Selling Aston Villa and Premier League ownership
By Sihan Zheng
The Premier League is the richest association football league in the world. It is the fourth biggest professional sports league by total revenue, behind only the NFL, MLB and NBA, while being ahead of the Bundesliga and Liga BBVA. When Aston Villa was recently put on the market by eight-year American owner Randy Lerner, I started to wonder about the financial implications of owning a Premier League Team. What kind of buyer can Aston Villa expect in the current financial landscape of the Premier League?
Recently, financial data on the 2012-2013 Premier League season has been released by the Guardian, giving us exceptional insight into the financial state of the league. Through looking at the numbers, we can gain some interesting insight on the financial workings of the Premier League, and what it means for prospective owners.
The profitability of Premier League teams
Are Premier League teams profitable? Not really – only nine out of twenty clubs in 12/13 ended in the positive. Swansea recorded £21 million in profit, the most of any team, while Queens Park Rangers (now relegated) recorded the largest loss at £65 million. Overall, the league as a whole had a turnover of £2.7 billion, with an overall loss of £291 million.
If we were to delve deeper into the numbers however, we can see that outside of Swansea, not a single second team made more than £10 Million profit (second place goes to Newcastle at £10 million). Aside from Queens Park Rangers which garnered the greatest losses, four other teams had losses exceeding £50 million.
An important aspect to consider however, is transfers. Swansea made a profit from the sales of Joe Allen to Liverpool and Scott Sinclair to Manchester City. It is unrealistic to expect a team to be able to regularly sell players for profit. The Premier League overall is a buyers league and not a sellers league, and the position of the club in the league does not bear any weight to this notion – everyone from top to bottom prefers to buy rather than sell on average.
Aston Villa recorded one of the largest losses in the Premier League with at £52 million, coupled with Villa’s current owners recently having to waive repayment of approximately £90 million in loans,Villa were unquestionably in financial troubles. Loans are how most of these teams survive heavy losses, the owner “lends” money to the team, often with no interest or token interest, hoping that one day the team might be able to “repay” the amount loaned. By waiving repayment, Aston Villa’s owners are effectively writing off the debt, and admitting that there is probably no chance of future repayment.
The unfortunate truth is that Villa has very little potential for profit in the short term. Apart from having a bloated wage bill, heavy investment is needed for the club to become truly competitive once again. I personally do not believe that they can compete in the league or ever make a serious push for a European place without significant investment, probably through cash injections by the owner.
The stars are aligning for Aston Villa to be bought by an owner who is immensely wealthy, and more importantly, the new owner probably won’t think of the club as a profitable venture. Most likely the new owner(s) are only interested in titles and trophies – unfortunately, there is a legitimate chance Villa will wind up with an owner like Vincent Tan.
Aston Villa as a title contender
Many owners in the Premier League don’t care about profits. They care about trophies, glory, and titles, but usually the reputation of the club and its traditions are not taken into account. After all, looking at the financial numbers, a Premier League team is actually a poor investment. The average profit margin of an S&P 500 company is 9%, the Premier League average is in the negative.
However, looking at it from this perspective, Aston Villa is also facing significant challenges. They finished the 2013/2014 season in 15th place, with 38 points – 48 points out of first place. Significant amounts of investment is needed to improve the team. If the owners wish to win titles, or at least make the club relevant to the footballing landscape in England, they must inject huge amounts of money into the team.
Whether you agree or not with the state of affairs in England, cash is how teams like Manchester City and Chelsea were able to achieve success. Yet it has become increasingly difficult to succeed by throwing money at the problem. The amount of money required to buy the best players is at an all-time high. When every team is increasing spending, you will need to invest that much more to make sure you best your rivals to key signings – spending in the Premier League has completely snowballed.
When a player like David Luiz can go for a £50 million transfer fee, we can see that the price of talent has shot up, could new ownership afford to throw enough money to propel a lower mid-table team into title contention?
The only solution for a club like Villa is to spend exorbitant amounts of money to bring them up to a contender status. However, with the recent changes in rules and regulations, it has become impossible to quickly improve the team. A team has to limit the amount of losses that it sustains every season. Financial fair play is going to stop teams from spending beyond their means, and considering that Aston Villa is already sustaining heavy losses every season, I don’t think they can increase spending. Unfortunately for Villa supporters, they may be in for another close shave with relegation next season.
So who will buy the team?
Will Aston Villa’s financial difficulties and its lower mid-table position mean that it cannot get sold? Of course not! So who might be interested in buying the team?
Aston Villa is a very popular club very well known and one of the most storied in the country, with huge numbers of supporters both domestically and internationally. As such, potential owners can purchase the club for its exposure and use the club as a marketing tool. For instance, when you consider Newcastle United’s previous sports direct connection and apply a similar circumstance to this particular example, saving Villa may have to be seen as a long term project rather than a short term fix. If the new owners potentially decide to use Aston Villa for marketing, it would have a very high Advertising Cost Equivalent (how much it would cost to purchase a similar level of exposure).
However, from the owner’s perspective, using a club as a marketing tool could very well decrease the value of the club. Fans tend to view very obvious marketing negatively, and it may cheapen the Aston Villa brand. For that price that Aston Villa is likely to sell for, most owners would avoid doing anything to reduce the value of the team.
Sports teams as a whole are rising in value. In this day and age, the value of TV content is at an all-time high, and the value of sports broadcasting contracts are increasing at a breathtaking pace. It is hard to estimate the value of a Premier League team, as there just isn’t enough of them being sold. However, if the recent sale of the LA Clippers for $2 billion is any indication, the value of sports teams as a whole is going up, and new owners of Aston Villa can possibly run the team at a loss for many years, anticipating a much higher sale price in the future.
Simply looking at data from other leagues such as the NBA is not a good way to predict trends within the Premier League. The least valuable NBA team has immense value in its NBA license. Unless the NBA expands, there are only 30 NBA teams. Given the value of said license and team performance, which has little effect on the value of the team in the long term, the NBA is extremely cyclical due to its competitive balance measures. In the case of Aston Villa’s value, considering that the Premier League has relegation whereas the NBA does not, said value could instantly go down if the team gets relegated next season.
Whether Aston Villa’s value can be expected to rise or not is difficult to say. The team has flirted with relegation in recent years and relegation can prove to be disastrous to the value of the team, even if they quickly gained promoted back to the top flight again. On the other hand, as a whole, the value of sports teams are rising, and if Aston Villa can regularly challenge for continental competition, the value of the team would rise significantly.
Finally, to own a major sports team is arguably one of the most exclusive clubs on earth. In recent years it has become the ultimate object of desire for the uber-rich. How do you quantify the value of watching a stadium full of happy fans cheer while thinking “this is my team”? How do you quantify the value of pride in seeing your boys lift a trophy? Or the value of a tearful fan thanking you for saving the team?
My predictions? An immensely wealthy owner would swoop in and purchase Aston Villa. Unfortunately however, profit is probably the least of his concerns, and the new owners probably would not be the kind to demand instant trophies. I expect that they would rather invest heavily in infrastructure, and there will either be major stadium improvements or even a new stadium entirely. The team would inevitably sell for a record amount. What happens after that? Who knows, it’s impossible to project that far.