Insights

Coventry City F.C: Sky Blue's horizon grey after being stung in failed stadium negotiations

4/07/2019

Coventry City F.C. supporters will have to travel 22 miles to watch their team's home games next season at Birmingham City's St. Andrews Stadium. CCFC had hoped to play their football at the Ricoh Arena, the stadium built for them in 2005, but failed to reach a deal with their landlord's Wasps Rugby Club due to continued disagreements.

The disagreements stem from Coventry City Council's sale of the Ricoh Arena to Wasps in 2014, which CCFC's owners SISU claim was undervalued by £28 million. SISU sought a judicial review of the sale which reached the Supreme Court in April but was dismissed. SISU therefore appealed to the European Commission asking them to investigate whether the deal broke state-aid rules.

The appeal to the European Commission angered Wasps who had previously agreed to open negotiations on CCFC's continued tenure of the Ricoh Arena on the basis CCFC ceased all legal action relating to Wasps' acquisition of the Ricoh Arena. Wasps' chief executive Nick Eastwood stated in May,

"we entered such discussions in good faith, based on that principle. However, we have now been made aware of this complaint to the EU Commission and understand that it was filed in February, well before the discussions set out above were commenced… Regrettably, this means that the condition set out above for us to enter or continue discussions with CCFC has not been met. The ball is therefore back in the court of CCFC's owners".

This month, SISU stated they had signed a legal undertaking in April to "irrevocably cease all proceedings against Wasps relating to the sale and lease of the Ricoh Arena" but then refused to sign a further agreement demanded by Wasps, claiming the conditions it imposed would unreasonably restrict CCFC's and SISU's basic legal rights and would commit them to underwrite Wasps' costs and future damages. This led the negotiations to break down.  In a club statement, CCFC said,

"in order for a deal to be agreed between landlord and tenant, the conditions for the deal need to be deliverable by the tenant. What the landlord requested of CCFC's owners and ultimately, the club, was simply not deliverable".

With no stadium for the 2019-20 season, CCFC faced expulsion from the EFL. They therefore turned to their neighbours Birmingham City FC who agreed to a ground-share of St. Andrews. Despite previously stating CCFC should find a stadium within Coventry, the EFL consented to the ground-share but expressed in a statement the decision had not been taken lightly and it "was regrettable that the parties involved have been unable to find a suitable and sensible solution". They went on to highlight a solution within CCFC's hometown should be found at the earliest convenience for the benefit of the City of Coventry, the club and the local people.

This sentiment was shared by Wasps who called the circumstances damaging to the city as a whole and highlighted they were prepared to re-open negotiations of the Sky Blue's occupation at the Ricoh Arena if CCFC's owners dropped their case at the European Commission. 

Comment

This case highlights the power of landlords in commercial negotiations.

Wasps were understandably worried about the outcome of a judicial review and now the decision of the European Commission, even though they are not directly involved in the proceedings. This is because, following a successful judicial review, the Court has discretion to grant remedies which could have harmed Wasps, such as a quashing order overturning the sale of the Ricoh Arena to them. An examination by the European Commission has the potential to lead to similar outcomes.

This is an issue for Wasps because the Ricoh Arena is likely now worth more than they paid in 2014, meaning the sale being overturned would leave them out of pocket. As such, they are keen all proceedings relating to the sale are dropped.

Further, if SISU's claim that Wasps asked them to sign a further agreement requiring CCFC and SISU to underwrite Wasps' costs and future damages is correct; this was likely designed to protect Wasps in such a situation where the European Commission found in SISU's favour and the remedy imposed negatively affected Wasps. Such an agreement is onerous on CCFC but with Wasps being their landlord, and therefore having the ability to prevent CCFC playing at their 'natural home', they are in a strong negotiating position.

The case also emphasises the danger of an aggressive litigation strategy. The chairman of CCFC, Tim Fisher, stated in 2013 "SISU is a distressed debt fund and therefore batters people in court". However, SISU's grievances over the Ricoh Arena have been dismissed by every level of English court, including the highest court in land, the Supreme Court. In the process, SISU have alienated both Wasps and Coventry City Council and CCFC now find themselves homeless. Should SISU have faced the commercial reality earlier and accepted this was not a fight they could not win?

This links to the issue faced by football clubs throughout England; the football club's interests often do not align with their owners' interests. There is a strong argument that CCFC would have benefited more from playing at the Ricoh Arena in 2019/20, even in the event the European Commission find in SISU's favour. This is because CCFC will likely suffer a drop in attendances to their home games, both because of the added distance to travel for fans and because fans may refuse to attend in protest. This will mean less revenue for CCFC, who are already cash strapped with their parent company recording an operational loss of more than £1.5m in the year up to 31 May 2018. Such a drop in attendances would be reminiscent of CCFC's 2013/14 season when they played their home games at Northampton's Sixfields stadium; only 1,697 fans were at the win over Stevenage in March 2014. Some fans also fear the turmoil CCFC face may put off potential player recruits, leading to a weakened squad.