Additionally, it was reported that Allvey believed ACL should force the Sky Blues to pay full rent under the terms of their existing contract.
Coventry City Council leader John Mutton confirmed at the time that there had been disagreements concerning ACL’s ongoing failure to make expected profits from commercial activities and warned that ACL profits were likely to be ‘very small’ that year.
ACL’s accounts for the year up to 31 May 2011 showed a profit of just £470,000 – ahead of the withdrawal of the club’s £1.3m annual rent.
Coun Mutton also warned that lowering the £100,000-a-month rent to the relegated Sky Blues would plunge ACL into the red – although senior ACL figures disputed this at the time.
A statement released by ACL at the time of David Allvey’s resignation said the chairman planned to retire after six years with the company.
It read: ‘David has decided it would be best to take the opportunity to leave now because a difference of opinion has emerged between him and the shareholders over future strategy.’
David Allvey said: ‘I wish the company every success on the next stage of its development and am sure the Ricoh Arena will continue to thrive as a premier destination venue for the benefit of Coventry and beyond.’
Speaking after news of David Allvey’s resignation had broken, Cllr Mutton said: ‘I am aware there are one or two differences of opinion over a strategy for how to maximise use of the Ricoh Arena. The difference of opinion is not between the two shareholders, the council and the Higgs charity.
‘The Ricoh is only achieving 50 per cent of its potential. Profits again this year are going to be very small.
‘ACL hasn’t been able to attract developers to build hotels nearby. That’s costing us £2m in conference facilities a year.
‘The one thing potential conference investors always tell is we’ve only got 70-odd bedroom spaces and there are no hotels nearby.
‘If there is an attempt to lower rent for the football club, it could mean putting ACL into a non-profit making position.
‘Someone has got to take ACL forward. It can’t stay static. It’s not a criticism of anyone, or any of the staff. It’s the reality of life.
‘I know they are working hard to attract other events to the Ricoh. They keep putting bids in, but things are being turned down, although not everything by any means.’’
Oddly, this period of chaos behind the scenes coincided with arguably the most impressive period in the Ricoh Arena’s history.
In June 2012, ACL handed over the keys to the Ricoh Arena to the London Organising Committee for the Olympic and Paralympic Games.
A total of 12 Olympic football matches would be played at the stadium, briefly renamed the City Of Coventry Stadium – with an unfortunate acronym of COCS – over eight days in the summer.
Daniel Gidney, chief executive of ACL, said: ‘This will be a really proud moment in our history and we are honoured to be the only Midlands venue to have been chosen to host an Olympic event in any sport or discipline.’
And it certainly was a proud moment as thousands of supporters travelled from across the globe to see Olympic sport played in Coventry.
It also provided a much-needed to boost to ACL’s coffers. The 2012/13 accounts showed turnover doubled for the period thanks largely to the Olympics, although profit margins still struggled, with the firm recording profit of just £775,465, which was actually down from £1.09m in the previous year.
The Olympic Games may have helped the stadium firm in the short term – but, as Mark Labovitch said on more than one occasion, when trying to underline the fragile state of ACL’s finances ‘you can’t have an Olympic Games every year’.
Perhaps sensing the uncertain times ahead, and having just delivered the biggest event in the Ricoh Arena’s history, Daniel Gidney left his role as ACL’s chief executive shortly after London 2012.
He became the second high-profile figure to quit the firm following the resignation of chairman David Allvey.
During this period, I was still working for a PR firm in Coventry and, as well as undertaking work for CCFC, my then employers also served the Ricoh Arena and Yorkshire Bank – as well as performing ad hoc work for the council and the Higgs Charity. It was a difficult position but one which provided enormous insight into what was going on behind the scenes.
Daniel Gidney left in October to take up the position of chief executive at Lancashire County Cricket Club.
There was obvious tension between ACL and club officials during this time – as demonstrated by the resignation of David Allvey. The football club and ACL were also sharing office space, which was far from ideal in such a toxic environment.
Antagonism was rife, with one such example being the removal of free parking for all club employees after rent payments were missed. ACL officials ordered all the parking validation machines to be confiscated from the club’s offices, a seemingly petty and unhelpful move for the sake of scoring a few points and saving a relatively small amount of money.
Back on the stadium ownership front, discussions had reached the stage where Sisu and the charity were able to agree indicative terms for the charity’s 50 per cent share in ACL. The heads of terms agreement was recorded in a document dated 18 June 2012.
This term sheet outlined a proposed deal which would see Sisu, or another Sisu group company, purchase the charity’s 50 per cent interest in ACL for a total cash consideration of £1.5m, payable immediately upon completion of the share purchase.
Following completion, it was envisaged that further payments would follow over a period of ten years. Sisu suggested this would work by giving the charity a stake in ACL to the value of £4m, which would be paid down through annual payments over the ten-year period.
This looked like a great deal for all concerned. The charity would cash in on its share, the club would get a reduced rent (it was hoping for around £200,000 per annum), the council would get increased revenues as AEG, which runs the former Millennium Dome in London, would be brought in to help operate the stadium. There were, of course, a lot of ifs and buts, the main one being the charity getting a fair price for its share.
