Birmingham City FC started out as a club, not a business. It was started by a group of young men from Holy Trinity Church who played cricket during the summer and wanted to play football together during the winter. According to the history page on bcfc.com the club turned professional in 1885 and became a limited company in 1988.
Other football clubs developed in a similar way and the Football Association made rules to control how they conducted their business. Rule 34 stated that a director could not receive a salary and limited dividends to 5% of share value. The rules were changed in 1981 to allow a director to be paid if he worked full time for a club. Two years after that Tottenham Hotspur plc was floated on the stock exchange as a holding company for the club. In theory the club, which was a subsidiary of the holding company, was still governed by the FA rules but the holding company was not. Other clubs soon adopted the same method of side-stepping the rules.
So there are no rules to stop Mr Pannu being paid a salary of £687,611 and a £405,000 consultancy fee. Though it does seem rather a lot. In a Guardian article, David Conn reports that only seven clubs in England pay directors more.
Just about everything I know about the financial side of football in general I have learned from David Conn, by reading his books and his articles in the Guardian. If you want to know the full story of how football got into the financial mess it’s in I would recommend you read them too. And, of course, for the gory details about Birmingham City’s financial mess you should head over to Often Partisan.
Books by David Conn
The Beautiful Game? Searching for the Soul of Football, 2005
Richer than God: Manchester City, Modern Football and Growing Up, 2012