Aston Villa & West Ham have £100m transfer head start on Newcastle United due to FFP loophole

Newcastle United Under-18s crashed out of the FA Youth Cup following a 5-0 fourth-round defeat to AFC Bournemouth at St James' Park, raising fresh concerns about the club's academy set-up.

The Young Magpies trailed 4-0 at half-time with Ashley Clarke opening the scoring for Bournemouth inside the opening minute before a Jonny Stuttle brace and Jack Holman free-kick put the visitors in a commanding position heading into the second half. Stuttle completed his hat-trick shortly after half-time as The Cherries cruised to a 5-0 win in front of 2,588 spectators at St James' Park.

It was a humiliating defeat for Newcastle at home to a side who had only just achieved category two academy status at the start of the season. Newcastle are a category one academy who, despite their shock cup exit, currently sit fifth in the Under-18s Premier League under the coaching of Graeme Carrick.

Newcastle's Under-18s side was boosted by the additions of Leo Shahar, Trevan Sanusi and Travis Hernes in the summer. While midfielder Hernes has trained with Eddie Howe's first-team squad in recent weeks, Shahar and Sanusi are still only 16.

While Wednesday's defeat was a big blow for Newcastle's academy, they have received a major boost this season with 17-year-old Lewis Miley, who is still eligible to feature for the club's Under-18s side, becoming a first-team regular. Academy graduates Sean Longstaff and Elliot Anderson have also been regular in Howe's side, although the latter is currently out injured.

An FFP concern for Newcastle United

A strong academy set-up is crucial for clubs as they look to battle Financial Fair Play restrictions. Newcastle have been able to fill key areas in their squad without having to spend any transfer fees to do so.

Certain investments into the academy aren't factored into profit and sustainability calculations, which limit Premier League clubs to losses of no more than £105million over a three-year period. Academy player sales also provide a significant boost when it comes to unlocking transfer spending.

But Newcastle's academy hasn't been particularly productive in that department. Since the £35million sale of Andy Carroll to Liverpool, The Magpies have only recouped nominal fees from selling academy players.

Since the takeover, the sale of Freddie Woodman to Preston North End is the only seven-figure sale of an academy player that the club has made. In contrast, Premier League rivals Chelsea stand to make around £100million just this summer from the sales of Mason Mount, Callum Hudson-Odoi, Ruben Loftus-Cheek and Newcastle's £28million obligation to buy Lewis Hall.

The same can be said for the likes of Manchester City and Tottenham Hotspur, who sold academy graduates for significant transfer fees in the summer. Aston Villa and West Ham United have also unlocked their spending to some degree through the £100million+ sales of academy graduates Jack Grealish and Declan Rice.

While Newcastle have benefitted from their academy, the lack of income from selling academy graduates risks being detrimental to them under current profit and sustainability rules. It seems counterintuitive that clubs like Newcastle are almost encouraged to sell some of their best academy products to gain some real freedom in the transfer market, but that's the current system in place.

Ultimately, a conveyor belt of talent coming from the academy is crucial in not only bolstering the first-team squad but bolstering a club's ability to spend as well. It's clear Newcastle still have some catching up to do in that department, despite the recent successes of Miley and Anderson.

Newcastle CEO addresses the FFP issue

Newcastle chief executive Darren Eales admitted the academy will play an important role in the club adhering to profit and sustainability rules in the future. "Everything from the academy, sports science, how you can work getting the best facilities, the best support for your players on the pitch, is another area that you look at," he said. "Across the board, we need to look at all aspects to take the money that we have available to spend and try and spend it as efficiently as possible.

"We are seeing it as well with some of the young players that we have signed. It might be a young player we take, put out on loan and we're hopeful in the future they become part of the squad. That is a player that comes in that perhaps frees up some revenue to be able to spend elsewhere in the team."

Eales explained financial loopholes in the FFP system mean selling players can significantly free-up a club's ability to spend.

"It seems counterintuitive, but when you have player trading, and it's really interesting when you have an FFP system, it's slightly different if there was no FFP," Eales added.

"You have a £50million [player] you can sell at your disposal and you bring in another player of the same value. What's the point in doing that? You might say it is risky as we've already got that player here and we know what they can do, but under FFP, if you sell a £50m player and bring in an identical one on £50m and the same wages, but amortise over the five years the player you are bringing in, that's only £10m a year so you are creating £40m of headroom. That's the reality of the FFP model.

"If you are churning players [out], you create more headroom. We have seen lots of examples of this elsewhere. Philipe Coutinho at Liverpool and they brought in Allison and Virgil van Dijk. Grealish going from Aston Villa and they have reinvested and reloaded.

"Decan Rice at West Ham, it's just the nature of the beast. If you trade players on it creates more headroom. You have to keep growing that headroom, increasing commercial revenue and player trading."