But the plan was not set in stone.
The term sheet contained a statement that read: ‘Sisu would consider an alternative structure to that of preferred equity.
‘The parties will work together to achieve a solution in respect of suitable alternatives.’
The indicative ‘heads of terms’ agreement also granted Sisu a period of 30 days to complete ‘due diligence’ (financial investigations) and ensure everything was in order and that the Ricoh Arena business was in a satisfactory condition. Four conditions had to be met before the deal could be rubber-stamped.
The first was that Sisu would strike a deal with Yorkshire Bank to pay off ACL’s loan.
The second condition depended on favourable advice being given by the charity’s advisers about the terms of the deal. The third depended on approval of the deal by the Charity Commission and the fourth condition on approval of the transaction by Coventry City Council, which had the right to veto any deal for the charity’s shares.
No specific target date for completion of the deal was agreed, other than all parties would work to get it over the line ‘as soon as possible’.
The heads of terms document added: ‘This offer [meaning the offer made by Sisu to purchase shares] is non-binding and subject to due diligence.’
But the exclusivity period expired on 31 July 2012 without any share purchase agreement being concluded. Neither was there any agreement to extend the exclusivity period. The deal appeared to be off.
An e-mail from Higgs Charity clerk Peter Knatchbull- Hugessen sent to Laura Deering of Sisu, which became public, responded to a request from the club’s owners to extend the exclusivity period. It all but confirmed the charity believed the talks had failed over a perceived lack of security and it stated that the charity wanted to remain open to other approaches for their shares.
> It read: ‘The Trustees have seen no progress towards a transaction with Sisu. For the transaction to move forward, you will recall, there was work needed to provide better security for any annuity stream that might be agreed.
‘The Trustees have seen no evidence that any thought has been given to this fundamental matter. Had they had any proposal to overcome this hurdle, they would now consider an extension of the period of exclusivity.
‘The Trustees wish to remain open to other approaches, should they be made, as there is little evidence that the period of exclusivity has been used to any effect.’
But why? What had gone so dreadfully wrong in the space of six weeks that ultimately led to all sides walking away from the deal? The negotiations became the subject of a High Court hearing in Birmingham in April 2014, which provided valuable insight into exactly what went on. I sat through it all for three days, and it was actually refreshing to have some facts presented by a highly qualified judge without the usual ambiguity I had to contend with on a daily basis.
The hearing came about as a result of the Higgs Charity claiming Sisu owed them £29,000 as a result of these failed negotiations – in order to cover their costs. They were ultimately unsuccessful after Mr Justice Leggatt ruled that ‘neither party had any appetite to seek to pursue any negotiations based on the term sheet to attempt to conclude such a deal’ after August 2012.
Sisu, seemingly somewhat put out by the suggestion that they should cover the charity’s costs for the failed negotiations, launched a counter-claim for £290,000.
The judge threw this counter-claim out on the first day of the three-day hearing, branding it ‘hopeless’. During the hearing, Sisu’s own barrister, Rhodri Thompson admitted there was an element of ‘tit-for-tat’ in Sisu’s counter-claim.
Barrister John Brennan, representing the charity, said the counter-claim was disproportionate.
He said: ‘The counter-claim is based on a case which has no prospect of success. This counter-claim is not to pick up a shield, but to wield a sword.’
Judge Leggatt evidently agreed and, during the hearing, questioned the value of Sisu’s claim and the timing.
He said: ‘Where he has limited his claim to £29,000, it seems the sky is the limit for you. Negotiations seem, for the most part, to have failed... they had effectively come to an end.
‘Then, months down the line, when a new transaction comes in, it seems to trigger a costs payment. It doesn’t seem obvious why to me.’
But back to the talks and why they broke down. You won’t be surprised to learn that both sides didn’t see eye to eye on that.
Sisu insisted a later deal, which involved the council taking over the Yorkshire Bank loan to ACL, killed off any hope of a deal with the Higgs Charity.
But the judge dismissed this argument, insisting that talks between the Higgs Charity and Sisu had fallen away months before the council struck a deal with ACL and Yorkshire Bank.
Mr Leggatt said: ‘The negotiations ceased by mutual consent or acquiescence as a result of a number of irreconcilable differences.’
The High Court judge decided that the first of those ‘irreconcilable differences’ was that Sisu no longer wished to pay as much as they had originally suggested after deciding the shares were not worth that much.
Secondly, the charity’s trustees had concerns over a lack of security for the £4.5m of payments which had been promised over the next ten years – and Sisu were not prepared to offer any.
Finally, the judge decided that the charity was not seriously interested in pursuing the £5.5m deal in the original term sheet after August 2012 because they knew that the council was not prepared to consent to it, and was pursuing an alternative strategy which they supported.
Sisu were clearly angry about that alternative deal being discussed between the charity and the council.
The legal team representing the club’s owners levelled some strong allegations against the conduct of the charity’s trustees as they labelled the deal discussed with the council ‘secret and perverse’.
But Mr Leggatt came to the defence of the charity in his judgment.
