What has Newcastle United ever done for Mike Ashley (and Sports Direct)?
Posted on June 29th, 2012 | 62 Comments |
There has been something of a rehabiltation of the reputation of Mike Ashley at Newcastle United recently.
This, of course, has been due largely to the club’s generally upward trajectory in terms of it’s League position in recent seasons under Chris Hughton and Alan Pardew, as well as some successes in the transfer market since Ashley and Llambias cast their their three casino aquaintances adrift and let Chris Hughton bring in a proper chief scout, a move which has been highly beneficial for the club so far.
Less obviously, perhaps, there has also been a relentless PR campaign run through the media on all levels. Like the current coalition government, much has been said to demonise the previous administration, presenting Ashley as some kind of messiah type figure who made tough choices to save the club from certain liquidation as a great benevolent gesture to the people of Tyneside. But, according to the narrative, this has been a thankless task, with Geordie ingrates not showing the suitable appreciation of his selfless largesse. Admittedly, this isn’t the most difficult thing to do when the targets are the likes of Freddy Shepherd and Douglas Hall. According to a peculiar logic, much has also been made of what Ashley’s alleged financial “backing” of the club in terms of making a £140 million loan to himself, which is repayable on demand by the club, to save himself from paying high interest rates on his own Newcastle United debts. The term “clearing” the club’s debts has been used so often that many fans are still oblivious to the fact that the club is now actually far more in debt than it was when Ashley assumed control of the club in 2007.
However, although all who have been to the stadium formerly known as St James’ Park, as well as those who have seen it on television, have noticed the relentless encroachment of Sports Direct on the fabric of the once proud edifice, with no camera angle left uncovered (including the sky); one question which has been asked less often is: What has Newcastle United done for Mike Ashley and his most important business interest, Sports Direct International PLC?
It started with a single sign on the top of the Gallowgate end of the stadium, eventually spreading like a tumour over the roof of the Gallowgate for TV helicopter shots, and eventually all around the stadium, inside, outside, in post match interviews and so on. Then of course, there was the renaming of stadium itself in two stages, the first of which added Sports Direct to the stadium’s original name in November, 2009. Despite a promise to fans from Derek Llambias to always keep the St James’ Park name, Ashley inevitably reneged on this, eventually discarding the original name entirely two years later in November, 2011.
I was originally inspired to write this piece quite some time ago with the news that Ashley will almost certainly be awarded an ever increasing bonus (which currently stands at almost £24 million) by Sports Direct. It is based on the company meeting a series of “EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), however the large sums involved have also been justified on a platform of providing extensive free publicity for the company through his other business interest, Newcastle United Football Club. I also noticed some time ago that Sports Direct was, and still is undercutting Newcastle United’s own club shop, and other outlets, by almost 20% on replica shirts, a conflict of interest which, along with the extensive free publicity for Sports Direct, is damaging the club’s merchandising revenue.
Whilst the parameters for Ashley’s so called “Super Stretch” bonus scheme have been based on profit targets, Ashley has already benefitted hugely from Sports Direct’s radically improved figures. At the point in time (November 2009) when the first rename of St James’ Park was announced to the consternation of fans, when the Sports Directification of Newcastle United really started in earnest, Sports Direct’s share price was a lowly £1 and flatlining (see illustration). At the time, Newcastle United were in the Championship, and still in the shadows relatively speaking, so the price kept fairly steady for a while. However, as we all know, the club eventually acheived promotion at the first attempt that season under then manager, Chris Hughton. As soon as Newcastle United made their home return against Aston Villa, an incredible 6-0 victory in front of the cameras of ESPN, the share price proceeded to rise markedly, and has hardly stopped since, rising in line with the club’s fortunes. On the close of trading as of Friday, June 22nd, 2012, it was £3.05, over three times as much. This means that in November, 2009, Ashley’s holding in Sports Direct International PLC was worth around £425 million according to the market. At the time, his total net worth was estimated to be as low as a mere £700 million. Ashley’s holding in Sports Direct is now around £1.3 billion, a rise of around £875 million, and his total net worth is now estimated to be worth around £1.7 billion, a rise of as much as £1 billion. Of course, this is many times what the whole of Newcastle United is worth at it’s current valuation, especially so with Ashley’s £140 million debt hanging over it.
Sports Direct’s share price ticker.
However, Mike Ashley has acknowledged none of the considerable benefits the ownership of Newcastle United has brought to him, with his cipher at the club, Derek Llambias, frequently berating fans for not showing due deference and gratitude for his great charitable gesture in buying the club as a promotional vehicle for his sportswear company. With a breathaking effrontery, the club’s Managing Director has made made statements such as:
“This club can’t support itself without the financial backing of Mike Ashley; we still rely heavily on the owner. To date Mike has invested over £280m into the club, including £140m in interest-free loans. For him to continue to support the club, he has to be interested and enthused to do so. He deserves credit for his financial support but a section of supporters don’t make him feel welcome at St James’ Park, or when he attends away games.”
Of course, I am NOT saying that the Sports Direct’s fortunes rising along with those of Newcastle United’s is a bad thing on it’s own, far from it. I am also not silly enough to credit all, or even most of this rise to the extensive publicity Sports Direct have received through Ashley’s Newcastle United vehicle. Other factors such as Sports Direct share bonus incentive scheme for it’s Oberkapos, more highly ranked employees on real employment contracts rather than the hard pressed drones on minimum wage zero hour contracts, have undoubtedly played a major part. However, the huge exposure through the worldwide media of Premiership TV must have helped significantly. After all, if it didn’t, why has Ashley and his cipher at the club, Llambias, been so aggressive in pushing it through against such vociferous opposition? As for the strange idea that this is some kind of “showcase” to attract another sponsor, virtually everyone in the marketing industry, except for the one employed by Ashley, immediately saw through Llambias’ claims that this was a “showcase” for to attract outside sponsorship what it was, a sham:
“Arguably the most bizarre decision made by the club, however, is to brand the stadium as the S_____ D_____ A____ (named after Mike Ashley’s sports goods company) for a year to showcase the opportunity. What it has showcased to date is the sheer naivety of the club’s board. First, naming rights deals work over a long-term. They are not used for short-term tactical marketing or generating brand awareness but for long-term relationships and brand building.
Look at naming rights deals around the globe and it is very rare to find any that run for less than five years and most significant examples run for 10 years at minimum. It’s difficult to see how the Sports Direct Arena name can be activated to create a ‘showcase’. There is little time to do anything significant to bring the new name to life, especially with such universal derision among the football, media and marketing communities.”
No, it is a long term relationship with Sports Direct, with no gain whatsover for the club. On the contrary, the complete Sports Directification of the club is almost certainly a massive turn off to potential outside sponsorship, who don’t want to be drowned out by the ridiculously excessive and tacky SD rebranding of the club. Despite the undoubted advances made in factors such as the wages to turnover ratio of the club and so on, much of this has been cancelled out by the clubs very low commercial revenues, which are amongst the lowest in the Premiership, a ridiculous situation for a club the size of Newcastle United when you look at other clubs on a similar level. To put things into some kind of perspective, Liverpool FC receive £45 million per year in shirt sponsorship revenue alone from American shirt company, Under Armour, and Standard Chartered bank. Newcastle United’s loss is Sports Direct’s gain, but this is no loss to Ashley bearing in mind the great advantage it gives to his primary business interest.
Now the club finds itself in European competition, it’s time for some payback from Ashley in terms of reinforcing the squad, and an end to the almost constant chicanery would go amiss either.