BCFC: Debt and Sustainability

As we heard into December, It won’t be long before the accounts for Birmingham City FC will be published at Companies House. These accounts will give a full insight into the financial situation of the club at the start of this season and should help us understand just how much money the club can spend this winter.

Finances and BCFC

Money can be a touchy subject.

One only has to look at the reaction of some Blues fans to the news that Charlton Athletic have been bought out by a fund backed by money from Abu Dhabi to see the envy about money that can be spent.

The lament is always the same – why can’t it be us? Why can’t we be the ones to have a new sugar daddy?

I’m a big believer that spending money is only part of the solution needed to attain promotion – and that it’s a huge gamble.

The truth is Blues have burned through a fair amount of dosh in the past few seasons. That money has to come from somewhere – and the only way we can see where that money comes from is by looking at the club accounts.

In the BCFC accounts for 2017-18, it’s possible to see that the club brought in around £18.778M in revenues.

This is split into three sectors – match receipts, broadcasting revenues and other commercial income.

Ticket sales account for only £4.9mil of the money Blues made that season, with £7.57M coming from broadcasting revenue and a shade under £6.3M from commercial income.

Yet that season Blues made a loss of £36.5M. The loss made was that much Blues ended up getting punished for breaking the Profit and Sustainability rules.

However, to spend that much money, it had to come from somewhere other than the club.

Page 2 of those accounts makes that plain when it states that £73.1M has been provided to BCFC by Birmingham Sports Holdings, with a further £39.1M needed for the 18 months following the accounts up to the end of this month.

The BSH accounts for year end June 30, 2019 give us an idea that things improved last season under Garry Monk, but the club still only brought in £20.3M in revenue.

We’ll get a more precise answer of how that revenue was made up when the club accounts for last season come out – but it seems undeniable that the club are still reliant on BSH for money.

Where does BSH get its dough from?

The simple answer is that BSH borrows it. AS BSH is a listed company, there has to be some transparency of how and where they borrow this money from.

I’ve gone back through stock market announcements since Trillion Trophy Asia took over in 2016 to try and work all this out.

As they took over Birmingham Sports Holdings, TTA converted a loan of HK$150M (around £15M) into shares of BSH rather than taking a cash repayment.

They also created a “revolving loan facility” of HK$250M in December 2016, which was renewed for a further two years on 21 December 2018.

This is like an overdraft rather than a regular loan – it basically means that for the period the facility exists BSH can take up to HK$250M from TTA, paying 4.5% interest pa on money loaned.

As of June 30, 2019 (the last date we have info for), BSH owe HK$66.197M on the account with a further HK$3.89M in interest – about £7M in total.

TTA aren’t the only people to have lent BSH money.

As reported on this website, two companies connected to Wang Yaohui (aka the elusive Mr King) lent money to BSH which was converted to shares on December 28, 2017.

That converted HK$170M of debt into equity – about £17M.

In June 2018 further HK$144.9M lent to BSH by Dragon Villa was converted to shares, which is about £14.5M in pounds sterling.

There are two further loans outstanding right now; unfortunately BSH have been very coy about who this money has been loaned by.

In May 2018, BSH entered into a standby loan facility with an as-yet unnamed third party. This loan is a term loan and is in place until next June, with an interest rate payable of 8% pa. As of June 30, 2019, BSH owed HK$130M of the principal amount and HK$2.67M in interest (about £13.1M).

Then in August 2018 BSH entered into a revolving loan facility with “an external lender” for a further HK$250M, which had its term extended by a supplemental agreement in March 2019. This is in place until December 2020 and has an interest rate of 8% pa.

As of June 30, 2019, BSH owed HK$13.5M of the principal on this loan and a further HK$1.108M in interest – which is about £1.5M.

That’s a lot to take in, so let’s add it all together to understand.

Since TTA took over, BSH have borrowed HK$464M (about £45M) which has been converted into shares.

At the time of the accounts being published, BSH owed a further HK$214.516M (£21.2M) in principal loan amounts and have another HK$424M (about £42M) available to borrow.

The good news is that as far as we know BSH have not maxed out their credit, so there is more money there if needed.

The bad news however is that BSH have borrowed a lot of money over the last couple of years, and we don’t even know who a large portion of it is from.

Not only that – but with the number of shares currently available I believe it’s almost impossible now to swap the money currently borrowed for equity, meaning that it’s either going to have to be continually extended or paid back as cash.

Does this mean Blues are doomed?

This Is a very tough question to answer, but the good news is that it doesn’t have to be bad.

Debt isn’t necessarily a problem – it only becomes a problem when the person or company owing debt has issues in paying it back.

As long as BSH can continue to service their debts then everything is okay.

The fact that there is still a fair amount of the credit line available in the last accounts leads me to believe that there is some wiggle room still.

It helps that Blues have definitely taken steps in the right direction in the last transfer window.

The sale of Che Adams ensured that Blues didn’t have to worry about P&S while the signings of Ivan Sunjic, Fran Villalba and Dan Crowley among others all point to a more long-term transfer strategy.

If players are signed at least partly with a view to resale value, then sustainability becomes more ingrained.

As long as the club can maintain themselves on the financial straight and narrow, they can be in a strong position when it comes to selling – which can then finance the purchase of the next batch of rough diamonds.

It might take a little time, but to me this is the best method towards attaining promotion – and means Blues fans don’t have to pin hopes on a sugar daddy owner.

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