Wednesday, March 7, 2012

Aston Villa - Prophets And Losses

It is fair to say that this has not been the most enjoyable of seasons for Aston Villa fans. Their team currently sits in 15th place in the Premier League and was eliminated in the early stages of both cup competitions. Although it is unlikely that they will be dragged into a relegation battle, as there are many teams worse than them in England’s top tier, their form does not inspire total confidence. Their problems are all the more poignant, as 2012 is the 30th anniversary of their memorable victory in the European Cup when a Peter Withe goal was enough to defeat the mighty Bayern Munich.

The controversial decision to appoint former Birmingham City manager Alex McLeish has not proved to be a glittering success to date, though his lack of popularity with some Villa fans is surely as much to do with his poor track record (leading the Blues to two relegations in four years) and his dour brand of football as his stint at St. Andrews.

In fairness, this was always going to be a tough gig for any incoming manager, as the legacy left by the departing GĂ©rard Houllier could be described as an unholy mess. The Frenchman’s nine-month reign was an unmitigated disaster, as his attempts to change the team’s style of play led to a series of poor results and numerous arguments with the players. This always looked like a bizarre appointment, as Houllier had not managed a football club for three years and had been away from the Premier League for six seasons. Although his exit was down to health reasons, he may well have been shown the door in any case.

"The always appealing Alex McLeish"

If that were not bad enough for McLeish, the club then sold two of its best players, Ashley Young to Manchester United and Stewart Downing to Liverpool. Although new recruits were signed, they were of inferior quality. Nobody would truly expect the likes of the inconsistent Charles N’Zogbia, the injury-prone Jermaine Jenas (on loan), the limited Alan Hutton and the aged Shay Given to pull up any trees – though Hutton might just slide-tackle one. Big Eck’s problems have been exacerbated by injuries at various stages of the season to key players, such as Richard Dunne and Darren Bent.

Nevertheless, the club’s hierarchy expected more when they appointed him in the summer, as explained by General Charles C. Krulak, a non-executive director, “He has proved he can manage in the big leagues – just imagine what he could do if he were with an owner who supported him.”

That was a reference to Randy Lerner, the American who acquired Aston Villa in late 2006 for £66 million, replacing “Deadly” Doug Ellis, and who has continued to pump money into the club ever since. Unlike other foreign owners, Lerner has considerable knowledge of his club’s glorious traditions and has endeared himself to the fans in a number of ways, such as renovating the historic Holte Hotel near the ground, commissioning a statue of Villa’s pioneering chairman William McGregor and even paying for the 1982 European Cup winning team to parade at Villa Park.

"Lerner - heaven knows I'm miserable now"

Another crucial figure in Aston Villa’s recent history is former manager Martin O’Neill, whose four-year time in charge divided opinions. On the pitch, the team finished 6th three years in succession, which secured a return to European competition, while his last season saw two exciting cup runs. Villa got to the FA Cup semi-finals, only losing to eventual winners Chelsea, and reached their first cup final in 10 years, when they were narrowly defeated by Manchester United in the Carling Cup.

However, many felt that this was the least that O’Neill should have achieved, given the vast sums of money that the owner allowed him to spend, both on transfer fees and a colossal wage bill. All in all, O’Neill splashed out around £119 million on new players, though this comes down to £84 million after recouping £35 million from sales, according to the Transfer League website. That is near enough the figure that O’Neill recognised, though in his mind it was not a lot of money, “I must stand up for myself somewhere along the way. By the time August comes around, I’ll have been here four years. I’ve invested £80 million. That equates to £20 million (a year).” In fact, it’s a huge amount compared to most clubs’ outlay.

"Agbonlahor - let the happiness in"

The other issue is whether this money was wisely spent or wasted. Although some solid purchases were undoubtedly made (James Milner, Ashley Young), far too many of O’Neill’s recruits were of the journeyman variety. It is difficult to argue that players like Nigel Reo-Coker, Steve Sidwell, Curtis Davies, Zat Knight, Luke Young, Habib Beye and Emile Heskey made any sort of meaningful contribution. The high wages paid to this dross not only hurt the club directly, but also caused problems when the club tried to offload them: either they were sold at much reduced prices or they have proved impossible to shift.

Given the sheer mediocrity of some of these buys, many wondered why O’Neill did not make more use of Villa’s excellent academy and bring through some talented youth players.

