“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.” David Copperfield, Charles Dickens
Sixpence a year of overspending was all it took to bring misery to the burghers of 19th Century London, as Wilkins Micawber famously observed. Although life in the Premier League today could not be more different to that of Dickensian England, Micawber’s lesson is well heeded, for there is little happiness to be found for clubs living beyond their means.
This is something Aston Villa have expensively discovered. In the five years between 1 June 2009 and 31 May 2014, Villa spent fully £117.4 million in cash more than they earned. In the first of those seasons, £44.2 million more was spent than received. Yet although the result was a creditable sixth-place finish in the Premier League with two Wembley appearances to boot: a League Cup final and FA Cup semi-final, all the investment was no platform for future success. In 2010-11, with £16.7 million of overspending, they dropped to ninth, then 16th (on £12.8 million) and 15th in each of the last two completed seasons (£41 million and £2.7 million respectively).
It is clear that the owner, Randy Lerner, feels bruised by this experience and he has put the club on the market for sale, using Bank of America Merrill Lynch to find a buyer. Yet there have been no ready takers. The frequent flirtations with relegation despite the cash drain indicate that Villa would be a massive investment risk for anyone who might take them on.
Yet that simple reading of the situation might not do justice to the truth, as what Villa have achieved over the past five years is a remarkably successful restructuring while still trading as a Premier League entity. At the start of the 2010-11 season, Villa’s squad had an average age of 28.73 years. Now, with only three players left from that side (the goalkeeper Brad Guzan, the centre-half Ciaran Clark and the England international midfielder Fabian Delph) the age profile has reduced to 26.4 years.
It seems from reading the league table that while an element of creative destruction is necessary for teams to be successful, this wholesale dumping of playing staff is a risky business. But although it has coincided with difficulties on the pitch, it has not been without its longer-term benefits to Villa off it. The wage bill has reduced substantially over the five-year period since 2009-10. The £10.6 million less spent on wages in 2013-14 than in 2009-10 constituted a reduction of 13.3%, at a time when turnover was rising 22.4%.
Consequently the wages-to-turnover ratio, a key metric for the solvency of any club, fell from the unsustainable 90.6% of 2010-11 to 62.33% in 2013-14. It meant that for the first time Villa were able to produce a genuine operating cash inflow, of £13.3 million, permitting a similar sum to be invested in the transfer market. Although the club did dip more deeply into its overdraft, which now stands at £17.9 million, its overall solvency improved as Lerner withdrew his claim on £90 million of loans he was owed.
The word is, and it is consistent with what the balance sheet suggests, that Villa is available for a purchaser at £100 million. Whoever might be tempted to invest that sum would be buying a club in better shape than its league position indicates. The vast bulk of revenues for the majority English top-division clubs derive from central payments from the Premier League’s broadcast arrangements, which in turn are determined by football performance. Yet despite weakness in this area at Villa, they were the eighth-richest team in England and the 22nd richest in all of Europe in 2014, according to the Deloitte Football Money League.
This suggests there is tremendous spare capacity at Villa, where improved football performance would have a ratcheting effect on broadcast revenues. The same can be said of match day receipts, which have suffered an alarming drop since 2009-10. Back then, boosted as they were by the two long cup runs, Villa earned £24.4 million from match day activities. In 2013-14 they received only £12.8 million from that source, having been knocked out of both cup competitions in their first outings. (It is worth pointing out that it seems executive-box rentals, match day sponsorship and hospitality are now accounted for under the ‘commercial revenue segment and not the ‘match day’ one. However, the prior value of Villa’s sales in these areas has certainly not been maintained.)
So the opportunity for much better returns from match day activities and broadcasting income exists in the event of improved football performance. There is the flexibility to achieve that without recourse to Lerner’s funds through the judicious investment of the club’s growing revenues, which, provided Premier League survival is maintained, will increase dramatically from 2016-17.
Villa have the eighth-largest stadium in England, a strong commercial revenue stream, an outstanding training facility and an academy that has produced 75 current professional footballers including nine still at the club. There is much to build on, and the bulk of the hardest work seems now to have been done.
Most clubs who have undertaken a retrenchment like Villa’s – reducing the average player’s age, wages, transfer spending and cash outflow all at once – have suffered for the experience. Several have paid the devastating ultimate price for it: relegation. [See related article http://bit.ly/1H57Car]
Until now, Premier League survival has been highly expensive for Villa’s owner, dearer still than relegation for some clubs. But, provided the future is not as profligate as the past, you do not need to be an eternally optimistic Micawber type to believe that something will turn up for Villa and its owner in the end, whomever that owner may be.
Journalist and broadcaster Matt Scott wrote the Digger column for The Guardian newspaper for five years and is now a columnist for Insideworldfootball. Contact him at email@example.com.