Coventry did not buy success

Warwickshire is covered by what looks like clag off the North Sea this morning, but it may clear later to reveal increasing patches of blue sky, offering an analogy to Coventry City’s revival.

I was being driven through the Black Country on Saturday listening to the FA Cup match and an obvious Wolves supporter in a car in front pumped the air when they scored.   The Sky Blues, of course, went on to win a trip to Wembley.   The score was 2-1 when my partner's daughter popped into Aldi to buy some flowers and 2-3 when she came out.

The 2022/23 were the final accounts of Coventry’s previous owners, after local businessman King took ownership of the club in January 2023, initially through the acquisition of an 85% stake and then buying the remaining 15%.

The previous owners, London-based hedge fund SISU Capital, had saved the club from administration in 2007, but came under fire from many supporters for their penny pinching approach in subsequent years.

During their tenure, Coventry dropped down to League Two in 2017, but since then they have steadily recovered under manager Mark Robins. This success has been achieved on a very low budget, as will be seen by a review of their latest accounts.

In 2022/23 Coventry’s pre-tax loss reduced from £7.0m to £4.9m, though this was largely thanks to a £3.0m exceptional tax write-off.   That said, there was good growth in both revenue, up £2.3m (13%) from £18.1m to £20.4m, and profit from player sales, up £1.9m from £0.5m to £2.4m.  This was offset by operating expenses increasing £4.1m (17%) from £23.8m to £27.9m. Net interest payable was unchanged at £2.4m.

Reaching the play-off final helped drive the increase in Coventry’s revenue, especially match day, which rose £2.9m (68%) from £4.3m to £7.2m. Broadcasting was also slightly higher, up £0.2m (3%) to £9.0m, though commercial dropped £0.8m (17%) from £5.0m to £4.2m.

Although losing money is clearly not ideal, Coventry’s £4.9m loss is actually the second best financial result of the 12 Championship clubs that have to date published 2022/23 accounts, so they cannot be accused of buying success.

Playersales

Coventry benefited from higher profit from player sales, which increased from only £0.5m to £2.4m, largely due to the sale of Dom Hyam to Blackburn Rovers.  Nevertheless, this was still firmly in the bottom half of the Championship, miles below the likes of Watford £59m, Middlesbrough £22m and Stoke City £15m. As a rule, few clubs in this division make big money from player trading, the exceptions usually being those that have just been relegated from the Premier League, which is another benefit such clubs enjoy on top of parachute payments.

Coventry have not made much money from player sales, as these have generated only £20m in the last decade. The best performance in this period was just £4.4m in 2018/19.  However, this will be blown out of the water this season, following the big money sales of Gustavo Hamer to Sheffield United and Viktor Gyökeres to Sporting (though Coventry had to pay a sell-on fee to the Swedish striker’s former club, Brighton).

Coventry have only reported a profit once in the last 10 years – and that was just £13k in 2019. That said, they have managed to keep the losses relatively small thanks to their conservative model, averaging around £3m a season since 2015.

Following last season’s increase, Coventry’s revenue has more than tripled from the pre-pandemic £6.3m in 2018/19 to £20.4m, obviously boosted by the promotion from League One, where revenue was as low as £3.8m in 2013/14.   Broadcasting is the most important revenue stream, contributing 44% of total revenue, followed by match day 35% and commercial 20%.

Following this steep growth, Coventry’s £20.4m revenue was around mid-table in the Championship, which highlights how well they did to reach the play-off final.  This is miles below clubs recently relegated from the Premier League, who were in receipt of parachute payments, e.g. Norwich City £76m and Watford £66m had more than three times as much.  It’s also worth noting that Coventry’s revenue is a lot less than some other clubs without parachutes, e.g. Bristol City £37m and Stoke City £31m last season.

Coventry’s average attendance increased from 19,541 to 19,950 last season, which is nearly three times as much as 6,677 three years ago, largely due to the club returning to Coventry instead of having to play games at St Andrews in Birmingham.

Punching above their weight

Coventry’s wage bill rose £2.8m (18%) from £15.7m to £18.5m, which means that wages have nearly tripled from £6.5m three years ago in League One. This was a new club record, overtaking £16.7m in the Premier League in 2000/01.

Even after this growth, Coventry’s 18.5m wage bill was still among the lowest in the Championship. In fact, to date only one club has a smaller wage bill in 2022/23, namely Rotherham United £10.3m. It is clear that Coventry have been punching well above their weight, especially if we consider the clubs benefiting from parachute payments, e.g. Norwich City £56m, Watford £49m and Sheffield United £48m.

Coventry only spent £1.8m on player purchases in 2022/23, which was again very low for the Championship, a long way below Norwich City £15m, Middlesbrough £12m and Watford £11m.  Surprisingly, Coventry’s gross transfer spend has dropped two years in a row, so they have averaged less than £3m since promotion from League One.

When King acquired the club, he converted the £26m of debt owed to the previous owners (Arvo £20m and SISU £6m) into equity. He also confirmed that future funding would be free of interest, which means that Coventry will avoid significant interest and management charges.  Following the debt to equity conversion, Coventry now have one of the smallest debts in the Championship, far below the likes of Blackburn Rovers £163m and Middlesbrough £159m

King’s £6m funding last season is more than the previous eight years put together. Almost all of the previous owners’ funding in the last decade came in 2013 and 2014 with only £3m after that – and nothing at all in the last two years of their tenure.  Therefore, Coventry’s owner funding was extremely low compared to other clubs in the Championship. In the five years up to 2022, other owners provided significantly more, e.g. Fulham £479m, Middlesbrough £170m and Reading £144m, albeit with varying degrees of success.

As the accounts stated, King’s arrival has “significantly improved the long term financial strength and sustainability of the club.”  Indeed, the new owner is clearly cut from a different cloth to the previous owners with far higher aspirations.

I can well remember the excitement locally when Coventry won the FA Cup.   Perhaps their prize this year will be promotion.