Once Lerner turned off the taps, it was a matter of time before O’Neill exited stage left, though his timing could have been better, as he resigned just five days before the start of the 2010/11 season. The owner said that they “no longer shared a common view as to how to move forward.” In other words, O’Neill did not accept the new “sell-to-buy” policy and did not want to bring the wage bill under control. As Krulak explained, “The reality is that the wage-to-revenue issue was not addressed and Martin was apparently unwilling to address it.”

"All these things that I've Dunne"

This marked a change in Villa’s strategy under Lerner. Initially, they spent big in an attempt to reach the promised land of the Champions League, but the prophet failed to deliver. The heavy spending only took the club so far, even though Krulak felt that it should have produced more, “We believed we had set the club up for success.” They had possibly not reckoned on the changing environment, whereby Manchester City’s new found wealth added a further layer of inflation to that already established by Abramovich’s Chelsea.

Even though they invested significant sums, it was not enough to consistently compete with the leading clubs, despite a series of hefty financial losses. It now looks as if Lerner has pulled back before the wage bill becomes completely unsustainable, which is the sensible thing to do – though it may mean that Villa have to settle for mid-table anonymity instead of challenging for a place in the top four in future. Still, as Tennyson said, ‘tis better to have loved and lost than never to have loved at all.

That said, Lerner has still been willing to put his hand in his pocket when necessary, such as January 2011 when he smashed the club’s transfer record by paying Sunderland £24 million for Darren Bent, as it looked like Houllier might be leading the club towards relegation. This purchase came just a few months after Lerner described “that sort of deal” as being “outside our means.”

However, that signing is pretty much the exception to the rule under the revised regime, as can be seen by looking at the net transfer spend in recent years. As might be expected, little was spent during the last five years under Doug Ellis (only £25 million), but there then followed a flurry of activity when Lerner arrived, producing £84 million of net expenditure during the O’Neill era. Since he left, it’s been a very different story with the club generating net sales proceeds of £16 million even after Bent’s signing.

Nevertheless, Villa have still been among the highest spenders in the Premier League. Starting from 2008, when O’Neill spent an astonishing £45 million, only three clubs have spent more: Manchester City and Chelsea (obviously) plus Stoke City. In other words, over this period Villa have significantly outspent clubs like Manchester United, Arsenal, Liverpool and Tottenham – with precious little to show for it.

As the annual report rather drily noted, “The acquisition of players and their related payroll costs are deemed the core activity risk and, whilst assisting the manager in improving the playing squad, the directors are mindful of the pitfalls inherent in this area of the business.” That’s mainly a reference to the financial dangers associated with big spending in the transfer market, but it’s also surely a comment on the difficulties of finding the right players. Either way, it’s easy to see why many fans believe that the club have under-performed, given the amount of money that the club has spent.

This has been reflected in Aston Villa’s woeful financials, most recently in the £54 million loss reported for 2010/11. Looked at another way, they lost more than £1 million every week last season. This is the club’s worst ever result off the pitch, as the loss grew by £16 million from £38 million in the previous season, though almost £12 million of this related to exceptional payments for changes in management.

The accounts do not provide any details for this sum, though it is likely to include the settlements agreed with O’Neill and Houllier. It may also cover the reported £2 million compensation paid to Birmingham for McLeish, even though that occurred after the balance sheet date, as the club might have made a provision for such an eventuality. Although these pay-offs are not enormous, especially compared to the £64 million paid out by Chelsea in the last four years in their managerial merry-go-round, it is a significant sum for a club of Villa’s magnitude.

This helps explain why the operating loss increased from £51 million to £67 million, though the business still has a fundamental problem, as EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) is negative at £16 million, even after excluding £39 million of non-cash flow expenses like player amortisation and depreciation plus the £12 million exceptional items. Although revenue of £92 million was also a record for the club, it only rose slightly (£1 million), while the wage bill grew £3 million to £83 million.

The overall loss would have been even higher if Villa had not made £19 million profit on player sales, largely due to Milner’s transfer to Manchester City.

As a technical aside, I should clarify that we are using the figures from a company called Reform Acquisitions Limited, which is the parent company for Aston Villa’s five companies, including Aston Villa FC Limited, whose principal activity is described as “professional football club”, and, confusingly, Aston Villa Football Club Limited, whose principal activity is “commercial and retail operations.”

Whatever the name of the company, the picture does not look very pretty. Since Lerner bought Aston Villa, the club has made cumulative losses of £148 million with the vast majority of that (£138 million) being made in the last three years.

