BCFC: Financial Prudence

A hard fought 1-0 victory against Blackburn Rovers on Saturday pushed Birmingham City into 16th place in the Championship, nine points clear of the relegation zone with just seven games left to play. While safety isn’t yet mathematically assured it looks increasingly likely that John Eustace’s team will have a much more relaxed run in than in recent years.

St Andrew's Pre Match

Although it might not be quite the finish that some were hoping for before the World Cup break, I think we should accept that 16th place is largely job done for a team that was a pre-season favourite for relegation.

All in all, it should make for a less stressful end to the season on the pitch and allow the powers that be at the club to make preparations for next season in the Championship.

While it’s true the ownership situation will remain in flux for the short term at least, the day-to-day operations of the club will continue.

There are key squad decisions to be made with a fair few of the squad being out of contract at the end of the season. Off the pitch, the club will also need to resolve what they are going to do to improve the financial situation at St Andrew’s for next season.

Profit and Sustainability

The first problem that the club have is to continue to remain within the Profit and Sustainability rules as laid out by the EFL.

Under the financial fair play regulations in place for the Championship, there are maximum losses permitted for Championship clubs which are known as “Loss Thresholds”.

The upper loss threshold – ie the maximum a club is allowed to lose – remains at £13m per season, measured over a rolling three year period. This means a maximum loss of £39M over three seasons.

There are all kinds of exemptions involved in P&S calculations, including money that has been lost due to Covid.

This makes it hard to know exactly where a club is in relation to those results without a detailed financial analysis of the club; something that can be hard for the lay person to obtain, let alone understand.

However, the above being said I understand from my sources that this season Blues will be just under the maximum loss threshold.

While this is good news for this year it makes life very complicated next season and will hamper the club’s spending in the transfer window.

To understand this, I need to show how the figures are calculated.

This season’s P&S figure will take the accounts from this season, last season and the season before that.

We know from the accounts that last season the club made a loss of £23.823M from operations and the season before that we lost £4.482M.

Working with the assumption that Blues are on the limit this year and using the figures from the accounts for simplicity, we can create this equation.

(This Season) - £23.823M - £4.482M = the Limit

Next season, the P&S figure will be calculated using next season’s accounts, this season’s accounts and last season’s accounts.

The maximum expenditure next season can be shown as:

(Next Season) – (This Season) - £23.823M = the Limit

If you look at the two equations above you can see that they’re fairly similar.

This is because two of the figures in those equations are the same; namely “This Season” and £23.823M.

Using a bit of maths, we can work out the maximum loss Blues can make next season.

By taking out the two figures from each equation which are the same, we then know that “Next Season” has to be the same as £4.482M.

We also know that the only reason Blues only lost £4.482M in the 2020/21 season was thanks to the huge influx of money from the Jude Bellingham transfer.

What that means in turn is that Blues need to bring in a load of money next season to ensure that they are not in trouble.

It could be that we are saved by Jude Bellingham once again.

Should he move this season from Borussia Dortmund, Blues are in line to receive 15% of the profit from the transfer.

With fees mooted to be around the £125M mark for the midfielder, this would see Blues banking maybe £15M.

That would make a dent in the losses Blues make next season but there still needs to be positive changes to the profit / loss figures for Blues to be on the right side of the rules.

Balancing the Books

There are two ways that Blues can balance the books to make the bottom line better; reduce costs and improve revenues.

With staff costs last season running at 177% of turnover, the obvious candidate for reducing costs is to start with reducing staff costs.

The vast majority of staff costs is made up of player wages, with more than a couple of Blues players having a basic wage in excess of £20k per week (£1m+ per annum).

It’s worth noting that this basic wage doesn’t take into account signing bonuses, individual bonuses or team bonuses either, let alone costs such as PAYE and NI.

Blues have done what they can in recent seasons to reduce player wage costs and will need to continue doing that this summer.

Some high earners such as Maxime Colin and Harlee Dean have contracts coming to an end which will help.

While I understand some fans want us to retain these players, I need to make it clear that both would need to take pay cuts of greater than 50% to remain as financially viable members of the squad.

Reducing wage costs also means that Blues will have to be much more restrictive in what wages they offer to new signings if they are to keep the wage bill lower.

I’ve already seen the fans on Facebook bemoaning that lower wages mean that Blues won’t be able to sign quality players, but I think this is an ultra-simplistic view of football.

I can accept that lower wage offers make it more difficult to bring in exceptional players; however, I think the job of the recruitment staff is to be creative in their search for players to find those rough diamonds.

Likewise, it will be the job of the training staff to polish these rough diamonds into players who can not only do well for Blues but excel and help take us forwards. It’s never easy to do this, but in the current situation it is the way we have to go.

Balancing the books also means bringing money in, which means the club might have to sell a player or two to ensure everything remains on the straight and narrow.

I think we have to hope that the club can move on players like Neil Etheridge or Ivan Sunjic as their departure would also positively help the wage issue; however my suspicion is that to bring in any real money Blues might be forced to part with a young gem like George Hall.

It’s not just on the pitch Blues can bring money in.

Increasing revenues

If Blues are to be self-sustainable then I think it’s vitally important that the club does what they can to increase revenues. There isn’t much Blues can do to increase the amount that comes in from broadcast revenue so it means that the club needs to work on the other two income streams – ticketing and commercial.

I’ve got time for the Blues commercial staff as I think they’ve been handicapped in what they can do for a long time. In past years they have had no budget to work with, making marketing difficult and forcing them to try and be creative in the way that they work with suppliers.

The commercial team do a good job with what they have; as a recent attendee at one of the Blues Business Network meetings at the ground I was impressed with what the club had to offer.

Likewise, the club are also up for an award at the Football Business Awards for using signing announcements in the summer to profile people in need of blood in support of the NHS.

However, I think for the club to move forwards it really needs to kick on a commercial sense.

Whether this be from increased sponsorships, bigger events or better partnerships, Blues need to be in a position where commercial revenue increases.

The recently released stadium update is good news for the club too, as it’s clear the club needs to make more money from ticketing too.

While the lower Kop will not be finished until November 16 as it stands, the fact that there are now firm details on what is happening to the stadium repairs is good news for Blues and hopefully will incentivise supporters to buy tickets in those areas.

The one blot of bad news in all that is that with inflation in the UK running in double digits currently, I think it’s likely Blues are going to put ticket prices up too.

It remains to be seen if that will happen, but I think as much as it will go down like a sack of shit with fans we should probably expect it.

While I can see some fans treating this piece as another example of me being a doom-monger I think we have to be realistic in what we expect from the club going forwards.

Regardless of who owns the club next season, it’s important for Blues to remain on the right side of the P&S rules as they stand.

In the longer term, a year of financial prudence might be very helpful to Blues going forwards.