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Birmingham face points penalty after debts widen under Harry Redknapp

:Headline: Birmingham face points penalty after debts widen under Harry Redknapp:
Birmingham's most recent accounts reveal a loss of £37.5million last year and a growing debt to Hong Kong-based owners that is already £73million.
PA | 6mo

Birmingham could be plunged into another relegation battle after the club's most recent financial accounts revealed the extent of their losses and the likelihood of a significant points deduction.

The Blues, currently eighth in the Championship, four points off the play-offs, lost £37.5million in the 12 months to the end of June 2018, more than double the previous year's deficit.

The main cause of their deteriorating balance sheet was an increase in the wage bill from just over £22million in 2016-17 to nearly £38million the following year as both Gianfranco Zola and Harry Redknapp were lavishly backed in the transfer market.

Redknapp, the winner of ITV reality programme "I'm a Celebrity...Get Me Out of Here!" last month, helped save the club from relegation in 2017 after Zola's disastrous four-month reign but the 71-year-old Englishman only lasted eight league games last season, despite signing 14 players during the summer.

According to the accounts, Birmingham spent more than £15million on transfer fees but the most shocking figure is the wage-to-turnover ratio, a key indicator of a club's sustainability.

With club revenues edging up to £18.8million, Birmingham paid out a remarkable £202 in wages for every £100 they brought in, double the league average, and when transfer fees are factored in, that grows to £243 out for every £100 in.

As a result, Birmingham have net liabilities of £55million and owe parent company Birmingham Sports Holdings more than £73million, a sum that will grow over the next 18 months, as the directors' report reveals a further £39million will be needed over the next 18 months to keep the club afloat.

While that is no doubt a major headache for the Hong Kong-based, British Virgin Island-registered firm that owns Birmingham Sports Holdings, Trillion Trophy Asia, Birmingham fans will be more concerned about another gremlin in the accounts.

In a section signed by chief executive Xuandong Ren, Birmingham's board revealed it received a notification from the English Football League in August 2018 "in connection with breaches of the profitability and sustainability rules".

These are beefed-up versions of the EFL's financial fair play rules which, in the past, have seen the likes of Bournemouth, Leicester and, most notably, QPR receive substantial fines.

Birmingham's accounts confirm the club is under a transfer embargo and it has been referred to a disciplinary commission, scheduled for next month.

Under the EFL's profitability and sustainability rules, Championship clubs are only allowed to lose £39million over three years, with points deducted on a sliding scale from three to 12, depending on the extent of the breach.

Kieran Maguire, a football finance expert and senior accountancy lecturer at the University of Liverpool, believes Birmingham have broken the limit by more than £11million, which would put them close to the maximum penalty that is triggered for breaches of more than £15million.

Speaking to Press Association Sport, Maguire said: "Birmingham City, after a few years of relative austerity, went for broke under Harry Redknapp.

"The club invested heavily in the playing squad with a combination of big-money transfers, such as record signing Jota, free agents on huge wages like (goalkeeper) David Stockdale and loans.

"The strategy backfired, the club struggled and Redknapp was sacked. The EFL are unhappy with the club's cavalier approach to financial fair play and are expected to make a ruling in February with a wide range of potential sanctions."

But there is another factor to consider and that is the contentious signing of Danish defender Kristian Pedersen for a reported £2.25million last summer.

The EFL initially refused to register the signing, saying it was "exceptionally disappointed" Birmingham had bought him despite them being under investigation, although he was eventually cleared to play.

PA Sport understands the Pedersen transfer could be considered as an "aggravated breach" of the rules and come back to haunt the club at the disciplinary hearing, with a 15-point deduction a possible sanction. That would drop Birmingham to 21st in the current table, one place above the drop.

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