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Aston Villa’s 2017/18 financial results covered their second season in the Championship with Tony Xia as chairman following relegation from the Premier League. They finished 4th, but narrowly missed out on promotion after losing in the play-off final. Some thoughts follow #AVFC
Following that defeat, #AVFC “experienced significant liquidity problems”, including a missed tax payment to HMRC, which led to a rescue by billionaire businessmen Nassef Sawiris and Wes Edens, who injected £68m of funding with NSWE SCS becoming the club’s controlling owners.
#AVFC loss increased by £21m from £15m to £36m, as revenue dropped £5m (7%) from £74m to £69m and profit on player sales fell £11m from £27m to £16m. On the other hand, the club received £3m compensation for HS2 rail project, which will go through part of the training ground.
#AVFC £5m revenue fall was mainly due to £7m lower parachute payment, which meant broadcasting was £7.7m (16%) lower at £40.3m. This was offset by increases in gate receipts, up £1.1m (10%) to £11.8m; commercial, up £0.3m (2%) to £13.4m; and player loans, up £1.1m to £3.0m.
Despite the revenue decrease, #AVFC wage bill shot up by £12m (19%) from £61m to £73m, though player amortisation was unchanged at £24m. Other expenses were cut £4m (15%) to £23m, but interest payable rose from £0.1m to £0.9m.
Almost all Championship clubs lose money, but #AVFC £36m loss is one of the largest of those that have reported to date in 2017/18, around the same level as #BCFC £37m & #QPR £38m. Worth noting that #WWFC £57m & Cardiff City £39m were both impacted by hefty promotion bonuses.
For some perspective, #AVFC £36m loss is “only” the 12th highest ever reported in the Championship, a long way short of #QPR record £70m in 2013/14 (excluding a £60m write-off of a shareholder loan that was challenged by the EFL for FFP purposes).
#AVFC profit on player sales fell from £27m to £16m, including Amavi, Veretout, Baker, Sanchez and Bacuna. This is still pretty good, but a fair bit lower than the large profits clubs recently relegated from the Premier League made from this activity: #NCFC £48m and #hcafc £31m.
#AVFC have consistently lost money with £370m total losses posted in the last 10 years. Incredibly, last season’s £36m loss is only the 5th largest in this period. As former Finance Director Mark Ansell said, “Villa have gone to the casino, rolled the dice and it hasn’t worked.”
#AVFC have booked £109m of exceptional expenses since 2011: £23m to sacked managers (many years), £41m reducing the value of poor player purchases & £45m writing-down the value of Villa Park (2016). At the same time, benefited from £20m interest waived on owner loans (2012).
#AVFC have increasingly relied on player sales in last 3 seasons, averaging £26m annual profit, compared to just £1m in previous 3 seasons. Excluding player sales, the 17/18 loss would have been even higher at £52m. Will be much lower in 18/19 (Gollini, Gil and Traoré sell-on).
#AVFC EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation), which can be considered as a proxy for cash operating profit, as it strips out player sales and non-cash items, fell from £(14)m to £(27)m. Down from a peak of £19m in the Premier League in 2014.
To be fair, very few Championship clubs manage to generate positive EBITDA, but #AVFC’s £(27)m has only been “beaten” by local rivals Birmingham City £(30)m to date. It was around the same as #WWFC £(27)m (excluding promotion bonuses).
#AVFC revenue has fallen £48m (41%) from the £117m peak in the 13/14 Premier League to £69m. Worth noting the importance of parachute payments, down from £41m to £34m, though still half of total revenue in 17/18. These will further fall this season to £17m, then stop in 19/20.
Despite the decrease, #AVFC £69m revenue is the highest in the Championship, ahead of #Boro £62m, #NCFC £62m and #hcafc £56m, though may be overtaken by Sunderland when they publish their 2017/18 accounts. Twice as much as the top club without parachute payments, i.e. #LUFC £34m.
Revenue is greatly influenced by Premier League parachute payments. #AVFC have received £75m in the last 2 years, including £34m in 2017/18, which was the same as #NCFC, but lower than #hcafc, #Boro and #SAFC, who all got £42m. Others: #CardiffCity, #FFC & #QPR £17m
Although parachute payments have helped #AVFC, they’re still much lower than £95-150m in top tier, as they acknowledged, “The club is competing in the Championship, where income from the sale of media rights is a fraction of the level received by comparably sized clubs in the PL”
#AVFC gate receipts rose 10% (£1.1m) from £10.7m to £11.8m, thanks to reaching the play-offs and staging 3 more domestic Cup games. This is the highest in the Championship, around 20% more than the closest challengers: #LUFC, #SWFC and #NCFC (all £10m).
#AVFC average attendances have held up quite well in the Championship, falling just 5% from 33,690 to 32,097. Villa’s crowds have been steadily declining, down 20% (8,000) from the recent high of 40,000 in 2008, but they are nearly 10% higher this season at around 35,000.
Nevertheless, #AVFC still had the largest crowds in the Championship last season with their 32,097 comfortably ahead of #LUFC 31,525 and #WWFC 28,298. Ticket prices were frozen in 2017/18 and have been kept at the same level since then.
