Birmingham City have learned their fate after their breaches of the EFL’s Financial Fair Play regulations.
They’ll be docked nine points, applicable this season, which drops them from 13th to 18th, five points above the relegation zone.
The league published a full, 15-page judgement which gives the kind of clarity everyone has been demanding for the last seven months.
We’ve picked through the judgement and found some juicy points - the extent of the losses, how much Gianfranco Zola and Harry Redknapp spent, who chose to sack Gary Rowett, and the details behind the contested transfer of Kristian Pedersen.
Here are the best bits - starting out with a dispute over Blues’ representative on the three-person panel.
A neutral chairman sat while the EFL proposed one member and Blues another. Even that wasn’t straight forward.
Blues’ first resigned citing a conflict of interest on February 19, they appointed a replacement on February 27, but the EFL challenged her appointment and she resigned a day later.
After wrangling the commission chairman ended up appointing Dr Neil Hudgell as Blues’ representative, an experienced lawyer who was last year shortlisted for 2018 Solicitor of the Year.
The commission was held on Monday, March 18 and took written evidence from six witnesses.
For the EFL, Nicholas Craig (Governance and Legal Director), James Karran (Financial Controller) and Shaun Harvey (Chief Executive)
For Blues Xuandong Ren (CEO); Asif Khawaja (CFO) and Ciara Gallagher (Club Secretary).
Only Mr Harvey and Mr Ren were cross-examined on their witness statements; the other statements were not disputed.
The scale of the breach
The club admitted it had infringed by incurring adjusted losses totalling £48.787 million over te three years period comprising seasons 2015/16, 2016/17 and 2017/18. That was in excess of the £39m permissible by £9.787m.
The breakdown was:
Season 2015/16 Loss £1.982m
Season 2016/17 Loss £12.944m
Season 2017/18 Loss £33.861m (£20.86m above the annual £13m threshold). Blues had forecasted making player sales profits of £8.3 million.
In January 2017 Gianfranco Zola signed four new players at a total cost of £7.45m.
In the summer 2017 transfer window Harry Redknapp made nine permanent signings and brought in five loan players at a total cost of £23.75 million.
The club claimed that: “The managers overspent on transfer fees, loan fees, signing on fees and player wages, having no or no adequate regard to the P&S Rules or the Club’s financial health generally.”
Media reports claimed that the signing of the Dane was done unilaterally by Blues when they knew they were under an embargo and that it would be viewed as an ‘aggravating factor’ and subject to an extra three deducted points.
The judgement says Blues were sent an email on May 2 telling them they would be placed under an embargo until the end of June.
But on June 8 Blues entered into a transfer contract with FC Union Berlin and Pedersen and on June 29 tried to register him with the EFL.
On July 13 the EFL told Blues the embargo would remain in force - then on August 1 the EFL agreed to register Pedersen despite the fact the EFL continued to maintain he had been signed when the club was embargoed.
Shaun Harvey told the hearing that: “In six years he had not seen a case in which a club had ignored a registration embargo, but the actions of the Club had placed the EFL in a very difficult position.”
The club argued that considering the transfer to be an aggravation was unfair and Ren said: “I did not believe that I was breaching any embargo in doing the transfer deal with FC Union Berlin or signing a contract with the player.
“The terms of the embargo were never fully set out in any document from the EFL before the interim breach letter dated 13 July 2018, but I had understood it to be a provisional embargo on registering players to play at the Club.
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“If the EFL had refused to register Pedersen as our own player, I would have looked to release him to another club.”
Considering this matter the Commission did not take the Pedersen deal as an aggravating factor but said “The EFL was correct to state in its letter dated August a that the Club’s conduct had not fully embraced the objectives of the P&S Rules.”
The club had tried to argue that the EFL must prove Blues had benefitted from their unfair overspending on the field of play.
The hearing felt that was almost impossible to prove but clung to the view: “That argument does not meet the point that any substantial overspending is in principle detrimental to the interests of other clubs which comply with the rules, because it gives the overspending club a direct advantage in bidding for players during the transfer window.
“Any such advantage gained from breach of the rules, in the acquisition of players or in the fielding of a stronger team in competition, is in principle unfair.”
Blues’ argument was rejected.
The new Profitability & Sustainability guidelines came into effect for the 2016/17 season. Yet it was not until September 2018 that the penalties were laid out.
Media reports claimed a sliding scale up to 21 points for the most egregious breaches - and that Blues’ qualified them for a 12-point deduction.
However, the disciplinary found: “ They do not have any legal force and are not binding on the Commission....It also needs to be noted that these guidelines were agreed and promulgated after the charge had been brought against the Club.”
A bit like committing an offence and not knowing if the penalty was a caution or a life sentence.
In the course of the hearing it became clear the EFL and Blues agreed that the proper sanction is a points deduction to be applied in the current season.
The judgement says: “It is clearly desirable that any points deduction should be decided and imposed as early as possible in the relevant season, so that all clubs participating in the Championship understand where they stand in the league.
“For relegation or promotion outcomes potentially to be affected by a points deduction only announced in the last few weeks of the season is far from ideal...it is regrettable that in this case, for a number of different reasons, it was not possible for the hearing to be held until seven months after the charge was brought.”
Indeed it is.
What did the guidelines say?
“Under the guidelines the level of excess expenditure by the Club falls within the bracket £8 – 10 million, which would indicate a deduction of SEVEN points, subject to any mitigation or aggravating factors.”
They argued it was a first offence and that steps have been taken to avoid a repeat. The Commission responded: “Those points are to some extent accepted, but they do not carry much weight.”
The club claimed they were trying to ‘restore health’ to the squad rather than trying to gain a competitive advantage.
That was given short shrift too: “There is no distinction in principle between overspending with a view to gaining promotion and overspending with a view to avoiding relegation. The purpose of the overspending is to gain some enhancement in competitive position.”
They did, though,make an early guilty plea and the Commission accepted that Blues had since: “Agreed to all the terms and restrictions which had been imposed by the EFL. The evidence from the chief executive of the EFL is that the Club has substantially complied with those conditions.”
That final argument earned Blues a point back - so the deduction was down to SIX.
Blues’ trolley dash in the summer of 2017 was not viewed kindly.
“The conduct which gave rise to the breach, in particular the spending on new managers and players in 2017, demonstrates a deliberate disregard of the rules...the spending decisions made by the Club in 2017, which were personally directed by the owner, in recruiting managers and allocating a budget to cover the acquisition of new players, were made without any regard to the restraints imposed by the P&S Rules.”
That was viewed as an aggravation and an additional THREE points were deducted bringing the total to NINE.
In conclusion the judgement said: “The Commission reiterates that it is not bound by the sanctioning guidelines, but as set out above each party accepts that they should be taken into account.
“Considering all the circumstances of the case, including the mitigating and aggravating factors discussed in the previous section, the Commission imposes a points deduction on the Club in the 2018-19 season of 9 points. In the view of the Commission a points deduction equivalent to 3 wins in competition is entirely fair on the facts of this case.” The club must also pay costs.
Blues have 14 days in which to decide whether to appeal - that gives them one more chance at taking three points by beating West Bromwich Albion on March 29, before they must make a call on whether to fight or accept the penalty.
There is no mention in the judgement of the summer but it is BirminghamLive’s understanding that Blues are free to trade, within the normal constraints of P&S, once more.
However, the EFL business plan remains in place.