A Deal just too good to turn down?

It looks like it will go all the way to the wire.  The creditors meeting for Coventry City Football Club Ltd was today adjourned once again, at the request of ACL, the landlords at the Ricoh, with the terms of the CVA remaining incomplete and unsigned.  The next meeting is scheduled for Friday and with the season starting the following day, a points deduction will be imposed on the Sky Blues for being in administration during the season if the club does not exit before the weekend.

ACL have offered SISU Capital, the Cayman Island registered Hedge Fund that controls the club on behalf of investors, a new rental agreement with terms which propose a substantial reduction from the current contract, that if agreed would then pave the way for the club to remain in the city which bears its name, playing at home at the Ricoh.  The rent would be structured so that terms are increased or reduced dependent upon success or failure.  For Division One football, £150,000 per year, £100,000 for Division Two and increasing to £400,000 for the Championship.  The contrast between this and the current agreement could not be greater – the original presumed the club would return to the Premiership, hence the lack of provision, whilst no details have been released on what the rate will be should the unexpected somehow occur in this new offer.  The agreement would be a rolling contract over ten years – the minimum period that complies with the Football League Insolvency Policy. The assumption is that this level of rent is similar to that agreed with Northampton Town Football Club Ltd, so has financial parity in terms of costs.

In addition to the offer, ACL have started proceedings at the High Court against NTFC for damages that would result from the club playing at Sixfields whilst an agreement exists for the club to play at the Ricoh.  David Cordoza, NTFC’s chairman responded by suggesting the action ‘was without merit’.  The complex structure to the ownership of the group of companies and subsidiaries behind Coventry City will ensure legal teams are kept busy.  If there is any doubt in Cordoza’s mind then pressure may be applied to SISU to accept the new rental licence and avoid having to defend the action.  It is surely no coincidence that negotiations with other neighbours in the West Midlands over possible ground shares came to nothing.  The writing has been on the wall.

One of SISU’s biggest complaints has been that ACL do not allow CCFC ltd access to the revenues generated through match day sales, in particular food and beverage sales.  It is assumed that any deal agreed with NTFC would include such income streams.  Tim Fisher, CEO of Otium Entertainment Group Ltd, the preferred bidder to take the club out of administration has repeated the economic benefits that derive from additional income will enable to club to compete on the pitch due to the need to comply with Financial Fair Play (FFP) Regulations set to come in to force this season, with the salary cost management protocol which limits wage costs to 60% of income.  For Fisher and SISU, its all about the money.  With Fisher himself expecting an average attendance of 3,000 should the club relocate, what are the financial implications of rejecting ACL’s new offer which would boost attendances significantly?  Will fans return?  The ‘Not One Penny More’ campaign will be somewhat divided, with a proportion of fans backing the ‘SISU Out’ concept that interprets the phrase as abstaining from paying for any club related purchases until the current owners are replaced.  Another set are minded towards the ‘Keep Cov in Cov’ slogan, interpreted as more conciliatory – with the aim to ensure that the club remained in the City as a priority.  If more prefer the second interpretation of NOPM, then perhaps the club can budget on closer to the 10,500 average experienced last year for games.  The match day ticket income is calculated on previous records at around £12.00 per head, with food and beverage sales just over £3 per head.  How exactly does this translate into total revenue?

Option 1:  CCFC relocate to Sixfields.

Ticket revenue 3,000 @ £12 per head = £36,000 per game

Food & Beverage 3,000 @ £3 per head = £9,000 per game

Total Income £45,000 per game

Option 2:  CCFC remain at the Ricoh.

Ticket revenue 10,000 @ £12 per head = £120,000 per game

Food & Beverage 10,000 @ £3 per head = £0,000 per game

Total Income £120,000 per game

Unsurprisingly, it is financially beneficial to have more people paying for tickets than a pie and a pint. The first calculation does not allow for any share of the takings from food and beverages sales that will be due to NTFC – full details of the agreement have not been released.  The gap is likely to be larger than shown here.  So pressure is being applied to SISU from ACL to remain at the Ricoh.  The financial implications are massively in favour of following the wishes of Sky Blues fans and remaining at in Coventry.  This offer also applies pressure on the Football League – how can they sanction a move away from the city when such an offer is on the table?

