The following has been submitted by Southern Villa, cheers;
There is a lot of attention on the finances of Villa at the moment, driven by the story of the £90m share capital injection.
Rather than add directly to that debate I thought I would share some thoughts on the state of the club’s income statement. Because I think, ultimately, Villa are in a pretty poor situation in terms of expenses versus revenues. It will take quite a few years for this to stabilize into a sustainable level of costs for the revenue we can attract.
My sense is the ‘project’ might be getting a bit too much for the current owner to stick out, but of course we only get a little information from which to draw conclusions.
I have a background in accountancy, but of course this does not mean I can draw all the right conclusions from a look through the accounts from 2011/12. However, it does help navigate some of the more confusing terminology in the club’s accounts. In particular, I have sought to take out the short-term ‘noise’ you sometimes get in one year’s accounts, to focus on the income and expense that we can expect to crop up each year at Villa.
Apologies to those who have done this exercise before and who I simply end up repeating (or falling short of the quality of their analysis) – I have not researched similar work in detail as I wanted to prevent my views from being influenced by others. I am pretty new to following the news and debate on the various forums, and hope my contribution here is of some interest.
So here are two main conclusions from the income statement part of the 2011 to 2012 accounts (which cover the 12 months to 31 May 2012, and hence broadly cover the 2011/12 season). These accounts were filed in February 2013. We can therefore expect the 2012/13 accounts in a couple of months.
1. Villa are paying 90% of revenue back out in wages
In 2011/12 Villa took in £80m of revenue. £20m from match days, £47m from media (including TV), and £14m from commercial items (for example sponsorship). As an aside, this was down £12m from the previous season, mainly due to lower TV revenue and a worse Premier League placing (16th vs 9th the previous season). £80m is therefore a better view of revenue to use for the medium term as it reflects a more likely medium term league placing (not wishing to jinx anything!) and our reduced popularity with TV companies.
Of the £80m we got in revenue, we spent £70m upon wages (including pensions and national insurance etc.). This wage spend was down from £83m in 2010/11. Regardless, the harsh reality is that Villa pay out 90% of their revenue in wages to players. For what it’s worth, West Brom – generally considered a reasonably well-managed club – paid 74% in 2011/12, according to The Guardian.
The players are the key driver of Villa’s revenue, as they allow the club to stay in the Premier League. So it makes sense that they attract most of that revenue and therefore need to be paid well – this is business after all. But 90% is too high. Even in another industry where the staff drive almost all revenue such as banking, the big payers are not as generous as football clubs. For what it’s worth, Goldman Sachs paid out just 66% of its revenue in wages in 2012.
Overall then, in 2011/12, after paying £70m of its £80m of revenue out in wages, Villa had just £10m to cover the rest of the costs the club incurred in 2011/12.
Conclusion: The wage bill has to drop by at least another £10m per year to get down to 75% of revenue, freeing up more revenue to meet the club’s other costs. Some progress will have been made for 2012/13, and the recent permanent transfer of Stephen Ireland will also help. But there are large other costs to try to reduce too, so arguably the wage bill could do with dropping even further, see below…
2. In 2011/12 Villa had £10m left after paying wages, but incurred another £76m of costs – and a lot of this cost is probably here to stay
What is this £76m of other costs after wages? Going through each of these in turn:
– £26m for the 2011/12 season’s share of transfer fees paid (which will include big chunks for fees paid in the past). This should reduce, as our new transfer spend has been reducing in latter years. I am fairly sure this cost works as follows : Take the £7m spent on Benteke. He now has a 4 year deal until 2017. That £7m cost is therefore spread over the 5 years since we signed him, i.e. at £1.4m per year. So that, in 2017 when he can walk away for free, Villa will have expensed the cost of buying him, but this expense has been incurred in line with the revenue he has brought in by playing for Villa.
