
Villa and PSR 2024-25
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Profit and Sustainability Rules (PSR)
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Under PSR, clubs are limited to a maximum loss of £105m over a three-year period
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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
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For the three year period covering the 2021-22, 2022-23 and 2023-24 season Villa posted losses of £206m.
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Over the period Villa reported that they invested over £90m in the activites that are excluded from the PSR measure
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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
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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
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Once 2021-22 drops off, 2024-25 comes into play in the new three year rolling PSR cycle.
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As 2021-22 was breakeven, all £206m losses remain on the books.
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For 2024-25 however Villa will be running a 12 month accounting period once again, ending June 2025.
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Villa will also have banked additional revenues from Champions League participation.
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And will have the benefit of the additional player sales made in the January window.
How much more money has 2024-25 generated?
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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.
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Villa’s Champions League revenue as at the end of May was reported to be £71m (h/t @swissramble).
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As a result total revenues will be well over the record of £276m in 2023-24 and are likely to be around the £340m mark.
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That is just the impact of Champions League appearance and prize money.
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There will be additional commercial benefits still to be accounted for but the materiality of these is currently unknown.
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Villa’s January player sales also saw £72m generated.
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These monies, or at least a portion of them, can be booked in 2024-25 as profit.
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Assuming that the previous costs have all been accounted for this could be the whole £72m.
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More likely, and especially in Diego Carlos’ case, given his £30m+ fee in 2022 there may be some residual netting required.
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Villa’s allowable expenditure is also likely to remain at or above the 2023-24 level of £90m given 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?
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Lots of people are quoting a 91% wages to turnover ratio in 2023-24 which is a simple calculation of wage costs to revenue generated.
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That isn't strictly a PSR issue, it's far more relevant to SCR but even then the comparison isn't quite correct.
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But taking it at face value and assuming that wage to revenue is a valid metric then 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.
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That may not seem too impactful but it is in a number of ways.
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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
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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
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Even if wages were to remain at 2023-24 levels the significant increase in turnover will see the wage to revenue ratio drop to c74% in 2024-25, well within the notional UEFA SCR threshold of 80%.
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This however means nothng in terms of PSR or SCR (given the calculation and relevant periods are quite different from the above) but it does salve the sentiment that Villa are allowing wages to spiral out of control.
So what could 2024-25 look like?
Revenues
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Villa’s record revenues of £276m in 2023-24 included £14m from the Europa Conference League.
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We already know that 2024-25 has delivered Villa a £71m solidarity and prize fund payment from UEFA for the Champions League campaign and so the UEFA dividend alone is worth an extra £57m revenue on top of 2023-24.
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Inevitably however Villa will receive less Premier League prize money than in 2023-24 (when they received £52.9m) having finished two places lower and this should equate to around £6m in reduced revenues (£46.7m).
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So we can pretty confidently say that Villa’s 2024-25 turnover will be at least £327m.
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But we’ve yet to factor in Chris Heck’s initiatives at the turnstile, unpopular with some, but predicted to have had a double digit impact on matchday revenues that already stood at a record £28m in 2023-24.
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The same goes for income from 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
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Respectively matchday and commercial revenues increased by 47% and 46% in 2023-24.
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Matchday revenues were of course driven up by the extra seven ECL matches played in 2023-24 as well as price increases.
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Year on Year price increases accounted for 14% of that rise.
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Even if Villa’s playing of only six Champions League matches in 2024-25 is taken into account it is highly unlikely that gate receipts will be any lower than the £28m and in all liklihood will see a similar increase on 2023-24 so we could realistically expect a £4m boost there bringing total revenues to £331m.
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On commercial revenues, if another year on year increase like 2023-24 is delivered with the shirt deal and Champions League brand boost then Villa could see an additional £22m generated.
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But let’s temper expectation and say just an additional £10m came in to bring total revenues to £341m for 2024-25
Costs -
In 2023-24 Villa’s costs were £365m, 7% up on 2022-23.
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2023-24 therefore ended in a PSR Earnings Before Tax loss of £86m on £276m revenues.
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In some places costs of £440m have been forecast for 2024-25, that would be a staggering 20% increase in costs year on year and seems very pessimistic and currently lacks substantiation.
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Indeed if that were the case Villa would be heading for the biggest PSR failure on record, dwarfing Everton's 2021-22 £19.5m, and would be handed a severe points deduction.
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Assuming things aren't quite so catastrophic then a similar above inflation increase of 7% would suggest costs of £391m for 2024-25.
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That seems more reasonable at £391m costs against £341m revenues.
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But ultimately that is another loss, this time £50m.
PSR -
So the £206m loss across 2022-23 and 2023-24 becomes a £256m loss including 2024-25.
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Take off the allowable expenses of £90m and we have £166m in losses across the PSR period.
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With £65m ‘banked’ from player sales the loss is reduced to around the £100m mark - just below the acceptable PSR limit and £15m below the punishment threshold.
What are the certainties?
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Well the Champions League income boost is pretty much a given so there should be no doubt there.
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The loss of Premier League income is also a given.
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The January player sales could, dependent on accounting methodology utilised, fluctuate up or down from the £65m mark.
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Allowable expenses could suddenly drop below the £90m as spending could have collapsed on the women’s team and the youth set up but all the signs from club activities suggest not.
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Even if that were so for that unlikely eventuality to become impactful then a commensurate increase in non-allowable expenditure would have to have happened elsewhere in the club - again there are no signs that this is the case.
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Gate receipts are unlikely to bring in less than a £4m boost given that equates to a £16 increase per paying spectator across the 6 Champions League games alone and we have seen some very significant package prices for those premium games.
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Commercial deals are also unlikely to slip below the conservative estimate of a £10m year on year increase.
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So other than a catastophic error in player sales profit or some insane spending we don't know about there is hopefully mostly upside available from the initial £100m.
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Indeed it wouldn’t be ridiculous to assume a scenario where both gate receipts and commercial deals see a two fold increase on the above.
Are we going to have to sell players?
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Yes because that is part and parcel of running a football club.
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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.
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But that has nothing to do with PSR (although as Villa have always said "it remains a factor in decision making").
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The real trouble with PSR is uncertainty, and the tendency for wild claims of impending doom.
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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.
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Newcastle by contrast had to make sales of £80m to avoid PSR non-compliance with no revenue boost to come.
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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 £50m or £100m a season?
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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.
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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?
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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.
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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.
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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.
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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.
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Villa have little to no debt, but are a cash hungry business (like all football clubs) with deep financial reserves.
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Where they can invest Villa are investing for the future.
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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
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Taking all of the above estimates and assumptions in hand, Villa look like they will be just below the PSR threshold for the three year period to 2024-25.
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They could even be as much as £10m to £20m below the PSR threshold if gate receipts and commerical income perform as well as has been suggested.
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Whatever the final outcome we know 2022-23's mammoth £120m loss is falling away and record revenues are still being delivered ahead of a third successive season in Europe.
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The signs are that Villa have played the PSR game closely but well whilst delivering a sustained upturn in success over the period - and not many clubs can say that.
PSR Breaches to date
2023-24 No club failed PSR
2022-23 Forest deducted four points for breaching the relevant PSR threshold of £61m by £34.5m
2022-23 Everton deducted two points for breaching the relevant PSR threshold of £105m by £16.6m and for breaching a second successive season
2021-22 Everton deducted ten points (reduced to six) for breaching the relevant PSR threshold of £105m by £19.5m and for aggravating offences