Newcastle United's offer for Luka Modric, the Croatia midfield player, was €22 million. By the rate of exchange at the time, the bid worked out in the region of £18.5 million. The player went to Tottenham Hotspur, who informed the Stock Exchange that Modric cost £16.5 million, which was to be paid in four instalments. Newcastle were asked to pay their transfer fee in two.

In addition, Newcastle believe that Modric joined Tottenham for roughly half the wage he requested to relocate to Tyneside. Club executives fear that this will be the theme of the summer. Modric did not want to go to Newcastle for various reasons, so he asked for exorbitant personal terms. No doubt had Mike Ashley, the Newcastle owner, been willing to meet them, Modric would have rejected Tottenham, but his motives would have been questionable.

This is the harsh reality for Newcastle, only half alluded to by Kevin Keegan, the manager, after defeat by Chelsea on Monday. Keegan gave a reasonably frank assessment of the frustrations he faces, but the full picture is more unnerving. Much of what he said was merely an echo of the commentaries when he took the job in January, opinions that were dismissed on Tyneside as the sniping of cynics.

As Keegan now concurs, it is a different league from the one he came so close to winning in 1996 and breaking into the elite quartet of clubs is a nigh impossible task, short term. The collapse of the Modric transfer, in which Newcastle offered more money and better wages, flags up just about every obstacle that the club will face.

On a professional level Tottenham could offer European football next season, albeit in the Uefa Cup, and point to a trophy won as recently as February, the Carling Cup. Newcastle will not compete in Europe and do not possess a trophy cabinet so much as a collection of antiques, the most recent being the Fairs Cup in 1969, won 16 years before Modric was born. Then there is convenience. London has 11 weekly direct flights to Zagreb, daily from Heathrow, with four more from Luton. Flight time is little more than two hours. There are two options from Newcastle, neither direct, one involving a 3½-hour stop in Paris, the other via Heathrow with an additional two hours of hanging about. The best journey time to Zagreb from Newcastle involves two planes and 5½ hours from take-off to landing, the worst takes two planes and almost seven hours. This stuff is significant.

There is a reason why more northern regional accents can be heard in the north, east and west suburbs of London than the south. A person from Leeds who goes to work in the capital wants to make a weekend return a straightforward task, so will often choose to live with easy access to the exit routes. They will not want to be based in Kent and negotiate two hours on the M25 before hitting the M1. Modric is no different. A London location makes the odd Sunday back home attainable; from Newcastle it is a chore.

What Keegan could not admit is how his own role has changed. A decade ago he was young, vibrant and on the up. His Newcastle team went from success to success, his football was bright and exciting, his reputation was high. Players wanted to be part of that; they wanted to play for Keegan. On Tyneside the gleam of that smile, that enthusiasm, has never dulled, but beyond the area it means little.

If Modric was asked to weigh Keegan against Juande Ramos, the Tottenham head coach and the winner of the Uefa Cup twice with Seville, he would go with the Spaniard every time. By comparison, Keegan is merely a local hero. In one way he is perfect for Newcastle because he carries the supporters and that is necessary in a time of transition, but in another he keeps them mired in the past because he is part of a period that is only ten years gone but is from another century.

Keegan has talked of bringing Thierry Henry to Newcastle and his enthusiasm for the project has not gone away, particularly because Henry has had an unhappy time at Barcelona and may wish for a change. Yet Henry may well continue to suffer from complications resulting from sciatica, which was diagnosed in 2006. Barcelona would surely wish to recoup a large chunk of the £16.1 million transfer fee they paid to Arsenal and Newcastle would expect to be asked to pay in the region of £125,000 a week in wages for a player who will turn 31 in the week the 2008-09 Premier League season starts. This is the uptown version of the policy adopted by Alan Curbishley, the West Ham United manager, who has cornered the market in costly players who were at a peak several years ago, such as Fredrik Ljungberg, Henry's former Arsenal team-mate.