– £6m of depreciation: This will likely stay around for a while
– £7m in interest costs payable to Randy Lerner for the £137m of loans the club owes him (marked as ‘owed to parent’ in the balance sheet notes)
– £37m of other operating costs: We don’t get any detailed information on the £37m of other operating costs but can probably assume these include administrative, marketing, maintenance, electricity costs etc. Without visibility it’s hard to argue that these will reduce, but assuming wages can only fall another £10m or so, these other operating costs will have to reduce as well for long-term sustainability
Conclusion: Even taking a relatively positive view, if we assume that Villa can get ‘other operating costs’ down to £30m per year, and share of transfer spend to date down to £10m per year, there is still a total of £53m of costs likely to arise each year, in addition to wages. Even if wages come down, that’s a lot of owner’s capital going out of the door, as revenue is likely to just be around £80m.
Note that I have excluded profit on sale of players excluded from this view of recurring items as we cannot be sure this will continue. In 2012 we made £27m from sale of players (£19m profit the previous year).
Also, in 2011/12 Randy Lerner wrote off £20m of interest that the club owed to him for previous years. I have assumed that the club will continue to expense £6m of interest owed to him each year in the future.
Hope this is of some interest. In my opinion, getting the wage bill down is the right thing to do, even if right-sizing expenditure will take a long time. But the overall state of the income statement is going to make it hard for Villa to invest in new players in the next few years, unless serious capital is injected into the club.
Perhaps the £90m injection is the start of the story…
To me all this is just income and expenditure on the playing side, I think we all can see that income on the corporate side is down by millions, shirts, boxes, seats, sales inside the ground,and sponsorships, the lost is in the club combined with lack of sales. Because of all that, we buy cheap players on cheap wage.
Here’s my throw on it without all the mathematics.If your a top premier league club and you end up not keeping up with the competition you fall behind.If you don’t buy quality players you end up with poor quality and the quality you do have leaves for a better club.If you don’t keep up you end up having to reduce,reduce,reduce thinking Yeh will go on the cheap.Then you find out this is the Premier League and if you go on the cheap you could end up relegated then you lose even more money.So the fear factor kicks in and you decide to clear the dept stabilise the club with money that you could of spent maintaining the club on the pitch in the first place……UTV
Nice one nd that’s how I see it speculate to accumulate as opposed to a race to the bottom.
ha i agree with that take on it more or less.
but lets be clear.
Unless you spend like the top 5/6 clubs 20-50m+ per season you can expect to struggle in cycles.
Its about competition.
When you say “keep up”
what is keeping up and with whom?
swansea, southampton, fulham wham stoke? or the top 7 or 8
then you need to spend big catch those fellas.
totenham for example – 100m .. last summer
Everton throws all that upside down of course. but i believe continuity and stability was a large factor there.
even if we spend 20m 30m every season we could still end up in the wrong half of the table
Your description rings true but like any other methods as many clubs have failed at it as they have succeeded.
there probably is no magic figure that any club need to spend to safe gaurd a position.
i suppose ask QPR, newcastle, sunderland ( they have spent quite a bit of money the last 6 or 7 seasons)
and even if you did, would the other clubs not simply just match your spending or would the top5/6 outmatch it.. net result .. the same midtable mediocrity
its going to take a sheik/oligarch to get us to seriously challenge for anything or improve to any dramatic effect ..or possibly an Everton effort.
shoestring.. sell to buy.. stability.. stick with a manager through a few crap seasons and then let the single approach take hold
Most of what you say makes perfect sense. However referring to the Faulkner interview on the radio Monday evening the only postive thing he said was that they were a lot happier with the finances of the club. 2 things though – Do we believe anything he says and the rest of the the interview was very uninspiring.
The rumour about selling the club. We had this before under the darkest days of Mcleish when some consortium were on the verge of taking over and nothing materialised.
I think when we are at our lowest we clutch at straws.
Am i getting something wrong here (i am not an accountant).
Revenue 80m
70% say hits your target for PLAYERS wages. = 56m = 1.1m / week
25 man squad
say
5 players on £60k
5 players on £50k
5 players on £40k
5 players on £30k
5 players on £20k
=0.77m / week which leaves plenty left over for the youth players, support staff etc.
Plus i am sure our wage bill for players is know where near the above at this point in time.
In other words why can’t we pay the above wages to attract better players.
told you i wasn’t an accountant = £1 million a week. But still this is based on 70% of the revenue which is less than West Brom.