He said: ‘The criticisms made of the Trustees by Sisu as to the propriety of their conduct in December [2012] and January [2013] and the arguments made about them undermining the bargain by their actions at that time are misplaced, and it is unfortunate that allegations were made in some of the pejorative terms which have been used by Sisu in these proceedings.
‘There was no warrant for those allegations.’
It was also difficult to take Sisu’s complaint seriously when the court also heard they used property firm CBRE to approach Yorkshire Bank behind the backs of the council and the charity at around the same time.
However, there could be little doubt that key figures within the council were far from Sisu’s biggest fans and they were clearly opposed to a deal for the charity’s shares towards the end of negotiations. In August 2012, an internal memorandum from Chris West, the head of legal and finance at Coventry City Council, was sent to Martin Reeves, the council’s chief executive.
In that memorandum, it was made clear that there was opposition within the council to any deal being done with Sisu. They also talked about the alternative scheme, which we will cover in the next chapter.
Moving on for now, the value of the charity’s shares in ACL was clearly a bone of contention.
The charity and Sisu signed an outline agreement for the half-share in ACL for £1.5m up front and £4m in shares in the stadium company, which it could cash in at a later date.
But after looking at the books, Sisu said they actually believed the share was worthless. Yet, bizarrely, in separate informal discussions later in the year, they still said they would be willing to pay close to £2m for it.
However, the parties were clearly poles apart. One document read out in court demonstated that the Higgs Charity trustees valued the charity’s shares in ACL at closer to £7.5m – so in their eyes £5.5m was already a big discount. There was also clearly the desire to see a return on the charity’s original £6.5m investment when it purchased the shares in 2003.
The £2m figure emerged as the court heard evidence that the charity also pursued an alternative deal for Sisu to purchase the Higgs share in ACL away from negotiations about Sisu taking on ACL’s debt from Yorkshire Bank.
Higgs Charity trustee Paul Harris was the one who initially gave evidence suggesting this offer was in the region of £2m.
Two communications between Paul Harris and Sisu (or the club on Sisu’s behalf) in October and November 2012 gave some insight into how serious those discussions actually were.
In October, Paul Harris had a breakfast meeting with Joy Seppala when she stated that Sisu remained interested in acquiring the charity’s interest in ACL but, given the due diligence on ACL, she said that the figure was likely to be closer to £2m rather than the £5.5m figure in the indicative term sheet.
Paul Harris responded that he was sure the trustees would not be interested in such a transaction, even if the offer was in cash.
From that point on, he had no further direct discussion with Joy Seppala.
However, on 10 November 2012, he received three text messages from Tim Fisher, asking him whether he had spoken further to Joy Seppala.
In the third of those messages, Tim Fisher said: ‘I was clear that you would sit on the position if the price was not right. Equally, Joy is clear that although equity is worth zero, there is a price to pay. Horse trading now.’
Paul Harris did not respond to that text message. When asked in court about the position at that time, Paul Harris said that from his point of view, and that of the trustees, there was at this stage no longer any reasonable prospect of a deal being done.
Laura Deering, an adviser to Sisu boss Joy Seppala, confirmed the £2m figure and told the court the offer was significantly less than the £5.5m due to the increased risk to Sisu and because the charity wanted ‘cash up front’.
&
nbsp; Under questioning from Higgs’ barrister Paul Brennan, Laura Deering said: ‘Mr Harris had asked for a deal to be done with the charity apart from the deal with the council and the bank debt.
‘The reduction in the purchase price was because of the risk we would be taking on. We would effectively be buying the Higgs Charity share away from the moving parts.
‘Mr Harris suggested that cash could be paid up front apart from the other transaction.
‘She [Joy Seppala] recognised that the company [ACL] was worth nothing.’
Asked by Paul Brennan why Joy Seppala was willing to pay £2m for a share that they thought was worth nothing, Ms Deering said: ‘She recognised they were a charity.’
Paul Brennan asked if Joy Seppala could be considered ‘a sentimental person’ and pushed for more details as to why she would be willing to pay a seven-figure sum for something she thought was worthless.
Laura Deering added: ‘She recognised the value of what the charity had given.’
She also said that, while the charity had no legal obligation to continue negotiations with Sisu in good faith, it had a moral obligation to do so due to the fact the company had continued to fund Coventry City on the basis of a deal being done.
This was an important point from Sisu’s perspective because the owners claimed the club was close to liquidation in 2012 and they saw a reduced rent and stadium ownership deal as a possible way of avoiding winding the business up.
Chief executive Tim Fisher is quoted in Sisu’s legal documents as saying that the club would file for insolvency if a stadium deal wasn’t reached.
It was clear the club was struggling and most people can agree the £1.3m rent was way too high for a club in Coventry City’s predicament.
The club claimed average rents in League One were less than £170,000-a-year in 2012 and less than £290,000 in the Championship. It also claimed all other clubs which rent their stadia get full access to 100 per cent of matchday food, beverage and car parking revenues, unlike Coventry [thanks to their lease arrangement with ACL].
Coventry City Page 9