In return for the agreement of the new licence, ACL would appear close to agreeing to the CVA.  Should the CVA remain unsigned, it seems likely that CCFC Ltd would be placed into liquidation, where the Official Receiver as an officer of the court has a duty to investigate the companies affairs, the causes of failure and the actions of the directors, whilst ensuring the best return for the creditors.  Would any investigation differ from the current ‘investigation’ conducted by the SISU appointed Administrator, Paul Appleton?  The club issued a statement suggesting an ‘investigation was already in progress’ implying that any Liquidation process would not necessarily uncover any additional information. The Coventry Telegraph has declared that SISU are ‘desperate’ to ensure the CVA is agreed so that the transfer embargo can be lifted. However, Fisher has repeatedly claimed that CCFC Holdings Ltd, of which CCFC Ltd was a subsidiary, held the players registrations.  If accepted, the company would not be under the embargo due to being in administration. He has also admitted the clubs accounts were ‘in a bit of a mess’ and so it can be inferred that official documents which recorded the registrations in CCFC Ltd were incorrect, despite two separate respected firms of Accountants having conducted audits the records over the last 15 years.  Both firms would be obliged to conduct preparatory research into their clients as part of the engagement process. How did their interpretation of where assets should reside and what the companies existed for differ so greatly from that now proposed by Fisher?  On what assumptions were these declarations based upon and why were these errors never corrected?  If the assumptions were clear and the reports were actually a fair reflection of the businesses, how, when, why and for what amount did this transferal of assets of the players registrations take place?  These questions would surely be raised as they are fundamental to establishing how the company came to fail.  Whilst newspapers are prone to sensationalise, it is fair to assume that SISU would be somewhat concerned that such further investigations may take place, as to what may be discovered and how things are interpreted.

ACL have also requested that SISU withdraw the application for a judicial review into the £14 million bail out in January 2013 to ACL from Coventry City Council as a pre-requesite to agreeing the CVA.  The council own 50% of the shareholdings of ACL, a joint venture with a local charity, the Alan Edwards Higgs Trust.  The council used funds from their ‘cash balances’ with the intention to replenish the money under a government-approved borrowing scheme to fund the loan.  The challenge from SISU raised concerns over the terms of the loan, questioning the legality of the transaction and querying if the agreement should be classified as state aid to a private enterprise.  Both the preparation and defense of such a review will be costly and of concern to both the charity and the council, particularly in the current economic climate.  There will of course be concerns as to what may be discovered and how things are interpreted too.

So if SISU reject the new offer, what are their motivations?  Fisher has been clear that SISU are looking to acquire the Higgs share in ACL and the Ricoh. CCFC Ltd had an option to purchase the Higgs Trust shares in ACL, but that option was allowed to lapse. It is far from clear why this was not taken up.  An offer was negotiated and a period a due diligence where a review of ACL’s financial statements was undertaken.  SISU even agreed to pay the charities legal costs incurred during the process, an agreement that remains unpaid.  It has been suggested that the original rent dispute that resulted in CCFC Ltd going into administration was an attempt by SISU to put ACL under financial distress, inflicting cash flow problems on the company in order to then acquire the stadium at a discount. Bob Ainsworth, MP for Coventry North East, stated that he believed SISU’s ambition was to

destabilise the company and thereby gain control at a fire-sale price 

ACL have now offered a very reasonable rent, well below market value for a venue that has recently held Olympic football, but should the new agreement be refused, these allegations will once again come to the fore.  Without a football tenant, ACL may well find the short term difficult financially.  The company is likely to be reviewing other options and uses for the stadium, in the centre of the country with good transport links, to secure its long term viability should their offer be rejected.  The stadium however was built for the club and the club alone.  Whilst SISU insist that the club and stadium must be reunited, what assurances can be given that this would actually happen if they were to actually purchase the Ricoh at some point in the future?  Which company within the complex structure would take ownership if an agreement was reached?  In deed, how could a substantial and profitable resale of the Ricoh be prevented after that sale, and more importantly, what safe guards could be ensured to prevent any future owner from pursuing similar aims to those now forced upon ACL to look for other tenants and other uses. This outcome could then leave the club homeless once again, but this time with a landlord that refuses to negotiate, one that perhaps would not actually want a football team as a tenant, in sharp contrast to the efforts and offer made by ACL this week.  Who knows where all this will end…

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4 Responses to A Deal just too good to turn down?

  1. john byrne says:

    A very god piece, well written but you have only mentioned the review for incomings. What about the outgoings i.e. policing, stewarding electric bills etc. How much would be left ?

    • Richard B says:

      For Division one, the only criteria set down by the FL to comply with FFP relates to the income/salary ratios of 60%. Fisher’s main concern is this ratio, hence the omissions on expenses.

  2. CTID says:

    Genius move by ACL. They make SISU-Otium an offer they can’t accept, by making them an offer they can’t refuse.
    Check-mate? Not quite. SISU will pull something out.
    They have to own the stadium so that they can borrow against it. It’s their last hope so they won’t go quietly.

  3. Ian Taylor says:

    In my view, the directors of ACL have behaved even more selfishly than those of SISU. So ACL-OUT should be the cry. Unless a deal allowing SISU to own or part own the stadium is on the table on Friday I suspect it is several seasons at Northampton and a new Sky Blue stadium eventually. ACL will be left with rock concerts for the charity and town councillors to attend en mass

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