The Financial Underbelly: Coventry City

Posted by on Jun 18, 2015 in Financial Underbelly | 4 Comments
The Financial Underbelly: Coventry City

Okay, okay – when it comes to Coventry City, the financial situation is less an ‘underbelly’ than a gaping open wound that has festered for several seasons now. Here, Ian Palmer sums up his personal fatigue with the whole business. Ian can be followed on twitter at @iancpalmer.

Coventry City have been losing fans.

In fact, I’d bet no club has lost as many fans over the last three years as the Sky Blues.

Picture the scene: a breezy August afternoon, kicking off the first ‘home’ game of the season, 35 miles away from home. We’re bottom of the league table on -10 points, yet no team has played a single game.

Only a handful of fans were there to witness the start of our foray in Northampton in 2013. Most had been driven away by all that had happened up to that point, the few who remained stood defiant but quiet, wondering how on earth we’d got to this point.

It’s been a steady demise since 1967 when Coventry last experienced promotion (to the then first division). They won their only trophy – the FA Cup – 20 years later. And having been a stalwart of the top division for over thirty years until they were relegated in 2001, they have dropped steadily down the leagues ever since. Last season we only narrowly avoided slipping into the country’s fourth tier for the first time since the fifties.

But as I say, that’s not the main reason for the malaise that currently hangs over the club; nor why so many fans are boycotting it altogether.

To understand that, we need to delve behind the scenes a little bit.

It’s hard to pinpoint when football fans became so engaged with the backstage machinations of their beloved clubs. When I first started to consider myself a ‘serious’ fan (i.e. when the first thing I’d do in the morning was go downstairs and flick Ceefax to page 302…), I had no idea who owned Coventry City, or what our wage bill was, or whether we’d filed our accounts on time. I couldn’t care less what happened in our boardroom. All that mattered were the players, the manager, what our new kit would look like, and whether my next pack of stickers had a shiny in it.

It’s not like that now. These days, Coventry fans are as likely to read about their club on the front page of the local newspaper as they are on the back page. It all started when someone (to this day, I do not know who) decided that the club would be better off moving from Highfield Road, to a new stadium on the outskirts of the City.

The Ricoh Arena (as it came to be known) began life as a project with grand plans. A retractable roof and pitch were in the original designs – it was to be a showpiece stadium in Europe. Some even talked of it as being a national stadium while Wembley was getting a facelift.

However, these plans were drastically scaled down after the club’s relegation to the Championship in 2001. The 45,000 seater stadium became a 32,000 seater, and the pitch and roof were to be fixed. All in all, it became a modest project, but still one that we thought would propel the club to new heights.

In reality, the move from Highfield Road to the Ricoh Arena has been one of the worst things to happen to the club in its history.

The club couldn’t really afford this new stadium, and when the costs of building it grew, they were forced to sell their shares in it to the local council and a local charity (Higgs). It was deemed a temporary arrangement, with an agreement for the club to buy back the Higgs Charity’s 50% share for a fixed price in a fixed timeframe. Sadly, this never happened.

Without access to the full range of revenues the stadium was generating, Coventry City continued to struggle financially, and in 2007 were on the brink of going out of existence altogether before being saved at the last by Sisu Capital, a London-based hedgefund.

Again, a new dawn was heralded for the club. £60m of debt was wiped off and a new £20m war chest was available for manager Chris Coleman to take the club back to the Premiership. However, it was another false dawn: the global financial crisis hit Sisu in the pockets, and investment in the club was curtailed.

In 2012 City were relegated again and life financially was even harder in League One. The owners were bankrolling a club that was losing serious money. Again they tried to agree a deal for the 50% share of the stadium, but their offer was rejected (the Higgs Charity understandably wanted to recoup their investment).

The cost of renting the Ricoh (some £1.2m a season) was crippling our owners, and later that year, when talks to renegotiate the rent collapsed, Sisu just decided just to stop paying it.

That sparked a long and drawn out legal affair that has divided Sky Blues fans and befuddled us all at some point or another. I’ll try and summarise it for you as briefly as I can:

Sisu’s refusal to pay the rent put undue stress on Arena Coventry Limited (ACL), the company that operates the Ricoh Arena (remember, ACL is jointly owned by Coventry Council and the Higgs Charity, 50% each).

Further talks for the football club to buy 50% of the Ricoh again collapsed and when ACL threatened to have the club liquidated over the unpaid rent, the club buckled and put themselves into administration.

When on the brink of financial armageddon itself, ACL was bailed out thanks to a £14m loan from Coventry Council. Sisu cried foul, claiming that this loan amounted to state aid (which is illegal), and called for a judicial review into the whole affair.

