Birmingham City board paid the price for not splashing the cash

May 15 2008 Agenda

Birmingham City Football Club has paid the price for not investing in top players - relegation. Professor John Samuels looks at how a lack of quality has cost the Blues.

Birmingham City are unfortunately a yo-yo club. The long run success of any football team depends on decisions made by the club's directors. Managers and players come and go, directors come and go less often - particularly when they cannot find anyone who wants to buy the shares they own.

The present directors of Birmingham City did a great job when they saved the club from bankruptcy in 1993. The team at the time was poor - they were relegated to the third tier at the end of the 1993-94 season - and the ground was shabby.

To their credit the directors rebuilt the ground and led the club to the Premiership in 2002-03. They had, however, fallen out with fans over the departure 'by mutual consent' of Trevor Francis.

Prior to the promotion, David Sullivan was being heavily criticised by the fans. For some time they had been questioning his commitment to the club. They said he did not have his heart in the club. This was despite a very large investment in the redevelopment of the stadium. After a number of years of criticism Sullivan announced in October 2001 that he would sell his shares if he received a take-over bid.

Most fans thought it would be for the good of the club if Sullivan did go. Sullivan said that he and the Gold brothers would accept £16 million for the 78 per cent shareholding they held in the club, through Sports Newspapers. This was roughly the stock market valuation of the shares at the time.

The directors did not sell, the club were promoted with Steve Bruce as manager, and the fans and many football commentators sat back, expecting the club to become a permanent feature in the Premiership and even after a time to be in a position to challenge for a place in Europe.

The directors were not successful and the Blues were relegated at the end of the 2005-06 season. They were promoted the next season, but have now been relegated again.

This is a yo-yo club. One does not have to be a rocket scientist to know why this is so; despite what the directors might say, they failed to invest enough, not enough to achieve success, not enough to survive. Roy Keane has said that he spent £40 million in the transfer market in 2007-08, and needs to spend at least a similar amount next season, and that is just to keep Sunderland in the top league. How much did Birmingham City spend? According to their annual accounts in the year to August 2007 they spent £17 million to acquire new players but received £8.7 million from the sale of players, a net expenditure of only £8.3 million.

In the previous year the figures were £12.7 million spent, £7.1 million received (net £5.6 million). In the year 2004-05 the figures were £12.9 million spent, £7.4 million received (net £5.5 million).

Of course in addition to these expenditures, the club purchased players in the January 2008 transfer window, paying approximately £8 million; not enough.

It has been shown that it is possible to predict the final league position of a club based on where it ranks in the amount paid on players salaries. Birmingham City have, over time, ranked about 19th or 20th highest in the list, so not surprisingly they go up and down.

Roy Keane has told the Sunderland directors that if they want to attract top players to Sunderland, they will have to start paying them top money.

What is the approach of Birmingham City? David Sullivan now admits that when purchasing players the club "should have gone for quality". He admits that it was the failure to improve the quality of the team that led to relegation. He is alleged to have said that Steve Bruce bought a "pile of rubbish".

But if the directors had wanted to buy quality, they would have had to pay top level wages and there's no evidence that, even if the board was willing and able to meet their demands, the very top echelon of players would want to come to Birmingham.

David Sullivan is now faced with a £25 million 'black hole' with the loss of Premier League broadcasting rights income and commercial income less two years' parachute payments.

This will mean the value of the club, and consequently the directors' shares, will have fallen by approximately the same amount. For Birmingham that is a fall of about £45-50 million to £20-25 million, as the value of clubs such as Birmingham City is approximately equal to their annual revenue. No wonder not only the fans are disappointed by the relegation.

Fifteen years is a long time to hold on to any investment, particularly a football club. It is not surprising the directors of the club want a change.

There are only four or five clubs in the Premiership and Championship that are still in the same hands as they were 15 years ago - none of the top clubs. Will a new buyer be found? Possibly, but it depends on the asking price.

The club should not welcome any foreigner who turns up with money. In the interests of the club it is necessary to know how the new owner's money has been acquired, what are their motives, and what do they know about football.

Many of the foreigners buying English clubs have accumulated wealth through operating in the murky world of the global shadow economy or have borrowed large amounts of expensive money.

* John Samuels is Professor of Business Finance at the University of Birmingham. His book The Beautiful Game is Over (The Globalisation of Football) is published by Book Guild. For more information log on to www.bookguild.co.uk.