Aston Villa: Panic On The Streets Of Birmingham
Life comes at you fast. The ink has barely dried on Aston Villa’s disappointment at losing their Football League Championship play-off final at Wembley the week before last but, with the close season having only just begun, the club has been plunged into a crisis that may yet come to threaten the club’s existence. The news to have come out of the club so far paints a confusing story. Chief Executive Keith Wyness has been suspended, and the club faces the possibility of administration should it not be able to pay an outstanding tax bill for £4.2m which was reportedly due at the end of last week.
That HMRC take a no holds barred attitude towards football clubs who don’t pay their tax bills on time is fairly common knowledge. This stems from a change in law under the Enterprise Act 2002 which removed their status as a “preferred creditor”, and continues to be perceived as a push back against the commonly held rule within the game that football creditors retain this status in order to comply with the game’s financial regulations. The issuance of winding up petitions has become commonplace in recent years as the tax people seek to recover money that should have been paid to them, and this remains contentious, although most would agree with the idea that companies with vast financial turnovers should pay their obligations on time.
So where, we might well ask, is the club’s owner, Tony Xia, in all of this? After all, Xia has hardly been known for his reticence to speak in public before. Well, the literal answer to this would seem to be, at the precise time of writing, somewhere very high in the air between China and England. It’s understood that he is heading back to Birmingham in order to try and prevent the club’s current position from becoming even more calamitous, but it may well turn out that there are limits to what he can do. Last September, the Chinese government took action to try and reduce the amount of money that was leaving the country towards projects elsewhere in the world, through placing sport on a list of industries in which investment is restricted overseas, alongside property and entertainment. This has had the effect of causing cash flow issues for the likes of Xia, who remains wealthy enough for paying this debt back to be a drop in the ocean.
Such is the state of confusion regarding what is going on behind the scenes at the club at the moment that we can’t even be certain whether the suspension of Keith Wyness is directly related to yesterday’s news or not. The club’s official statement on the matter certainly didn’t give anything much away, and with the current media environment abhoring a vacuum to the extent to which it does, theories have been filling that gap to try to explain his sudden departure – if we we presume that he will now be leaving – from Villa Park. The Daily Telegraph reports this morning that his departure is “not linked to the unpaid tax bill”, but statements such as this tend to raise as many questions as they answer. The Daily Mail reports two possible reasons for this departure:
- That Xia reacted badly to Wyness seeking extra funding for the club to get it through this matter from other investors, or…
- That Wyness was trying to bring together a consortium to buy the club from Xia. There are conflicting reports over whether Xia even knew about this or not.
Interviewed by local radio a couple of months ago, Wyness admitted that the club might find itself in a tight spot should it fail to get promotion to the Premier League at the end of the season, but seeking to interpret this as either dishonesty on his part, genuine lack of understanding of how “tight” a “spot” the club might be in, or a very British form of understatement over the club’s financial position would be mere conjecture and not worth a great deal. What we do believe to be certain is that there was a deadline to have made the payment which passed last Friday, and that this wasn’t met. It has been reported that the club has made a payment of £2m towards the outstanding bill, but the previous actions of HMRC in cases like this indicate that part-payment is unlikely to satisfy them.
The next steps for the tax people would, if previous history is anything to go by, be to issue a winding up petition against the club, the first stage in the legal process that would lead to compulsory liquidation, in which the Court appoints an Official Receiver to liquidate all of the company’s assets in order to repay creditors. The issuance of the petition, however, isn’t automatic. Right up until the point at which the court converts the petition into a winding up order – and it has not been uncommon in the past for football clubs to get adjournments from courts in order to facilitate fresh investment in order to stop the process – the club can enter into administration, the legal process which stops the petition and gives the club the time and space in order to restructure.
To many football supporters, the most important aspect of clubs entering into administration has been the points deduction that comes with it, but there’s plenty more to administration than that. The administrator – an insolvency practitioner brought in my the stricken company itself – is required to make creditors of the club their first priority, rescuing it as a going concern if this is possible. Football clubs have, on the whole, been relatively well-shielded from the most negative blowback to come from this process, but we can see from previous cases in other industries where rescuing a business as a going concern (or failing to do so) can lead. And on top of all of that, the club has the challenge of meeting Financial Fair Play rules, which it had previously been suggested that the club was going to have to find £45m from somewhere – cost-cutting is the obvious solution – by the end of next season if they’re not to fall foul of those rules as well. For his part, Tony Xia issued a statement relating to FFP just a week ago which concluded:
We have been heavily investing for the past two seasons. However, the loss on Saturday means that we need to change a lot of things. No one wanted to see the club have to go through this, but I believe that only changes can help the club to progress towards the positive direction and this requires the joint efforts of everyone associated with this great football club. No matter what the changes will be, I sincerely hope that everyone can unite and overcome the challenges together. Our goal has not changed and as long as we believe, regardless of how tough the process will be, I am sure we will succeed in the end.
The departure of John Terry and his £70,000 per week contract will undoubtedly help with this, but it seems inconceivable that further costs won’t have to be cut, with the strong likelihood that Jack Grealish will have to be sold in order to further balance the books. The problem with selling Grealish now, however, is that other clubs will be more than aware of the precariousness of Aston Villa’s financial position, and this is hardly going to have a positive effect on his value in the transfer market.
The news that Trevor Birch has been advising the club is both a little troubling and a little encouraging. Birch is a former player who is now a chartered accountant and a specialist in the intersection at which football clubs and insolvency meet. His highest profile position came with his appointment as the Chief Executive of Chelsea in 2002, where he oversaw the sale of the club to Roman Abramovich the following year, but a look at some of his other clients, which include Leeds United, Portsmouth, Heart of Midlothian and Bolton Wanderers, indicate that having to take his advice is not ordinarily a sign of a club in the rudest of financial health. On the other hand, though, all four of those clubs are still with us, which in itself is a demonstration of how effective he can be at his job.
Aston Villa have some time, but not an enormous amount. The worst case scenario at the moment would most likely involve a winding up petition being presented and the club being forced into administration in order to avoid that petition being turned into a winding up order. There’s what should be considered a salutary lesson here for all football clubs, here. The first responsibility of anyone who finds themselves in a position of control of a football club must be to protect that club as an ongoing and viable business. It’s easy to be seduced by the adulation that comes with success on the pitch, but pursuit of success should never come at the risk of putting the club in the position in which Aston Villa finds itself today.
It’s also worth pointing out that there but for the grace of God go the rest of us. With ever-spiralling costs and the entirety of the game now dependent on television money to maintain its spending, safety first may well sound, well, boring, but it does at least prevent circumstances like the horror show seen at Villa Park over the last day or two from coming to pass. More than anyone else, though, the next few days and weeks will be a test of Tony Xia. As the most significant investor into Aston Villa over the last couple of years, his decisions in the immediate future will come to say a lot about him, his priorities, and the depth of his affections for the club that he purchased. We await his next public communication with considerable interest.