Birmingham City: New Year, New Blues

by | Jan 18, 2020

Another year, another possible points deduction for Football League (EFL) Championship strugglers Birmingham City. Deja-vu all over again.

The Championship (FLC), English club football’s second tier and home to countless English Premier League (EPL) once-weres and wannabees, has been the “mad” division almost since its EPL-necessitated inception in 1992. Initially because there was little more than a proverbial sneeze separating high-flyers and strugglers. And, more recently, because it has become a financial basket-case, thanks mainly to over-ambitions for EPL places and their attendant riches.

Birmingham, last relegated from the EPL in 2011, has been one of the biggest contributors to said basket-case, as a series of Hong Kong-based and/or connected owners has run the club with little or no financial acumen. Blues have frequently transferred from frying pan to fire since supporters waved glad goodbyes to the Davids, convicted pornographer Sullivan and soft-sex toy and publishing ;impresario’ Gold, in October 2009. And current majority owners, and antidote to nominative determinism, Trillion Trophy Asia (TTA), have been the most financially acumen-free yet.

Last January, Birmingham announced annual losses which would even shame Chelsea or Everton, a bit; a whopping £37.46m, almost breaching Championship “Profit and Sustainability” (P&S) rules single-handedly, as the “upper loss threshold” is £39m over three-year “accounting reference periods.” P&S rules were introduced in 2016/17, after Championship clubs including Blues voted for them. And they were already in further breach when a nine-point deduction dropped last March. Hence another possible deduction, which could relegate them to League One.

Birmingham are perhaps the primest example of the gaping holes in in the EFL’s powder-puff “Owners’ and Directors’ Test,” introduced to football as the ‘fit and proper persons’ test’ in 2004 and a bar so misnamed that even Ken Bates hurdled it. Blues are currently run by five directors who have yet to demonstrate the first idea of how to control club finances or offer evidence that they could even spell profit and sustainability.

Blues’ first rules breach was announced in July 2018, when three-year losses, from 2015/16 to 2017/18 exceeded the £39m limit by £9.787m. There were rule breach concerns that January when Blues announced a £16.4m pre-tax loss for the year to June 2017 and that February when parent company Birmingham Sports Holdings (BSH) announced £17m losses over the subsequent six months.

Rumours abounded that half the Championship had such concerns. The EFL said nothing. But the Sunday People newspaper’s chief sportswriter, and Blues fan, Neil Moxley tweeted on 6th May that Blues had “major, major issues with FFP” after EFL scrutiny of their finances. Trouble was “afoot,” including a possible transfer embargo, with “an independent panel” meeting to “discuss the penalties.” And as “this would be the first case heard under new rules” there were “no precedents” for the extent of such penalties.

Moxley got pelters from other Blues fans for breaking this on the regular season’s final day, with Blues’ Championship survival not quite confirmed, although he noted bitterly that he “wrote about it six weeks ago” but “seemed to be ignored.” I wrote about this six weeks ago. Seemed to be ignored. Which is fine.And there was plenty of ‘whataboutery,’ with particular, predictable reference to overspending rivals Aston Villa. The EFL got pelters too for their silence, viewed by many Blues fans as trademark non-transparency.

On 14th June, Birmingham announced the sale, for an undisclosed amount, of naming rights to its home and training grounds, which were due to be called “St Andrew’s Trillion Trophy stadium” and the tongue-twisting “Trillion Trophy training centre” (formerly Wast Hills). But a £13m loan, BSH announced simultaneously, had been acquired/required in March 2018, through a deal which made second-largest shareholders of British Virgin Islands-registered loanees “Dragon VILLA,” a name to delight Blues fans.

Superficially, it was Blues business as usual in June, including an eye-catching £6m bid for Bournemouth striker Lewis Grabban. But alarm bells bonged for Blues when it emerged in early July that the EFL had not registered Danish under-21 international left-back Kristian Pedersen, despite Blues trumpeting his arrival on 25th June.

At a May fans’ forum, club director Edward Zheng Gannon had dismissed talk of regulatory breaches as “incorrect rumours on social media.” But they were actually…”correct.” Blues had been under a “soft” transfer embargo all close season, which only emerged when it became a “full” embargo after Pedersen’s transfer fee was reported as £2.5m. It also emerged that the naming rights deal broke EFL “fair market value” rules.

