BCFC: 2018 Accounts Analysis

Birmingham City filed their accounts at Companies House on Friday, with figures making for grim reading for fans. The club showed a loss before taxation of nearly £37.5million on revenues of just under £18.8million. Having spent some time reading through the accounts, I’ve put together some analysis of what these numbers mean for the club.

Finances and BCFC

Before I go any further, it’s important to note that I’m not an accountant, and that my analysis is based on the little bits I know plus discussions with people who do know what they’re talking about.

I would recommend that anyone reads the accounts for themselves to get a better understanding – you can find the accounts at this link.

The headline figures

Birmingham City made a loss before taxation of £37,461,303 before taxation for the financial year ending June 30, 2018. This is an increase of over £21million on the previous year’s accounts.

If you take out player sale profits, and other non-recurring items such as redundancies, legal cases, debt write-offs along with amortisation and depreciation you get a figure called EBITDA (Earnings Before Income Tax, Depreciation and Amortisation).

This is the figure preferred by the professional analysts out there as it is the closest thing to a cash profit figure and is often more positive.

That being said, Blues recorded an EBITDA loss of £30.1million for last season, an increase of £17.3million on the season before.

The chief reason for this is staff costs.

Staff costs for last season jumped by nearly £18million to an eye-popping £37.989million, which when compared to a turnover of £18.778million gives an insane wage to turnover ratio of 202%.

To put that into lay man terms, for every £1 the club generated last season it spent £2.02 in staff costs.

That by itself is absolutely unsustainable and should show how out of control things had got last year.

The accounts also show that Blues now owe £73.1million to Birmingham Sports Holdings. This is an increase from last year of nearly £40million.

To lend that money to Blues, BSH have had to borrow it themselves.

The accounts show that as of June 30, 2018, the holding company had borrowed around HK$66.197million (around £6.2mil) from Trillion Trophy Asia and HK$95million (around £9.5mil) from an unnamed third party at an interest rate of 8%.

So Blues are screwed then?

While I think it’s right to be concerned by these accounts, I think people need to take a step back and realise what they mean.

In the short term, nothing has changed due to the publication of these accounts. The club is in the same position on Monday that it was on Friday morning before they came out.

Wages are being paid, debts are being serviced and everything seems to be going okay – something that cannot be said for every team in the Championship.

And yes, while there is a note that the club requires £39.1million in funding from BSH to maintain operations until December 2019, this figure has actually dropped from last year when it was £49.5 million.

Likewise, while staff costs last year was insanely high, they will have dropped this year for a couple of reasons.

The first one is obvious in that Blues have sent back high earning loan players and have moved on others in the summer.

While there is the possibility that some wages will have had to have been subsidised, I have no doubt that the wage bill for this season will be somewhat lower.

The second reason is managerial stability.

Last season’s staff costs will include hefty payoffs for Harry Redknapp, Steve Cotterill and Lee Carsley.

The stability achieved by having Garry Monk in charge will also help bring those costs down.

Blues have also made sure to allow for the bomb squad in these accounts, impairing costs further so that the eventual departure of David Stockdale and Tomas Kuszczak should not hit the books any further.

What effect do these accounts have on the disciplinary hearing / embargo?

If these accounts do anything, they should properly confirm just why Blues were placed under an embargo.

However, they don’t really change anything.

The club and the EFL have been in discussions about accounts for a long period of time, dating back to before the end of last season and the EFL will be very aware of what the numbers are.

The EFL will also be fully aware of what the club have done since June 30 to improve the situation.

The accounts confirm that the disciplinary commission is estimated to be held in February 2019, but that the club are still in negotiation with the EFL as to what possible disciplinary actions will be imposed and are not in a position to estimate the impact.

I’ll be honest and say I’ve heard rumours that the club are going to be okay and there won’t be any major punishment; I’ve also heard rumours that the book is going to be thrown at us by the EFL.

The truth is I think no one actually knows what is going to happen – so it’s pointless worrying about it right at this moment in time.

How can Blues make things better?

This is the £64,000 question – and in truth if I knew this answer I’d be a businessman myself.

I’m not a businessman so when it comes to things like this I can only see simple answers which basically boil down to reducing costs or boosting revenues.

Blues have done their best to improve revenues.

Average match-day attendances last season topped 21,000, a huge improvement on 18,650 the season before.

However, revenue from match-day receipts has not increased dramatically – simply because the club have maintained pricing structures for season tickets for the last few seasons.

Broadcasting revenue went up slightly, but without promotion to the Premier League and the share in the pot there Blues cannot expect those to go up much further.

For me the biggest challenge is commercial income.

Commercial income makes up for about 34% of Blues revenues but has not risen significantly on the previous year.

If Blues are to improve their situation then it’s my opinion this has to be improved.

What’s the long term prognosis?

This is where I go into broken record mode.

I’ve long held that the benefactor model of club ownership doesn’t work. These accounts clearly state that without BSH putting the money in – and by extension, people putting money into BSH – the club is in a parlous state.

It’s all well and good being happy that the money is there, but as we found out with devastating effect under Carson the minute that changes we are in trouble.

Likewise, while I agree that these kinds of issues are pretty endemic in the Championship, I don’t think that justifies it either.

If anything, I think that only goes to prove that football is pretty borked.

I often hear people decrying efforts to put rules in place to prevent massive overspending in football clubs as restriction of trade.

People will ask what other business is told what it can and can’t spend money on – if the money is there, why shouldn’t someone be alone to spend it all?

These accounts form the basis of my rebuttal to that – as in that what other business would it be normal to have such exaggerated wage costs?

It’s normal for businesses to aim to remain solvent and to make profits – something that football club owners cannot seem to do.

I honestly believe that until some sort of normality is restored to football ownership, then we need to either accept there is a need for rules or that clubs are going to go bust through financial idiocy.

Our next chance to find out where Blues are will be the end of February when BSH release their unaudited interim accounts for the six month period ending December 31, 2018.

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