What Does The Future Hold? : Part 1

Last week I wrote a piece suggesting that some of the recent goings on and rumours about Coventry City could indicate its owners, SISU, may be looking to get the club off their investment portfolio at the first available opportunity. But how might they do that?

Being a Sky Blues fan, I have a tendency to think worst case scenario first, and in this case that would have to be SISU choosing to liquidate the club. But if SISU did that they’d lose their investment – why would it be in their interests?

We have to remember that SISU don’t invest their own money, they invest other peoples, who give them strict criteria and desired returns. SISU would probably love to provide a massive war chest to improve the squad, get promotion and buy the stadium, but if no-one is willing to give them the cash they can’t. At the moment it appears every penny they can raise is being used to cover the Sky Blues’ £4m a year losses, and that won’t last forever. After two seasons of finishing in the lower bottom half and attendances falling as a result, City are again currently falling down the table and looking increasing unlikely to gain promotion this season (or worse still, may be relegated). A lot of SISU’s investors may well be getting twitchy and asking for their money back.

The transfer of Conor Thomas is one such instance which doesn’t bode well for the club finances. £1m for an untested 17 year old may seem a lot, but when you consider Southampton may be selling a 17 year old with around half a season of experience in League 1 for £10m or more, it doesn’t seem such a great deal. Southampton sold Theo Walcott for a similar fee when he was pretty inexperienced too.

SISU are investors – they speculate to accumulate. They don’t sell to the first bid that comes in if it has a chance of being worth more later. The fact Liverpool (and other top clubs according to rumours) are interested and our own youth and first team coaches rate Thomas so highly suggests he’s got a very good chance of being worth a lot more in the future.

Which either means SISU think they know better than all these coaches and £1m is as much as Thomas will ever be worth, or they’re forced into selling because the cupboard’s bare.

Let’s also not forget that SISU are essentially venture capitalists – not the most sentimental or forgiving of business people. They’re essentially Dragon’s who care about the bottom line and nothing else. They don’t care it’s a football club with a community aspect and fans. Make us money or “I’m out”.

Obviously SISU would only liquidate CCFC as a last resort because they’d lose a LOT of money.  But part of being a hedge fund is having fingers in a huge variety of pies, and sometimes you slip a finger into the wrong pie and get burnt. The art is knowing when you've put your finger in the wrong pie and pulling it out again before it does any serious damage.

SISU could carry on covering the Sky Blues’ running costs for the foreseeable future, but this would just eat further into the funds and reduce the return on the investment. Even fewer investors would want to put their money in and SISU would eventually run out of money to even cover the basics. They could end up with a £50m or £60m loss instead of £40m.

If they no longer think they can turn the club around, it’s better for them to just pull out now and minimise the loss to themselves and their investors than wait for it to get bigger. They could essentially asset strip the club by selling whatever’s left (a few players and the training ground) and pocket the cash against their losses - it wouldn’t come close to covering what they’ve put in but at least they’d get something back.

If the club had to be shut down then so be it – SISU’s interests will always come first.