Coventry City accounts qualified

The accounts of Coventry City Football Club (Holdings) Limited have been qualified by the auditors.  They note that ‘the existence of a material uncertainity which may vast significant doubt on the company’s ability to continue as a going concern.’    This is a relatively unusual event for a football club.

The accounts of Coventry City Football Club (Holdings) Limited have been qualified by the auditors.  They note that ‘the existence of a material uncertainity which may vast significant doubt on the company’s ability to continue as a going concern.’    This is a relatively unusual event for a football club.


The end of year balance sheet shows net current liabilties of £39,176,891 and net liabilities of £38,048,950.   The notes to the accounts accept the existence of a material uncertainty, but the group is confident that it can continue in business for at least next season.


Looking at the business review, the directors are in essence saying that the task in the last season was to avoid relegation.  The aim is to become ‘established as a successful top half of the Championship team with the potential to reach the play-offs and the Premier League.’  In other words, be play off contenders.


But will this be enough to get fans through the gates which is important to the club’s financial success given that it does not own the Ricoh stadium?   The old ground had many problems, but it generated a good atmosphere which is more difficult at a far from full Ricoh.   I know of a few fans who switched their allegiance to the Coventry Blaze ice hockey team (who admittedly have also not had a good season).


Revenue from commercial activities declined from just under £2m in 2009 to £1.66m in 2010.  Turnover was also down, although this ‘is purely a lower level of management charge to Coventry City Football Club’ by Coventry City Football Club (Holdings) Limited.   An additional provision of £83,851 had to be made available to cover a shortfall in the pension fund.   No director participated in a defined pension contribution scheme or the Football League scheme.    However, £228,125 was paid to third parties in respect of directors’ services, a similar amount to the preceding year.


The auditors noted, ‘The directors of the ultimate parent company, Sky Blue Sports & Leisure Limited, are currently in active negotiations to secure the finance required by the group and company, including additional debt and equity finance.   Until additional finance can be secured the company is dependent upon the directors securing other sources of short term finance to meet its liabilities as they fall due.’


As the company is a wholly owned subsidiary of Sky Blue Sports & Leisure Limited, the company has taken advantage of the exemption contained in FRS 8 and has therefore not disclosed transactions or balances with entities which form part of the group.


The directors comment in notes to the accounts that it is expected that positive cash flows will be generated from the sale of players.   They continue, ‘The group also has detailed plans to dispose of non-core trading assets [assumed to be a reference to the training ground at Ryton] and to raise additional debt and equity capital finance.’


However, they warn, ‘There is no guarantee that the fundraising will be successful and this in fact indicates the existence of a material uncertainty which may cast significant doubt upon the group’s ability to continue as a going concern and it may therefore be able to realise assets and discharge liabilities in the ordinary course of business.’    They add ‘The timing of specific cash flows may be uncertain’ which could be interpreted as possibly running out of money from time to time.


As a club Coventry face particular challenges, reflected in this post from a Sky Blues fan.   The best way forward would be for the club to secure at least a partial stake in the Ricoh which would make it more attractive to potential investors.


However, this comes close to being a Catch 22.  Without the Ricoh, it is difficult to attract investors, but until there is a stake in the Ricoh, investors will not be attracted.