Coventry: Too Much Too Young
I might be talking utter bilge (Not for the first time: Ed) but Coventry City, by being relegated to League 2 last season, became the first team in the inaugural season of the Premier League to drop to that level. Even winning the Checkatrade Trophy last season could not paper over the cracks of relegation.
Their finances over the last decade, under a series of opportunists, asset strippers, charlatans and scumbags, have suffered a similar decline.
For a few seasons their holding company, Sky Blue Sports and Leisure Ltd, also included the activities of ProZone, which was under the club’s control when Ray Ranson (yes, that one) was in charge.
Ranson, who according to Wikipedia is an entrepreneur, (not sure what that really is, probably a posh word for twat) disappeared over the horizon after introducing the club to… Cov’s present owners, a London based hedge fund called Sisu, who, in keeping with the behaviour of most hedge funds, are low on communication and short on morality.
Their involvement in Coventry appeared to be to take over the club when it was in the Championship, potentially make a profit from a return to the Premier League and/or buying the Ricoh stadium as a knock down price, and then riding out of town.
Coventry also presently hold the unenviable title of the last Football League club to enter administration, which appeared to be a strategic move at the time by Sisu to try to force the hand of the owners of the Ricoh to sell the stadium. No one comes out of the negotiations with any credit.
It’s difficult to put into words such cynical behaviour by the owners, but ‘twats’ covers most aspects of their activities.
Coventry have just produced their annual results, so we’ve had a quick look.
Most clubs split their income into three areas, matchday, broadcasting and commercial. For some reason Cov don’t follow suit, and only show matchday and commercial.
It is possible to estimate the figures from broadcasting income (currently about £6.5 million in the Championship, £650,000 in League One and £450,000 in League Two), but the headline figures show what has happened to Coventry starkly enough, especially since their relegation to League One in 2012.
At least last season there was a 10% bump in income, mainly due to the Checkatrade Trophy final appearance.
A move to the Sixfields Stadium in Northampton, boycotted by many fans, had a negative impact on income too.
Income does not include player sales, this is because (a) the business of a football club isn’t really to trade players, and (b) gains on player sales are very volatile and distort the headline figure for income.
Sisu seemed to believe there would be a continual production line of players at Coventry who would generate money for the club. This has not proven to be the case.
The above table shows the erratic nature of player trading. For a League One club, Coventry have done very well in selling the likes of Richard Keogh, Callum Wilson and James Maddison for seven figure sums, but that is not sustainable or predictable.
The main costs for football clubs are usually player wages and transfer fee amortisation (the cost of a transfer divided by the length of the contract). The latter is less of an issue in the lower leagues, as many clubs sign players on free transfers and loans.
The above shows that Cov, when in the Championship, were paying competitive wages, and signing players for reasonable fees. This wasn’t enough to prevent them finishing 17th, 19th, 18th and finally being relegated as 23rd in the four seasons to 2011/12, but at least it was playing against some glamourous opposition in front of fair crowds.
Since then wages have had to be cut to prevent losses becoming unsustainable, although they look too high for anyone other than a huge optimist when compared to income.
The above shows how much a club is spending on wages and transfer amortisation compared to income. When Coventry were first relegated to League One in 2012/13 they were paying out £107 in wages for every £100 of income, and this increased to £146 of wages for every £100 the following season. Last season, despite, or perhaps because of relegation, the club appeared to have its wage bill under control, with only £73 in wages for every £100 in income.
Because Coventry don’t own the stadium, they have to pay rent. The ‘good’ news is that the rental fee appears to have come down since the dispute with the landlords, the bad news is that it appears to be on the rise again.
Coventry don’t appear to get many benefits from renting the stadium from owners Wasps though, who apparently take the lions’ share of advertising and catering income on matchdays.
For every £1 of income last season, Coventry has expenses of £1.48, allocated as follows:
Losses are the difference between the income generated by the club and the costs of running it on a week to week basis. We have already seen that in some years the wage bill exceeded income, add rent and other costs into that equation and it’s not a pretty sight.
Whilst the club made an operating profit of £602,000 in 2015/16, this was shored up by a profit on the sale of James Maddison, which was worth nearly £2.5 million. Other than that, every year has been loss-making in the last decade.
To underwrite these losses, the club has had to borrow money, mainly from Sisu, but also from a mysterious (and not in a good way) Cayman Island business called the Arvo Master Fund.
No one knows who is behind Arvo, what their intentions are, and when they want their money back. All that can be seen is that Arvo (and Sisu too on some loans, although other borrowings are interest free) are adding interest costs to the loans each season.
A bit of Googling of Arvo’s address reveals this to be the location.
When Sisu first became involved with Coventry the annual interest payable was less than £200,000 a year, substantial but bearable. For the last few years it has averaged £2 million a year, which for a business with a turnover of £5-6 million is eyewateringly expensive. On reflection, whilst we don’t know who Arvo are, the word twats would suffice here too.
With all these sums going out of the club, it is unsurprising that there has not been a huge amount to invest in the playing squad.
Since 2009 Coventry have signed players for £7.8 million, and their interest payable on loans was £13.1 million. I suspect most fans would not be happy with that, although some of the bankers can’t have been much worse than some players signed by Tony Mowbray.
Coventry are in a horrible position, as they have no assets (as renting the stadium) apart from the players, and they owe the owners about £42 million, most of in in the form of loans, but some as unpaid interest.
Whilst borrowings appear to have peaked in 2013, all that has effectively happened is that the dark artists of finance (who we, for the sake of brevity, will call twats) have swapped one type of piece of paper for another. Some of the debts are disguised elsewhere in the balance sheet.
You have to feel for Cov fans, apart from an occasional day out in the Cup or a trip to Wembley for the Checkatrade last season, they’ve had nothing to cheer about for ages. Fans of many clubs will know that sickening feeling of being uncertain whether you will have a club to support in a few months time, and that’s where Coventry currently sit.
Their owners have negotiated a 12 months lease to carry on playing at the Arena from owners Wasps, but you cannot build any type of business on such short term negotiations.
All that fans can do is hope for a white knight to rescue them, cut a deal for the Ricoh or build a new stadium. White knights are in short supply, sadly, for Coventry fans, twats aren’t.