13 Mar 2022
Review of the Recently Published May 2021 Accounts
So, back again to everybody’s favourite subject – the Sky Blues’ finances and, more specifically, their Accounts recently published for the year ending May 2021.
These Accounts have been subject to an intense debate of varying accuracy and insight on a number of websites, particularly on Sky Blues Talk – see the thread https://www.skybluestalk.co.uk/threads/coventry-city-publish-accounts-for-year-ended-31st-may-2021.141216. There, ‘Old Sky Blue’ (OSB) arguably provides the most comprehensive and insightful analysis of the content and implications of the Accounts and of their context.
Two things seem to emerge from this debate. One, it is complex! Two, City lost money to the tune of £4.7 million, probably not huge by Championship standards but a £4.7 million loss that has to be covered, as the objective set for the Club is to break even each year. This means that revenue from whatever source – including player sales - has to meet cash spent on expenditure, where expenditure includes player purchasers and, crucially, loan repayments on the Club’s debt.
Loan repayments are highly significant for a club like the City mainly because of the way the Club is funded. Deficits such as that in 2021 arise after the loan repayments have been calculated and allowed for in the deficit calculation. If interest payments are deferred – not paid in any one year - they appear in next year’s Accounts along with next year’s loan repayments. Those deferred payments also attract interest. The deficit then has to be covered from other revenue sources, chief among them player sales and any further loans which themselves add to future loan repayments and to the total debt.
It is crucial to any understanding of realities of CCFC’s operation to realise that these loans are charged to the Club at commercial rates of interest and are provided by or managed by the owners of the Club. The two ARVO loans arranged and managed by the owners amount to £7,483,469 on which the Club has been charged £8,485,298 interest so far. In addition there is the SISU Revolving Credit Facility – helping to cover deficits - which amounts to £2,585,557 and on which SISU have charged £905,778 interest. A total here, then, of £3,491,335. These together give a total of around £19.5 million on which the Club is expected to make repayments each year. Further, the Club, like many others, has taken advantage of a £2.4million loan from the English Football League which is interest free if paid back over three years. That again adds to the debt repayment liability.
It is important to stress that the loans from the owners used to fund the Club are commercial transactions between the owners and the Club - they are not gifts, they are not soft loans by owners, they are not an act of philanthropy. And the interest is never waived or 'ignored'. Were those loans ever to be 'called in' by the owners, which they can do, the Club would be bankrupt.
Clearly, it is not in the interest of the owners to bankrupt the Club - put crudely it owes them money and the liabilities of the Club far exceed the value of the assets that the Club owns. And, as a hedge fund, there could be a serious reputation effect for SISU in terms of the perceptions of their current and future investors. Added to which, remember, and as OSB points out, these liabilities for the Club are assets to the owners as creditors.
One alternative to this lend-repay-relend arrangement would be to invest in the team and go hell for leather for promotion to the Promised Land of the Premier League. But didn't the owners try that once before, before the plug was pulled in the face of mounting losses and a lack of tangible success as the Club slumped into Division One in 2012? Indeed, the only sign that the owners have Premier League ambitions still was reflected in the recent statement by Joy Seppala that the Club would have a new stadium, and the new revenue streams that would result, in about 10 years time.
So, if the tripling of home gates and a significant cut in stadium rent isn't sufficient to meet the financial objectives set by the owners, how do we then break even? At present, by giving the Club a comparatively low playing budget and selling players. Sold players are then replaced with ones who are cheaper in terms of their wages and/or their current market value.This, as a strategy, relies on a steady supply of saleable players but also endangers the building and development of a successful team around a core of quality players. It's a strategy which envisages Coventry becoming a feeder club, noted for producing valuable players but achieving little for itself in the highest echelons of the game.
Oddly, this role seems to be welcomed by some both inside and outside the Club. 'City have always been a selling club', it is said, as if all clubs don't buy and sell players and as if it is somehow quite normal to have this as a primary operational objective of a football Club. It has even been glorified with the name the 'Brentford model', as if Brentford getting where they are - and in a new stadium - was due to a 'sell to break even' strategy.
It is against this background that Mark Robins, his staff and his team(s) have produced a near miracle in getting the Sky Blues to where they are today. This success comes despite the constraints under which they work not because of them. One way to start relaxing these constraints would be by resetting the objectives of the Club - redefining its vision, if you like - to reflect a desire to develop and progress Coventry City both as a football team and as an important asset for the City of Coventry. That has, of course, to be set within a prudent financial regime but one which distinguishes between investment and revenue matters both in principle and, importantly, in practice.
This doesn't necessarily require a change of ownership, but it certainly does require a change of outlook.