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Football in Economic Crisis: Birmingham City

Untold Arsenal on Twitter @UntoldArsenal

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By Tony Attwood

Mr Wenger doesn’t make predictions of gloom, doom and disaster lightly, so when he speaks of football being about to collapse through financial mismanagement, we need to take notice.

And in fact everywhere we look clubs are teetering on the edge.  For the moment I am not writing about poor Plymouth, who could be the first to go, but instead focus on two larger clubs: Birmingham and Rangers – and in this article Birmingham

Ever since the current part owner of Birmingham came to power there have been questions – and legal battles with the previous owners who now control West Ham.

Carson Yeung owns 26% shareholder, was thought at first to own the lot, and spoke in the early days of a massive amount of money to be spent on the club.  I am not sure where the fellow is at the moment, but he certainly has of late been staying at the pleasure of Chinese state prosecutors in Hong Kong charged with money laundering.

Birmingham City is owned by Birmingham International Holdings  in the  Cayman Islands – there being of course a long and historic link between the Caymans and Birmingham which make this quite natural, above board and proper.  The club is on the Hong Kong Stock Exchange as one would expect for a historic English football club.

Last season Birmingham won the league cup as we all know with a lot of pain (at least for those of us who were there) but they also lost £14m which was careless, and now need £10m to stay afloat.  Mr Yeung has loaned £15m it is said, but without the extra they exceed what they have agreed with the banks that they can borrow.
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This is the issue: the banks won’t lend money, and get a bit uppity if a club borrows it elsewhere, because that suggests that the bank won’t get its existing loan back.  Mr Y has said that he can raise another £12m in Hong Kong, but the bank in the UK is edgy about that, since it raises the question of what happens if Mr Y falls.  How does the bank get paid then, short of selling the ground for property development.
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Liverpool were themselves in this crisis, but they managed to escape – but Liverpool are a special case – a club with a tradition and history that most clubs can only dream about.

One thing that all these clubs like Birmingham, Plymouth and Rangers have in common (despite the huge difference in their sizes) is that they all deny there is a problem.  Birmingham do this all the time through Peter Pannu their vice chairman.  And of course that is to be expected.  You would hardly come out and say, “we are in the shit”.  Even if it is true.

The problem for Birmingham however is that they are not too big to fall, and no one seems to believe them any more.  So when they do get money on the tax haven markets they start paying eye watering rates of interest, and that is what Birmingham is now doing – borrowing money in the Virgin Islands (which of course has a direct connection with the club) at 12% interest or more.   It is getting to be so that it would be cheaper to borrow money on a credit card.

Another thing that happens is that companies and people suddenly pop up and seem to be owning part of the club or raising money, or lending money to the club.  In Birmingham’s case it is Inkatha owned by Yang Yuezhou, who is, well, who knows.

And here’s another thing that clubs in debt have in common – when they speak it is to say all is fine, but most of the time they don’t speak – at least to their supporters.

Meanwhile the value of the club sinks as it is clear that if it wants to borrow anything, then it is having to pay more and more interest and go to more and more exotic places to get the money.  Sometimes there are share issues, but they are rarely successful, and in Birmingham’s case, not very successful at all.  Money comes from one source and is used to pay off another debt – and always the interest rates go up.

Birmingham of course have the great problem of relegation, and to pay for the loss of income they are selling players like Jerome, Gardner, Johnson, Dann, Philips, Ferguson, Bowyer.. . Sometimes they get money, sometimes they are just trying to get rid of a salary.

We have seen it before with Portsmouth and Leeds, and so we might expect Birmingham to go through the same situation.  But there’s two clouds on the horizon.  In the old days banks loved to loan to football clubs because they thought their money was safe – now the reverse is true.   And there’s the endless cases brought by HMRC to overturn the football creditor’s rule which protects clubs on going into administration.  If that goes, then Plymouth, Birmingham, Rangers and others all go.

And you will hear the echoes of the bang for years to come.

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Full index of posts: The Economics

9 comments to Football in Economic Crisis: Birmingham City

  • Rhys Jaggar

    I think it can fairly be said that the problems of Birmingham and Plymouth stem from relegations in terms of revenue income. And probably, in the case of Birmingham (true also for West Ham) of football not instigating a rule which means every contract for every footballer states that upon relegation, salary reverts to an agreed percentage of (guaranteed season ticket income + guaranteed TV money), with bonuses contigent on financial performance (which is usually linked at lower levels to football performance).

    I think many clubs are starting to insert such clauses. It’s only about 20 years too late.

    Plymouth is, I’m afraid, at the mercy of asset strippers. It’s an absolute disgrace that the players haven’t been paid for 9 months but so called ‘buyers’ can prevaricate just to drive the price down to £1 with all debts and liabilities written off. Better in that case to write off all debts and hand the clubs to the fans for £1. At least they care about the club.

