In his recent interview with Richard Wilford, Ren Xuandong, the Chief Executive of Blues talked about making the club more financially sustainable. What is that likely to mean for Blues?
The dictionary definition of sustainable is ‘being able to be maintained at a certain rate or level’ and Dong specifically referred to the financial performance of 2017/8 when the club posted losses of £39m as being unsustainable. The fact that costs outstripped revenue so much meant that the owners had to loan the club £39.7m that year, followed by further loans of £23.8m in the following year and, it appears, a further £19m by the end of August 2020 according to documents released by the Birmingham owners Birmingham Sports Holdings (BSH) at the end of last year.
Having some level of ongoing financial support from the owners is not unusual in the Championship – only four Championship clubs posted a profit (excluding one-off property sales) based on the most recent figures available. However, the scale of lending to the club to keep it operating over those three years – over £82m – is substantial and, clearly in the eyes of the owners, unsustainable. It also contributes to Blues having the third highest amount of debt in the Championship (owing the owners £110.6m) according to the latest figures available.
Debt, in itself, is not necessarily an issue as long as the owner is a ‘friendly’ owner. Two of the largest debts in the Championship are at Middlesbrough and Stoke where the owners (Steve Gibson and the Coates family respectively) are well known local fans of the club who have financed their teams through successful outside businesses and who, at the end of the day, are probably likely to accept some form of write-off of some of this debt.
For Blues, being owned by a publicly traded company, the loans from the parent company have been funded by commercial loans or increased equity funding of the parent company. Following the recent acquisition of part of the club by Vong Pech’s Oriental Rainbow Investments, it looks like the future amount of financial support the club will receive will increasingly depend on the largesse of Vong Pech and his associates. This is something that we know very little of and something that is likely to be key in whether sustainability means the club looking to be fully self-sustaining or whether there is likely to be a degree of ongoing (but much smaller) financial support from the owners.
Whatever the planned amount of future ownership support it is clear that the club is trying to get costs and revenues much more in line.
On the costs side, Dong talked about Karanka having a wage budget of £18m this season, much reduced from previous years. That would have been one of the lowest in the Championship a couple of years ago – and reinforces the importance of good recruitment to use the playing budget wisely. It’s certainly not impossible to do well in the division with such a budget – Brentford’s playing budget is also one of the lowest – but it tends to be the exception rather than the rule and requires a lot of focus to get the best use of limited resources.
On the other side of the equation is trying to increase revenue. Obviously COVID has hit all clubs here but, as we come out of lockdown, the club will be looking for ways to increase its revenues. Excluding parachute payments, Blues are very much mid table (12th) in the amount of money they generate (excluding profit on transfers) in the Championship and this would seem an area where there is scope for growth. The strategic committee that has been recently set up to advise the club contains an investment expert, Zhou Desheng, who may be advising the club on how to improve revenues but it seems there is an opportunity to do more here.
Outside of the regular revenues such as gate money, commercial income and TV money, the other potential source of net income is profit on transfers which is generally achieved by either developing players from the academy (e.g. Jude Bellingham) or by buying them young and growing them further (e.g. Che Adams). This just re-emphasises the importance of getting the academy restructure right and of developing a transfer strategy that buys younger players with potential and develops them further.
So, in short, it looks like the club will be going forward with a much reduced playing budget compared to previous years but hopefully we will see some signs as to how the club intend to increase revenues or develop transfer strategy to boost this further. A bit more communication on how the club intend to do this would be helpful – both to inform the fans but also to encourage a bit of discipline in the club’s thinking.
Want to be a full member with voting rights?
We have options for 1 and 2 years at £5 per year. There is also a 5 year membership for £20 so you get 5 years for the price of 4.
See information and options here.
If you can’t yet commit to full membership but would like to recieve our newsletters, why not sign-up to become a follower for free?
This category is not a membership and does not carry any voting rights.
Dong could always move out of his luxury penthouse into something more befitting his worth to the club? Save a few bob. Better still a nice little junk in China would be fine .
Assuming a ‘sustainability’ strategy that will need to revolve around continuing to develop our own talent, and also be shrewd in the transfer market in buying lads, perhaps from lower down the league pyramid or abroad, and developing them further, then surely this will require a robust Academy Structure?
Recently I’ve read reports of Academy staff leaving the club, and some reports infer a ‘stripping back’ of our Academy, an Academy that has served us well in the recent past.
What is the Blues Trust assessment regarding the exact situation with our Academy, as if the reports are true, how can we be sure that a somewhat diminished Academy will be fit to deliver the key tenet of our hope of ‘sustainability’?
I feel we are entering a new era in the history of our beloved club. Apart from the almost certainty of relegation to league One, there is a genuine chance that we will enter administration and a new beginning will need to be built from a very low financial budget. Bolton Wanderers are beginning to rise again after falling down and this is,in my opinion, where the future lies for us. If the club wanted Championship survival at all costs then Ren and Karanka would have been replaced with more games available for a new encumbent. This is the real giveaway as to what is planned for BCFC.
So obvious this is the plan.
The only reason losses have reduced in the last 18 months is because they have forward funded the entire Che and Jude sales.
Sadly this club is being managed into the ground on and off the field.
When we are in League One our income will halve and we won’t keep having players to sell and even if we do the position we are in will mean selling talented players for less than £6m just like every other League One sale.
Relegation will be an unmitigated disaster and sadly these clowns will have to learn the hard way.
They will be lucky to get 5,000 a week if we go down with AK and Dong remaining in place.
My only consolation that I have to keep reminding myself is that this isn’t the Birmingham City I know or recognise. However all is not doom and gloom as once we reach the horrible depths that will happen is that the club will be ‘saved’ by new owners and we will get behind them. Maybe we will have to rename the club just Birmingham as like Glasgow Rangers who started again at the bottom-they could not rename it as the same-hence their current status being just Rangers. New ground? yes of course and this could be good although not so with the old romantics like myself. Next generation of young supporters is what is important.