That’s a lot of money to lose at any time, but it’s particularly galling if you consider that they have effectively spent all that money to stand still. Villa finished 16th in the season before Lerner rode into town and currently sit in 15th place, i.e. back where they started. In fairness, Lerner’s investment did help propel the club to 6th place in between times, but the club has declined in the last two years.

After the latest results, Villa’s chief financial officer, Robin Russell, said, “The board is confident that the actions taken since the end of the 2010/11 financial year have galvanised the longer-term sustainability of the club and have given us a better financial platform on which to build for future success.” We shall see, but the trend is most certainly not his friend at the moment.

Indeed, if we exclude the impact of player sales, as few fans would want their club to sell its best players every season, and last year’s exceptional management pay-offs, then we can see that the underlying loss is larger than the reported figures – and is growing. In 2009, this “pure” loss was £49 million, rising to £56 million in 2010 and again to £61 million in 2011.

Put another way, the improvement in the reported loss in 2009/10 from £46 million to £38 million was purely due to higher profits on player sales, which increased from £3 million to £18 million. Similarly, the relatively low £7 million loss in 2007/08 would have been £19 million without the £12 million from player sales.

However, as investment brochures say, past performance is not necessarily an indication of future performance, and there are indeed some actions that Villa have already taken and could take in the future that would improve the bottom line. Whether they can do enough to reach break-even without selling players is another question altogether.

This helps to explain why it was imperative for the club to sell players last summer with Young and Downing generating £37 million of revenue to be included in the next set of accounts.

To place Villa’s £54 million loss into context, it was the third highest in the Premier League in 2010/11, only behind (yes, you’ve guessed it) Manchester City and Chelsea. Admittedly, four clubs (Liverpool, Newcastle, Sunderland and Birmingham) have yet to publish their accounts for last season, but it is unlikely that they will surpass Villa’s performance.

Granted, football clubs are generally not profitable, but there was a noticeable improvement last season with seven of the 16 Premier League clubs that have so far reported making a profit, compared to just four out of 20 in 2009/10. In addition, three clubs managed to restrict their losses to less than £10 million.

On the face of it, it is puzzling that Villa would make such a large loss, given that their revenue of £92 million is the 24th highest in Europe, according to Deloitte’s latest Money League. Indeed, in 2009/10, they were as high as 20th in this annual ranking. Of course, they are still miles behind Europe’s powerhouses, epitomised by the Spanish giants Real Madrid (£433 million) and Barcelona (£407 million), but a more pertinent comparison might be Napoli, who are going great guns in the Champions League, even though their revenue is only £12 million higher than Villa.

Domestically, Villa have the 7th highest revenue in England, though this is highly misleading. It’s once again a case of mind the gap, as Villa’s £92 million is a long way below the leading six clubs. After significant growth in the last couple of years, Tottenham (£164 million) and Manchester City (£153 million) are more than 50% higher, while Arsenal (£227 million), Chelsea (£226 million) and Liverpool (£184 million) all generate at least twice as much as Villa. Manchester United are out of sight with £331 million.

Let’s consider what that means: United earn £240 million more revenue than Aston Villa every season. That is a major competitive disadvantage. Although Villa’s revenue may be fairly described as being “best of the rest”, they will always struggle to break through football’s version of the glass ceiling. As McLeish admitted, “We can’t compete with the super clubs, there is no doubt about it.”

On the other hand, these figures do suggest that they should be doing an awful lot better than languishing in the lower reaches of the Premier League.

Revenue has increased on Lerner’s watch from £37 million in 2007 to £92 million in 2011. Even though this is somewhat distorted by the starting year only covering 10 months (after the acquisition), the majority of the growth in 2008 was genuine, as it was derived from a £21 million increase in TV revenue following the new three-year deal that kicked-off in that season.

While match day income has only grown a little in the last few years (and actually fell £3 million in 2011) to £21 million, Lerner’s commercial team has done reasonably well in growing this revenue stream from £6 million to £17 million, including a 16% rise last season alone.

Although it is true that last year’s revenue of £92 million was Villa’s best ever, it actually only meant a £1 million (or 1%) increase on prior year, so that really represented a slowing down in the club’s revenue growth that needs to be addressed. While highlighting the record, the club obliquely acknowledged the difficulties presented by its poor performance on the pitch, “This was achieved despite a backdrop of instability as the 2010/11 season constituted one of the most turbulent in the club’s recent history.”

Like many other clubs, Villa are heavily dependent on TV money, which accounts for nearly 60% of their total income. That’s nowhere near as high a reliance as some other clubs, e.g. an astonishing 88% of Wigan’s revenue comes from television, but it still highlights its importance to Villa.

