Yasir Al-Rumayyan was, by all accounts, all smiles as he departed Newcastle Airport flanked by a team of PIF dignitaries and high-ranking advisors a fortnight ago.
Forty-eight hours of intensive meetings in the Northumberland countryside ended with the feeling – according to one insider – that Newcastle United are “energised” ahead of phase two of the club’s post-takeover transformation.
After a year spent quietly revamping the senior management team – with the appointments of directors Roger Thornton and Jacobo Solis viewed as key to future ambitions – things are going to “start moving” in a pivotal 2025.
Forget an on-field wobble that has had the city fretting about Sunday’s Carabao Cup final against Liverpool and sparked some amusing debate about whether a gypsy curse might be responsible for the injury crisis that has coincided with Wembley. Behind the scenes, ambition and drive remains.
The “big bang moment” – when the club finally take the wraps off their plan for St James’ Park – is not that far away.
“Transformative” is an adjective often used internally about the long-running stadium project, which multiple sources say the owners are edging towards a new build that could encompass part of the current site while extending into nearby Leazes Park. Throw in potential regeneration of an area and it is no wonder the bill for the project is expected to comfortably outstrip £1bn.
Which brings us to a question that no-one, yet, knows the answer to. Just how are Newcastle going to pay for it?
When Newcastle chairman Al-Rumayyan left the north-east on a private jet it was that question that was probably occupying his thoughts more than anything else. Insiders have long insisted that the hefty cost of modernising or replacing the stadium was “baked into the business plan” when PIF bought the club but the days of writing blank cheques are well and truly over.
Ask the question and one thing continually comes back: this is not a vanity project and whatever happens with the stadium has to make financial and strategic sense. It is telling, therefore, that in addition to the architects’ imaginings of what a new stadium or remodelled St James’ Park might look like, The i Paper understands that the ownership has asked for detailed, forensic projections of what each option might do to the club’s revenue streams in the five, ten and fifteen years after the first fan goes through the turnstiles.
Those numbers are seen internally as crucial, the key to unlocking future success in a football world where, thanks to profitability and sustainability rules (PSR), revenue is king. When Brad Miller spoke last year about a new stadium potentially doubling match-day revenue the implication was clear: it would mean more world-class players on the pitch. But they also encourage PIF to do something no owner in English football has ever done before – inject north of £1bn to cover the cost of the stadium.
“Unprecedented” is how one expert describes that potential investment, which would take the overall financial commitment of PIF to Newcastle close to £2bn when the £350m spent on the club and subsequent £650m in cash injections in the four years since is taken into account.
“If PIF do this it’s hugely beneficial to Newcastle,” Professor Rob Wilson, a football finance expert and programme director at the University Campus of Football Business (UCFB), tells The i Paper.
“All that we really read about when it comes to state-of-the-art new stadium projects is the additional commercial possibilities, how great they look, the impact they will have match-day revenue and so on but they are seriously costly as well with a long-term payback period to deliver return on investment.
“Traditionally football clubs would go to the markets and borrow money to fund a project like this. It’s what Arsenal and Tottenham did and likely what Manchester United will do with Old Trafford but that will have an impact on your cash flow and your ability to do things in the transfer market because you have to factor your debt repayments and interest payments into the equation. It’s essentially like taking out a mortgage and it does hamper your ability to do other things.
“If PIF put the money up in its entirety it means Newcastle can undertake this huge capital project without any material impact on their cash flow while also reaping the benefits when the stadium is up and running. It would be an unprecedented hand out with a lot of upside for the club.”
That even extends to giving Newcastle a PSR leg-up. While infrastructure investment is exempt from PSR calculations, interest payments on debt from stadium building are not once the arena opens. As Manchester United are finding out, take on too much debt and eventually it has an impact on your bottom line, reducing or eliminating your PSR headroom.
“Manchester United are a good example,” Professor Wilson says.
“The rate of interest on their debt is actually low but when you borrow the size of debt they have, it all adds up significantly and that is ultimately what is the difference between profit or loss, PSR compliance or not and having the PSR headroom to buy a player or not.”
Before Newcastle fans start breaking out the bunting, Professor Wilson has a few words of caution. His hunch is that it is “unrealistic” to expect PIF to foot the entire bill.
“The optics wouldn’t be great outside of Newcastle,” he reasons.
“We need to remember that PIF is an investment fund in its own right so it will have investment fund objectives which are expected to yield a return for them and for the fund itself. I don’t think it’s just a straightforward case of ‘PIF own Newcastle so will put the money up’, it’s a little bit more complicated than that.
