BCFC: The League One Financial Challenge (Part I)

With the football season now over for Birmingham City, the focus has turned to the summer ahead and the challenges to come in the transfer window. Relegation means that Blues have a whole new set of financial rules to comply with which focus on a different methodology of levelling the financial playing field.

Finances and BCFC

You may have read me saying it before, but Summer 2024 is going to be a big one for a lot of people at Birmingham City.

Expectations have been raised by talk of big spending even though Blues fell through the relegation trapdoor – and we’re already seen angst from the more hyperbolic fans online that signings haven’t been made.

I’m not “ITK” when it comes to transfers and in honesty I have no desire to be, but what I would like to talk about more is how far Blues can go financially under League One rules and what kinds of expectations are reasonable.

Salary Cost Management Protocol

In League One, the rules around financial fair play are somewhat different from the ones in the Championship.

Unlike Championship teams which work under the framework of “Profit and Sustainability” rules, League One teams are subject to the “Salary Cost Management Protocol” or SCMP.

The full SCMP rules can be found online at the EFL website, under Annex 3 of the regulation handbook.

The SCMP is designed by the EFL to ensure that clubs keep wages within a budget that is affordable.

What that means in practicality, is that rather than limiting the amount of “loss” a club can make in a season, the SCMP rules limit the amount spent on wages as a percentage of both revenue and of “football fortune income”.

Under these rules, clubs are restricted to set ratios. These are not unlike the wage to turnover ratios used by football finance experts to show how much clubs are spending on players.

The ratios that the SCMP use as limits are defined by the EFL as:

60% of the Club’s Relevant Turnover (as defined in Paragraph 1 of Appendix A) for the Reporting Period, plus

100% of the club’s Football Fortune Income (as defined in Paragraph 2 of Appendix A) for the Reporting Period.

There is an allowance for clubs who are dropping into League One from the Championship, with the first ratio increased to 75% for the first year after they are relegated.

As one can imagine, there are long legal definitions of what “Relevant Turnover” and “Football Fortune Income” mean and these can be found at the link above.

The most important thing for us to take into consideration is that “Football Fortune Income” can include cash and equity injections from owners.

Again, there are legal definitions of what this means and how they work, but my understanding is that it means the owners are allowed to put money into the club for this purpose with the understanding it cannot be converted into debt.

Now, if you cast your mind back to the Open House held by the club in April, the above ties in with Tom Wagner’s talk of how the only change relegation brings to their plans is it makes them a bit more expensive for Knighthead.

What it effectively means is that it’s possible for a club owner to attempt to “buy” their way out of the division by putting money in to ensure ratios are met.

Of course, we know that wages have been something of an issue at Blues for a few years with the ratio of wages : revenue continuing far in excess of 100%.

So how does the club bring that down to the 75% as per these rules?

The Wage Cut

As I’ve said for many years, player wages are the biggest financial issue Blues have had to deal with – and a period of profligate spending on wages has ensured the club have had to deal with massive constraints in recent times.

The most recent accounts we have details for are the accounts for the season 2022-2023 and in those figures Blues’ wage : revenue ratio was a fairly stonking 146.43%.

Thankfully, we know things are almost certainly better right now.

The end of the 2022/23 season saw some of the heftier contracts offered by former Blues CEO Ren Xuandong come off the books while the last of those beefy deals will come to a conclusion at the end of June.

However, even with those salaries gone, the big question left is just how much further wages need to come down for Blues to be compliant with these new rules – notwithstanding the stack of players Blues will need to sign this summer.

Some people will point to websites like Capology as a guide to what players earn but the truth is that the figures shared on there are complete guesswork – and from the little bits I do know for sure, are wildly inaccurate.

It doesn’t help that player wages are complex.

The Salary Cost Management Protocol doesn’t just deal with basic wages, but covers all monies paid to players including appearance fees, player and team bonuses etc.

This can drastically change a player’s salary.

From the information I have in the infamous “Dong Box” I know of one recent Blues player that had a weekly salary of £15k per week which is big, but not massive by Championship standards.

However, in addition to that salary the player had two yearly bonus payments which totalled another £800,000 or so.

Neither bonus was contingent on any performance criteria, and as such the total salary package for the player topped out at nearly £1.6m per annum – or just shy of £31k per week.

Thankfully, there is also good news from that trove of information.

Having taken a look through the information I have for past player contracts, I can see that a good proportion of those had a clause where the player would receive a lower wage should the club be playing in League One.

I have no idea how many of the current contracts Blues have with players have this clause; however I am confident that there will be at least some who will see their salaries cut with relegation.

With the players leaving the club this summer and these cuts taken into consideration, I’m fairly confident Blues are in an okay position to comply with the regulations, and we shouldn’t have to worry.

This kind of contract also makes me think that Blues can attract players to The Project™ this summer with a bit more ease, simply by offering contracts which come with an uplift if and when we get promoted back to the Championship.

Unfortunately, I cannot find anything in the regulations which confirms that long term player contracts signed before relegation are exempted from these rules.

I’m not sure if this is something that has been taken out or was just a mistake repeated again and again online.

However, what I have found is that contracts offered to players under 21 – which for this season means any player born after 1 January 2003 – are not counted in the ratio.

This is interesting, because theoretically it could mean Blues could offer Jordan James a whopping contract to convince him not to move and it wouldn’t count towards the SCMP rules as Jordan James was born in 2004.

While I don’t believe that scenario will happen, it does give me food for thought that Blues might have a look at some good u21 talent to see if they can attract them to the club.

All of these rules feed into one other thing I think is important with player purchases this summer – that Blues sign players not just to take us back up, but also that can grow with the club as it continues to look upwards.

For me, this means the club should be looking at the likes of Ipswich Town for inspiration of how to succeed from our current position after their double promotion.

Transfers and wages are not the only financial implications Blues have to consider from relegation.

There have also been questions with regards to how relegation may affect any purchase of the remaining part of the club owned by ZO Future Group (what was Birmingham Sports Holdings).

I’m currently working on researching the information to answer this question among others surrounding the future ownership of the club and will publish this as the second part of this article in the near future.

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