Of course, the reason for this is the investment made into both clubs, which has been accompanied by celebrity razzmatazz and commercial savvy.
We’ve seen razzmatazz before from owners and would-be buyers. From public announcements in the Kop car park to bold transfer claims in fur coats, the last decade and a half at Blues has not been ordinary.
However, what has set apart Tom Wagner and Knighthead from those who have been and gone before is the realisation that to get any return on investment from a Birmingham City project, the club has to be sustainable.
Sustainability is a bit of a buzz word in business right now and I think for many it’s an empty word that doesn’t really mean much spoken by men in suits trying to convince us of their earnestness.
Yet, having seen the dangers of unfettered spending and incompetent ownership, I think it’s important for us to understand better what sustainability means for Blues – and why big showy affairs such as tonight are part of a bigger picture.
What is Sustainability?
The whole concept of sustainability of a football club is a simple one: the idea that a club can earn enough money to allow it to spend the transfer fees and wages needed to sign players to bring success on the pitch.
As simple as it is, it’s clear that not many clubs in the English football pyramid are sustainable and while thankfully there haven’t been many cases of clubs going bust in recent years there have been some notable near misses.
It’s also worth rememebring that administration and liquidation aren’t the only things to fear from a lack of sustainability.
If I’m honest, I don’t think Blues were ever that close to going to the wall under the previous ownership regime; however it was clear that the club was in a vicious circle of spending cuts that was slowly draining all life from it.
The recent transfer window spending has caused some outside the fanbase to question the finances and motives of Knighthead at Blues, and once again that word sustainability has reared its ugly head again.
There have been comments from some that the money spent on Jay Stansfield was wildly inappropriate for a League One club and while it’s easy to dismiss these comments as sheer jealousy it’s important for us to also understand why those comments are incorrect.
This means that we need to understand what sustainability actually means in football.
Thankfully, there has been quite a bit of work done in this field in the past few years while the Government have looked into the idea of an independent regulator.
In September 2023, a research report was published under the Sunak Government that was co-authored by Kieran Maguire and Dr Christina Philippou.
Maguire, who is known for the popular “Price of Football” podcast, works at the University of Liverpool where he runs modules for students on Football and Finance as well as Sports Finance and Information Systems for Accountants.
Philippou is an Associate Professor in Accounting and Sport Finance at the University of Portsmouth, working at the School of Accounting, Economics and Finance within the Faculty of Business and Law.
Their report builds on earlier work published on the financial sustainability of football and demonstrates a series of metrics on which football clubs can be judged.
The metrics are:
- Income-based metrics
- Wage control
- Operating cashflow
- Current Ratio
- Equity
- Football Net Debt
Income-based metrics help to show if a club is too dependent on one specific revenue stream such as broadcast revenue, while wage control confirms if a club is spending too much on player wages.
Operating cashflow and current ratio show how susceptible a club is to issues with servicing debts, while equity and football net debt show the size of debt a club is currently dealing with.
Using these metrics, Maguire and Philippou were able to demonstrate which clubs could be seen to be in financial distress and by what margin.
How Sustainable is Birmingham City?
The report written by Maguire and Philippou uses the most recent set of accounts available to them; namely the accounts from the 2021/22 season.
For Blues, it’s clear that there were issues at the club,
| Club | % Broadcast revenue | Wage control | Current ratio | OCF |
| Birmingham City | 46% | 177% | 0.13 | (22.8) |
Like most clubs in the Championship, Blues weren’t as reliant on broadcast revenue as clubs in the Premier League were and as such that metric was the only healthy one Blues had.
However, having a wage to income ratio of 177% was more than double the UEFA recommended ratio of 70%, and the current ratio of 0.13 is far lower than the threshold of 0.6 that Maguire and Philippou recommended for healthy clubs.
Blues also had negative operating cashflow which would only be expected in a mature business in extenuating circumstances, as it would indicate that the club was failing to generate cash resources to make day-to-day trading sustainable.
