At Birmingham City hopes had been high when ownership of the club effectively passed to Thomas Wagner’s Knighthead Capital Management in July 2023.
This change was greeted with delight (and some relief) by
Blues fans after the trials and tribulations experienced since Hong Kong
businessman Carson Yeung took full control of the club in 2009. After he was
arrested on charges of money laundering, Yeung resigned, but the club remained
in the hands of Chinese owners.
Last summer’s transaction was made with Knighthead’s UK
affiliate, the wonderfully named Shelby Companies Ltd (SCL), with a reference
to the family in the excellent Peaky Blinders, which is of course set in
Birmingham.
The club’s majority owners, including Birmingham Sports Holdings
Ltd (BSHL) and Oriental Rainbow Investments Ltd (ORIL), approved the sale of
45.98% of Birmingham City Ltd and 100% of the St. Andrews stadium.
Although this agreement does not give SCL a majority
shareholding, with BSHL retaining 51.72%, the announcement said, “SCL has
assumed responsibility for all operations of the club and will provide the
necessary funding to rebuild and set a new trajectory for the club.”
Wagner emphasised the changing of the guard, “The way that
the transaction has been structured, we will assume full operational control
over the team from today forward. So, we'll be setting the strategic vision for
the club, and, ultimately, we'll be the ones who are responsible for achieving
the goals that we set. I think it's fair to say that the buck stops with us
from here forward.”
The new owners also brought on board Tom Brady, the
legendary NFL quarterback, though his stake cannot be too large, given that all
the minority investors only hold a negligible 2.3% of the club.
Understandably, there was a lot of excitement around the new
owners, as chief executive Garry Cook explained, “Knighthead has invested in
Birmingham and is bringing a level of ambition that is going to improve the
fortunes of both the Club and the city itself.”
The CEO added, “We are well aware of what has happened at
Blues over the past decade. We believe we have moved on from those dark days
giving hope and aspiration to existing and new fans.” However, Cook did sound a note of caution,
“Creating a winning culture in an organisation that has been on its back foot
for a number of years is not easy.”
After many years of neglect, the new board has invested in
the St. Andrews stadium, while outlining exciting plans for a new Sports
Quarter in Birmingham. In addition, they have signed some lucrative commercial
deals.
Finances
That’s all going to boost the club going forward, but it’s
worth taking a look at the financial position that Knighthead inherited by
reviewing Birmingham City’s accounts for the 2022/23 season. These covered the
12 months up to 30th June 2023, i.e. just before the new owners took control in
July.
Blues have consistently lost money, only reporting a profit
once in the last nine years – and that was just £1.3m in 2014/15. Since then,
the club has accumulated £141m of losses. In fact, last season’s £25.3m deficit
was the club’s second highest ever, only “beaten” by the £37.4m five years ago.
Blues’ pre-tax loss slightly increased from £25.0m to
£25.3m, as revenue rose £1.6m (9%) from £18.1m to £19.7m, while operating
expenses were cut £2.4m (5%) from £49.4m to £47.0m.
That said, the £8m reported loss in 2018/19 would have been
much higher at £26m without including £17m profit from the sale of St Andrew’s
(£23m proceeds less £6m book value), as Blues used some fancy financial
footwork in order to try to meet FFP targets.
These improvements were largely offset by reductions in
profit from player sales, down £1.1m from £3.2m to £2.1m, and other operating
income, down £3.2m from £4.0m to £0.8m. Net interest payable was unchanged at
£1.0m.
Very few clubs make money in the incredibly competitive
Championship, but Blues’ £25.3m loss was one of the worst results in the
division in 2022/23, only surpassed by three clubs, namely Burnley £36m,
Sheffield United £31m and Norwich City £27m.
It will probably not have escaped people’s attention that
the two clubs with the largest losses were both promoted to the Premier League,
partly reflecting investment in the squad, but also hefty bonus payments.
The Blues’ bottom line hardly benefited at all from player
trading with only £2.1m made from player sales, down from the prior season’s
£3.2m. Details were not divulged, but the profit was possibly linked to the
transfers of Ryan Woods to Hull City and Jonathan Leko to MK Dons.
Revenue
Even after last season’s growth, Blues’ revenue of £19.7m is
still £3.6m (15%) lower than the £23.3m generated before the pandemic struck.
The largest fall was in commercial, down £3.2m (32%) from £10.2m to £7.0m,
though match day also dropped £1.5m (28%) from £5.2m to £3.7m.
Revenue has been boosted by the arrival of the new owners,
so this will be a fair bit higher for this season. They will be exploring all
avenues for more growth, but their plans will have taken a blow after
relegation.
Blues’ match day income fell £0.5m (11%) from £4.2m to
£3.7m, following a reduction in ticket prices. This was the lowest for nine
years (excluding 2020/21 when all games were played behind closed doors).
Receipts were impacted by the major repair works that were
needed at St. Andrews to bring the stadium back to a fit state to meet health
and safety regulations, which resulted in the lower tiers in the Tilton Road
stand and Kop stand being closed for the whole season. Both stands returned to
full utilisation in 2023/24.
That said, this has never been a big money spinner for
Birmingham, as the highest amount earned in the last ten years was only £5.2m
in 2018/19.
Despite the stadium refurbishment, Blues’ average attendance
increased from 16,152 to 16,758, though this was still down a quarter from the
22,483 pre-pandemic Championship peak. This
was much lower than the 25,567 crowds they attracted the last time they were in
the Premier League in 2010/11.
New stadium
The plan is to develop a “vibrant” Sports Quarter, which
would be home to a world-class, multi-use stadium and training facilities for
all Birmingham City teams, plus extensive commercial and community facilities.
This is a long-term project with Birmingham unlikely to move
to the Wheels site before the 2029/30 season. It will also be very expensive,
though revenue would increase through more corporate seats and better
hospitality options. Relegation
inevitably leads to questions about whether Knighthead might pause this
development, but Wagner has said that this would not slow down the timeline.
Wages
Blues’ wage bill fell £3.2m (10%) from £32.1m to £28.9m,
which means that this has now fallen three years in a row and is significantly
lower than the £38.6m all-time high in 2017/18.
Even after this reduction, Blues’ £29m wage bill was
actually ninth highest in the Championship in 2022/23, so they have badly
under-performed relative to their budget. As an example, their wages were
higher than promoted Luton Town, even though those were inflated by substantial
promotion bonuses.
Blues’ 146% wages to turnover ratio was pretty awful, only
better than two clubs last season, Luton Town (impacted by the promotion bonus)
and Wigan Athletic.
Blues have really slammed the brakes on their transfer
spending in the last three years with an outlay of only £10m. The club had pushed the boat out (relatively
speaking) in the four years between 2017 and 2020, when they spent £45m,
averaging £11m a season, despite the EFL restricting purchases in 2018/19
following a breach of FFP regulations.
Birmingham’s squad cost was still 7th highest in the
Championship last season, which means that Blues punched well below their
weight.
In the last 10 years Blues have required £162m loans (mainly
from the owners) plus £18m from player sales to cover the club’s £169m
operating losses. They also paid £4m interest, while only investing £7m in
infrastructure. Blues’ owners have
provided £157m funding in the last decade, including £42m in the last two
seasons alone. Basically, they attempted to finance a big push, but the harsh
reality is that they did not spend the money very well.
In fact, only two owners in the Championship have put in
more money than Birmingham in the last five years, namely Reading and Bristol
City. This is a division where clubs have a near insatiable appetite for owner
funding, so no fewer than 10 clubs received £50m or more in this period.
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