Birmingham endured their eighth successive season in the Championship in the 2018/19 season and found themselves no closer to a Premier League return after another bottom half finish (17th) following a nine point deduction (for Financial Fair Play breaches) at the beginning of the season made a play-off push a tough ask.
Despite the points deduction, Gary Monk comfortably led Birmingham to safety and a strong second half to the season had renewed optimism at the Midlands club. However, a falling out with the board led to Monk’s exit despite seemingly leading Birmingham in the right direction.
Off the pitch, Birmingham are beginning to get their finances in order and start moving forward. Birmingham’s losses fell from £37m to £8m as they managed to reduce costs while improving revenue, a winning combination.
Birmingham were one of a few Championship clubs to sell their Stadium to their owners and lease it back in an attempt to improve their finances. The EFL have recently sanctioned Derby for a similar approach and Birmingham may well be worried that they will find themselves in similar water. Derby are due to appeal the decision, something Birmingham’s board will be keeping a watchful eye on.
Birmingham sale of their stadium saw them record a profit on the sale of £17.2m, meaning their losses would have been £25m without it, a number that would have potentially led to further EFL sanctions that they can ill afford.
Let’s delve into the numbers.
Revenue Analysis
Birmingham saw their revenue increase from £19.2m to £23.3m (21%) after a sizeable boost to their commercial revenue. Birmingham’s revenue in 2019 was their highest since 2013, showing the club are beginning to improve their financial health.
Matchday revenue
Matchday revenue was relatively stable, increasing from £5.1m to £5.2m (2%) despite average league attendance increased from 21,042 to 22,483 (7%). Matchday revenue didn’t increase by as much as the attendance figures would suggest due to Birmingham having four fewer home games in 2019 than in 2018 as they played away and exited in their first matches in both domestic cups.
Matchday revenue is likely to remain at a similar level in 2020 unless Birmingham have a successful FA Cup run. At the time of writing, Birmingham are due to play away at Coventry in the Fourth Round, giving the club a good chance of progressing further in the FA Cup and boosting matchday revenue.
Broadcast revenue
Birmingham saw their broadcast revenue increase from £7m to £7.6m (5%) after finishing two places higher in the Championship. The lack of success in the domestic cups was similar to last season, and with the FA Cup prize money increasing in 2019, not much difference was felt.
Birmingham find themselves in a similar league position to last season (currently sat in 18th), meaning that broadcast revenue is unlikely to increase significantly unless form improves.
As with matchday revenue, a successful FA Cup run will boost broadcast revenue significantly.
Commercial revenue
Commercial revenue increased significantly, rising from £6.5m to £10.1m (55%). The reason for the growth is unclear with the club retaining the same shirt (888 Sport) and kit sponsorship (Adidas) as in 2018, meaning that Birmingham have placed a renewed ambition to grow commercial revenue outside of these main routes, improving their ability to obtain lucrative premium sponsors elsewhere.
It is also possible that some revenue from their new shirt sponsorship deal with Boyles Sport for the 2019/20 season was recognised this year, perhaps due to a signing on bonus.
Commercial revenue is likely to remain at a similar level next year with growth to around £12m a possibility.
What does the future hold?
Birmingham will be hoping to grow revenue once again and will be targeting breaking the £25m barrier. Growth next year is likely to be dependant on on-pitch performance, with a push towards the top half of the Championship and a FA Cup run likely to drive revenue growth.
Costs Analysis
Birmingham managed to reduce their costs as they looked to meet their financial fair play obligations. Operating costs fell from £58.4m to £53.5m (8%) while their revenue simultaneously increased, improving profitability significantly.
Amortisation
Amortisation remained stable at £7.6m, despite a decrease in the level of player investment in year, spending significantly less than in recent seasons.
With Birmingham once again spending in 2019/20, amortisation is likely to begin increasing again in 2020.
Net interest expense
Birmingham saw their net interest costs fall from £0.9m to £0.5m (44%) as the interest due on transfer fees owed fell after clubs were paid any instalments due.
With Birmingham once again spending in 2019/20, the figure may increase if transfer fee arrangements involved payments in instalments rather than up front.
Wages
Wages fell significantly as the club looked to manage their wage bill, falling from £38.6m to £32.8m (15%) as Birmingham managed to offload some of their higher earnings.
This wage drop saved the club roughly £112k a week, a much needed saving as Birmingham look to better manage their finances.
Wages are still way too high for the club’s current revenue levels with a wage/revenue ratio of 141%, meaning the club are already losing money before taking into account all other expenses the club must pay. This means Birmingham rely significantly on player sales, something that until last year were not forthcoming, hence the large losses and Financial Fair Play points deduction.
Directors saw their pay increase from £0.7m to £0.9m (29%).
What does the future hold?
Birmingham reinvested the majority of the proceeds from the sale of Che Adams and hence are likely to see a rise in wages and amortisation in 2020, meaning their finances may once again deteriorate.
If this is the case, unless Birmingham managed to improve revenue or sell other players, the club may once again find themselves in Financial Fair Play trouble.
Transfers Analysis
Birmingham had a quiet 2018/19 from a transfer perspective, with only one incoming signing for a transfer fee and technically no departures (more on this later).
The only incoming signing for a fee was Kristian Pedersen for £2.4m, meaning the club had a net transfer spend of £2.3m, down significantly on a net spend of £11.7m in 2018.
Neither Pedersen nor any of the free signings pulled up any trees with the club being mid table for much of the season (ignoring the nine point deduction). A strong second half of the season did however renew optimism ahead of the 2019/20 season.
Despite Jota departing for Aston Villa at the end of the 2018/19 season, Birmingham seem to have recorded his sale the 2019 accounts rather than next years’, perhaps due to the need to show improved finances this year.
The sale of Jota helped Birmingham record a profit on player sales of £4.1m boosting their finances considerably.
The sale of Che Adams to Southampton for £15m will help Birmingham record low losses once again in 2020, as they continue to attempt to improve their finances.
Transfer debts
In debt terms, Birmingham are owed £2.9m in transfer fees, all of which is due in 2020.
In contrast, Birmingham owe £4.6m in transfer fees, of which £3.7m is due in 2020.
Therefore, Birmingham owe net transfer fees of £1.7m, of which £0.8m is due in 2020, a manageable amount which shouldn’t (and hasn’t) affected their transfer plans, especially given the Che Adams sale.
Cash
In cash terms, Birmingham spent a huge £14m on transfer fees in 2019, largely owing to instalments due on historic transfers and partly from 2019/20 transfers that may have gone through before the year end.
Birmingham in contrast only received £7.2m in transfer fees, a net cash outflow of £6.8m. This should be reversed in 2019/20 with the sale of Adams.
Debt Analysis
Birmingham saw their cash reserves remain at around the £3m mark in 2019, falling slightly from £3.6m to £2.9m (19%).
Another loss and the net transfer fee outflow as mentioned above put further strain on their cash reserves and meant the owners had to inject a further £23m into the club, taking their debt levels up to £96.9m, a 33% interest in debt.
Hence net debt increased from £69.5m to £94m (35%) as the club’s finances continue to burn a hole in their owners’ pockets.
Birmingham are finding it difficult to manage their finances and move forward from their Financial Fair Play issues. In May 2019, the EFL have once again said Birmingham are in breach of the rules and the club are currently in discussion about further sanctions the club may now face.
Birmingham must resolve these issues as soon as possible to once again move forward as a club as it is currently impacting their future plans and their ability to compete.
Birmingham will be hoping to continue their journey to financial sustainability this year through an improvement in on-pitch performance and move towards a top half league position from which they can build a promotion push over the next few seasons.
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