Down as well as up

As the small print in financial services ads so often states, “the value of your investments can go down as well as up.”

That was certainly the case yesterday.

On a day when ITV sold Friends Reunited (to D C Thomson, publisher of The Beano, no less) for just £25m - incurring a loss of £150m compared to what they paid four years ago - it was reported that Mike Ashley is willing to offload Newcastle United for as little as £70m-£90m with only an initial £20m down-payment. Given that he invested over £240m of his own money in 2007 to buy the club and pay off its debts – and that less than a year ago he was demanding £400m from potential buyers – it is quite a climb-down. Last autumn, Ashley was seeking to make a profit of at least £150m; he now faces a loss of at least as much.

It makes ITV’s acquisition and subsequent disposal of Friends Reunited look like a good piece of business.

Ashley is not entirely blameless in this matter. He bought a football club with a recent history riddled by poor leadership and unrealistic expectations – and promptly made things worse. He failed to conduct due diligence prior to the acquisition, which meant he was unaware of the club’s then £110m debt. Bowing to fan complaints, he fired manager Sam Allardyce after a decent if unspectacular start to the season. Having tempted Kevin Keegan back from the wilderness (another error), he quickly undermined him by appointing Dennis Wise as a London-based Executive Director (Football). He substituted attempts to be chummy with the fans in the stands for any semblance of leadership. And then he angered said fans by writing them an open letter explaining his reasons for selling the club and pointing the finger of blame partly at them.

Given the plethora of fundamental errors he has made, it is easy to forget that Mike Ashley is a successful businessman and a multi-millionaire many times over.

In short, Ashley’s tenure has been a disaster, as a result of which the club with the third-highest average attendance in the country now finds itself relegated to the Football League Championship, with a want-away owner, no manager and a wage bill which is large even by Premier League standards.

Ashley is now desperate to sell, partly because he just wants an end to this miserable chapter, but also fuelled by a genuine belief that the sooner a new leadership structure is in place, the sooner the club can prepare itself for the season ahead. But the damage has already been done. The season kicks off this evening (Newcastle’s first game, against fellow relegated club West Brom, is tomorrow), other Championship sides have had nearly a three-month head start on them in the transfer window (which closes at the end of the month), and Newcastle have barely begun the job of trimming their wage bill by excising the cancerous presence of the many players who believe they should be featuring at a higher level (but who played a significant role in the club’s relegation in the first place).

A long and potentially frustrating season awaits the Magpies and their ‘Toon Army’ of fans. Promotion is by no means certain; mid-table mediocrity and regrouping for next year is perhaps more realistic. And it is not beyond the realms of possibility for Newcastle to go the way of Nottingham Forest, Southampton and others: once well-established top flight clubs who have slipped into the lower tiers of English football.

Maybe the demise of Newcastle United and Mike Ashley’s financial losses will serve as a cautionary tale to a footballing world which, fuelled by the seemingly bottomless pockets of Real Madrid and Manchester City, appears oblivious to the facts of a global recession.

Somehow I doubt it will.

In a world where Emmanuel Adebayor can double his salary after one good year and then double it again after a pretty mediocre one – why does that never happen to me? – it appears that either no one in football has read the small print, or no one believes it. Like an inveterate gambler, many football clubs seem to believe that misfortune is something that only happens to other people, and that one more big gamble will lead to untold riches.

It’s a funny old game, football. But it’s also a very dangerous one. A bullet has been loaded into the chamber – who will pull the trigger and discover they are the next Newcastle or Mike Ashley?