"I have chose to end my professional career and that I have made a decision to retire", Villa told reporters in Kobe, his voice occasionally breaking with emotion.
Villa, who has been playing for Vissel Kobe this year after four seasons in the United States with New York City, will become an investor in Queensboro FC, a new franchise based in the New York district of Queens that will play in the second tier of U.S. football.
He scored 59 times for Spain, a national record.
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"It's better to leave football before football leaves me", he told a news conference speaking in Spanish.
"Thank you to my family, that has always been there to support me through good and hard times. Thank you for all the love".
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The attacker has scored 12 times and contributed two assists across 26 appearances this campaign, with the club now 10th in the J-League. He is expected to play three more J-League matches as well as semi-finals and finals of the Emperor's Cup.
Villa recently secured USL franchise rights for New York-based Queensboro FC and now looks set to put his full focus into the club.
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"It's a decision I've thought about a lot", he said. The opportunity to start a brand new team in a city like NY, in a borough like Queens, where the people are as passionate about soccer as I am, is huge! "And the future now is Queens".