Profit and Sustainability Rules (PSR)

• Under PSR, clubs are limited to a maximum loss of £105m over a three-year period

• Expenditure on Villa’s Women's team, Youth set up, community initiatives, and depreciation costs (facilities not players) are all excluded and can be added back in.

Villa’s PSR performance to 2023-24

• For the three year period covering the 2021-22, 2022-23 and 2023-24 season Villa posted losses of £206m.

• Over the period Villa reported that they invested over £90m in the activites that are excluded from the PSR measure

• Also, as detailed elsewhere, the 13 month adjusted accounts period for 2023-24 carried an additional £33m in expenses a proportion of which would be removed from the PSR equation

• That means the three year loss of £206m would have been reduced to £116m before being further reduced, below the £105m threshold, by a large proportion of the £33m falling away.

The potential impact of 2024-25

• Once 2021-22 drops off, 2024-25 comes into play in the new three year rolling PSR cycle.

• As 2021-22 was breakeven, all £206m losses remain on the books.

• For 2024-25 however Villa will be running a 12 month accounting period once again, ending June 2025.

• Villa will also have banked additional revenues from Champions League participation. 

• And will have the benefit of the additional player sales made in the January window.

 

How much more money has 2024-25 generated?

• We won't know until the accounts are published but we do know of some contributing factors that will deliver a fresh set of record revenues for the club.

• Villa’s Champions League revenue as at the end of May was reported to be £71m (h/t @swissramble).

• As a result total revenues will be well over the record of £276m in 2023-24 and are likely to be around the £350m mark.

• That is just the impact of Champions League appearance and prize money.

• There will be additional commercial benefits still to be accounted for but the materiality of these is currently unknown.

• Villa’s January player sales also saw £72m generated.

• These monies, or at least a portion of them, can be booked in 2024-25 as profit.

• Assuming that the previous costs have all been accounted for this could be the whole £72m.

• More likely, and especially in Diego Carlos’ case, given his £30m+ fee in 2022 there may be some residual netting required.

• However it is prudent to assume that at least £30m profit will have been generated from Carlos and Duran’s sale.

• Villa’s allowable expenditure is also likely to remain at or above the 2023-24 level of £90m giveb the club's ongoing investment in the youth and women's set ups.

But what about wages, that's an even bigger problem isn't it?

• Lots of people are quoting a 91% wages to turnover ratio which is a simple calculation of wage costs to revenue generated

• However 2023-24's figures are misleading as they cover a 13 month period so 13 months of wages have been counted against 12 months of revenue.

• That may not seem too impactful but it is in a number of ways.

• Firstly once restated the true figure is 82% not 91%, and although that is still high, it is lower than four or five other Premier League clubs

• Secondly, the 82% is a decrease on the 89% seen in 2022-23 and underlines that Villa, as they have repeatedly said, are already on a downward path of wage expenditure

• Villa have also been making ongoing cuts through 2024-25 so we can expect wages to revenue to decrease further.

• Even if wages were to remain at 2023-24 levels the significant increase in turnover will see the wage to revenue ratio drop to 65% in 2024-25, well within the notional UEFA SCR threshold.

• In fact even if wages increased by 10% over the period Villa would still be in compliance with the 70% threshold.

So what could 2024-25 look like?

• Let’s assume a worst case scenario of another £86m loss although that it highly unlikely given the increases in revenue as laid out above.

• Indeed for Villa to lose that amount of money for the second successive season then overall expenditure would have to have increased by 20% having only increased by 7% in the previous period.

• But let's assume that worst case anyway.

• Add that new £86m loss to the carried forward losses of £206m and Villa have a three year period delivering £292m in losses.

• Obviously that is significantly over the £105m and the £115m ‘punishment’ threshold.

• But this is just the starting point.

• Take off the allowable expenses of £90m and we have £202m in losses.

• Add in the £71m boost to revenues from Champions League participation and losses ‘reduce’ to £131m.

