Sale Price: £263 - £279 million.
This is probably overpriced, but it will probably take something in this ball park to get Mike Ashley to sell as he appears to be prideful, stubborn, and enjoys ripping people off.