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Birmingham City FC released their accounts yesterday which showed a profit of £15.7million after player transfers. There was an operating loss of £3.988mil without transfers on a turnover of £39mil.
Having thought about it for a while, I have decided it would be better rather than to give an accountancy analysis which is complex and difficult for the layman to understand I will break down the figures to make it easier for people to see why Blues are in the difficulties that they are suffering.
It’s not all about Profit.
The initial reaction from many seems to be – wait a minute, if we’ve made a profit why are we in trouble? The issue is that the profit is fairly meaningless when taken into context. Firstly, on it’s own it’s good but when one considers that it immediately follows a £10million loss then one can see how it would cancel each other out. The profit made by Blues has gone to pay historic debts owed by the club and has put it into a healthier state, debt-wise – but not one that is going to be free-spending.
The operating loss shows the bleaker picture – that without selling players, Blues cannot keep themselves solvent. With a backer that can bankroll a club that isn’t an issue – but this isn’t a situation Blues find themselves in and thus with no overdraft either the club finds itself in a situation whereby it needs to sell players to keep itself in the black. This stark warning is given in the report whereby it clearly states that Blues will need to continue selling players to ensure it remains a going concern.
So why can’t Blues fund itself?
This comes down to two factors. Firstly – staffing costs. Last season Blues spent £25mil on wages, on a turnover of £39mil. That means for every £1 that Blues took in last season, they spent 64p on wages – wages for players predominately but also for the staff at the club. Whilst a wages to turnover ratio of 64% is actually reasonably healthy for a football club and within Football League guidelines it does mean it’s hard for the club to turn a profit.
Secondly, ticket sales have fallen due to being relegated. Whilst Blues ticket income went up slightly in the 2011/12 accounts in comparison to the 2010/11 accounts, (£9.276mil from £9.142mil), Blues played three more home games in the 2011/12 season. Furthermore, that revenue will have dipped further this year as Blues haven’t had a single home attendance this season that has been above the average attendance last year. Quite simply, Blues fans staying at home when they might have attended the game have and are affecting the profitability (and thus viability) of the club.
Cashflow is king
The chief problem, as stated many times before is cashflow. Whilst the company is run as a tightly run ship, Blues are forced to spend only what they receive due to a lack of overdraft facility and a lack of funding from BIH. Unfortunately, money doesn’t come into the football club spread out over the year – there are big lumps at the start of the year in season ticket money and parachute payments but then it’s all about making that last until the end of the season. Wages aren’t going to have massively changed from last season and with reduced incomings from matchday sales and commercial revenue one would think this season will be even tighter in ensuring the bills get paid.
Speaking of being paid…
The directors wage costs came to £687,611 – of which £687,611 was paid to one director – who isn’t named but I would assume is Peter Pannu as he is the only director who actually works at the club on any basis. This is a massive increase on the previous year where it was just over £80,000 – notably Mr Pannu was not a director at that time. There is also a note that the club paid £60,000 to a company called Asia Rays (of which Peter Pannu is the sole director) to lease a property for Peter Pannu for business purposes. In comparison, Karren Brady was paid £179,000 per annum just prior to her exit.
The accounts also explain what happened in detail with respect to Xtep. Essentially, the deal was done by Vico Hui, Pauline Wong and another executive director called Li Yiu Tung. Whilst Mr Li did the original deal, the accounts state that a second unannounced counter-deal was done by Mr Hui whereby a payment was made back to Xtep to purportedly pay for promotion and advertisement of BIH and BCFC in China.
The fees to be paid by Xtep were HKD16mil, 17mil, 18mil, 19mil and 20mil over the course of the five year deal. The counter-deal would see Xtep paid HKD10mil in return. This on it’s own is a bit strange but it became worse when the relegation clause which would see Xtep pay half the original figure comes into play – especially when it turned out that the counter-deal had no such clause. The effect was that in the 2011/12 season Xtep were effectively paid around HKD1.5million (around £120k) to supply BCFC shirts rather than the other way around.
So where has the money gone?
What these accounts show is that football outside the Premier League is almost impossible to be profitable. These accounts show that in it’s current situation Blues would have to turn over around £40million to make a profit – and many Championship clubs struggle to make half that. Championship clubs have three options – a rich benefactor like Forest or Wolves who is prepared to dump money in and not worry about it; go into a hideous amount of debt to try and make it like Portsmouth or Leeds, or operate on a shoestring and hope for a managerial miracle. The pure, brutal fact of the matter is that the majority of the money goes into the pockets of the players – as I have continually stated on here.