Villa easily satisfied FFP in 2016/17 due to parachute payments and player sales despite spending £88 million on players.
They should easily satisfy it in 2017/18 as player trading position reversed and sold more than they bought.
Will need major belt tightening in 2018/19 as parachute payments fall from £34m to £15m and FFP loss limit falls from £61m to £39.
If you want the long version read on…
There’s nearly as many questions about Financial Fair Play (FFP) these days as there is about Katie Price’s love life, and the answers are usually equally confusing.
I’ve been asked to look at Villa’s FFP position, and this will involve an element of guesswork in places, as some figures are not yet published or have never been in the public domain.
In the Championship FFP is based on a rolling three-year period, with the aim of keeping losses to an ‘acceptable’ level.
Presently the rule is that a club can have an FFP loss of £13 million for every season it is a member of the Championship within the three-year period, and £35 million for each season in the Premier League.
Therefore, for Villa, for 2016/17 the allowable FFP loss was £83 millon (2x£35m + £13m) falling to £61 million in 2017/18 and £39 million in 2018/19.
The known losses
According to Villa’s accounts, the club lost £81.3 million in 2015/16 and £14.4 million in 2016/17 giving a grand total of £95.7 million, so it initially looks as if an FFP breach had occurred, but we now enter the world of murky accounting and additional FFP rules.
To add to the confusion, some costs are excluded when calculating FFP losses. This is because they are considered ‘good’ as they represent an investment in the future of the game or its facilities.
These costs include:
- Academy running expenses
- Community support schemes
- Infrastructure costs (usually depreciation on the stadium and training facilities etc)
- Promotion bonuses to staff should the club go up to the Premier League.
Looking at Villa’s accounts for 2016/17
- The club has a tier one academy, it looks as if this cost was £5.9m for Villa. (£5m in 2015/16)
- Community support was £2m (£2.2m in 2015/16)
- Infrastructure cost (depreciation) was £2.9m (£48.5 million in 2015/16 due to a bit write off of the value of Villa Park).
This means that Villa could have had an FFP loss of £31.8 million (£61m allowable three-year loss less £29.2m FFP loss incurred in last two years) for 2017/18.
Squeaky bum time
Have Villa managed to get in under this figure of £31.8 million for 2017/18?
I would say they have, but there is not a lot of room to spare.
In 2016/17 the loss of £14.4 million was AFTER selling players at a profit of £26.6 million. Villa have made significant sales in 2017/18 and it looks as if they’ve made a profit on these of a further £15 million.
Now for the bad news, Villa’s broadcast income for 2017/18 is down by about £7 million from £41 million to £34 million due to a reduction in parachute handouts. It’s likely the club’s other income will fall by £2-3m too as commercial deals expire.
The wage bill will still be high, and the figure for 2016/17 of £61 million was the third highest in Championship history, only beaten by Newcastle (who were promoted) in 2016/17 and QPR in 2013/14 and are now facing an FFP fine of between £40-50 million.
Expect the wage bill to be trimmed a bit but Villa have recruited John Terry and signed some loan players who are on big money. I’ve gone for a 10% reduction in wages to £55 million
Villa also spent a fortune on players in 2016/17 of £88 million on players. The cost of these are spread over the length of the contract signed. So if we assume players are on four year deals this is a cost of £22 million a season unless the player is sold.
These two costs put together are likely to be in the region of £70 million, and expected income is about £65 million, taking into account the fall in parachute payments.
Villa’s overheads in 2016/17 were £91 million excluding amortisation, of which £61m was wages, so lets assume that if there have been cutbacks for 2017/18 there are £25m of non-wage overheads.
Putting this together we have
|Estimated accounting loss||(40)|
|Gain on player sales||15|
|Allowable FFP costs||10|
Therefore over the three years to June 2018 Villa will have a rolling FFP loss of £44.2 million, well within the £61 million limit.
This is where I fear Villa will face its biggest challenge. The allowable three-year FFP loss will fall to £39 million from £61 million and parachute payments from £34 million to £15 million. Put those together and it’s a financial squeeze of £41 million.
In addition, they may struggle to get players on big wages such as Ross McCormack off the payroll. Even if he goes out on loan Villa will be picking up the majority of the tab.
It suggests that the club may have to sell Grealish and Chester to ensure they don’t exceed the limit.