The administrator has made his decision. Out of the four proposals submitted, Paul Appleton has announced that the bid from Otium Entertainment Ltd, one of the companies under the control of SISU, is his preferred option to take the club, and CCFC Ltd out of administration. Reactions from City fans on forum posts suggest that the outcome is rather like hearing the news that a terminally ill relative has died. Even though that it was fully expected, inevitable even, the news comes as a surprise mixed with feelings of anger and numbness. Appleton is reported to have said that
The bid from Otium Entertainment Group Limited was substantially more than any of the other three bids received and was the bid which gave the greatest return to the unsecured, non-connected creditors of CCFC Limited by a considerable margin.
This would imply that ACL, the largest of the unsecured creditors and the landlords of the Ricoh arena that were originally owed £1.3 million in rent, will be suitably compensated, possibly in full. This will remove any future legal challenges that would have been open to the company, as there is little to object to. If Tim Fisher, CEO of CCFC Holdings Ltd, was correct in his assertions that CCFC Ltd was a non-trading property subsidiary that contained no assets, it will be interesting to see how much has been offered by Otium Ltd to simply purchase sizeable amounts of liabilities – around £70 million according to the Administrators initial report. The Football League are unlikely to oppose the move. They were reluctant to come out and clearly state which company was in possession of the golden share when the administration process was started back in March 2013. Regardless, the FL don’t have the funds, nor appetite, for a long protracted court case. Their main objective is to retain 72 clubs in the league which has now been accomplished. So the club remains under the control of the much criticised hedge fund SISU. Appleton himself admitted it was unlikely to be a popular decision, but the job of the Administrator is to ensure the best results for the creditors, not to ensure that cultural assets are held and controlled by what popular opinion suggets are the best custodians of, and for, the club and its history.
Where do we go from here?
So the key question now must be where will the Sky Blues be playing next year? Fisher had repeatedly stated that there will be no deal under any circumstances with ACL to play at the Ricoh. Any move away from the City could spell disaster for the club. Fisher himself expects attendances to fall to around the 3,000 mark, which places enormous pressure on the club to comply with the FL ‘financial fair play’ regulations that will force clubs to work with a cap on wages set at 60% of income. The club, currently in the third tier, failed to push for the play-offs even before the ten-point deduction was imposed last season. The wage bill was based around an average attendance of around 10,000, so the pressure on future squads will be enormous if the club does indeed play outside of the city as has been suggested. Many season ticket holders have claimed they will not follow the club if it plays elsewhere, with a campaign to stop the move gaining wide spread support. If the football league impose a ten-point deduction on exiting administration, as it likely when looking at recent precedents, then a relegation battle is all but inevitable.
Can any deal be made with ACL to remain at the Ricoh to ensure income levels are of a level to sustain a decent, balanced squad ? Fisher may have claimed there is no chance of coming to an agreement, but could either stand aside and allow another director to negotiate a deal, or may claim to have listened to public opinion in a damage limitation exercise and could then enter into negotiations. ACL had offered to allow CCFC Ltd to play at the stadium in lieu of rent whilst in administration. This appeared to be a smart move, keeping the club in the City and paving the way for future negotiations. Could this now be turned on its head and used as a tool by SISU to offer below market bids on an asset that, without a football club playing in the stadium, could become somewhat a liability for ACL and the council. Bob Ainsworth, the MP for Coventry North East (Lab), made accusations to parliament, back in 12 March 2013, that SISU were trying to restrict the cash flow into ACL, in the hope that the company would be placed into administration and then SISU, as sitting tenant, would acquire the stadium well below market value. He stated that (Hansard, 12/03/12)
Arena Coventry Ltd … believes the agenda has been to destabilise the company and thereby gain control at a fire-sale price. A much lowered rent has been offered, but the dispute continues.
ACL could be left with the proverbial ‘white elephant’, an empty stadium that is expensive to maintain but with no real means of acquiring any income from the asset. ACL is a joint venture between the Alan Edwards Higgs Charity and Coventry City Council, neither of whom would wish to spend large sums in maintenance on an asset that is not realising any income, particularly in times of austerity. Could this then leave the company exposed to the predicted below market value bid for the arena by SISU?