The vast majority of Villa’s £54 million TV revenue, £49 million, was earned from the Premier League, which has a standard methodology for distributing the funds. Each club gets an equal share of 50% of the domestic rights (worth £13.8 million) and 100% of the overseas rights (£17.9 million). However, facility fees (25% of domestic rights) depend on how many times each club is broadcast live with £8.2 million for Villa, based on 15 games. Finally, merit payments (25% of domestic rights) are worth £757,000 per place in the league table, giving £9.1 million to Villa.

In other words, if Villa were to finish in their current 15th place, their merit payment would be £4.5 million lower than 2010/11. In addition, they might also receive lower facility fees, as they could be deemed less attractive and not be televised so often.

TV money also depends on whether a new central deal has been signed. For example, Villa’s 2010/11 share was boosted by the new three-year Premier League TV deal that commenced in 2010, so that it rose by £3 million, even though they dropped three places to ninth, which was almost entirely due to the substantial increase in overseas rights.

Nevertheless, the allocation of Premier League TV income is relatively egalitarian, so moving up and down the league does not make a huge difference to the money received by an individual club, e.g. last season West Ham trousered £40 million for finishing rock bottom.

No, what has really damaged the English game’s competitive balance (at the top end) is the money available to clubs that regularly play in the lucrative Champions League, as can be seen by the graph above. Last season the four English clubs in Europe’s flagship competition (Manchester United, Chelsea, Arsenal and Tottenham) received an average of £35 million, which makes a considerable difference to their budgets, but has hurt the like of Villa and Everton.

The Europa League provides scant consolation with Liverpool and Manchester City only earning £5 million apiece in return for their strenuous efforts. When Villa last reached the group stages of the Europa League in 2008/09, they received the princely sum of €387,000 (just over £300,000), while consecutive defeats in the qualifying rounds to Rapid Vienna must have barely covered the airfare. This goes a long way to explaining Lerner’s gamble on securing one of the elusive four Champions League places.

Villa’s match day revenue of £21 million once again does not look too bad – until you compare it to the big guns: Manchester United £109 million, Arsenal £93 million, Chelsea £68 million, Tottenham £43 million and Liverpool £41 million. The first two clubs on that list generate more than three times as much revenue as Villa per game: Manchester United £3.7 million and Arsenal £3.3 million compared to £0.9 million for Villa. OK, they benefit from much larger stadiums, but Tottenham earn twice as much Villa, even though White Hart Lane has a smaller capacity than Villa Park.

Of course, the other side of this particular coin is that Villa’s ticket prices are among the lowest in the country, so any revenue growth here might be at the expense of the supporters.

The impact of cup runs can be seen by the £3 million reduction in match day income from £24 million in 2009/10, when Villa reached the Carling Cup final and FA Cup semi-final, though this was also due to a fall in the average attendance from 38,580 to 37,220, which still represented the eighth highest attendance in England.

However, crowds have been falling since the 40,375 peak in 2008 and are currently averaging a little over 34,000 this season. Season ticket holders have dropped from 26,000 to 20,000. There are many reasons for this, including the effects of the economic recession, which have hit the West Midlands particularly hard, and the McLeish factor cannot be ignored. All the same, it could just be as simple as the team not winning, since the decline is pretty much in line with league position.

Commercial revenue has been more of a success story, nearly tripling during Lerner’s tenure to £17 million and it should go higher still in the next couple of years.

In 2009/10 Villa promoted Acorns, a local children’s hospice, on its shirt rather than a fee-paying sponsor, but they bowed to commercial pressures in 2010/11, when they signed a three-year deal shirt sponsorship with FxPro worth £5 million a season, though they did retain Acorns as a charity partner. However, this agreement ended after just one year, when it was replaced by Genting, the UK’s largest casino operator, who inked a two-year deal worth £8 million a season, producing a £3 million uplift.

This is not too bad at all and is only surpassed by five Premier League clubs, though it is still a fair bit less than the £20 million earned by Liverpool from Standard Chartered, Manchester United from Aon and (reportedly) Manchester City from Etihad. That might make sense, given the powerful brands (or friends) at those clubs, so a fairer comparison might be with Tottenham and Everton: in this case, Villa’s deal is right in the middle with Spurs earning £12.5 million and Everton £4 million. Note: Arsenal’s values are low, as they had to tie themselves into long-term deals to provide security for the financing of the Emirates stadium.