Behind club scenes. CEO Ren Xuandong, with board backing, battled experienced staff, including Finance Director Roger Lloyd, who opposed Blues’ expansive transfer/financial strategy. And after their wiser counsel failed to prevail, Lloyd, financial controller Gary Moore and club secretary Julia Shelton resigned.

On 30th July, Birmingham referenced “several months working diligently to satisfy the EFL” but that “unfortunately and disappointingly, the EFL are refusing to allow us to make additions (to) strengthen the squad.” The rotters. And the club “shared” fans’ “frustrations” at “recent speculation and rumour,” without “sharing” any rule-breach detail whatsoever. An EFL spokesman, clearly paid per-word, said they had “set out on 13th July our requirements in respect of the basis upon which the club would be able to make additions to Garry Monk’s squad.”

And on 2nd August, the league confirmed Birmingham’s “losses in excess of the permitted amounts.” An independent “Disciplinary Commission” would determine their sanction. And the club accepted “a business plan imposed by the EFL,” with “a number of financial targets, including player-related expenditure,” designed to comply with “P&S regulations moving forward.” They could register Pedersen and five more players. But the EFL were “exceptionally disappointed” that Blues had signed him when knowing “they would be subject to a business plan” limiting such dealings.

By then, though, Blues had already completed their 2017/18 overspend. Wage costs rose from £22m to £38m and the wage-to-turnover ratio, 50-60% in sensible businesses, was (insert disbelieving emphatic pronoun here) 202%. Harry Redknapp was Blues boss until mid-September 2017. But not even ‘Readies Redknapp’s’ involvement could excuse…THAT.

The accounts, published in January 2019, revealed a plethora of “revolving” and “standby,” loan “facilities,” including two from ‘Villa.’ These had facilitated BSH loans of £73.1m to the club. BSH confirmed that the loans wouldn’t need “repayment within 12 months.” But “cash-flow forecasts” showed an “additional £39.1m” was needed from BSH until December 2019.” It was announced on 25th January that £5.5m debt would be cleared by BSH allotting 11 million 50p shares in itself to the club. But further debt-reduction, through January player sales did not happen.

Birmingham rejected a number of reported £12m bids for 15-goal attacking midfielder Che Adams. They either feared that a points deduction might slash the then 16-point gap to the drop zone, or felt they’d get more for the ex-England under-20 international in the summer. However, on 2nd February, the Times newspaper’s sports news correspondent, Matt Hughes, reported that the bid rejections “could lead to a second charge of committing an ‘aggravated breach’ of the EFL’s P&S rules, which would trigger a second points deduction in as many seasons.”

Eleven days later, Sky Sports News correspondent Ron Dorsett wrote that the EFL was “pushing for a 12-point deduction for what they see as repeated breaches.” And Blues complained about being treated like a “guinea pig,” believing they would be treated harshly as a warning to other clubs, especially given Hughes’ reference to a “second” deduction, before the Commission had even met to discuss a first deduction.

In February, BSH published their interim accounts for the six months to December 2018, which didn’t help. Extrapolating club business from the results suggested a P&S upper loss threshold-matching £13m loss, despite a wages-to-turnover ratio drop to a ‘mere’ 139%.

The Commission sat on March 18th and their 14-page decision, published on 22nd March, mixed disbelief with damnation. Birmingham were deducted nine points, leaving them eight points above relegation. The decision revealed that Blues were the only club to breach P&S rules and, indeed, had pleaded guilty. And it confirmed that Blues were placed under a “soft” transfer embargo on 2nd May, which became hard on 3rd July.

Birmingham’s response played a pack of sympathy cards. When TTA took over, Blues were “in a dire position and investment was critical across the business.” They claimed that “decisions by the owners and the Board” had Blues’ “best interests at heart” with “a determination to halt a cycle of decline and stagnation (and) fulfil ours and our fans’ ambitions.” They would “ensure future spending is within acceptable limits” and “since August we have adhered to an EFL business plan.” Bit late, that.

Birmingham would now be assessed annually against P&S targets. So, 2018’s £37m loss was off the P&S table. This would have been excellent news, had Blues been truly “mindful and respectful of regulations and parameters laid out,” as they claimed in April, when announcing their decision not to appeal the sanction. Oh well.