How reliant is ACL on income from the stadium?
ACL is close to being profitable without a sitting tenant in the Ricoh. The financial reports for the year to May 2012 shows an income of £7.7 million, an increase of £1.1 million on the previous year (2011, £6.6 million). The urban regeneration program that was undertaken by the City Council and the Higgs Trust has also developed a successful conference centre, offices, hotel, retail park, entertainment centre and casino, in addition to the stadium. The company made a profit of over £1 million last year, an increase of around £600,000 (2011 £470,000). If we remove the income received from the club playing in the stadium, ACL would be close to breaking even, as associated costs would also be removed. Cashflow into the company has improved, an increase of £2.6 million, assisted by the sale of the catering facilities to IEC Experience, a joint venture between ACL and Compass Contract Services UK Ltd in April 2012. This injected £4 million into the company, so the short term of future of ACL looks secure, even without the football club. Tim Fisher declared back in February 2013 that SISU
[are] not here to subsidise [ACL] a failing council-owned business
which is rather ironic when comparing the balance sheets of ACL to any of the companies in the structure behind CCFC, all of whom are carrying significant liabilities compared to ACL’s positive position. If an agreement can be negotiated between the club and ACL, would this be a newly negotiated lease effectively allowing SISU to gain access to all of the facilities, or a short-term deal to ensure the club remain in the City for the next few years? It would appear that SISU need the stadium more than ACL need the club.
SISU Plans for a new stadium
SISU have claimed that they are looking to build their own stadium in the next three years in the Coventry area, with an estimated budget of around £30 million. One of the key problems for SISU has been the separation of the team and the stadium. However, when pressed at the fans forums last week, Fisher was unable to give any assurances that the club, or the limited company behind the club, would actually own the new stadium. This either shows how unprepared SISU are in their plans, or is again a case of Fisher being reluctant to publicise unpalatable elements to the new proposals. The club could end up in exactly the same situation again – divorced from the stadium.
According to press reports, the new stadium would be of a smaller capacity than the Ricoh and this figure quoted would be for the construction of the stadium only. One site that is rumoured to be high on the list of possible locations is the speedway stadium in Brandon, on the outskirts of the City, within the boundaries of Rugby Borough Council. Handily, any application would be sent to Rugby, not Coventry Council. Without advanced plans we can not be sure what the development will look like, but any additional expansion plans to include hotels, offices and retail facilities in addition to a stadium look unlikely due to space restrictions and would incur additional costs on top of the proposed £30 million budget. The space is largely greenfield, surrounded by woods and farmland. Local residents are likely to resist and object, transport links into the actual site are limited and there is already a supermarket within a five minute drive. The earning potential and profitability of the scheme appears at this stage limited, way behind the established site of the Ricoh. The new stadium would take a minimum of three years to build but is likely to be longer if the planning process is subject to delays. Brighton and Hove Albion was granted planning permission in 2002 for the current site at Falmer, the AMEX community stadium, but did not move into the new stadium until July 2011 after objections from local residents and neighbouring councils held up the process. The costs escalated to over £90 million, for an original capacity in the region of 20,000, without any additional infrastructure added. It is very possible that SISU would incur similar problems and lengthy delays.
A football club, particularly in a small provincial town playing outside the cash cow of the premiership is unlikely to ever make any real profit from the football side of the business, and is unlikely to ever build up reserves to counter years of overspending and losses. It is the additional facilities that can provide the income to support the massive costs involved with elite football. However, the proposals set out by SISU do not at this stage appear to include access to substantial additional revenue streams. And it is the income derived from the additional infrastructure where the income and future prosperity of the club arrives from, as can be seen by the results which ACL have recently posted.
Clearly, SISU’s current plans do not stack up. Is it now time to negotiate a settlement so that the club remains at home, in the city, and at the Ricoh? Is that even possible, considering what has happened? Both sides look firmly entrenched. Even then, how many fans will forgive the events of the summer? Many claim that they will not return whilst SISU remain in control. Only time will tell.