It’s a similar story with the kit supplier, where the club’s five-year deal with Nike, which expires this season, has been replaced by a four-year agreement with Macron, starting in 2012/13 that is reportedly worth £15 million, i.e. £3.75 million a season. Villa chief executive Paul Faulkner described this as “the best deal the club has ever secured with an official kit partner.” However, this is small beer compared to the £25 million deals for Liverpool with Warrior Sports and Manchester United with Nike.

Although the revenue growth has been more than acceptable, the problem is that it pales into insignificance compared to the explosion in the wage bill from £23 million in 2007 to £83 million in 2011, leading to a rise (deterioration) in the wages to turnover ratio from 60% to a worrying 91%. That is significantly higher than the 70% upper limit recommended by UEFA and is the third highest in the Premier League, only beaten by big-spending Manchester City 114% and Bolton Wanderers 92%.

Given the number of departures after the 2009/10 season (James Milner, Wilfred Bouma, Nicky Shorey, Marlon Harewood and Steve Sidwell among them), it is a little surprising that the wage bill actually increased £3 million in 2010/11, though of course other highly paid players arrived, including Darren Bent (half a season), Stephen Ireland and Jean II Makoun.

There could be two reasons for this apparent anomaly. First, the number of commercial, merchandising and operations staff rose significantly from 264 to 295 (players, football management and coaches only slightly increased from 149 to 151). Second, the club specifically mentions in the 2010 annual report the “improved salary packages required to attract top professionals to the football club.”

Whatever the reasons are, Aston Villa now have the seventh largest wage bill in the country, only behind the usual suspects. Similar to revenue, it is a fair way behind what McLeish refers to as “the super clubs”, so it is around half of the money paid at Manchester City (£174 million), Chelsea (£168 million) and Manchester United (£153 million). As McLeish put it, “There are a lot of clubs in the same position, trying to make sure the wage bill doesn’t run riot.”

However, Villa fans will have noted that their wage bill is only £8 million less than Tottenham, who have enjoyed far more success recently, including qualification for the Champions League. As if that were not bad enough, Everton and Fulham both managed to finish ahead of Villa in last season’s Premier League, despite the fact that their wage bill is £25 million smaller.

Rumour has it that Lerner would like to reduce the important wages to turnover ratio back down to 60%. While the club released many players in the summer, including John Carew, Nigel Reo-Coker and Robert Pires, and has a few more out of contract at the end of this season, this will be easier said than done. Based on last year’s figures, either Villa would have to cut the wage bill by £28 million (34%) to £55 million or they would have to increase revenue by £47 million to £139 million, neither of which seems overly realistic.

"Charles Insomnia - per Joe Kinnear"

The other expense impacted by investment in the squad is player amortisation, which has risen from £6 million in 2007 to £32 million in 2011. To give that some perspective, it’s a lot less than Manchester City (£84 million), but significantly more than Arsenal (£22 million), reflecting clubs’ different approaches to buying players.

For those unfamiliar with this concept, amortisation is simply the annual cost of writing-down a player’s purchase price, e.g. Alan Hutton was signed for £4 million on a 4-year contract, but his transfer is only reflected in the profit and loss account via amortisation, booked evenly over the life of his contract, so £1 million a year (£4 million divided by 4 years). Given the slow-down in buying players, this expense should fall over time at Villa.

Much of Villa’s spending has been funded by an increase in debt, which has risen significantly since Lerner’s takeover from £44 million in 2007 to £114 million in 2011, including a £4 million increase last season. The good news is that only £12 million of this debt is owed to banks with the lion’s share (£102 million) owed to Lerner via a series of loan notes. These generally bear interest at LIBOR + 2% and are repayable on dates ranging from December 2016 to January 2021.

Although there is clearly a possibility that Lerner might ask for his money back at some stage, this seems unlikely, at least for the time being. As an example of his generosity, the club stopped paying interest on his loans in 2008, e.g. the interest paid in 2011 was only the £0.7 million on the bank loans, so excluded the £5.6 million charge on the loan notes that was accrued in the profit and loss account.

This would back up Lerner’s assertion that he does not really consider the money that Villa owe him as debt at all, but as a form of capital investment. Indeed, most years Lerner matches the increase in loans with a similar amount injected as capital, so his total funding since he acquired the club had climbed to £230 million by May 2011 (loans £109.5 million plus £120.5 million capital), including £25 million last season alone, split evenly between debt and capital.

In December 2011, he added a further £10 million, so he has now poured in £240 million. Let’s pause to reflect on that for a moment: nearly quarter of a billion pounds. That’s some commitment to the cause.

