Two events put in motion over twelve years ago still impact on Aston Villa to this very day. Randy Lerner’s acquisition of Villa from Doug Ellis in September 2006 and UEFA’s introduction of Financial Fair Play (FFP) three years later currently loom over the promotion push to get back into the Premier League. With Villa’s release of financial information through the first half of 2017, it’s difficult to not think about events in the boardroom becoming as important as the play taking place on the field. As the season winds down, Villa’s financial position isn’t as good as the position in the table. But even if Villa were to miss out on promotion, the situation at Villa may not immediately become a worst-case scenario.
Make no mistake, Villa need to address its debt problems. Relegation two years ago and the coming wind-down of scheduled parachute payments leaves Villa in a precarious position. The business side can adjust operations and expenses, but promotion depends on the players. And players depend on wages. And acquiring players happens in the transfer market. Obviously, Villa are paying its players. Holding companies are tricky business. Manchester City’s City Football Group (CFG) holds a 100% stake in City along with majority stakes in three other clubs across the world. Holding companies typically exist to hold stock for the purposes of controlling companies and voting rights as a corporate group.
In the short-term, the goal remains the same - get promoted. Premier League turnover will improve the operating position and provide an influx of cash to continue building the squad. But, even still, the longer-term prospects remain murky.
While Xia’s Recon holds the debt and is likely payable to another parent company, FFP regulations will no doubt dampen Villa’s ability to sign players either in the Premier League or the Championship. The Premier League isn’t without risk. Other clubs have been feasting on the increased Premier League revenues for a couple of years and will be able to afford a mistake or two in terms of player acquisition. Villa’s margin for error will be much tighter this time around. A bad contract or two without having fully established top-tier status and Villa will risk a drop right back into the second division, with increased financial issues.
Anything and everything will be on the table should Villa fail to achieve promotion. But the prospect of “pulling a Leeds or Forest” shouldn’t worry supporters if Villa spend another year in the Championship. When Leeds went into administration in 2007, they owed banks that came calling looking for its money. AC Milan, currently in a stickier predicament, owes money to American private equity firm Elliott Management. Elliott Management appears to have given Milan the money predicated on the notion that owner Li Yonghong owned a mining company back in China. Villa, on the other hand, seem to be relying on Xia’s complex network of companies to sustain Villa. The situation in Italy reeks of fraud. Xia’s finances appear somewhat murky but at least they are seemingly legit. An entirely different matter will be if Tony Xia remains interested in a second-tier English football team. His ambitions are known, and he aspires to be more than one of the famous clubs in England’s second tier.
Back to financial fair play. Article 61 provides some leeway for clubs. It allows for an acceptable deviation of up to £30MM in expenses above turnover if the amount is “covered by contributions from equity participants and/or related parties.” That does sound a lot like Recon. A significant part of Villa’s core might have to be sold to sustain the club into next season. James Chester, Andre Green, Scott Hogan, and Jonathan Kodjia could bring Villa a decent sum. And that’s not including Jack Grealish, Albert Adomah, or Conor Hourihane should the club need to raise additional funds.
It seems the work done in the board room post-relegation now depends on the players on the field. Come next season, regardless of outcome, Villa will look very different.