    Glasgow Rangers, again, need to write contracts with salaries linked to income streams. So if they are in the Champions League Group stages, they get a lot more than if they are in the Europa League. If they could do that, then get one year of Group Stage ECL, they might get back to an even keel. Otherwise, they need to be like Arsenal and grow youth then sell it for profit. At least they have a solid supporter base and a great stadium.

    I think you overstate the cliff in the UK though.

    The following clubs won’t fall: Man Utd, Man City, Arsenal, Chelsea, Spurs, Wolves, WBA, Leeds, Aston Villa, Newcastle, QPR, Stoke, Southampton, Brighton, Norwich. There may be a whole lot more, but I’ve not looked into the finances of absolutely every one.

    Clubs who would struggle if they got relegated include Wigan, Fulham, Bolton.

    Owners who deserve fans’ thanks who broadly don’t get it include: Mike Ashley (saved Newcastle and gets shit for doing so); Gilbert & Sullivan (saving West Ham).

    My solution is this: from 1st day after end of this season, no contract can be approved unless salaries are entirely linked to clubs’ income. This can be structured in numerous ways to include lots of revenue streams which may or may not accrue. It will take a 5 year flushing out period, but broadly by 2015 football’s house would be in order.

    If you have a sugar daddy who wants to temporarily increase wages to drive success (within the limits of FFP it is possible), then moneys need to be deposited to ensure that the length of the contract can be covered. It’s easy to do.

    If 20 clubs went tits up, had debts wiped clean but the clubs were then handed over to the fans, it would be a serious disincentive to dodgy private operators as English football would become increasingly inaccessible to them.

    As it is, you just do dodgy things, go bankrupt, use Football Creditors rule then do the same thing again with new owners.

    Fans deserve better. Suppliers deserve better.

    The players deserve a dose of reality.

    The owners would do well to read codes of ‘Responsibilities of Directors of Limited Companies’……

  • WalterBroeckx

    Rhys Jaggar,
    In many sports they have taken that way. I think in cycling a team has to deposit their budget (or a big part of it) at the cycling union who then controls if something goes wrong. If a cycling team runs without money the deposit is being used to pay the people who should get money from the team. But the team is also banned for the future.

    I know a cycling team is completely different from a football team but the same rules apply : they must make sure they have the money at the start of the season on their bank account or else they cannot start the season.

    I know in Belgium these rules are also (not always as strict) in place for football clubs. And when they have a due debt with the tax people they are banned from the league. They just stop to exist. That is if the ministry goes to the court. But then sometimes politics sticks their filthy nose in to this and spares the clubs. Supporters are more voters than one guy with his company who wants to get his money back.

    They can restart but this is generally some 8 or 9 leagues lower than the first division. So it would take them some 10 seasons before they could be back in the top division. If they ever get back.

  • WalterBroeckx

    Thanks for the off topic link Mahesh.

    Wasn’t some part of the AAA saying that it was true what the media reported because Cesc didn’t sue them?
    Great to see that Cesc did go that way.

    Anne, Bob, is Cesc part of your media watch team like I told in my article? 😉

    But the job by the media was done: another attack on Arsenal has succeeded…

  • bob

    Walter, UM, all,
    The damage – a drive by media-shooting – gets done, adds massively to the chorus of Arsene-Out, enflames the AAA to new depths, divides the fan base, depresses us all, rubs salt in the wounds – and then comes the retraction, which is but a drop of water in the ongoing tsunami of vitriol directed non-stop at Arsene/Arsenal. This retraction is and ought to be publicized as Exhibit A in the counter-case against the lies of football media – The Sport is owned by TalkSport. To those who claim that the media watch is paranoia, hiding from the truth on the pitch, and all the other tomatoes that have been tossed, well, look in the mirror (but not The Daily Mirror – who I think owns TalkSport.) We should keep this expose – by Cesc – front and center on behalf of the efforts by UA/UM in exposing and documenting the current media campaign to destabilize our side.

  • bob

    p.s. Walter,
    yes! Cesc has a back channel to UM. (But don’t tell anyone! 🙂 )

  • Jitty

    Birmingham is being stripped of every last penny. It’s a similar scam to that perpetuated at Portsmouth.

    Its just in this case thanks to HK Authorities, the general public can see that CY is allegedly a money launderer.

    What business is CY in anyway? Oh yeah.

    Don’t be fooled by the losses racked up in the onshore vehicle, and funny loans.

    23m in players sold you say?

  • Anne

    @Jitty:

    “What business is CY in anyway?”

    Penny stocks? Among “other” things? 🙂

  • Anne

    @bob:

    As your editor, you should already have informed me of your personal “back channel” to Cesc. But that’s ok… I’ll forgive you so long as you continue to provide us with exclusive access 🙂