Dave Powell was a guest on this week's Claret and Blue Podcast, and he had a lot to say about Aston Villa's financial position
Aston Villa and PSR - the club have forced their way onto the top table
Aston Villa and PSR - the club have forced their way onto the top table
Have Man City given Aston Villa reason to feel confident about PSR with their recent success in their legal cases with the Premier League?
It's just one of the key financial questions that are answered in the second part of our in-depth chat with Reach PLC's Business Of Football writer Dave Powell, the expert behind the brilliant blog The Bottom Line.
Dave loves tackling the numbers and getting stuck into what PSR means for clubs in the Premier League, so we asked him to answer some of your questions regarding Unai Emery's side.
In a special interview with the Claret And Blue Podcast hosted by Dan Rolinson, he dissects Villa’s current financial situation. You can catch the first half of the interview, here.
Dan Rolinson: I'm going to combine two questions together here from Pillay AP, first of all. What is the bigger issue, PSR or UEFA rules? It seems like we could solve PSR by selling one or two players. How do those wages come into play with UEFA rules through reducing to 70%? And JB asks, do we have any guidance on where we stand with wages and what it looks like for this season in terms of turnover to wage ratio? A reply to that question said, it was 97% last year and our revenue has increased by 50%. It's reasonable to assume this year it will be closer to 70 and we'll be compliant with those rules?
Dave Powell: Villa will probably be concerned about sanction from UEFA in terms of fines. PSR is purely Premier League related and we don't know how long it's gonna be in situ for. The likelihood is that the Premier League's rules align with UEFA and their squad cost ratio rules. You're not trying to do two things on two fronts. You're basically just managing to one set of rules, which makes perfect sense. But certainly it's different for clubs like the bigger clubs who have huge revenues. They are able to rely on huge commercial revenues on the back of how big they are. They are less reliant on broadcast revenues for income streams, which means that their wage to revenue ratio is far lower.
Marcus Rashford.
Marcus Rashford.(Image: Photo by Visionhaus/Getty Images)
Dan Rolinson: Their wages will be more than Villa's because their revenue is higher anyway?
Dave Powell: Because the commercial revenue is higher, and the money they get from the Premier League through central funding through merit payments every season is higher, because they finish higher, all these things have to be factored in.
So the commercial thing is huge, really and it's unfair. When these rules were introduced about two or three years ago, it started off at 90%, then it went down to 80%, and then it's 70% by year three. Now, it seems harsh to punish clubs that come into this because of course Villa are going to have higher wages to revenue ratio because the revenues aren't as big, but wages are rising higher than revenues in football at the moment and that's a problem that this set of rules doesn't seem to acknowledge.
It’s getting harder and harder for football clubs to meet that rising cost of wages. Because it's not a small matter, how long ago would we have thought that Villa would be paying 75% of the wages of a player who's on £325,000 pounds a week. It's crazy.
The wage bill for last year, for 2023, 24, went up by 58m. And I think in the last two years, so taking it up to two years prior, it's up 84%,Villa's wage bill. I think last year's factored in Champions League qualification. So the bonuses for qualifying for the Champions League would have been paid through that. I imagine if they would have qualified again, they would've had bonus payments to pay.
But when you get better year on year, you have to pay more money. And when players deliver and you've got contract renewals, those players want more money because they've delivered and it gets harder and harder because you are having to pay more money to put off suitors from other clubs. So squad cost ratio is UEFA's way of measuring. Measuring the sustainability of a club. And I think that also includes player sales in that.
So when you're thinking about revenue generated, you think about your revenue, and then you add into that any player sales that come on top of that, and then it's kind of minus agent's fees and wages and transfer debt, things like that.
So you come to a figure. So I think Villa will be in the mid to late 80s, I think. Even based upon the projected revenues of £360m this year. They may be able to drive that down through various means and get it closer to kind of 80.
I don't know, but I still think they'll be in breach. I think Chelsea will be in breach. I think Villa will be a breach.
But it's a fine they're willing to pay. The issue is I think UEFA want clubs to move towards this now and that's what Villa will have to be mindful of. It'll be a slap on the wrist and a fairly weighty fine, but with the caveat of this it is going to be worse next year.
It's just unfair. I think Villa will get a slap on the wrist I don't think they'll be completely compliant with it, but I do think they won't be a million miles off and they would have been seem to have made some headway in terms of reducing that year-on-year which they hadn’t last year, that was 90% percent, this year It's 80%. So what more can you ask from a club? They're trying to comply
Dan Rolinson: Let's do punishments, actually, while we're on that. This is from Badger. Is taking a points deduction as an alternative a possibility?
Dave Powell: There is no reason I can think of where Villa would take a point deduction. The problem is there's that cluster of clubs where it's very, very close, so a point makes a huge difference. Can you imagine if Nottingham Forest points deduction would have been, for this kind of financial year, how close those things were, I don't think they're willingly taking any points deductions there.
Philippe Coutinho
Philippe Coutinho(Image: Getty Images)
Dan Rolinson: A couple on contracts from Matt, I don't think you'll know the answer to this specifically but as a wider point, how much of a percentage does Coutinho, Hause, Dendoncker and Olsen's wages account to turnover with hopefully their salaries coming off the books? Also, how does cancelling a player's contract affect finances?
Dave Powell: So I don't know the actual percentage of what that would be, but I imagine Coutinho was on good money. All that money is freed up, yes, but as I mentioned earlier, wages have all risen since all those players are acquired anyway, and Villa have raised the bar in terms of their own profile of player they're looking for now.
