The 1997–98 season was Manchester City's second in the First Division following relegation from the Premier League in 1995–96. The 1996–97 season had been a turbulent one; Five different managers took charge of the team over the course of the season (three permanent appointments and two caretakers), including Steve Coppell, who resigned after just 32 days as manager.Frank Clark became manager on 30 December 1997 and form improved, but the fourteenth-place finish was the lowest in club history.

Despite speculation that linked him with a transfer, 1996–97 Player of the Season Georgi Kinkladze stayed at the club, and signed a three-year contract that made him the highest-paid player in Manchester City's history. The highest profile signing was striker Lee Bradbury, who joined from Portsmouth for a club record £3 million. Defender Tony Vaughan arrived from Ipswich Town. His transfer free was decided by tribunal and set at £1.35 million, more than double City's valuation. The club also signed Dutch midfielder Gerard Wiekens from BV Veendam for £500,000. Wiekens had agreed to join the club in March, but the move only took place once the previous season had finished. Departing was Peter Beagrie, sold to Bradford City for £200,000. In an early-season interview with the Sunday Times, Frank Clark bemoaned the difficulty of reducing the size of his squad, which contained 40 senior professionals: "This squad is too big, but a lot of the players are on good contracts which other clubs won't match. You can't blame them for staying." "We've got around 12 very good youngsters whose potential is really encouraging, but they can't get a reserve-team game. Because we've got to fill the reserves with senior pros needing match practice or players we're trying to sell, the youngsters' development is held up."

Off the field, the club introduced a new badge, and changed the colour of the home shirt to a much deeper shade termed "laser blue". The new kit was made by Kappa; this ended a 63-year association with Umbro.

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