As the Birmingham City financial crisis rumbles on, it was reported by Colin Tattum a few days ago that the Blues board were seeking new investors to pump money into the club. Before anyone asks, I have no idea who these new investors may be – but what I thought might be interesting is looking at how it could happen, and what it means for Blues.

I’m a layman when it comes to financial matters, so having consulted with a few people who know a lot more about the subject than I do, I’ve tried to put this into the simplest language that I can. I will again state that this is all hypothetical; I don’t know if or who the board have got to invest in Blues; all I have heard is that there may be one or two investors close to taking the plunge.

The first thing to realise is it’s not as easy as someone rocking up to St Andrews with a suitcase full of used fifties and asking how much the club wants. Anyone who puts into the club is going to want some sort of return; we have to accept as fans that people will not invest in the club out of a deep-seated love for the club – it will be a business decision. So in effect, it will be a case of either lending money to the club, or buying something from the club that has value.

It’s not as simple as buying shares in BIH either. For one, the money used to purchase the shares will go to the vendor – which may very well not be the club or anyone connected to it. For two, even if it is connected to the club, the money isn’t “new money” unless new shares are issued. Thirdly, shares in BIH remain suspended which precludes the sale of shares at any rate.

However, there are shares in something that the board can sell – the club itself. BIH own 96 odd percent of Birmingham City PLC, which in turn owns the club. The board could either sell some of it’s holding in Birmingham City PLC, which would give cash directly into BIH; or dilute it’s own holding by offering new shares in the club to an investor and selling those. They’d retain almost absolute control of the club, and would receive a sum of cash. However, the purchaser would almost certainly demand a place on the board (which BIH would have no obligation to give), and the Football League would probably want to know something about any new major shareholders.

Alternatively, an investor could offer the club a loan. This would ensure that the club wouldn’t have to relinquish any control of the club, but it would have to be repaid – and with interest on top. Unless an investor was feeling generous, you’d expect them to demand a rate of interest that would be in excess of where they could invest their money elsewhere (to make the loan worthwhile), and preferential creditor status if the whole club went south. Whilst in the short term cash would probably be very welcome within the club, the idea of another debt with a whack of interest would not be anything like the best long term strategy for the club.

What this adds up to is a tough decision for Carson and the board. Unless they can come up with some cash from behind the sofa, Blues are going to need some investment to secure it’s long term future. To do that is going to cost them money or control; neither of which is going to be easy to relinquish. However, if Blues are in vital need of investment, the board need to sort out something quick whilst they still have something to control.

The fact is, the club is in a precarious position right now. Whilst relegation has a lot to do with why we’re in a tricky financial position you have to wonder about Carson. Owning a football club is a very expensive business, and the fact he had to mortgage his house last season to ensure we had cashflow until the end of the year is very worrying. People talk about Carson asset-stripping us; I don’t think that is the case at all but I do think Carson came into the business of owning a club without his eyes open. Owning a club requires investment every single year, and if you haven’t got tens of millions to invest in new players or a production line of talent to sell off, you’re going to struggle. I hope for Blues’ sake that there are investors online to buy into the club, because right now the alternative doesn’t make for pretty viewing.

Tags: BIH, Carson Yeung