The review was granted on appeal, and although the judge eventually found in favour of the council, Sisu are about to have their second appeal heard in the Court of Appeal in July this year.

Having already had their promotion push in 2014 curtailed by a 10 point penalty for going into administration, the club were deducted a further 10 points on the eve of the following season after the council refused to approve the CVA to bring the club out of administration.

Instead, a part of the club was liquidated and here’s where it gets really complicated: Coventry City is really just a collective term for four subsidiary companies: Coventry City Football Club (Holdings), Coventry City Football Club Limited, Sky Blue Sports & Leisure, and Avro Master Fund.

Confused? Try being a fan. Well, it was the ‘Limited’ bit of the club that was liquidated, the rest carried on, again under the ownership of Otium Entertainment Group, who were the highest bidders on the rest of the club. And by the way, Otium Entertainment Group is merely a subsidiary company of Sisu, so ownership remained the same.

Now before you click onto a more interesting article, or go outside for a walk, or throw your laptop out of the window, consider this: at the end of the administration process, Coventry City had paid Paul Appleton (the solicitor administering the process) a cool £444,000. And that’s before he’d actually carried out the subsequent liquidation process, which would have increased his fees significantly more.

The whole saga has cost millions, and caused a complete breakdown in the relationship between the football club, the council, ACL, and the Higgs Charity. A bitter and sometimes personal litigious battle resulted in Coventry City leaving the Ricoh altogether to ground-share with Northampton Town. Defiant to the last, Sisu declared that they didn’t need the Ricoh and would instead build their own stadium.

Plans for this shiny new stadium (albeit with a smaller capacity than the Ricoh) were promised imminently, but over a year later all we’ve seen are some fancy architects’ drawings and a lot of faded rhetoric.

It pains me to recount this sorry tale. I was one of the poor suckers who did travel to Northampton to watch us play, but the majority didn’t. I never blamed those who stayed away but radio phone-ins saw fans pitched against each other – both equally disillusioned with the situation but with their own reactions to it.

Ironically, that first half of the season at Northampton saw us play some of the best attacking football we’ve produced for years. The Callum Wilson/Leon Clarke strike partnership proved irresistible, until Clarke was sold at Christmas. Wilson followed soon after.

The owners had to sell our best talent – they had legal bills to pay after all.

We’re back at the Ricoh now. A rental agreement was finally reached, but soon afterwards it was announced that Wasps Rugby Club had agreed a deal to buy 100% of ACL and thus ownership of the Ricoh (at a cost of around £5.5m). Coventry are tenants again and have been taught a business lesson by a well managed and visionary rugby club.

The rental agreement is temporary, though. Sisu still maintain their plan is to build another stadium (just outside the city border), while they prepare for their next date in court in a few weeks time.

As a fan, I don’t know what to believe. Most blame Sisu and their failed plot to get the Ricoh on the cheap. Others blame the council and their ruthless refusal to support the football club in its time of need.

No doubt there is fault on both sides, but no one knows who the real villains are, who has the best interests of the football club at heart, or even if any of them do.

I’ve given up trying to work out Sisu’s strategy or motivation. I’m board of finances and legalities. I’m fed up of feeling I need both an economics and law degree to understand my football club. I don’t want to care anymore. Just pass me my sticker book…

The Two Unfortunates
The non-partisan website with an eye on the Football League

4 Comments

  1. Daesh
    June 18, 2015

    A really, well-written and relatively objective assessment, devoid of the hysterical accusations by deluded and ignorant anti-SISU elements. There are failings on the part of SISU and the Council but imagine the difference it would make if Coventry fans actually turned up to support their club. They might feel alienated, even angry but Coventry City is still their club. Support them.

    Reply
  2. Tom
    June 19, 2015

    When my non-Coventry supporting friends ask me what the hell has happened to Coventry, I can now simply point them in the direction of this concise summary. No longer do I need to delve into the whole rigmarole of what has gone on and try to explain it all, this blog has done that for me. Top notch.

    Reply
  3. Paul O'Donnell
    June 19, 2015

    Very good and concise.

    I do wonder whether Ann Lucas and the Council had it in for the club after signing Marlon King.

    Reply
  4. MoeTheBarman
    June 23, 2015

    Even as a non-Coventry fan it’s pretty awful watching what is going on at Coventry, but I cannot understand why any fan would side with a hedge fund ownership. Even if they succeeded in getting City back in the top flight, their ultimate goal is to take money out of the club, not put it back in.

    Reply

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