Those players have to be replaced. The issue with qualifying for the Champions League or the Europa League is that you need a bigger squad. You need a deeper squad to be able to cope with the rigours of both domestic and European competitions. So you can't allow players to leave and not replace. The cost of wages, even for lesser players have now is all risen. With Villa shopping in a different kind of store now than they were, they are going to pay more for wages. So I imagine that gap will get swallowed up fairly swiftly.
To the other point about cancelling players contracts, yes you can, it removes it off the wage bill, but you're paying money too, there will be a severance pay to get rid of these players, which will show up in that financial year as an exceptional item. So you'd still have that shown on the books if you're cancelling a player's contract. It just means that for future planning, it just lightens the load on your wage bill a little bit. It's amazing how quickly that can get swallowed up. There aren't many Premier League clubs whose wage bills are going down, and I don't think Villa will be one of those either.
Dan Rolinson: Lockster asks, is there a PSR advantage to effectively flipping an expensive signing quickly for approximately the same money?
Dave Powell: When you sign a player, it's irrelevant how the money is paid, so it can be paid in two tranches, it can paid in five tranches and that all is accounted for by cash flow. However, the actual fee is amortized over the length of a contract which is capped at five years. So, if it's £50 million, it appears in the accounts as £10m per year. So if you've had a player for two years, then their remaining book value is £30m. If you sold them for £50m million again, you'll make a £20m profit they only have £30m pounds worth and you will remove that cost from your amortization figures.
That aids the bottom line. So yes, you can, but it's like an investment. It's not really like flipping, if you've done your due diligence, you've signed a player at a market value and then you've been able to make money on them years later. That's just like a good investment, especially if their leaving hasn't impacted your competitive performance.
Dan Rolinson: Man City recently won their case against the Premier League for associated sponsorship deals. Does this offer any opportunities for Villa?
Dave Powell: They won a portion of their case against the Premier League for that and that was largely that they made a big song and dance about how shareholder loans should be accounted for when it comes to regulations and interest-free shareholder loan should be viewed as being at least at the rate of the Bank of England.
So they did have a victory and there were some other elements of it, but it doesn't change a huge amount, but it will I think allow clubs with simpatico relationships to eke a bit more money out.
adidas are the manufacturers of Aston Villa's new 2024/25 kit
adidas are the manufacturers of Aston Villa's new 2024/25 kit
Nassif Sawiris is a shareholder in Adidas, maybe there's things that can happen there, I don't know in terms of some of the sister companies that exist there, but I think, as I mentioned before, there's only so much people will be willing to pay and I think City leant on their relationships in the Middle East to great effect at the start, it's been more difficult for Newcastle to do that.
And I think the Newcastle one's probably more instructive about where we're at. So Villa now as part of the Champions League conversation, this automatically improves their leverage, from a commercial point of view anyway.
I think what is more impactful is the fact that Villa have become a better side over a couple of seasons and have willing owners who really want to invest.
They've got plans for the stadium. They've a good squad and they've got a good manager and they are on an incline. So that's leverage. So if you're trying to make a case for fair market value, you say 'Well, we've been in the Champions League.'
So I think it's come at a good time because Villa's obviously got a betting sponsorship as their main partner. We're going to have a ban on that from 2026. And I think it's come at a good time for Villa because I'm betting the gambling industry propped up commercial revenues. I think its come at good time for Villa to be good, because they'll go back to market after their Betano deal, and they'll be in a strong position. More important for Villa is to be a competitive side more than looking at the kind of some of the wins that City have had with APT.
Dan Rolinson: Final question from John, I think PSR is working. We've achieved seventh, fourth and sixth as big six clubs like Manchester United, Spurs and Chelsea have fallen to let us in. Furthermore... Newcastle and Palace have won silverware, and Forest have European football. Everybody has restraints, am I wrong?
Dave Powell: I think it's a good point. I think the reason for the fall off of Manchester United and the like is not so much to do with PSR, it is to do with a lack of strategy and everyone else having addressed things like this over a period of time.
So, if you look at it through that lens that you think of what's happened over the last couple of years, two, three seasons, the Premier League's been pretty exciting. The jostle for positions, even on the last day. This season.
That's exactly what the Premier League wanted it to look like. PSR still does pull up the ladder to the rest because those big sides are always going to have more money, but the fall off of Chelsea as well.
So the Chelsea one, they had money to spend. They managed to get through all the PSR rules and they managed to spend heavily, but again, it was the execution of an investment. Same thing, that is a lack of strategy.
The fall off of these teams has allowed for space to be created for others. Now Newcastle have come in, they've got money and they've done it over a kind of a piece meal basis to get to where they are.
The issue is that the big clubs still have no PSR issues really. United didn't and they finished 16th, they can still outspend most teams in the Premier League because of the revenues they have. They can offset players they can sell.
The problem is it doesn't allow for those who can close the gap, to close the gaps.
On the back of a Champions League season where actual competitive success was achieved it does not seem right that that success should have to be to absorb PSR deficits.
It should be that there is an allowance post the Champions League season to say right, your limit is higher, because of Champions League football last year.
So it kind of gives the carrot to spend a little more if you achieve Champions League qualification. My issue is that just Villa's brilliant season last year will just squash a PSR deficit and allow them to add a couple of players. And that seems grossly unfair. Trying to push the issue back a little bit further, it'll still be there, but it's further on.
Villa were beaten by the winners in the Champions League, and were the only ones that gave them a game. There's a case to be made there to say Villa are one of Europe's best teams now. So it seems unfair that they're still bound by this.