#AVFC commercial income rose slightly by £0.3m (2%) to £13.4m. Sponsorship up £2.0m to £4.8m, due to owners paying £1.9m for training ground naming rights, but commercial fell £1.7m to £8.7m. Halved from £28m in PL, but still 2nd highest in Championship, only behind #LUFC £16m.
#AVFC commercial revenue should increase in 2018/19 with new deals: 32Red will be the new shirt sponsor, replacing Unibet, whose logo will feature on training wear; while Under Armour will be replaced as kit supplier by a partnership between Fanatics and Luke 1977.
Despite the revenue reduction, #AVFC wage bill rose by £12m (19%) from £61m to £73m, due to the arrival of John Terry and numerous expensive loans, with players, managers and coaches increasing from 175 to 184. As a consequence, wages to turnover ratio worsened from 83% to 107%.
As a consequence, #AVFC £73m wage bill is by far the highest in the Championship, around 50% more than the next highest, even though two of those (#WWFC £51m and #CardiffCity £48m) included substantial promotion bonuses.
Therefore, #AVFC wage bills over the last two season are the 3rd and 4th highest ever reported in the Championship , only below #NUFC £80m in 2016/17and #QPR £75m back in 2013/14.
Despite the worsening of #AVFC wages to turnover ratio to 107%, this is almost par for the course in the Championship, where half the clubs have a ratio over 100%. #BCFC lead the way with a scarcely credible 202% (the “Redknapp effect”), followed by Reading 197% and #WWFC 192%.
#AVFC player amortisation, the annual charge to write-down transfer fees over the life of a player’s contract, was flat at £24m. This is actually higher than the last 4 seasons in the top flight, reflecting the club’s attempt to secure promotion by splashing out on new recruits.
As a result , #AVFC player amortisation of £24m is far higher than almost all other clubs in the Championship with the exception of #Boro. The next highest of the clubs that have reported to date are #NCFC £15m and #WWFC £13m.
#AVFC spent just £2m on player purchases in 2017/18, which was in stark contrast to the previous season, when they made a record £88m investment, though they did bring in many players on loan. Massively outspent last season by #Boro £66m and #WWFC £25m.
On a cash basis, #AVFC paid £41m transfers in 2017/18, indicating that many of the prior year buys were on credit. Interestingly, Villa’s average annual gross spend is higher in the Championship (£49m) than last 8 years in PL (£31m), though sales are much higher (£40m vs. £16m).
#AVFC gross debt has been slashed from £50m to just £6m, as the new owners repaid £48m of old loans, leaving £1m loan notes plus £5m other loans. Debt has greatly reduced from £190m high in 2013 following £90m loan waiver & £89m conversion into equity.
#AVFC £6m gross debt is now one of the smallest in the Championship, with six clubs having debt over £70m: #Boro £101m, #ITFC £95m, #WWFC £75m, #CardiffCity £74m, #BCFC £73m & Bristol City £72m. In reality, the debt is not an issue – so long as owners continue to provide support.
Although debt is relatively high in the Championship, most is provided by owners who charge little or no interest, but #AVFC interest rose from £84k to £940k, due to 5-7% on the external loans taken out due to the financial problems. Owner loans are interest-free and unsecured.
#AVFC had £3m cash inflow in 17/18, but only because NSWE provided £69m of share capital. This was primarily used to repay £48m of loans from the old owners, cover £10m loss from operating activities and spend £4m (net) on player purchases, £4m on infrastructure and £1m interest.
Since 2007 #AVFC owners (old and new) have provided more than £400m of funding (share capital £212m plus loans £194). 40% has gone on players (£160m) with £90m covering operating losses. Around £66m was used to acquire the club, £50m invested in infrastructure and £15m interest.
#AVFC were “fully compliant” with EFL FFP regulations in 2017/18, though these “continue to provide a significant challenge”. CEO Christian Purslow appears confident, but the accounts only talk of “actively seeking to implement actions to avoid future breaches of FFP rules”.
FFP is assessed over 3-year period (the current season plus previous two seasons). Annual allowable loss is £13m in Championship and £35m in Premier League, so #AVFC maximum FFP loss was £61m in 2017/18, but falls to £39m from 2018/19.
It should be noted that FFP losses can exclude academy, community & infrastructure, which were £15m for #AVFC in 2017/18, including an unexplained increase in youth development from £6m to £11m. Stadium revaluation is also an allowable deduction (i.e. £45m impairment in 2015/16).
Based on my projection, #AVFC will fail FFP by around £25m in 2018/19. The parachute payment falls from £34m to £17m, but I would expect gate receipts and commercial to rise by £3m. Profit on player sales is estimated at £7m (including Traoré sell-on). Wages should drop by £5m.
One obvious way to plug the gap would be for #AVFC to sell Jack Grealish. Even though a summer sale would only be booked in 2019/20 accounts, FFP small print allows inclusion of “post year-end sales proceeds which can be demonstrated to have been used to fund previous losses.”
Failing a lucrative player sale, Purslow, who once infamously described himself as “the Fernando Torres of finance”, would indeed have to demonstrate some fancy footwork to find a suitable loophole. There is talk of asset revaluation, but the EFL may not look kindly on this.
Regardless of FFP, #AVFC face some serious financial challenges if they do not go up, as their parachute payments end this season. Although the new ownership gives cause for optimism, Villa would almost certainly have to switch to a lower cost strategy – or sell some top players.
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