• Add in the player sales £30m bookable ‘profit’ and we’re down to £101m losses over the revised three year period.

• So Villa are below the threshold even without factoring increased gate receipts and sponsorship deals.

What are the certainties?

• Well the Champions League income boost is pretty much a given so revenue will be over £350m.

• The January player sales could, dependent on accounting methodology utilised, fluctuate up or down from the £30m mark.

• Spending could have collapsed on the women’s team and the youth set up but all the signs from club activities suggest not.

• But for that unlikely eventuality to become impactful then a commensurate increase in non-allowable expenditure would have to have happened elswhere in the club - again there are no signs that this is the case.

• Inevitably however Villa will receive less Premier League prize money than in 2023-24 having finished two places lower but this is unlikely to be more than a £5m hit which will be fully offset by increased revenues elsewhere.

• Chris Heck’s initiatives at the turnstile, unpopular with some, but predicted to have had a double digit impact on matchday revenues that previously stood at £28m need to be accounted for.

• As are the new commercial sponsorship deals as the brand is worked harder than ever and the club's profile is increased by participation in the Champions League.

• Respectively matchday and commercial revenues increased by 47% and 46% in 2023-24.

• Anything similar to that would be an £40m+ boost to the club's coffers, even £10m would see Villa well clear of PSR and provide even more headroom for 2025-26.

• We can also be fairly certain that the overall increase in expenditure will be less than 20%.

Are we going to have to sell players?

• Yes because that is part and parcel of running a football club.

• But any player sales will be about Unai Emery and Monchi’s plan for the team, no-one seems untouchable in their masterplan so we shouldn’t get overly sentimental.

• But that has nothing to do with PSR (although it remains a factor in decision making).

• Villa are not in PSR trouble and are not at the point of needing to sell.

• Indeed it’s important to point out that the Luiz sale in the Summer purely came about because Villa were not allowed to account for (guaranteed) Champions League entry monies during the previous accounting period and so because of a timing issue a sale had to be made.

• Newcastle by contrast had to make sales of £80m to avoid PSR non-compliance with no revenue boost to come.

• The sale of Diaby was different - that was about wages, they were high, and it was thought he was an expendable player that would return his money and help the ongoing process of reducing wage expenditure.

Can Villa keep making losses of £100m a season?

• Probably not, no-one should ‘want’ to do that but the reality of football is it’s difficult not to have to speculate to accumulate if you want to progress.

• Ironically there is a positive double edge sword with PSR as increased investment in youth not only increases allowable expenses but also provides a genuine pipeline of homegrown players or, a Chelsea style conveyor belt of loanee and player sales profit.

Are Villa being well run?

• In a word yes, the sole reason there would be any doubt is the imposition of the artifice of PSR and the regular hyperbolic headlines and over-reaction.

• We can argue against PSR and its lack of merits all day long but the fact is it is here, it is artifical, it is outdated (the £105m figure was totally arbritrary and has not moved in line with inflation, let alone football inflation) and it is anti competitive.

• That annoys a lot of clubs but Villa probably more than most given we are one of the few who have the financial wherewithal to "do a Chelsea" but are not permitted to do so.

• It's a matter of record that businesses run losses, indeed many of the most commonly recognised business names do not make regular profits, some none at all, but debt, equity and cashflow keep them going.

• Villa have little to no debt, but are a cash hungry business (like all football clubs) with deep financial reserves.

• Where they can invest Villa are investing for the future.

• It really is a waiting game with Villa playing by the current rules but with every intention to exploit any rule changes as they come.

Conclusion

• Villa should report a loss £10m to £20m below the PSR threshold for the three year period ending June 2025.

• With 2022-23's mammoth £120m loss falling away and record revenues coming ahead of a third successive season in Europe the signs are positive that Villa have not only played the PSR game well but delivered an upturn in success over the period - and not many clubs can say that.