BCFC: Club Accounts Analysis

On Tuesday morning Birmingham City Limited filed their accounts with Companies House for the period ending June 30, 2023. The accounts confirm what most of us already knew about the final season under the old regime at St Andrew’s – that money was tight and the losses were only growing.

Birmingham City Accounts

Before I go any further, I must once again caveat this piece by confirming that I am not an accountant and that this article does not constitute investment advice.

I also highly recommend taking a look at the accounts for yourself – the accounts for the club entity Birmingham City Football Club Limited are found on this page while the accounts for the UK group Birmingham City Limited are found here.

For ease of explanation I will be referring to the accounts for Birmingham City Limited (BCL) in this piece.

The Headline Figures

As the accounts have already been out for a day, there have already been pieces written by the Birmingham Mail as well as threads on Twitter by noted football financial journalists like Kieran Maguire.

With this in mind rather than go through the whole accounts, I thought it best to focus on a few headline figures and what they mean.

The most important figure for many people is the loss made by the company.

For the year ending June 30, 2023 the operating loss stood at £24.342M, which is a slight increase from the previous year where it stood at £24.020M.

This number shouldn’t really come as a surprise to anyone.

Back in October, when the ZO Future Group (what was once Birmingham Sports Holdings Ltd) announced their year end figures for June 2023 to the stock exchange of Hong Kong, I used two figures from within those accounts to approximate the loss at Blues to around £25M.

To try to equate this into terms which are more explainable, this means that last season Blues lost around £470,000 every week – a figure which on the face of it sounds insane.

As always, there is a simple explanation for how Blues lost that much money last year.

On page 26 of the accounts, there is confirmation that the total revenue earned by the club in the 2022/23 season stood at £19.745M – again, a slight increase on the previous season where the company earned £18.135M.

At the bottom of that page, there is a line for the total wage costs which stood at £28.912M – which itself was a fair drop from the £32.107M of the previous season.

However, despite the slight rise in revenue and the fair drop in wages, the Wages : Revenue ratio for the company stood at 146.43%.

This means last season that for every £1.00 Birmingham City Limited earned in revenue, they paid out £1.46 in wages alone.

I’ve said before about some of the insane wages we were paying last season and while I expect it to be a bit better this season I doubt BCL will take the ratio below the 100% barrier.

This should explain in bald terms why Blues need to do all they can to bring in revenue – be it ticket sales, sponsorship or broadcast – if they are to attract players who can have us playing at the right end of the table.

One huge plus point which I don’t think has been picked up is the change to debt.

Before Knighthead got involved with Blues, the company owed a huge amount of money both to ZO Future Group and to Vong Pech’s company Oriental Rainbow Investments Ltd.

The accounts confirm that in the days after the official takeover happening, that huge debt was significantly reduced.

Fully £100M of the £128.3M debt owed to ZFG was converted into shares – effectively written off – while a further £9.1M of that debt was assigned to Knighthead, which means BCL now owes only £19.2M to ZFG.

Knighthead also paid £1.5M off to ORIL and took over the remaining debt owed to that company.

Finally, Knighthead made a £50M facility available to the club, which attracts an interest rate of 11.9%.

While that interest rate seems exorbitant, it is actually listed in the original documents published to the HKSE last May although the original document gave an availability period of five years, while the new accounts says seven.

It’s my understanding the interest rate is so high to ensure there are no problems with the second part of the deal where Knighthead takes on the rest of the club from ZFG.

It’s also worth noting that the debt owed to ZFG is the junior debt as per the original takeover documents; this mean that it gets paid after any money owing to Knighthead is paid off.

Profits and Sustainability Regulations

Of course, a huge loss has had people worried once more that Blues are going to get in trouble with the EFL under the Profit and Sustainability regulations.

While this loss was definitely a factor in Blues being careful this season, it’s worth noting that there is nothing to fear with regards to Blues being in breach.

The most important consideration to take into account is that the profit / loss shown in these accounts is not the same as the profit / loss used in the P&S calculation.

EFL PSR Calculation

I’ve taken this image from the EFL handbook to show the “add-backs” that can be included to reduce the original figure to one that is compliant.

At this moment in time, the only club I know which openly shares its P&S calculation in their accounts is Ipswich Town, who included it in their recently-filed accounts for last season.

I think there is a strong argument for the EFL forcing clubs to show this calculation as a mandatory requirement when their accounts are published at Companies House.

While I can imagine people might say that clubs will take advantage of clubs that they can see are in P&S trouble, the fact is that the football industry is so leaky with information everybody within the game has a good idea of who is in trouble before it becomes official.

Likewise, I do not believe the information shown in the calculation is financially sensitive enough for clubs to claim privacy.

Another reason we know that Blues aren’t in any kind of trouble is that we have not been forced into any kind of transfer embargo or business plan.

Had we been it would have been absolutely public in the same way it was when Leicester City fought off the idea of a business plan legally.

Of course, we know that Leicester City have now been charged by the Premier League with a breach for last season with rumours that they are also in breach for this year under the EFL.

While Blues could not make a huge loss this year, we have been saved by a few notable sources of income; namely the transfer fee for Tahith Chong, the sell-on fee for Jude Bellingham as well as the naming rights deal published in January.

Next season there is a new TV rights deal to kick in, plus whatever extra sponsorship and commercial deals Knighthead can come up with – so there is every reason to be hopeful we’re on the upward trend where P&S are concerned.

The Future

While there are some known factors for money coming into the club, it’s also obvious what Knighthead have to do to get us out of the horrific financial spiral we were suffering under the previous regime.

Chief to doing that is increasing revenue.

For me this means that Blues need to do everything they can to ensure that more tickets are sold for the best price possible every game.

While it would be nice for Blues to be able to charge £15 per game as they are under the Season Ticket Holder friends and family scheme, long term it’s not financially viable.

The sad fact is however we want to dress it up, football is now an expensive game. On Easter Saturday I went with friends to watch Leamington FC at home and paid £14.00 (plus a 50p online booking fee) for the privilege.

If it’s costing £14 to watch a seventh-tier football game, then we have to accept in the second tier it’s going to cost more money.

And as much as people moan about investment in corporate areas etc over the team, selling out expensive corporate areas for every game (as Blues have been doing) is only going to help ensure that ticket prices don’t have to climb too high.

With both catering and the shop coming back in-house at the end of the season, the club will have more opportunities to increase additional revenue streams.

I suspect we’ll see more of the fan zones and entertainment before and after games to encourage fans to stay and spend more money at the club on matchday.

Longer term it’s going to be absolutely essential that the stadium is making as much money as it can for the club on non-matchdays and it’s for this reason I suspect any new stadium will be designed so that it can also host things like gigs and NFL / MLB games.

As always, this piece is long and full of facts and figures due to the nature of it being about accounts.

I appreciate it makes people a bit cold and it can make people worry – and with this in mind, I want to make it absolutely clear that for once, there is no reason to worry.

While the figures aren’t great we are seeing them improve before our eyes. The debt pile has been massively reduced and there are plans to help make us both more sustainable and able to spend more on players.

All we need now is to ensure we stay in this division to take advantage of that.