Valuing Newcastle United Part II

In the last post we looked at the methods professionals use to value a business.

We deliberately didn’t calculate using one method,  known as the discounted cash flow method, because (a) it relies on clubs generating positive cash flows, which they traditionally have struggled at, and (b) designing the model involves a lot of nerding out on a spreadsheet.

Some people have rightly pointed out though that with the latest TV deals, clubs are now far more cash rich than they used to be, and so perhaps such a model is worth attempting.

Furthermore, being nerds here at the PriceOfFootball, the temptation to produce something that gives a value was too much to resist.

As many Newcastle fans are aware, there are interested parties involved in due diligence at present at the club. This is the equivalent of having a survey when you are buying a house, and getting to see more detail than is included in the glossy brochure produced by the estate agent.

We don’t get to see such information (my name isn’t Amanda) but we have looked at the recent accounts produced by Newcastle, tried to identify some trends, and used these to crunch a lot of data. We don’t, for example, have the 2016/17 financials from the Championship winning season.

This has resulted in budgets and projections for the next ten years, using assumptions which seem reasonable to us (you may feel they are a load of rubbish, and that’s your perogative).

We have assumed, for example, that Mike Ashley will gradually take his loan out of the club at £18 million a year, which was his original intention according to the accounts.  Similarly we have assumed an average place in the Premier League of 10th.

The assumptions clearly show that we need to get out more, but the aim is to show the nature of the calculations that interested parties will be undertaking (and in far more detail than us).

Having crunched the numbers,  we have ended up with a valuation of £268 million. Not far away from our previous gut feelings.  If Newcastle’s position rises to 9th, the value goes up by about £11 million.

The calculation is however very sensitive to issues such as the extent of growth in future TV deals,  wage control, player spend, and final position in the table.

With that in mind, we have stuck the model up on Google Drive, and you can have a go yourself at working out the numbers.

https://drive.google.com/file/d/0B91KHPCzixvvaHhaSnZCYkN6VXc/view?usp=sharing

All you have to do is change the figures in the yellow boxes on the intro worksheet, and see what you end up with. 

 

The aim of all this is simply to show that there’s an awful lot of guesswork going into the numbers.  Ultimately the price is the figure that leaves Mike Ashley and the buyer both feeling they’ve done well from the deal.

Good luck valuing the Toon!