Aso i assume we are still paying large wages to Given, Hutton, N’Zogbia and Bent who aren’t currently in the 25man squad.
While it sounds manageable on that basis Steve I think you’d need to add on the wages of other staff. 70-75% would be a good amount for total wages, sorry if I misled that that would be players only.
In addition, when you hear about a player being on £60k I have often wondered if that is before pensions, national insurance etc – I suspect it probably is. Of the £70m I quoted, £60m was normal salaries, £8m was pensions and £300k was national insurance. So to get to a 70% wage bill as percentage of £80m revenue we’re looking at about £49m on total salaries. Still room for some higher earners in there though for sure. And as Ian points out lower down, we will have made some progress in cost cutting already as all my analysis is on the 11/12 season.
The real problem here, as has been commented before, is the huge sums of money we are paying out for players who are at other clubs or out of favour. It’s OK paying out these wages to “in demand” talent that other teams covet as you can sell them on to teams for a profit (or even a small loss), but the fact is other teams are not prepared to pay the wages that we have been sucked into in the past. Bent/Given/Ireland/Hutton are just not worth it. Add in n’Zogbia (will he ever play for us again?) and there’s maybe £300K per week (£15M a year) and £40M of transfer fees. Other clubs will be paying some of those wages but even so it’s a nightmare.
these figures are 18 months old and look at the situation now.
the situation is that TV income will be a min of £25M extra
The situation that wages will be massively down with the players that have left since May 2012 and will leave in the next few months.
the 70% limit for wages is correct to aim but I think by the end of this season will be nearer 50%, that is why I say there is loads of room NOW to spend more than 5-10K on wages for a player or desperate loan deals.
Ian I am sure you are correct in this. However, it looks to me that Lerner is unwilling to look at it in this way. It seems that he would rather use the cash to reduce his losses. At the moment, the club looks to be unsaleable at an amount that would even recoup Lerner’s investment. If he can reduce that number over the next couple of years while he waits for the cavalry to arrive in the form of an Arab Sheikh/Red Bull/Chinese investors that looks like what he will do. Clearly he needs Aston Villa to remain in the Premiership but that’s the gamble he is taking. This could so easily end in disaster.
there has been a big gamble in reducing costs and surviving, last season we were very close to going down. However as I just posted in the Red Bull thread the situation at Villa is now the best it has been for a long time.
The £90M injection was key to this …
Interesting cortese has left saints does this mean they are selling.
nope he was not the owner and fell out with them
Kinda sad as he and their former owner were going to do great things for them, however after he passed away, his kids who have no interest in the club (sounds familiar with Lerner and the Browns) and didn’t even wanna spend money in the summer but Cortese and Pochettino both threatened to leave. Sucks to be them now.
I still say the £90m makes no difference. If it’s shifting loans to equity there is no cash there. Lerner will have exchanged debt for shares. Any buyer is still going to have to pay that £90M over to Lerner on top of whatever is paid for the rest of the business. You could look at it in a negative way. Is this Lerner signalling that he is in this for the long haul and has no intention of selling?
yes true BUT if he was paying off debt like you would think Villa through favoured people would leak it to make Lerner look good ?
Roman’s people did it as soon as he paid off £500M debt in that way and he is as reclusive as Lerner.
The longer the silence the more hopeful I am he will sell
Thanks for the comments everyone.
Those are fair points Ian. I agree it’s best to look at the current situation.
Estimating where the club is on costs is pretty tricky from these 18 month old accounts. My aim was to set out what I see from the last available data.
A £25m increase on a base ‘media’ income of £47m in 2011/12 would be a huge increase versus 2011/12. It seems the big change is this season, as in 2012/13 the TV money (before the League Cup run is added) was £44m according to the Premier League website here (http://www.premierleague.com/en-gb/news/news/2012-13/may/premier-league-total-broadcasting-payments-season-2012-13.html)
Sporting Intelligence, who seem to have some accurate analysis, suggest the same as you – i.e. the bottom club in the Premier League would get £60m TV revenue this season, up from £35m in 2012/13. (http://www.sportingintelligence.com/2013/05/21/where-the-money-went-premier-league-prize-and-tv-payments-for-2012-13-210501/)
If we can assume that TV money goes up at least £25m then great, because then we’re looking at revenue of around £120m (maybe a bit more but let’s not count chickens).
