How Magnusson's spending spree hastened his departure

Eggert Magnusson's departure from West Ham United was partly caused by the club running up a loss of £18.8 million in the last financial year, The Independent on Sunday can reveal.

The deficit, compared to a £3.6m profit the year before, can be explained by the spending spree the Icelandic businessman embarked upon in the last January transfer window when the club fought against relegation. However, they also followed that up in the summer with some unwise moves such as acquiring Freddie Ljungberg on a three-year contract that pays him an astonishing £85,000 a week.

West Ham spent £23.1m in January 2007, including players who have not made a significant impression, such as Luis Boa Morte and Calum Davenport. And with turnover down after a disappointing Premier League season and poor runs in cup competitions, West Ham saw income drop £2.6m to £49.4m. The figures, to the year ended 31 May 2007, have been a concern for West Ham's billionaire owner, Bjorgolfur Gudmundsson, who installed Magnusson as chairman and chief executive when he bought the club in December 2006.

The lack of financial control has been cited by sources as one of the major reasons for Magnusson being deposed a year later. The financial figures appear to back up that claim although, it could be argued, it is a price worth paying for staying in the Premier League. At the same time West Ham's wage bill rose dramatically – up £11.1m to £41.3m. The figures do not take into account transfers last summer but they do include the compensation paid to Alan Pardew when he was sacked as manager,plus the £5.5m fine imposed for a breach of Premier League rules in signing Carlos Tevez.

Given Gudmundsson's wealth – he is pushing ahead with plans to build a £250m stadium – the results are not a cause for grave concern, especially, as sources pointed out yesterday, he pumped £30m more into the club in the autumn. But it has contributed to the lack of transfer activity this month. That, though, is also explained by the manager, Alan Curbishley, not having been able to field his best side.

West Ham have also, however, put on hold contract talks with players such as Lucas Neill and Dean Ashton. Neill, the captain, was seeking parity with the top earners but has been told he will only be given a year's extension while Ashton, who has two years left but is now one of the lowest earners, will have to wait until the summer. West Ham are likely to try to sign an established striker on loan this month. At the same time they will listen to offers for Davenport, Bobby Zamora, Nigel Quashie, John Pantsil and Christian Dailly.

Last night a West Ham spokesman said: "The club is in a sound financial state but it was necessary last year to invest in players in order to remain in the Premier League. That strategy was successful but it's also right that we take a firmer fiscal view as we move forward."