Thread by @SwedishRumble

(1/24) #NewcastleUnited / #NUFC have the richest owners in football. But how much can the club spend in the summer of 23’? In this 🧵 I will explain why it can be estimated that spending will be limited to buying 3.5 Alexander Isaks during the summer of 23' under the new #FSR.

(2/24) This is under the assumption that Newcastle finish top 4 this season. I mark the quality of my forecast on #FFP compliance on a scale from 1-10 depending on available information. In this case, the mark is a generous 2, since 21/22 Annual Accounts are unavailable.

(3/24) The significant rules Newcastle must comply with in the new FSR are the #FootballEarningsRule (hereinafter "FER") and the #SquadCostRule (hereinafter "SCR"). Let’s first look at the FER.

(4/24) UEFA’s licensing system is backward-looking. Hence, Newcastle’s spending in the summer of 23’, impacts its license in 24’. The FER monitor period reviewed in 24’ covers the 22/23 season and the 23/24 season.

(5/24) To ensure compliance in 24', Newcastle must in the summer of 23' determine its outcome from 22/23 and prepare a budget for 23/24 based on a forecast for its financials from that season. Since we do not have any 22/23 data, we must forecast both 22/23 and 23/24 seasons.

(6/24) The basis for our forecast will constitute on the information provided by (a) Deloitte in its Football Money League (in EUR) for #NUFC:

(7/24) (b) OffThePitch’s PL forecast for 21/22 (in Sterling) for Newcastle:

(8/24) So what has happened on the income side for Newcastle that we must adjust for in our forecast? Without CL/EL, Match Day revenue is fairly stable. We will apply ordinary growth to it. The item the new owner can impact is Commercial income.

(9/24) We know that Newcastle has added a 7.5m sponsorship deal with noon.com.

(10/24) For next season, a new kit sponsor is expected to bring in app. an additional 30m/y.

(11/24) On the cost side, the cost for both amortization and wages have of course risen because of a net 136m spend on transfers in the summer of 22'. Shelvey, Ritchie, and Karius are out of contract in the summer of 23'. Adjustments shall be made.

(12/24) As a result, we get the following forecast under the #FootballEarningsRule for #NUFC, meaning that the Club theoretically could incur additional costs for the 23/24 season of £147m:

(13/24) But what about costs for training ground, stadium and what not – financed and paid for by the owners? I do not speculate on them – but it does not impact the bottom line (!). These would be “Relevant Investments”, which can be deducted under the FER.

(14/24) So what does “incurring additional costs of £147m” mean? Can Newcastle spend 147m on players? No.

(15/24) Buying a player impacts Newcastle’s costs for 23/24 in two ways. (1) The players amortization cost. The amortization cost is the transfer fee divided with the length of the contract the player gets. (2) The players wage.

(16/24) Newcastle paid 70m for Isak, who got a 6-year deal under which he makes 6.25m per year. Hence buying one “Isak” costs Newcastle 18.25m per season, meaning that they theoretically could buy app. 8.2 players with costing as much as Isak under the Football Earnings Rule.

(17/24) That is a lot (but we must still look at the Squad Cost Rule...). What stands out with Newcastle’s financials is that the club has – very – slim costs besides direct squad costs, just 20m. In comparison, #MUFC has £156m costs under the same items.

(18/24) Over to the #SquadCostRule, under which a licensee’s Squad Cost Ratio for the licence season must be no greater than the defined limit of 70%. What is the Squad Cost Ratio? It is basically calculated as follows on a 12-month basis:

(19/24) The SCR is however implemented in three steps, 31 December 2023 the defined limit is 90%, in 2024 its 80% and in 2025 its 70%.

(20/24) Newcastle has a big squad already and will buy players. When calculating how much Newcastle can spend under the SCR, we will not get an illustrative result if we do not include any income from Newcastle selling players.

(21/24) Assuming that Newcastle will sell players for 35m, we get the following result under the Squad Cost Rule:

(22/24) As a result, we can see that the amount of costs Newcastle can incur in the summer of 2023 will be limited by the SCR (£63m) as opposed to the FER (£147m). Without having done the exact SCR math on all top 7 clubs, I believe NUFC is impacted the most by the SCR.

(23/24) Other clubs simple have – much – higher other costs, meaning that they will record a loss and violate the FER if they spend more than 80/90% on the Squad. At least a club like #MUFC with huge financing costs and more than 1,000 employees, can't have a ratio above 75-80%.

(24/24) So what does it mean, that #NUFC can incur an additional 63m in costs in the summer of 2023? By the same principles as set out in tweet (16/24), it means that Newcastle could buy 3.5 “Alexander Isaks”.

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