The million dollar question is just how much have costs been cut from the £146m in 2011/12? The share of transfer fees will be down, and wages will be down. But where are they now versus the £120m revenue we can expect going forward?
I can see why you’d argue that costs are down significantly as we have shifted some wages out. Do you have a view on how much we’re spending on salaries now?
I’d need to look at the squad in 11/12 versus now in detail to get a good guess on how much wages will have dropped (plus we still don’t quite know what we’re paying for Given and Bent, for example).
I’d also love to know what’s in the Other operating costs and how much could be chopped out there.
Anyway the current cost base is the big question. This is what Mr Faulkner knows. Hopefully the next accounts for 2012/13 will give us some clues.
Even with the TV money upside and some likely progress to date on costs, I still wonder if Randy Lerner is now a bit concerned / fed up about the scale of the job in adjusting cost base. Apparently he is going through an expensive divorce. On the other hand, Forbes say that a lot of his wealth is linked to Bank of America shares which are doing a lot better than a couple of years ago.
Your info on the £90m equity for debt swap is intriguing. In my view it doesn’t mean the club becomes cheaper, as a buyer simply buys £90m more equity rather than £90m more debt. But it probably makes an exit cleaner for the current owner – i.e. he gets cash for equity with no complications over the debt he is owed. Any views on whether this is more of an Al Fayed or Abramovich situation?
Good point on the last one, Roman was clean, wiped off all the debt for shares. How did Al Fayed sell Fulham with those debts, that passed me by.
As to the cost base, well a lot of the transfer money would have been accounted for now and only really Nzog and Bent still paying out for. So that would be at least £10M down and then the wages.
I would expect the wages now to be between £50-60M as we stand with Ireland gone, Bent and Given on loan, though we would still be paying a sum for them.
The new signings were very very cheap, Westwood rumoured to be just 5K a week, he got a pay rise of course to a guess 15K a week.
The divorce for Lerner is over and BoA is indeed key but most of that was in the trust anyway.
Next accounts due in 6 weeks so we will soon see as they have to declare the £90M then and see how much the wages went down.
Im fucking lost maybe you lot read the FT or something.it’s all fucking chinese to me.
They do all the thinking so we don’t have to!
u understand Chinese lmao its greek 2me ~ so we are better off or not
We have gone from a small squad of massively overpaid players to a bigger squad of very average players, some of which dont even make the bench and yet still pick up a wage. Lambert getting rid of the high earners is fine but he just replaced them with a lot of players who are not good enough…all still draining money from the club. Why did we sign players like Bowery, Sylla, Tonev, etc when they are nowhere near good enough. We had plenty of homegrown players who could warm the bench and do just as good a job on half the money.
I hear ya benno but you can make that criticism of any team.
tell me a team that can field 20 players every game
either they are a top team paying ridiculous money to them and its called depth .. or you are a crap squad and they are called wastes of money ..
some of our signings still have everything to prove in my eyes .. but is that not the way of every team?
buy 2 one is crap or buy 4 1, good 1 average 2 crap i dunno what the ratio is but i know there is a lot of turnover at every club and there is always a % of purchases that don’t work out.
is our % higher than most is probably the question
Very good article Southern Villan (apologies for missing that “n).
I’ve looked into the figures and as you suggest, it’s confusing even for accountants.
The required info just isn’t there.
Still, I tend to agree with Ian that wages will probably be nearer 50 mill this year.
Even if that’s over-optimistic, when you add on the extra 25-30 mill a year coming up, things going forward are very positive and we should have enough in reserve to be able to seriously invest so we avoid the risk of relegation.
As for Lerner’s personal finances, he was down to a paltry half a billion.
As you say, his portfolio will have seriously improved since these last results.
Any way you slice it, there is no reason he can’t invest, imo.
Unless he’s looking to sell.