“The Fund has got investment objectives, it’s got to make money, it’s not just a fund to give money out to various bodies, including Newcastle.”
He sees a hybrid investment – 20 per cent through PIF and the majority through an external capital raise through a market fund linked to Saudi Arabia or via a commercial bank on low interest rates – as a more realistic possible alternative.
But sources close to the club remain confident about PIF’s commitment to writing a “once-in-a-generation” cheque to fund most if not all of the stadium and it was telling that during his briefing with journalists last week Darren Eales was noticeably more strident on that front.
“This is an opportunity and ownership is very much looking to make this investment,” he said in response to a question regarding next steps. For a man who chooses his words carefully, that phrase felt significant.
Apologising for the announcement dragging on – “early 2025” has now moved to the “near future” in terms of timelines for a final decision – he later went on to liken the ongoing due diligence to a swan appearing to swim serenely while “furious work is going on in the background”.
And, clearly, work is beginning to ramp up. Indeed it can be revealed that the club has been involved in discussions on “initial funding options” for the stadium recently. Although any talks would likely be at an early stage one of the financial institutions said to be involved in those discussions – Goldman Sachs – did not respond to questions about a possible role in structuring the finance of the project.
Harry Philp is a senior adviser with financial consultants Portland and has advised the likes of Everton, Juventus, Inter Milan and Liverpool on financing for new stadiums. He has worked closely with PIF in other sectors and feels they are likely to fund it “if the revenue models stack up”.
“I’ve worked with them on large infrastructure projects in the petrochemicals space and the oil and gas space and they are a huge, deep pocket,” he says.
“You structure the deal and then go to PIF and say ‘This is the deal but we’re X hundred million short on funding, can you provide it?’ and they just write the cheque to get the deal done if it makes sense to them, basically.
“It’s not really possible to overstate how much of a boost it is to have PIF and their funds when you do something like this over the options either Spurs, who actually got a very good deal on theirs, or Arsenal had.”
As some Newcastle fans have begun to question whether PIF’s commitment to turning the club into contenders for Europe’s biggest prizes remains, it’s also worth considering what a £1bn equity injection would say about their belief in the Magpies’ potential.
For a start, it would suggest the club’s valuation – in their eyes – is now closer to £2bn than the £350m they paid in 2021. A big investment in the stadium is a confident bet on that rising and at those sort of numbers they can begin to look at strategically selling smaller stakes in the club in the future, further boosting Newcastle’s coffers.
It is something Manchester City did in 2019, selling a 10 per cent stake in the club to US technology investment firm Silver Lake for £380m in a deal that valued the Citizens at close to £5bn.
Bart Huby, the head of football analytics at Lane, Clark & Peacocks, thinks those sorts of numbers explain why the stadium plan is logical to PIF.
“The numbers we’re talking about are big but they make sense,” he says.
“£350m was not a lot to spend on the club in the first place. When you look at the valuation of the very top clubs – Manchester United, Arsenal, Chelsea – it’s of the order of £4-5bn so if that investment in the stadium could elevate Newcastle to that level, which I don’t think is inconceivable, then it would be a good investment.
“It’d massively increase match-day income, which would enable them to spend more under PSR or squad cost rules on the team and if they could then get into the ranks of the clubs that regularly qualify for the Champions League then the club could easily be worth £4-5bn. I think that’s why it makes sense as a straightforward equity investment.”
One intriguing option proposed is that Newcastle could follow the lead of Everton and Tottenham in setting up a separate limited company, which would own the stadium’s lease but be entirely controlled by the club, with most of the same directors.
Revenues from operating the stadium on match day and other big ticket events like gigs and festivals would go into that company but profits would be immediately put back into the club to fund transfers and running costs.
“If you’re borrowing from the bank it makes them feel that bit more secure to have that arrangement but I don’t think with the Saudis that’s going to be a problem,” finance expert and blogger Paul Quinn, better known as The Esk, explains.
“I spoke to a couple of bankers in this sector and no-one knew exactly how they would finance it which suggests to me they will likely finance it from shareholder funds. I think there’s just going to be a big injection of capital and then the spades will go into the ground.”
This is not just Newcastle’s biggest decision for a generation, it is also a litmus test of PIF’s ambitions for the club. Invest as insiders suspect they will and it will leave no-one in any doubt about what they are trying to build.
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