This article is a cross-post from the website of the Jimmy Hill Alliance, of which the Trust is part. It's a long read, but we felt it's such a good exposition of where Coventry City FC is at, and the possiblitiues for the future, that it should be read by as many peopl;e as possible. So we're doing our bit to make that happen.

 

 

This tweet appeared on @TheJimmyHillWay timeline recently from Jez @jezsilv:

 

“The pertinent question that keeps going unanswered. Wanting them out at any cost, could leave us without a club.”

 

An entirely reasonable statement (although it’s not actually a question, Jez) which I will try to address by looking at a variety of potential outcomes for Coventry City, from where the club is currently positioned, together with the possible consequences of each outcome. I hope that this article deals adequately with a number of other relevant questions about the future of the Sky Blues. However, as all the whole article runs to over 4,700 words, I’ll start off by listing my Conclusions, then those who are still interested can plough on through the detailed arguments.

 

Conclusions

 

  • The demand from The Jimmy Hill Way Campaign, in accordance with others such as the Coventry Telegraph, is for Sisu to Sell Up and Go. That is not forcing them out “at any cost”.
  • The ball is very much in Joy Seppala’s court. If she stubbornly holds onto ownership of Coventry City, there is little that can be done to remove Sisu, even if potential buyers are waiting in the wings.
  • An improvement in on-field performance and results, combined with solutions to the critical issues facing the club may satisfy sufficient supporters to keep the club going in the short-term. It would take a fundamental shift in attitude and management competence for the current owners and directors to achieve these requirements. What confidence can we have that any upturn in fortunes would be more than temporary after 9 years of failure and mediocrity?
  • If the club is relegated at the end of this current season under Sisu ownership and issues such as Academy closure, future at the Ricoh etc. are not resolved, the survival of the club is at considerable risk. The tolerance of a considerable number of supporters will have been exhausted. It is difficult to imagine how there would be a viable business model in such circumstances under Sisu’s ownership.
  • Even if Sisu agree to put the club up for sale, there is no guarantee that a credible buyer will emerge. The challenges facing new owners are daunting and there may not be an acquirer with the brave inclination to take on the task.
  • A credible buyer will have to have the necessary financial capability to buy the club and invest in its development and should be acceptable to supporters in other respects, particularly they will need to demonstrate that the interests of Sky Blues fans are paramount.
  • The longer that Seppala waits before putting the club up for sale, the less likely she will be to achieve a successful exit and the amount that she might realistically expect to be recovered will depreciate rapidly, barring a series of significant improvements in the fortunes of Coventry City, both on and off the field. A continuing failure scenario would of course be even more catastrophic for supporters.
  • Keeping the pressure on Sisu is essential. While we fully support the boys in Sky Blue, the long-term existence of CCFC is even more vital than the team’s survival in League One.
  • Supporter-led ownership in combination with wealthy individuals who are willing to match funds raised by a Community Share Issue may provide a viable solution (perhaps the only viable solution) ….. but only if Sisu put the club up for sale before it is too late.
  • An initial bid from Supporters may flush out suitable investors with sufficient financial resources to buy the club outright. Shrewd purchasers will want supporters as allies and perhaps achieve this by granting fans a non-financial stake in the club.
  • To answer the “Pertinent Question”: Sisu remaining in control of Coventry City could leave us without a club and on the balance of probabilities, that is the likely outcome in my opinion. New credible ownership that puts the interests of supporters foremost in the business plan could save the Sky Blues and stands a far better chance of success than Seppala and Fisher. The challenges are daunting and the more time that passes before Sisu decide to leave, the bigger the challenge will become.

 

So please Sisu: Sell Up and Go …. NOW.

We Want Sisu Out – what does it mean?

 

It is not the objective of The Jimmy Hill Way or the groups that form the alliance – including the Sky Blue Trust, Preservation Sky Blues (PSB), Cov Fans Together and Fight ‘til the Game is Won – to force Sisu Out at any cost. The following extract from the lead statement on the Home Page of our website TheJimmyHillWay.com is: 

 

“Our objective is to persuade the current owners, Sisu Capital and their anonymous investors, to Sell Up and Go. Whenever Sisu take that decision, we will also seek to ensure that new owners have the best interests of Coventry City and its supporters as their main priority. We also expect true supporter representation and involvement in the future operation of the club.”

