BCFC: Fifteen Per Cent of Profit

On Wednesday Borussia Dortmund released an official update to confirm what has been one of the most dragged out and talked about transfers in recent times – the sale of Jude Bellingham to Real Madrid. The transfer has Blues fans excited due to the prospect of Birmingham City receiving a chunk of change due to a sell-on clause in his transfer to the German club.

Finances and BCFC

If you would like to see the original news article from Dortmund, you can find it at this link. It is in German, so I’d recommend using a browser such as Google Chrome if your German is as non-existent as mine is.

I can well understand why people are het up. The figures involved in the transfer are huge; €103M as a down payment and then add-on contingency payments amounting to around 30% of that again (another €31M or so).

The certainty of this going ahead has fans wondering how much money Blues will get, and how it will affect transfer spending at St Andrew’s this summer.

However, before I answer questions I’ve seen online, I want people to remember in all this that Jude Bellingham is still a person rather than a commodity to be fought over.

Sometimes as pound signs light up in people’s eyes, I think they lose sight of Jude as a person and I want people to remember through of all this excitement the mature, talented lad who offered us a tantalising glimpse of his burgeoning talent before lockdown.

How much of a sell-on did Blues have for Jude?

This is the question that gets asked a million times and despite having answered it here, on social media and the Fat Lads Go In Goal Podcast on more than one occasion, it still gets asked.

The sell-on clause is 15% of profit.

I know that other sources have stated different numbers and having thought carefully about this I think it’s important for me to offer how I know this information.

As I said on the FLGIG podcast, I have documentation in possession that indicates this figure.

In the interests of transparency, I will confirm this documentation is nothing as juicy as a copy of a transfer contract or similar, and that this information did not come from the infamous Dong box.

However, I have done my best to corroborate this info from separate sources so that I’m comfortable enough to post that figure on this website and to say it on the podcast.

With so many people online trying desperately to figure out how much dough Blues are going to get from this deal, I think it’s important for people to understand the context of what this figure means.

While Dortmund have given us a figure for the initial transfer to Real Madrid of €103M (which translates to £88.59M as per Google at the time of writing), I don’t believe that we actually know for certain how much Dortmund paid us in the first place for Jude.

We know from charges filed at Companies House that as of 24 September 2020 there were three instalments due to be paid totalling £13M.

We also know that Jude Bellingham intially transferred to Borussia Dortmund from Blues on 20 July 2020.

From that, I think it’s logical to think that Dortmund likely paid a down payment in July 2020, with the three remaining instalments due in January 2021, August 2021 and August 2022 as per the charge details.

Now I’m just a simple blogger, but I would think that it makes sense that the initial down payment of the deal that Dortmund paid would be a straight 50%.

Assuming the above is true, with the three other instalments we know for sure totalling £13M, then the initial total fee paid would have been £26M.

On top of that there is a question of contingency payments that may have made up part of the transfer. These could have been payments such as an amount when Jude gets capped by England, an amount if Dortmund win the Bundesliga and so on.

Any sell on clause that Blues have would be related to the profit made by Dortmund after all applicable contingency clauses had been paid by them in addition to the original fee.

I don’t think it’s unreasonable to estimate that Dortmund have actually paid closer to £30M for Jude now, especially as Jude has been capped internationally, won Bundesliga player of the year and the DFB Pokal with the German club.

If all my assumptions above are true then the sell on clause would be worth (£88.59M – £30M) x 0.15 = £8,788,500.

However, that figure isn’t all Blues will receive as part of a sell-on.

Dortmund have made it clear in their announcement that there are add-on payments valued at a total of roughly £30M applicable to this transfer deal.

As those also represent profit made by Dortmund, then Blues will get 15% of each payment as it is becomes payable by Real Madrid.

The truth is in all this however is that we may never get to know the exact figure Blues will get from this deal.

The only way I see us truly knowing an exact figure is if Blues decide to factor the payments received from the sell on clause to fix cashflow issues.

That would necessitate a charge being filed at Companies House, which would give us the exact figures, as it did previously with the instalments to be paid on the deal which took Jude from Blues to Germany.

However, with SCL close to completing their takeover at Blues it seems likely that cashflow issues at least won’t really be a problem any more for the club, making it unlikely that a charge will be filed.

Why are some outlets reporting 5% as the sell on clause?

Last September I wrote a piece talking about this as I knew back then that the sell-on clause for Jude was higher than 5%.

As I said then, it appeared that outlets reporting that figure had picked up the 5% payment that clubs can receive under the solidarity contribution mechanism.

To recap, under Article 21 of FIFA’s Regulations on the Status and Transfer of Players (RSTP):

“If a professional is transferred before the expiry of his contract, any club that has contributed to his education and training shall receive a proportion of the compensation paid to his former club (solidarity contribution). The provisions concerning solidarity contributions are set out in Annexe 5 of these regulations.”

As with “Training Compensation”, this mechanism is only enforced if a player is transferred internationally.

The problem with outlets using this information was that while 5% is the headline figure for this mechanism, it is the maximum total any club can receive under the mechanism.

The actual figure a club receives is based on how old a player is when he moves from club to club.

Under the rules of that mechanism, Blues would have only received 3% of the €103M that Borussia Dortmund will receive from Real Madrid.

Thankfully, as a sell-on clause has been negotiated, we won’t have to rely on that 3% alone.

One thing that is worth mentioning is that as Blues did insert a sell-on clause into the transfer of Jude to Borussia Dortmund, it’s almost certain that Blues waived their rights under the “Solidarity Mechanism” and will not receive that money in addition to any sell-on fee received.

Where’s the money gone?

I’m anticipating that by the end of August it’s almost a certainty that we’ll hear complaints from some Blues fans that this money has disappeared and not been reinvested in the transfer market.

While SCL will bring a much bigger amount of financial backing to the club once the takeover deal is done, the club will remain constrained by Profit and Sustainability rules as to what it can spend over the next season.

We know from announcements made to the HKSE that in the 2021/2022 season Blues lost £25M and in the first half of the season just gone it lost a further £12.1M.

As a club can “only” make a loss of £39M in their profit and sustainability calculations over three years, it should be obvious that Blues cannot continue to make such a huge loss in the 2023/24 season as they have recently.

Furthermore, the SCL takeover will not reset that loss counter, which means the first season that SCL take charge of Blues is going to be an interesting one financially.

All SCL can do in this situaiton is what I believe they intend to; which is to do everything possible to maximise income to give Blues as much wiggle room as possible to actually spend money.

Receiving a chunk of change from the Bellingham deal will go a way towards this, although it won’t resolve the situation entirely.

This means that its incredibly unlikely Blues will invest a significant proportion of this money back into the transfer market unless some major financial wizardry is performed to bring more money in.

While I understand that sounds miserable, we must take heart that SCL will approach this problem with a view to growing revenues unlike BSHL who have just relentlessly cut costs over the last few years.

It does mean however that we have to be understanding as to where the club is for this summer at least.

I’ll actually be pleased once the Jude Bellingham transfer is completed because it means that we as Blues fans can move on from this whole deal and look to the future.

As I’ve said already in this piece, the club needs to move forwards to a point where it’s not so heavily reliant on a contingency payment to be able to comply with financial rules.

This summer seems to be a time when a lot of things that have played on our minds the last few years are being laid to rest; something I can only see as a positive.