I’m not convinced raising the share cap means much at all, either.
He’s only moved numbers around and I don’t see any actual investment whatsoever.
No Badger, the movement was very significant. It was real cash to wipe out the debt, that means we are virtually debt free given a small £20m or so.
that leave open now a massive wide range of choices.
Sorry mate. I don’t necessarily agree.
Even if it’real cash, it doesn’t matter, if lerner has put it in.
All he.s done is move debt to himself, any way you look at it.
Unless you have any evidence that this is outside money, which I’m not seeing.
It probably is not outside but it easier to sell something for say £200M, low wages and no debt then for £140 million, £120M of debt and low wages ?
it makes more sense if he is getting some outside investment in for shares in the future as it cleans the books up…Something we haven’t mentioned i.e. outside investor has 50% shareholding but club still owes Lerner large debt, which is quite complicated, compared to a straight share purchase with little complicated debt….. Just a thought and it would make sense of our lack of spending and Lerners regular attendance in the City… Maybe he is searching for investors!
Err……….Why would Lerner stick £90M into the club to make it easier to sell for less? Where have you determined that the £90M was cash introduced? I’m not saying it wasn’t, just that I haven’t seen anything saying it was. I keep saying this and one of us doesn’t get it. I’m just not sure whether it is you or me!
Someone paid £90M for shares, this is real money and goes into the company. Just the same as any PLC that does a share issue. What the company (in this case RAL) does with it is up to them.
It makes it easier because if you or I was buying a company we would prefer less debt. Randy got Villa at a real cheap price, why ? because the company then had around £30M of debt, maybe if it is him who put in 90M it is more tax efficient that way ?
IanRobo we are still at the same point. Lerner’s debt could only be converted into shares by either issuing more shares or a new class of shares. he has done the first option and converted debt into equity. If that is right there is no cash involved at all. He’s given himself more shares, written off debts owed to him by the club (and reduced interest payments) while strengthening the balance sheet. There will be no £90M in the bank. The balance sheet will now show the assets of the company as £90M enhanced (still negative probably). This makes it £90M more expensive to buy unless he wants to sell on the cheap. He could have agreed to do that with any buyer by writing off the loans. Sorry, but it just does look like housekeeping.
No it is not, what it means is that the debt has all but gone, that puts everything in a different light for the future. I will check the report again but I am sure that will leave the balance sheet in a nice healthy position.
Makes it easier to sell, no debt, healthy balance sheet, good assets with ground and training ground that need no work.
I ask you DS does this ‘housekeeping’ make it easier or harder to sell the club ?
My answer IanRobo is it makes no difference at all. Anyone buying Aston Villa will have an army of accountants and lawyers anyway. On a much smaller scale I sold my own businesses 2 months ago. they had debt to me which I wrote off at the point of sale but got paid the same amount by the buyer. It really is that simple.
There may be some more complex issue about the trust fund being owed the debt, but Lerner must be in control of that as he has previously written off interest payments.
It would be nice if it led to more investment. I’m just saying people shouldn’t get their hopes up too much as I don’t think this really signals anything. If Lerner had created the shares and sold them to an outside investor that’s entirely different. If that had been the case we would have been told as soon as it happened
Nice one DS because I couldn’t work that out for the life of me just how Randy puts in £90m and the debt disappears? In reality the debt is still there.
Yes I get it he hasn’t put the money in but had it as equity but at the end of the day if he sells he’ll still want his money back so I can’t see what the big deal is?
Time will tell if robbos right.
Yep. I hope he is right. As far as I can see Lerner now owns £90M more shares so he will want to sell them for at least that.
I can only see it making sense if he wants to sell a percentage of those shares for investment, not the whole lot as you can sell the Co with debt and it makes little difference… Once he has sold a percentage in shares he cannot (or he can but its V complicated) then issue more shared for his debt… Whereas if he is looking at selling a stake its now a straightforward sale for shares….. Only a though but this is the only option I can see as making sense….. Keeping debt is far more tax efficient than transferring it to shares … !
That is what I do not understand guys. If he is writing off the debt that is good news in whatever way he is doing it and yet the club are not commenting (TBF journo’s not asking on the record).