 

Of course, it is difficult to encapsulate those nuances in a football chant, but that statement is what we believe to be the essence of “We want Sisu Out!”. The Coventry Telegraph petition with over 20,000 signatures is also clear that Sisu should put the club up for sale, it is not simply a matter of asking them to walk away, leaving behind the chaos that they have been largely responsible for creating.

 

What will it take?

 

The sale of any business (in fact any asset, goods or services) is mainly dependent on three requirements:

 

  1. A willing seller and one or more willing buyers;
  2. An agreed price, payment structures and other terms at which a deal can be struck;
  3. Both parties, acting in good faith, having the ability to deliver their side of the bargain, in particular the buyer having the wherewithal to make payment of the contracted price.

 

In the transfer of ownership of a business, it is usually point 2 which is the most complex and the Other Terms will often run to hundreds of clauses, even pages. Therefore, I am not intending to over-simplify what it takes it strike a deal, just outlining the key elements necessary for a transfer of ownership to occur.

 

The initial requirement though is point 1, the existence of a willing seller and at least one willing buyer. What appears to be the case today is that Joy Seppala and her investment company, Sisu Capital, are not willing sellers. Until that state of mind is changed, there is no possibility of change of ownership at Coventry City FC. So, whether or not there are willing buyers is currently irrelevant, although there is one set of circumstances which alter the position, as I will explain later.

 

So what happens now?

 

I believe that it is impossible for the existing situation to continue, we have passed the point of no return with the relationship between owners/directors and the majority of fans in tatters. However, there are a few alternative scenarios that may play out over the coming months. This may not be an extensive list but these are the possible outcomes that I think are worth further consideration in the sections that follow:

  1. Sisu refuse to put the club up for sale:
    1. Fortunes of the team improve and non-playing problems are resolved;
    2. CCFC are relegated and other looming crises are not averted.
  2. Sisu state that they are prepared to sell:
    1. No willing buyer emerges;
    2. One or more willing buyer steps forward.

There are possible variants in each of these situations that I will also try to cover as I go.

 

Sisu refuse to put the club up for sale

 

I am including in this consideration, the possibility that Sisu are prepared to sell but Ms Seppala’s expectation on price and/or terms are so far in excess of realistic value that it amounts to the same thing. There have been rumours of offers made in good faith by willing buyers that have received an initial hearing but subsequently have been summarily rejected.

 

At this point, it is worth stating that “market value” relating to such a transaction is ultimately determined by what a willing buyer and willing seller actually agree to pay. There are text book indicators of where such value might lie, determined in relation to the earnings, cashflows, assets and indebtedness of the business, but these are only guidelines. For example, these can’t take into account any strategic or emotional value that either party places on the business.

What is not really relevant to “market value” is any price previously paid by the current owner or further investment, either in cash or kind, for the business. While this may have strategic or emotional value to the seller, it would only be realised if the consequent asking price is less than or equal to the buyer’s view on value. So, if Ms Seppala has the aspiration of recovering sums of (say) £70 million that it is claimed have been invested by Sisu over the past 9 years, the chances of finding a buyer who is willing to pay anything like that price are almost zero, unless there is a mad, billionaire Sky Blues fan that we have not heard of.

 

It has been stated that Sisu have no need to sell Coventry City FC because:

  1. No further cash is being invested and therefore it is not a drain on resources;
  2. Ms Seppala does not want to crystalise the losses in her investment portfolio – ie she does not want to write off the difference between the money that she has paid out from her investors’ funds and the current realistic estimate of what could be achieved from a sale.

Both of these reasons may be true, in fact I’m sure that the first is definitely the case, but the second reason is less convincing. It would be normal practice for the value of investments shown in the accounts of a company to be written down below cost, to the extent that the current value has diminished.

 

There is a third possibility which may be more plausible, that retaining ownership is related to the continuing legal actions that Sisu are taking against Coventry City Council and related parties, including Wasps if Judicial Review 2 should proceed.

 

Ultimately, the reasons are not hugely significant, however interesting it may be to speculate. The fact that reportedly “the club is not for sale” is what concerns us. So let’s examine the potential outcomes in this situation:

 

Fortunes of the team improve and non-playing problems are resolved

 

Well, Russell Slade has brought some hope, it’s true. Some better performances on the field and yet with only two points from a possible nine since he took over from Mark Venus, we lie 23rd in League One. But let’s be positive:

  • the play-offs are not yet entirely out of the question but would take something of a miracle, though such a strong run of form would probably bring about promotion; 
  • climbing the league to mid-table mediocrity is certainly possible and would be an undoubted achievement from this point; 
  • avoidance of relegation is the minimum expected by the end of this season, with positive signs that we have turned the corner and that better is to come next season.

