Beneficial Ownership and that elusive golden share

The Administrator has spoken.

I can confirm that the asset sale by Coventry City FC Limited to Otium Entertainment Group Limited has been completed.  Otium has purchased the right and title to certain assets possessed in Limited including the shares in the Football League and the Football Association.  I stress that I have only been able to sell such right and title to these as Limited possesses, because CCFC Holdings Ltd asserts beneficial ownership over them.

It would certainly appear that the Coventry Telegraph headline was wide of the mark, claiming that the ‘Sale of Coventry City FC Ltd to Sisu company Otium completed’.  What about the small matter of £70 million worth of liabilities that needs to be sorted?

It is worth first bearing in mind Appleton’s mindset back on 10 May 2013.  The Telegraph reported that

Mr Appleton has said he would not conduct business through the media.

That is the behaviour we would expect as an officer of the court.  Only now, the Administrator has decided to make an announcement which will surely be welcomed by Otium and their ultimate controllers, SISU.  So what is the meaning behind the announcement?  Has this transfer of the golden share been completed with the blessing of the Football League (FL), or is the press release from the Administrator a warning to the FL that the process has started and there is little they can do to challenge it?  The FL regulations insist that the transfer of the golden share can only be completed with their permission, so why haven’t the FL released the information to the press?

The Administrator has once again reasserted the concept of beneficial ownership of the golden share.  The players registrations appear to now reside in Holdings Ltd, whilst the share will now reside in Otium, after the transfer from CCFC Ltd.  He claims that CCFC Ltd could not field a team, nor take up the offer of playing at the Ricoh whilst in administration, as this was

based on the mistaken belief that Limited had the ability to field a team.

The players registrations have historically been held in CCFC Ltd, the company with the golden share.  Although this appears to have subsequently changed, no details have been released in the public domain as to when this occurred and if it complied with FA and FIFA transfer regulations.

This separation of Golden share and the football team presents a real dilemma for the FL and could possibly open the proverbial can of worms.  The aims of FL regulations are quite clear – they forbid any company or individual to be in control or own more than one football club, with the obvious and specific aim to maintain the integrity of the competition.

Robert Maxwell tested the footballing authorities and the regulations back in the eighties when he was owner of Oxford United.  He attempted to also purchase and run Derby County FC in 1987 whilst maintaining his ownership and chairmanship of Oxford, but was found to be in breach of the regulations.  Had Maxwell set up two additional companies based in a tax haven such as the Cayman Islands, where ownership remains secret and corporate governance is opaque, he could have claimed ‘beneficial ownership’ of both clubs and circumnavigated the regulations.  The companies based in the UK, Derby County FC Ltd and Oxford United FC Ltd, would be in possession of golden share, comply with the FL regulations, but be ultimately owned by the same individual.  Maxwell would have then controlled two separate clubs and the FL would be powerless to stop him.

The problem for the FL is that if they allow CCFC to hold the golden share via Otium and the players registrations and beneficial ownership of the share to reside in CCFC Holdings Ltd, then the future for the game suddenly looks very bleak indeed.  With the recent influx of foreign ownership into the game, there would be no regulations in place to stop multiple ownership of clubs, which could undermine both the integrity of the competition and the identity of clubs.  The Sky Blues, Holdings Ltd and Otium then become the precedent with which unscrupulous owners can highlight as a loophole that allows them to proceed in the manner of their choosing.

We could pick any premier league club to be fair, but lets use the ownership of Liverpool FC as an example.  If Fenway Sports Group set up a company called Liverpool Caymans Ltd, based in the tax haven which became the ultimate owners of LFC, the company could then claim beneficial ownership of the golden share, with Liverpool FC Ltd still holding the title to the share.  If they were then to purchase Tranmere Rovers via another company set up in the Caymans, Tranmere Caymans Ltd, Rovers quickly becomes a feeder club to Liverpool, possibly even playing in red and changing their logo to a Liver bird, all against the fans wishes and years of tradition.  This helps Liverpool FC by being able to field a reserve team in a more competitive competition than is currently available to second string teams, able to claim the most promising players for themselves from Tranmere’s squad, force Tranmere to take their cast-off signings and so on, all of this against the fans wishes.  Swap Liverpool, Tranmere and FSG for Coventry, Aston Villa, SISU and Randy Lerner and the alarm bells should start ringing loud and clear for the currently homeless Sky Blues fans.  Coventry Villa could be appearing in the football league very soon.  In blue shirts with claret sleeves.  At Villa Park.  Against a century of tradition and the supporters wishes.

You could take this scenario to the ultimate conclusion and see football in the future as mirroring the press industry of the present.  Local newspaper ownership was traditionally owned and set up on a city and regional basis, but has more recently become largely consolidated into one or two entities controlling the local press, which limits the plurality of journalism, controls dissenting voices, costs and suppresses wages.  The whole of the football industry of the future could easily become controlled by one or two investors of a high net worth.  Suddenly, football becomes a very profitable enterprise without the need for wage caps to limit expenditure.  Players would have to accept the contracts offered, as there would be few alternatives on the table.  If TV rights were to continue to be sold at the current level, then there is a lot of profit to be made from the industry and fans.

The FL could insist that the golden share will only be released to Otium if SISU were to liquidate CCFC Ltd and then merge CCFC Holdings Ltd and Otium into one single entity, which would then reunite the golden share and the football club.  The problem for that would be that CCFC would gain a financial advantage from the administration process by ending the lease agreements between CCFC Ltd and ACL, the clubs landlord.  Gaining a financial advantage from administration is frowned upon by the footballing authorities and liable to a further points deduction.  And this doesn’t stop future owners from referring to the short period of time where the split of title and beneficial ownership of the golden share was permitted.

So, as Appleton pointed out, CCFC Ltd were in no position to field a team.  SISU, the Administrator and Otium need to be careful as this argument could quite easily be turned on its head.  They may well have a team to field, but may well lack any right to play in any meaningful competition if the FL enforce their own regulations.  Have the FL got the stomach and the pockets for the fight?  Failure to release the golden share could result in a lengthy, drawn out process, with the FL and FA being fought through the courts by SISU, arguing that an unfair restraint of trade has been placed upon their business.   This would obviously result in very large bills from their lawyers and consultants.

Failure to respond could undermine the leagues values.  How will the football authorities react – for the good of the game and fair competition in the long term, or for the good of their own pockets in the short term?  It would appear that they have been placed in quite an awkward situation.

This entry was posted in Administration, Coventry City, Football Finance and tagged , , , , , , , . Bookmark the permalink.

One Response to Beneficial Ownership and that elusive golden share

  1. Pingback: Are you following A Prison Of Measured Time? |

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s