Since the report was published, Blues have published a further set of accounts for the 2022/23 season. This was the last season that Blues were under the previous ownership, and things hadn’t changed much.
| Club | % Broadcast revenue | Wage control | Current ratio | OCF |
| Birmingham City | 48% | 145% | 0.13 | (22.7) |
We can see from page 21 of those accounts that broadcast revenue made up 48% of revenue which while being a slight increase still did not indicate that Blues were over reliant on that revenue stream.
However, wage control was still poor, at above 145% and still more than double the UEFA recommend limits.
We can calculate this by dividing the staff costs by the revenue received by the cub, as shown on Page 2.
On page 11, we can see the current assets and liabilities of the club and using this data we can calculate the current ratio, which remains far from healthy at under 0.13.
As I’m not an accountant, I’ve used simpler methodology to calculate operating cashflow:
operating cash flow = total revenue – operating expenses
This gives us a figure of -£22.7M, which is slightly better than the previous year but still negative and thus still an indicator of financial distress.
However, while these figures are concerning they are from a period before Knighthead took control and as such we cannot use them to judge how much of a change Knighthead have made to the sustainability of Birmingham City.
Sustainability under Knighthead
Until accounts come out for last season, it’s going to be difficult for anyone to make a firm analysis one way or the other about the sustainability of Birmingham City under Knighthead.
This means while it’s true that criticism of their spending is somewhat unfounded, it’s also difficult for anyone trying to defend it without using the same vague ideas and concepts.
Companies House rules in the UK mean that we won’t get any accounts for Blues for the 2023/24 season for a while; while the financial period ended at the end of June 2024, figures don’t actually have to be filed until the end of March next year and it’s common for companies to use all the time available to them to finalise accounts.
However, despite Knighthead taking operational control of Birmingham City, ZO Future Group (what was Birmingham Sports Holdings) still owns a 51% stake in the club and as such have to report on the club’s finances in their own group accounts.
HKSE rules are a lot stricter for the publication of accounts; for main board listed companies like ZFG they have to be audited and published within three months of the financial year end.
This means for ZFG, the accounts have to be published by the end of this month; indeed, they have already confirmed to the HKSE the date of the board meeting to confirm these accounts and that there is expected to be an operating loss.
From accounts published over previous years, I know that these figures published in September will have segment analysis which will at least confirm things such as revenue earned by the football club broken down into revenue streams.
As the football club remains a huge part of the ZFG group, we can also use the revenue received and wages paid figures to gain a semblance of an idea of how wage control looks at the club.
This should give us a semblance of an idea of the direction the club is heading.
If Blues are to be sustainable, the most important number to change for me in the short term is revenue.
Increased revenues – particularly match day and commercial – will confirm that the club have diverse revenue streams and aren’t particularly reliant on income from one source to make money.
Likewise, if the club brings more revenue in then the wage to income ratio improves for the better even if wages haven’t dropped significantly.
Should this prove to be the case, then it’s easier to understand the path the club is taking is working.
At the last Open House in April, Tom Wagner was firm in his stance that the path to success was increased revenues.
All the noises I’ve heard from within the club have only confirmed that revenues are continuing to increase despite relegation to League One.
Likewise, while the remaining contracts of the previous regime are now coming to an end, relegation also will help ensure wages have dropped. This is because many player contracts will include clauses which allow for different wages dependent on the division the club is playing in.
Under the Salary Cost Management Protocol that Blues have to operate under in League One, Blues have to keep their wage costs to 75% of income (with certain allowances). There has nothing to suggest that Blues have surpassed that threshold, which would indicate that wage control is much more in hand.
While for some it might feel a bit of a circus around the game against Wrexham in comparison to the way things were before, it’s obvious that for Blues to be a success again this is the kind of thing as fans we need to embrace.
Likewise, if Blues are to become sustainably successful, then the changes we have seen to the commercial side of the club will have to continue to grow and expand.
I have no doubt that from a financial standpoint, Tom Wagner, Garry Cook and the rest of their people have all the experience and knowledge necessary to pull this off.
The challenge is going to be doing it in such a way that these changes are at least sympathetic to where the club and its fans have come from.