When we look at the books now and 90M of debt is off the books that will look great so why did he do it now ?
Not say 3 years ago ?
Lts of rumours floating around this morning regarding Cortese and a quatari consortium looking to purchase a PL club…..could that be us?…..just speculating!
Fuck off Lerner and Red Bull, the Villa is OURS
100% sure Cortese will be back in the game and he is a deal maker. However there have been some questionable things going on Southampton apparently with a couple of the signings so it should be buyer beware.
Have you read this in the mirror talk about journalists spouting bollox. Faulkner saying as well that wev made progress because wev kept clean sheets and not been hammered. Fuckin joke if a club. http://www.mirror.co.uk/sport/football/news/aston-villa-doom-mongers-come-3028102?
Just shows how far Wev fallen dafour waiting to see if spurs want him before he comes to us. U say tell him to fuck off cheeky bastard!
http://www.express.co.uk/sport/football/454092/Steven-Defour-waiting-on-Tottenham-bid-before-deciding-on-Aston-Villa-move
Spurs don’t want defour.. come of it.. they have about a 100 midfielder.. why would they want him on top..
I would rather raid spurs and take Holtby and Capoue..
Obv we won’t.. we are not spending in Jan.. hopefully a takeover rather than RL being a total and utter scrooge..
oohah…. Just need Benteke to tell him we play in London…job done 🙂
Fuck off Lerner, Red Bull and any twat that wants to change our name, ground or colours!
Lol. First the bad news herd and baker out for Liverpool now the great news joe Bennett is back. Whoopee do
lol
Whats bad news about Herd being out….Suarez is going to fill his boots. I would rather play Danacien than Herd. It quite often works out throwing a youngster in…no fear and all that!
Have you seen Holt in a Villa shirt…he looks like an advert for a fucking kebab takeaway.
He’s old, he’s starving and fat
So thank you Randy for that!
Looks like I’ll be at the Pool game, albeit in an area of home supporters.
The head honcho of the project I’m working on near Liverpool is a mad red.
He kept offering to get me a ticket, but I wasn’t sure I fancied watching us get whupped, so put him off.
He tried winding me up today, suggesting I was scared.
I told him the only thing I was scared of was pissing myself laughing at the Pool fans if we were to somehow pull off a win.
45 quid a ticket apparently.
I won’t mind us getting beat, as long as we put up a decent show.
Should I wear the away shirt the missus bought me for chrimbo, I wonder?
I stood in the kop the season after we won the league in a 0.0 draw as a mate got me a ticket who was a red. I have to say it was rammed and the surge forward when they attack the kop is incredible. It’s one big sway side to side amazing atmosphere. Now iv had my wank fest over the kop I have to say being in the holte in the 70s was something special especially the big games like blues at home in 1975 nearly 60,000 atmosphere was electric you coukd touch it as you got near the ground never mind in it.
Badger…’we will be fine’. Hope you enjoy mate. I will look on sky for the man hanging from a Villa scarf. No offence mate, but if your being hung, it probably means we are winning. So nice knowing you pal. HEITS 🙂
I’ve been to Anfield a few times and agree, it’s a good ground, Oohah.
Langford, I’ll save my prediction for the preview thread, but suffice to say, I don’t see me being hung mate.
No your OK Badger, they don’t do that no more, but just a bit of advice take a spare set of wheels for your car,
Back from Anfield, a great show by the team! Just three follow ups.
The scousers in the wheel whipping biz are now happily working in the Red Bull pits – after an initial “misunderstanding” at Maclaren where they not only had the wheels off the car in record time but sprayed it red and sold it to Ferrari.
With Heysel and Hillsborough behind them you would think Anfield would be a model of safety now, but that one metre pit that Gabby fell into is a real danger.
Yes it was a dive, Suarez does not put his left foot down and only ha right ankle may have been caught. However look how far away Guzan was from getting a hand on the ball, not a good decision to come out of goal for it.
Exactly my point yes he dived but Guzan did make contact and if that was the other way round in front if the holt we will demand a pen. Also Guzan was at fault which I said earlier he made it really easy for him