On paper plus the evidence of one match, Slade’s early dealings in the transfer window appear to have been shrewd. The probable exits of young talent such as Ben Stevenson, Cian Harries or Jordan Willis may not be popular but if this enables further signings which bring greater strength and depth to a squad that has struggled since the start of the season, it may be worth the sacrifice.

 

However successful he is with the playing side of the club, the new manager won’t be able to rectify a host of off-field problems that beset Coventry City. The challenges facing the club directors are wide-ranging and are more significant to the long-term future of the Sky Blues than are the fortunes of the team in what remains of this season.

 

In Slade we trust … but Tim Fisher and Mark Venus? Did our Chairman not once say: “Two Turkeys do not an Eagle make”? I have absolutely zero confidence that these two turkeys can put things right and I urge them to do themselves and us a favour by walking away now. I really can’t understand why Tim Fisher is still here, particularly if he gets no reward for his services as he claims. It makes no sense.

 

Whether Coventry City continues under their direction or with new people at the helm, this positive outcome scenario requires the Directors and Owners to resolve many of the following critical problems:

 

  • Secure some land for the new stadium;
  • Save the much-prized Academy before it is lost in June of this year;
  • Persuade Wasps / ACL to extend arrangements for match-day hire at the Ricoh Arena, until such time as the new stadium is operational;
  • Establish effective and honest communication with democratically selected supporter representatives, replacing the former Supporters Consultative Group that failed dismally to live up to its name; 
  • Re-build relationships with key partners in Coventry and Warwickshire, not least the vast number of supporters that have been alienated by Sisu and Tim Fisher; all of the preceding issues are to some extent dependent on this last point.

I believe that a fundamental first step would be for Joy Seppala to drop the legal action that she has been pursuing against Coventry City Council and others. While Sisu are entitled to pursue any valid case, however weak it may be, there is a clear conflict of interest between Seppala’s actions on behalf of her investors and her duty of care as steward of Coventry City Football Club. Based on rulings by the Judiciary thus far, there are only very slim chances of Sisu’s anonymous investors benefitting from this course of action, while the damage caused to the fortunes of CCFC is obvious.

 

Within this scenario there is a range of outcomes and the reaction of supporters is likely to vary in relation to the degree of success achieved, both on and off the field. We are a fickle lot – and I include myself in that description – so while our anger definitely increases when things go badly, most of us have been quite forgiving when we see a bit of success on the pitch. While it may be improbable, if Sisu and those running the club can deliver enough solutions to the off-field threats and Russell Slade achieves a significant improvement in team performances and results, there will be many fans who are prepared to give them yet another chance. Some who have currently deserted may return if things go really well. 

 

On the other hand, there are some of us who have seen too many Sky Blue false dawns with promises made and then broken, who will walk away from the club at the end of this season if Sisu remain, however much is achieved in the next 4 months. To quote one of my favourite Who songs: “We Won’t Get Fooled Again”.

 

Nonetheless, I recognise the potential in these circumstances for Sisu’s ownership to endure and the club to limp on, but I doubt that it will last for long. The evidence of 9 years failure and mediocrity is too strong to counter.

 

CCFC are relegated and other looming crises are not averted

 

A notable feature of the BBC Coventry & Warwickshire Sky Blues Phone-In with Tim Fisher on 16th December 2016 was that caller after caller stated that they would not be renewing their season ticket if Sisu are still in charge. This is something that I am hearing consistently from season ticket holders, in fact I have heard very few state the opposite although I am sure that there will be some who remain doggedly determined to support the team, despite everything. 

There will probably be a range of reactions from departing Season Ticket holders, some walking away altogether, those attending only away games, others buying tickets at the Ricoh on a match by match basis.

 

What is certain is that there will be a massive cashflow crisis for the club caused by a huge drop in season ticket renewals. All football clubs rely on this funding bonanza before each season, in particular playing budgets are linked to income that is guaranteed, because the money is already banked, rather than the uncertain levels of finance that stem from “walk-ups”.

 

Tim Fisher’s response was that he would cut playing budgets further. While his tone made it sound like a petulant threat, in fact I think this was just a statement of reality, he will have no choice but to wield the axe. The bigger question is whether he can cut costs to the same degree as the fall in revenue and can he match cash outgoings to receipts? Coventry City is a club where the infrastructure has already been pared to the bone so the opportunity for further cost reduction is limited in my view.

