As the Blues Announce a Loss – We Ask, is it Bad News?

(This is a re-publish due to a technical problem!)

Andy has given me permission to re-produce his latest article. I have made some comments after it.

Kev

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Birmingham City record pre-tax losses of £20.5million

By Andy Walker

BIRMINGHAM City’s successful promotion push last season came at a hefty cost, after it emerged that the club recorded a pre-tax loss of £20.5 million.

David Sullivan and Carson Yeung

The astonishing figure has been revealed in the club’s audited financial statement for the year ending August 31 2009, therefore a debt amassed under the former owners.

The directors’ report blames the huge loss on ‘the decision taken by the previous members of the board to retain most of their playing staff from the previous Premier League season’.

That decision to arm Alex McLeish with a squad on top flight wages in the Championship saw Blues fork out staff costs of £27.1 million in 2009, compared to £26.6 million the previous year.

That was further hit by a fall of over £22 million (44.8 per cent) in turnover, including match receipts, broadcasting and commercial income.

The accounts will further infuriate Blues’ new owners, who already strongly feel that they were misled during last year’s takeover.

The Carson Yeung camp were fuming when they discovered that the previous owners had paid themselves advanced 2010 management fees worth £420,000, after which an offer from David Sullivan to pay back half was turned down, not to mention ex-MD Karren Brady’s controversial £1 million severance package.

While Yeung paid £1-a-share to buy Blues in October, the Chinese now believe that 30p-a-share would have been a fairer price.

A Blues source told the Birmingham Mail that the current board weren’t yet willing to comment publicly on the hefty pre-tax loss, largely as they feel that the figures speak for themselves.

The recent report also warns that, when it comes to McLeish’s future transfer kitty, the purse strings may have to be tightened in order to address last year’s loss.

It reads: “The acquisition of players and their related payroll costs are deemed the core activity risk and, whilst assisting the manager in improving the playing squad, the board is mindful of the pitfalls that are inherent in this area of the business.

“The aim is therefore to manage these costs whilst being as competitive as possible within the club’s financial constraints.”

However, former co-owner Sullivan defended the previous Blues board. Sullivan insists that they made no secret of a financial problem at St Andrew’s during the final months of their tenure and pointed out that automatic promotion back to the Premier League proved that they were right to stick with an expensively-assembled squad in the Championship.

“We are surprised the figures are quite as high as this,” admitted Sullivan. “We had a policy of retaining the squad to get back up which we thought was the correct policy and was vindicated because the club got promotion at the first opportunity automatically.

“Last summer we knew the club had a financial problem as we publicly stated we loaned it £5 million to pay the deposits on two new players because there was no money to do that.

“Some of the losses are the way accounting practices write players off over the period of their contracts although the money is paid over an early period.

“But I am sure the club will make £10-15 million in the Premier League this year.”

Originally found on Birmingham Mail dot Net.

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Firstly, it is very disappointing to have a loss announced. I’m sure there a number of fans who maybe are feeling concerned about the ability of the board – but as Andy has said, this last year and therefore the last board. But is it REALLY that bad?

When a club gets relegated, the reduction of television money – despite parachute payments – always goes down. I have read the reduction can be anything from 25-40%. Also there are other knock on effects. Lower attendances, less merchandise sold etc.

Obviously for a club like ours, the goal was to gain promotion immediately. As a result we were run as a Premier League side in the Championship, I suppose living the dream on a smaller scale.

It was inevitable that we were going to make a loss. Like it says in the article we could wipe that out this season, and we already know we will be in the league again next season, financially a real positive.

Reading the article, it appears that the new board didn’t have a clue that this loss was there. I’m a bit confused about this. Maybe I’m thick, but before Carson took over – we were a public company weren’t we? Which meant that if we were going to be taken over the accounts had to be revealed. Meaning that either the previous board hid key information or the new board didn’t read it properly. I doubt we’ll know for sure.

I’m concerned that this will re-start the spat between the present board and the former board. I hope not.

Over all I don’t think this is particularly bad news, as I have said we have every chance of breaking even this season.

I’m sure there will be some who will look at this and see it as a negative, but I’d encourage you to keep your chin up and give the board a couple of seasons to prove themselves.

Discuss this post, and other items, in the Joys and Sorrows Forum.

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5 Comments on As the Blues Announce a Loss – We Ask, is it Bad News?

  1. It’s not something I’ll worry too much about. The club made a tidy profit in the previous year and probably will this year so these things even themselves out.

  2. I am surprised & disappointed that the loss has come as an apparent surprise to the new board after supposed due diligence. The natural downside must be a reduction in what Alex McLeish is given to spend in the summer & the key question is exactly how much he will have. I wouldn’t want that figure to be broadcast to the world but I hope he has enough to satisfy the team’s needs- 2 strikers,at least one fast wideman and a left-back.Here’s hoping.

  3. It’s easy to understand the concerns of our fans over this matter. £20.5m is an astronomical sum of money, especially when it’s as a loss.
    Obviously, this money has to be accounted for & recovered somehow, I’d like to think promoting the club to the Chinese population would do this. If not, we’ll have to take it out of the transfer kitty, it’s not ideal but I’d rather see a reduced transfr budget than my club being in financial difficulty.

  4. Blues have done great this year to get where they are in their return to Premeir . I hope that the FA do something about the fees required to obtain a player. It wouls be nice to see more teams challenging for top 8 spot.

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