Newcastle United managing director Lee Charnley has labelled the club’s failure to stay in the Premier League “unacceptable and totally unexpected” after their accounts revealed they spent more than £70m on players under former head coach Steve McClaren.
Only Manchester City spent more money on recruitment last term, but the Magpies suffered a disastrous campaign under McClaren and Charnley argued only owner Mike Ashley had saved them from financial ruin after relegation.
McClaren, a former England manager, was given unprecedented financial backing by Ashley and although chief scout Graham Carr was responsible for identifying transfer targets, it is still remarkable that Newcastle were relegated to the Championship.
Despite their huge outlay on players, Newcastle were still able to post a profit of 4.6m in 2016, down from £32.5m in 2015. The lavish investment in the squad followed months of angry protests from supporters urging owner Mike Ashley to sell the club.
Newcastle signed Georginio Wijnaldum, Aleksandar Mitrovic, Florian Thauvin, Chancel Mbemba, Jonjo Shelvey, Andros Townsend and Henri Saivet in the summer of 2015 and January 2016, with a net spend of £70.7m, compared to £23.8m in 2015.
Only three of those players remain on Tyneside after relegation to the Championship, with only Shelvey has been a regular starter under Rafa Benitez.
Benitez took control of recruitment when he agreed to remain as manager last summer, although Carr remains at the club and has resisted any attempts to force him to leave.
Carr remains close to Ashley and it is understood there has been tension behind the scenes at St James’ Park over the course of the current campaign, most notably when Benitez was unable to strengthen his squad in the January transfer window.
Newcastle are expected to announce losses of around £60m when they release their next set of accounts in 12 months’ time.
Ashley has covered those losses in the form of an interest free loan of £33m, with the rest covered by the £35m profit Newcastle made in the transfer market under Benitez, a figure swelled by the £30m they received from Tottenham Hotspur for France international Moussa Sissoko on transfer deadline day in August.
"The 2015-16 season was extremely disappointing for everyone connected with the club,” said Newcastle managing director Lee Charnley, who almost lost his job following relegation.
“Significant sums of money were spent to strengthen the playing squad in the summer 2015 and January 2016 windows, which also resulted in an increase in our annual wage bill. In the context of this spend, relegation was both unacceptable and totally unexpected.
“The financial impact of relegation is difficult to overstate and this will become evident in our next set of financial results for the year ending June 2017. The biggest impact by far is the dramatic reduction in centrally distributed income that comes with dropping down a division; the reality being our income in this area is forecast to fall by over £30m compared to 2015-16.
"To highlight the differences, our 16 live TV games last season earned us £12m in revenue. Contrast this with 2016-17 EFL live fees which based on our current number of confirmed appearances (12 away and 6 home), will earn us a total of £720k.
“To illustrate further the cost of relegation, 2016-17 marks year one of the new Premier League TV deal and the team that finishes in 18th place this season is expected to receive in the region of £30m more revenue than we did for the same place finish last year.
“Our approach, following relegation, was to make further sizeable investment in our playing squad in preparation for the EFL Championship season ahead and our annual wage bill is, we believe, still above and beyond many current Premier League teams.
“Whilst not without financial risks, this strategy was adopted in order to maximise our chances of promotion at the first time of asking.
“Outgoing transfers will ultimately generate a significant net player trading surplus for the summer 2016 transfer window but, due to the cash profile of the deals, this will result in a net cash outlay in 2016-17.
“Our adopted strategy has therefore only been made possible by the cash injection from our owner, who continues to provide interest free funding to support the club’s operations, never more important than during this financially challenging season."