If Sisu continue with their “Not One Penny More” stance towards investment in the club then there is the distinct possibility of insolvency and a further Administration, with the inevitable consequence of a points deduction. The loan funding provided by Arvo Master Fund is secured on Ryton Training Ground but this asset alone would not cover the £10 million + debt. There would have to be disposals of other assets by the Administrator, although the remaining player contracts, intellectual property and the “Golden Share” entitling the club to play in the Football League are also unlikely to meet the shortfall.

 

This is the one set of circumstances where the existence of a willing buyer may take precedence over whether Sisu are a willing seller, since Sisu would have no choice in the matter. An Administrator would normally try to sell the club as a going concern and as we saw in 2013, Sisu could again try to regain control through another entity. This may be blocked by the EFL in light of Sisu’s disastrous track record of club stewardship but I wouldn’t place great reliance on the EFL, given their shortcomings in tackling our predicament.

 

In these circumstances, would a willing buyer other than Sisu, emerge to buy the club? It certainly seems possible, given the huge potential that is represented by Coventry City FC but there are enormous obstacles. I will share my views on how possible acquirers may emerge, later in this article.

 

I’m not saying that Administration following relegation is either certain or desirable and Sisu may decide to inject additional funds to keep the club afloat. What I do believe is beyond question is that the potential sale value of the club would be further impaired to a significant degree by the financial impact of relegation combined with non-renewal of season tickets.

 

One asset that I didn’t mention in the above analysis is the Academy, because in this scenario it has been lost. Without the talent that has been produced from this facility and the resulting profits from player sales, it is almost impossible to see a sustainable future for Coventry City, whether in League One or Two. Tim Fisher has pointed out the need to sell our young players to cover the shortfalls on day to day operations. In this set of circumstances, Operating Losses will only increase next season and without the Academy to generate exceptional returns from new talent, the future appears exceedingly bleak.

 

The question for Joy Seppala is whether she wishes to gamble on continued ownership, hoping that Russell Slade can turn around on-pitch fortunes and that the serious infrastructure issues can be solved? That would seem to be a big risk for any rational investor to take, so my considered advice to Ms Seppala is to put the club up for sale before any residual sale value is effectively reduced to rock bottom.

 

Sisu state that they are prepared to sell

 

For this situation we assume willingness by Joy Seppala to sell at a realistic price with conditions that would be acceptable to a rational willing buyer.

 

No willing buyer emerges

 

It is far from certain that a suitable buyer would come forward. Suitability is not just a matter of a buyer with deep enough pockets to meet the asking price. 

 

In most business acquisitions, one critical test that will be applied by the buyer in the final stages of due diligence is regarding customer reaction to a change of ownership. While many would say that any new owner has to be better than the current custodian, supporters have learnt hard lessons from the Sisu ownership. (Can you hear that Who song again?) We will be looking for assurances that recent history will not be repeated, that there is the ability to keep CCFC afloat and re-build its fortunes in the medium term. This requires a robust and convincing business plan with the availability of funding to ensure that it is delivered, plus a genuine commitment to the Sky Blues which puts the interests of supporters first.

 

Any rational acquirer ought to seek assurance that their bid has the backing of supporters. They would also have to consider what they would get in terms of a tangible asset base. This is hardly an attractive proposition with no ground, the Academy under threat, the clock ticking on the temporary arrangements for day-hire of the Ricoh Arena, relationships with key partners and supporters (customers) in tatters etc.

 

While Coventry City should have enormous potential under fit and proper ownership, the challenges facing any new owner in delivering that potential would be daunting and may deter anyone from completing an acquisition.

 

However, if Sisu put the club up for sale and no credible buyer steps forward, we will all know where we stand. The fans will have to accept that we either have to put up with Sisu or walkaway. Sisu will realise that their investment has zero sale value as a going concern, so they either have to take steps to correct matters or liquidate the remaining assets.

 

The longer Ms Seppala waits before putting the club up for sale, the worse matters are likely to become and the lower the chances of finding an exit. This is not just a problem for Sisu, it is an impending disaster for supporters. Therefore, when some fans say that protests should be put on hold and we should just get behind the team in the fight against relegation, my answer is that we have to keep the pressure on and hope to shift Sisu from their intransigent position before it is too late. 