Newcastle are walking a thin line because contained in Keegan's realistic assessment of his position was a subtext that suggested that a more damaging explosion of frustration was not far away. Right now, Keegan's target is the uneven Premier League playing field. When asked if the brochure was not as advertised - his memorable comment when briefly walking out on Sir John Hall, the former Newcastle chairman, in February 1992 after promised transfer money did not materialise - Keegan insisted that his present situation was not the same at all. “The brochure has changed,” he said. “The destinations are different now.”

Yet he did ponder how much money he would have to spend and whether there would be money at all. The impression he gave is that, like most managers, he feels that he needs £50 million, preferably by next Monday, and then he can have a proper crack at the job.

The unpleasant reality is that £50 million, which appears to be the standard fee for having a go these days, will not touch it at Newcastle, not even come close. Manchester City spent £50 million last year, so did West Ham, and where has it got them? Mid-table, much the same as Newcastle. Liverpool may need £50 million to stay in touch with Manchester United and Chelsea and this was a team who were one match away from a third Champions League final in four seasons. Arsenal may need £50 million to maintain a challenge if they lose Alexander Hleb as well as Mathieu Flamini this summer. It cost Sunderland roughly £40 million to stay up. And even if Newcastle spend £50 million, what then? There is talk that Roman Abramovich, the Chelsea owner, will find the same sum soon for one player, Kaká, of AC Milan and Brazil.

So to what level do Newcastle then go? One hundred million? Two hundred million? For a club in their position to compete properly, think of a number, then double it, treble it, cube it, who knows? Abramovich has Andriy Shevchenko, a £30 million striker, on the bench, as Keegan observed. Yet, having admitted that it is impossible to compete in such an environment, in the next breath Keegan talks of needing money. No wonder Ashley is unwilling to commit too heavily. Would you?

Ashley bought the club for £134 million and wiped out debt in the region of £100 million. He is in for close to £250 million and having got over the “man of the people in a replica shirt” stage has told his lieutenants that he wishes the club to be run as a business. The financial stretch of owning Newcastle has disturbed him. He bought the club in a hurry and much of the due diligence process went uncompleted, so certain aspects of football finance have surprised him, not least the fact that transfer money is due in instalments, meaning that he has been presented with outstanding bills for several players that he thought the previous regime had bought outright.

More than 80 per cent of Newcastle's turnover is taken up by wages, when a reasonable model states that above 60 per cent makes a business precarious. This is a concern, too. Say Ashley did find the money for Henry. His wages alone would account for a further £1 million every two months, and this for a 31-year-old with sciatica. Shirts would fly off the shelves in the club shop, but not in sufficient numbers elsewhere. Newcastle have not had the success to be a leading commercial player beyond the locality; the club are big in Newcastle. Henry's tab would land directly at Ashley's door.

Not long ago Keegan remarked that every owner was looking for a manager such as Arsène Wenger. Maybe he knew the way Ashley wanted to take Newcastle forward, which is through Dennis Wise, his general manager, introducing the best young players to the academy. The problem is that this is everyone's Holy Grail. Each youth tournament is besieged by development officers, directors of football and executive scouts, all fighting to identify and sign the next Cesc Fàbregas on the cheap.

Wenger has spoilt it for everyone by keeping Arsenal in contention while spending £18 million since 2004 because now all owners think that their clubs can be run on those lines. Yet it took decades for Wenger to build the necessary network of global scouts and contacts and, even then, the club have not won a trophy in three years, however many points have been scored for artistic impression. Say Wise focuses all his energy on identifying the best 15-year-olds across Europe and luring them to Newcastle. Keegan's contract expires in 2011. What does he do in the meantime? Act as a cheerleader for the supporters when he knows that his words are hollow?

This is a huge dilemma for a club of ambition, whether limited or acute. Newcastle cannot afford to be foolish in the transfer market this summer and they cannot afford not to be, either. No wonder there remains fog on the Tyne.