Following the publication of Birmingham City’s latest accounts yesterday, Blues Trust has sought expert advice in order to conduct a full analysis of the published results.
The accounts, released for the period to 30th June 2012, have again highlighted the parlous state the club finds itself in financially. The accounts also re-confirm many fans’ fears in that further players will need to be sold in order to maintain the future short term stability of the club.
There are some positives to take from the club’s latest accounts; notably that its day to day activities have shown a £3.5million profit and a clear indicator that the underlying cost base is under control.
The accounts also show £7.5million of ‘exceptional items’ for the same period, affecting the club’s yearly overall operating performance causing a loss of £3.9million. This exceptional cost relates to the carrying value of saleable playing assets and the club’s decision to write off that carrying value either because of career threatening injury or as they are unlikely to re-coup the playing asset’s carrying value in any potential transfer deal. Given the substantially large turnover of playing staff following the club’s relegation in 2011, it is not surprising that the club has had to write off such amounts and it would be expected that this value is seen as a one off, and that any recurring charges would be a lot smaller.
When looked at with the £20million player sales, there has been significant cash inflow to the club. This has gone some way to repaying the club’s outstanding debts; the club’s overdraft is now largely paid off, as well as building a reasonably healthy cash balance – with £5.9million in the bank as of 30th June 2012 – suggesting that short term liabilities can be covered.
However this is where much of the positivity ends. Having noted comments made about the club’s forward forecast, there seems to be agreement that further player sales are needed in order for the club to operate as a going concern over the next 12 months. This year’s revenue will be further reduced by:
• Diminished parachute payments from the Premier League
• Reducing gate receipts
• No European competition to support the income
Here lies the main concern. It is questionable how the club can continue to operate in an environment where revenue is reducing, its ability to borrow money is removed and any playing assets with significant transfer value have all been sold. While it is not revealed how much money the club may need to raise from these player sales, the club now finds itself in a situation where such high value playing assets are slowly diminishing.
Moreover, more questions need to be asked around the financial governance of the club. The club’s Xtep deal – which has received widespread media coverage – is extremely worrying not just because of its nature, but also how it would be possible for a single individual to negotiate and sign an agreement with such a significant risk to the club.
Furthermore, questions must be asked of the loans which have been put in place from Mr Yeung and other 3rd part organisations. It is again worrying to note that there are no written terms of agreement for the repayment of these loans or interest charges; this is despite equating to a significant amount on the club’s balance sheet.
Lastly, the Trust finds it disappointing to note that at a time when the club is operating in such a perilous financial stage it has been deemed acceptable to pay one Director the sum of £687k in a single financial year.
The Trust is seeking answers to the following:
1. The Trust would like to understand the value of funding through player sales that is required to allow the club to continue as a going concern – and for how much longer this situation will continue.
2. Forward funding is mentioned on a number of occasions in the accounts as a way of meeting the future cash flow requirements. The Trust is seeking clear transparency in relation to the mechanics behind these arrangements, with confidence the governance which appears to have been lacking in previous arrangements is now in place.
3. The Trust and its members are deeply concerned at the level of wages which are being paid to one un-named Director, particularly given the state of the accounts and the requirement to further diminish the playing squad. This figure does not seem justifiable at the present time.
The Trust will continue to seek expert advice as to next steps.