 

Protesting is not in conflict with supporting the team. The same sections of fans who are the most vocal in chanting “We Want Sisu Out” are also those who make the most noise in cheering on the team. I normally sit in Block 16 and anti-Sisu chants / pro-team songs are taken up loudly in that corner. My rare visits to other parts of the ground indicate that antipathy towards our owners is less obvious but then there is also less energy spent in “getting behind the team”. The Jimmy Hill Way campaign will always encourage everyone to get behind the team as well as protesting …. until we no longer have a club worthy of support.

 

While we wish the team every success and will continue to support them in achieving the required results, we are also conscious that our club is moving further into the crisis created by our unfit owners. The next 4 months are crucial for the team’s survival in League One, but even more vital for the very existence of Coventry City Football Club as a whole.

 

One or more willing buyer steps forward

 

To recap the requirements for a credible purchaser, they should:

 

  • Have the financial capability to deliver on the agreed price;
  • Additional availability of funds to ensure delivery of a robust and convincing plan to keep CCFC afloat and re-build its fortunes;
  • Be acceptable in other respect to supporters and other key business partners.

The most likely people to meet these criteria will be genuine Sky Blues fans. It is entirely possible that a collective fan ownership scheme could be launched to acquire the club. For example, 2,000 supporters subscribing £1,000 each per share via a Community Share issue would raise £2 million. (Shares could be sub-divided between friends and family, so it could be 2,000 individuals and/or small groups.)

 

My view is that this would not of itself be sufficient to complete an acquisition and provide the further funds necessary to take CCFC forward. However, if this was combined with subscriptions from a number of wealthy individuals with an affinity for Coventry City, that could match the funds raised by the collective scheme, the prospect of success becomes far greater.

 

This idea is not new. The supporter-led acquisition of Portsmouth FC was achieved by such a combination. In that case, the High Net Worth individuals were identified at an early stage of the process and joined by the Supporters Trust which raised funds into a collective scheme.

 

For Coventry City, I expect that the process would have to be modified. A Community Share Issue would need to be launched that would be entirely conditional on a minimum level of total subscriptions which would hopefully encourage a number of wealthy supporters to commit an equivalent amount. Only if there are sufficient pledges to enable success would any bid proceed. In the meantime, supporter contributions would be 100% safeguarded.

 

To be clear, I do not imagine football supporters running a football club, unless they have the required professional credentials. Part of the acquisition process would involve employing people with the right experience and ability to deliver success across the whole spectrum of club management.

 

I do not underestimate the difficulties of delivering a supporter-led acquisition, even assuming that Joy Seppala is prepared to take a pragmatic view of price and terms. It would be easier if potential wealthy partners were readily identifiable but understandably, they are unlikely to stick their heads above the parapet at the moment. But I am convinced that it is not beyond the realms of possibility and may be the only viable option that supporters have to save our club.

 

If Portsmouth fans can do it, why not Sky Blues fans?

 

Again, the longer that Sisu wait until making a decision to sell, the less appetite there is likely to be amongst supporters to invest, as the value to a buyer of Coventry City will rapidly depreciate if off-field issues persist and Russell Slade is unable to deliver on-field success.

There is another possibility. The emergence of a serious attempt by supporters to purchase the club could flush out an individual or group with the financial clout to buy the club outright. In those circumstances, the points made earlier about the suitability of the buyer are relevant for both supporters and the potential investor. Any shrewd purchaser would probably wish to turn a competitor in the bidding process into an ally, certainly they would not want to make enemies of their customers. A harmonious relationship could be achieved by offering supporters a stake in the operation of the club without the need for financial participation.

 

Whoever may come in as new owners, if they pass they suitability tests, they stand a far greater chance than Sisu of solving problems such as the Academy and extended arrangements at the Ricoh, for the simple reason that they don’t have the poor history of broken relationships in the City. 

 

I expect that Wasps, Coventry Sports Foundation, local politicians etc would take great steps to help make the new ownership work. The City of Coventry will benefit enormously from a resurgent Coventry City but time is running out fast for that to be a reality. 

 

And in my view, this can never happen while Sisu remain.

 

 

The Author

 

David Johnson qualified as a Chartered Accountant in 1979 with Daffern & Co, Coventry. Most of his subsequent career has been at Board level in the manufacturing industry and features considerable activity on business acquisitions and disposals, with 5 years serving as Chairman of a highly successful £150 million turnover business.

 

A Sky Blues fan for over 40 years and an active member of the Sky Blues Trust, David is currently the spokesperson for the Jimmy Hill Way Campaign.

 

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