Looking at the cash flow statement, it does not seem too bad at an operating level, though 2011 would have been much worse without a £35 million increase in creditors. However, over £100 million has been spent on new players since Lerner’s arrival plus £36 million on infrastructure, such as redeveloping the Bodymoor Heath training ground and upgrading parts of Villa Park. This has only been made possible by Lerner’s cheque book.

Consequently, the balance sheet has weakened from net assets of £22 million in 2010 to net liabilities of £20 million in 2011, though it should be noted that he players are only valued at £67 million in the accounts, including nothing for those developed in the Academy, while their market value in the real world is much higher - £115 million according to the respected Transfermarkt website.

"Albrighton - put your hands up for Villa"

Some might argue that this does not really matter, considering that most of the liabilities are to the owner, but this obviously depends on Lerner maintaining his allegiance to the club. The accounts state, “The directors have received confirmation that the owner intends to support the company for at least one year after these financial statements are signed”, but this is fairly standard accounting jargon.

Lerner himself insists that he has no intention of selling up and is happy to remain as a custodian of the club. Although he might have lost some goodwill with the appointments of Houllier and McLeish, he could be considered a model owner, particularly when compared to many others. It is true that he has been seen less at Villa Park this season, but that can be attributed to a change in personal circumstances (he is now a divorced father of four).

So what of the future?

Well, the directors “consider that following significant investments in new players and the club’s infrastructure the group has exciting growth prospects, both in existing and new markets.” Sounds great, but then again they have made exactly the same statement for the last five years.

"That's a Given"

Next year’s accounts will benefit from the sales of Young (£17 million) and Downing (£20 million), producing sales proceeds of £37 million, though the profit is only around £31 million, i.e. £12 million higher than last year’s £19 million. Young’s value in the books was fully amortised, so his fee is all profit, but Downing was half-way through his 4-year contract, so still had a value of £6 million in the accounts (£12 million cost less £6 million amortisation) producing £14 million profit.

Revenue will be boosted by the new sponsorship deals and money from staging Take That concerts at Villa Park, but it will be hurt by lower attendances and smaller TV money if Villa finish lower in the Premier League. The wage bill should be lower after some departures, as should player amortisation. All of these adds and drops might just net out, but there should be no repeat of the exceptional charges (£12 million), so we might estimate an improvement of around £30 million in profit next year. This would imply a loss of “only” £24 million, though this includes a hefty £31 million profit on player sales.

Despite the likelihood of continuing, albeit lower, losses for a while, CFO Robin Russell stated, “Our objectives are to compete strongly on the pitch and to achieve sustainability as well as compliance with UEFA's financial fair play requirements.” Although that might seem like pie in the sky, it should be noted that UEFA’s break-even calculation will allow certain expenses to be excluded, such as youth/community development, depreciation on fixed assets and interest incurred on infrastructure, which would probably amount to around £15 million in Villa’s case.

The first season that UEFA will start monitoring clubs’ financials is 2013/14, but this will take into account losses made in the two preceding years, namely 2011/12 and 2012/13. Wealthy owners like Lerner will be allowed to absorb aggregate losses (“acceptable deviations”) of €45 million (£38 million), initially over two years and then over a three-year monitoring period, as long as they are willing to cover the deficit by making equity contributions.

Even so, it will still be a tough challenge for Villa to comply with the new regulations, unless they continue to make money by selling players. Of course, this only becomes an issue if Villa qualify for European competitions.

One area that Villa could look to improve is their overseas scouting network, so that foreign players can be brought in on lower wages than some of the grizzled old war horses currently on the payroll.

However, the biggest hope for the future is Villa’s excellent academy, which has seen the emergence of a number of first team players such as Marc Albrighton, Barry Bannan and Ciaran Clark. This season Villa’s U-19 team reached the quarter-finals of the NextGen Series, a sort of junior Champions League, which showcased their potential, especially the exciting midfielder Gary Gardner.

"Gardner - the future boy"

For the time being, fans may have to revise their expectations downwards, accepting mid-table respectability, rather than challenging for the Champions League places. Too much ambition can be costly, as was seen at their neighbours Birmingham City, who are currently operating under a transfer embargo.

That said, Villa should be doing better with their resources, as can be seen by Tottenham’s emergence on a similar wage bill, though it is difficult to see how they could consistently bridge the gap with the leading clubs. As Lerner himself said, the club’s aim is “to be as competitive as possible given our size and resources.” That might not be the most inspirational war cry, but it is a welcome dose of realism after so many losses.