It’s January. The transfer window is open and our Championship rivals are already starting to strengthen their squads. Aston Villa are, without doubt, also looking to strengthen in key areas.
However, since September the Club has been briefing the press about the extent of our dealings as we seek to comply with the Championship’s Financial Fair Play rules (FFP). Previously, we looked at how FFP means less might be more for Villa’s January transfer business. You can read that here.
But what actually is FFP and why does it reduce Villa’s spending?
What is Financial Fair Play?
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Financial Fair Play rules are designed to encourage European football clubs to operate in a more financially stable way. The rules impose limits on the losses a club can make each season. Clubs that exceed these limits can face points deductions, transfer embargoes or fines.
The primary factors that affect FFP are wages, transfer fees, and income generated from match day, sponsorship, etc. Some costs are exempt from FFP – including Women’s football, Youth Development, the Club’s charitable community schemes.
In the Championship, the key area worth focusing on is Profit & Sustainability tests that came into effect in the 2016/17 season. These rules mean the maximum losses a club can report each season is £13m. Each league has a different maximum loss-limit to reflect the financial realities of those divisions. The Premier League has a maximum loss-limit of £35m, as opposed to the Championship’s £13m.
Club’s losses are assessed over a three-season evaluation period, covering the current season and the previous two seasons’ accounts.
Time is running out
As a recently relegated club, the three-year evaluation period means Premier League seasons are considered in Villa’s FFP compliance.
Last season, the maximum losses Villa were allowed was £83m. This is because as the evaluation period included two Premier League seasons as well as one Championship season.
This is a significant drop from the £105m maximum limit Villa managed in the Premier League. Even last season, some predicted Villa would struggle with FFP, but this actually gets worse the longer we are in the Championship.
This season, the maximum loss-limit falls to £61m as we will be assessed on losses from only one Premier League season (the 15/16 relegation season) and two Championship seasons.
If we are still in the Championship next season, our maximum losses mustn’t exceed £39m as we’d be assessed against three seasons of Championship loss-limits.
How has this affected Villa so far?
In short, Villa has been run in exactly the unsustainable way that FFP is trying to prevent. The club is trying to rectify years of financial mismanagement (covered brilliantly by Swiss Ramble here). In a sense, the enforced cost-control measures of FFP might help the club regain a more sustainable footing for the future.
We’ve already seen spending reigned-in this summer and valuable players sold. The club actually achieved a net profit on transfers for the first time since the 2011/12 season (according to transfermarkt.com).
That makes for good business when you are selling unwanted players (Veretout, Gestede, Adama Traore). Are there many unwanted players left in the squad to use a similar approach?
What does FFP mean for the future?
For January, the club is clearly cautious so it’s hard to imagine us gambling on big signings to seal promotion. Similarly, I doubt the situation is so dire that many of our current players are actively for sale. That being said, it’s possible we see one of the more valuable players sold if a good price comes in.
However, failure to achieve promotion this season means the club will face even tighter FFP restrictions. We’d need to reduce our losses by up to £21m – as our evaluation period would only include Championship loss-limits.
Such significant cost-reduction likely means we’d need to generate profits from our squad and cut the wage bill further. With very few unwanted, high-wage players left on the books, does that risk weakening the team for FFP compliance?
Clearly, FFP is a worry for the club and is limits us in this transfer window. More worrying though, is the potential impact it could have if we are still in the Championship next season.
If you want to find out more about how Financial Fair Play works – check out www.financialfairplay.co.uk for some excellent explanatory articles.