In mid-June, Blues boss Garry Monk was suddenly sacked, after 16 months in charge, with Ren giving “explosive” and “astonishing” interviews to the Times and Daily Mail newspapers respectively by way of ‘explanation.’ The main reason was Monk’s desire to cut his own agent, and childhood friend, James Featherstone of Omnisports, into all transfer deals. Blues’ owners were “not naive, we know the way football works,” a self-awareness deficient Ren said. “But it’s not how we wanted to operate.”

He called Featherstone “very professional and mature” but character-assassinated Monk. “Maybe the problem is Garry?” he asked rhetorically, adding bitterly that “he has never managed a club longer than two seasons. Every time he gets sacked he gets richer.” Blues “gave Garry everything he wanted,” including “an under-23 team,” but were “the only Championship club whose under-23s didn’t get a minute in the first team.” Ren claimed “none wanted new contracts” until Monk left. And Monk helped Omnisports recruit “younger players,” most notably England under-16 captain Jude Bellingham.

A second reason, Ren added, was ultimate club owner Paul Suen’s “clear instruction” to “play possession-based attacking football,” which “wasn’t an order.” No, really. “Whoever said that doesn’t have a f*****g clue about football,” Monk explained, correctly, about someone facing accusations of “reckless or negligent” financial conduct in Hong Kong. By the way.

The usual dire warnings came from BSH’s 2019 accounts, suggesting club losses of £30m. A less-expected warning came from London’s Insolvency Court, to where HMRC brought a winding-up petition over an unpaid, unspecified tax bill. HMRC told a mid-December hearing that the bill was paid. But it soon emerged that Birmingham had tardily settled two four-figure sum county court judgments in 2019.

And 2020 brought new points-deduction fears. Blues lost “only” £8.4m in 2018/19. But “only” because they’d sold St Andrews to “Birmingham City Stadium Limited,” a “wholly-owned subsidiary” of BSH, which was, literally, born, last May, to own the ground. Derby County, Villa and Sheffield Wednesday did likewise to make their figures P&S compliant. But Wednesday were charged with misconduct last November over their £60m sale of Hillsborough. And Derby’s £80m sale of Pride Park has just attracted EFL charges.

St Andrews’ independent valuation was £22.8m (barely a quarter of Pride Park’s value…but nothing to see there). And Blues’ £17.2m profit brought their £29.2m operating loss within P&S parameters. But the ground will be leased back at £1.25m-per-annum, for 25 annums. So that one-off “profit” will disappear in 14 years. It didn’t even cover 2019’s borrowings, as BSH were owed £91.4m, £18.3m up on 2018. Oh…and Blues need £54.2m by December 2020.

However, the points-deduction threat came from Blues’ refusal to sell Adams, last January, although the EFL haven’t commented on specifics. Adams joined Southampton for £15m, £3m more than offered in January. But one business-plan target, an £8.3m player trading profit, was missed as Adams’ fee is part of £5.5m such profit which will appear in 2019/20’s accounts. Blues were told of this new rule-breach charge on 14th May but Ren claimed: “As far as the board are aware, the club complied in all material respects with the relevant laws and regulations.”

Fans are fuming. A Blues Trust statement focussed on the ground sale, which went ahead despite St Andrews becoming an “Asset of Community Value” in 2013, which required prior consultation with local authorities and potential interested parties. The Trust also linked the new charge to “another extremely concerning set of accounts,” This speculation might be off-target. But they added: “What cannot be speculated is that once again the supporters have been misled and been treated with contempt by the club,” which was spot-on target.

Their statement’s headline was: “What is the Truth? What now and what next?” The truth is…terrible. While results off the pitch have been terrible for years, results on the pitch are now terrible, too. Blues are 18th and eight points off relegation at the time of writing, exactly as they were AFTER last season’s nine-point deduction. And an anguished letter by the “We are Birmingham” website to BSH chairman Zhao Wenqing spoke of “turgid crap” on the pitch and off-field matters being “wrecked by incompetence.” Plus much, MUCH more.

As for “what now and what next?” for Birmingham City. Some genuinely “fit and proper” club ownership would be nice. But that currently seems as far away as ever.