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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.

Blues Trust