Ashley’s diminishing wealth

Jun 2 2009 by Peter McCusker, The Journal

The expensive business of running a football club may be just too much for Mike Ashley after seeing his £2.2bn fortune shrink by two-thirds in the last two years. Peter McCusker reports.

WHEN Mike Ashley floated his Sports Direct company on the stock market in February 2007 he was worth over £2bn.

He had £929m in cash he pocketed selling 40% of his stake in the company and £1.3bn in his remaining 60% stake.

However his cash pile may now be down to £300m and the value of his stake in Sports Direct is now around £330m as its share price has plummeted.

Buying Newcastle United in September 2007 has cost Ashley in the region of £300m in the last two years – and a reported speculative spread betting punt on the share price of HBOS has said to have cost him anywhere between £130m and £300m.

One football finance expert, who would not be named but has hands-on experience of running football clubs, believes Ashley is now desperate to offload Newcastle United, as finding £20m to £30m for transfer fees and running the club may be too much of a strain on his shrinking wallet.

He said: “Ashley may well be down to his last £300m of cash. He is not short of assets but you cannot buy a McDonald’s with a house. He hasn’t got the cash he needs to run Newcastle now.

“He’s spent around £300m on the club, but now he may well be struggling to find the £20m to £30m to support transfers or even meet the day-to-day running costs.”

Earlier this year two senior Newcastle United figures shed some light on Ashley’s financial position.

In February Derek Llambias Newcastle’s managing director, while reiterating that Ashley is still a “billionaire” stated the value of Ashley’s interest in Sports Direct had fallen from £2.5bn to £200m (the share price at the time was around 60p compared to last night’s 86p).

And this came after comments from the then manager Joe Kinnear, following the defeat to Manchester City in January.

He said: “The credit crunch is killing us. Mike has lost £2bn in his own businesses and shares. He is just about paying the wages but it is not an easy situation.”

Ashley spent £134m buying Newcastle in the summer of 2007 and on purchasing the club he then had to immediately repay a £70m loan to the banks. This and other commitments saw Ashley lend the club £100m.

In February Llambias also said that operating Newcastle cost Ashley £34m in 2007, and £20m in 2008.

Vinay Bedi, divisional director at Brewin Dolphin in Newcastle, believes Ashley has got to the point where it is now too much of a drain on his resources.

“He has made a significant commitment to the club, with the amount of money he has already spent from his own pocket,” he said. But I don’t think he realised just how much he would have to keep spending on the club, with transfer fees and wages, and he has now realised that there is not the cash flow in the club to meet these commitments.

“He’s realised that the pressure will always be on him to find extra money for transfers, and even just to run the club, and I think I think he’s decided he just does not want to spend any more money on Newcastle.”