Auditors have raised doubts over the finances of struggling football club Coventry City after it revealed growing losses.
The Sky Blues were relegated to the third flight of English football last year and saw losses grow to £6.7 million last year, compared to £3.1 million in 2010.
The club’s perilous financial position – which recently saw a transfer embargo forced upon it, similar to that imposed on Birmingham City – led auditors of its latest accounts to add an emphasis of matter – a note attached to the accounts to reveal concerns about parts of the statement.
Auditors from BDO said there was a “fundamental uncertainty” over a series of key issues.
They are concerned about a host of issues including falling revenue following demotion to League One, ongoing talks to reduce rent costs at the Ricoh Arena and difficulties in slashing wage costs.
In his report auditor Julian Rye said: “These conditions ... indicate the existence of a fundamental uncertainty which may cast significant doubt over the company’s ability to continue as a going concern.”
Accounts for Coventry City FC for the year to May 31 show the club actually increased turnover across the year, despite a fall in matchday income, but failed to cut staff costs and saw pre-tax losses increase to £6.7 million.
Auditors say uncertainty exists over the directors’ ability to make cuts to payroll costs, as agreements are yet to be forthcoming.
They say directors of the club anticipate raising the necessary cash flow to allow manager Andy Thorn to compete in the transfer market, but “the realisation of such cash flows is not yet certain”.
Meanwhile, the company has received written confirmation from a group of shareholders and other significant funders on their intention to support the company, but auditors said there was no “contractual certainty” over this.
The company turned over £10.3 million, up from £9.3 million the year before, but only made a profit of £72,209 on the sale of player registrations, compared to more than £4.7 million a year earlier.
Directors have pledged to “reduce the cost base while improving revenue earnings capacity”, but in the last year the number of players and management staff actually increased, from 94 to 108, and total staff costs rose from £10.3 million to £10.4 million.
Income from match receipts fell from £4.4 million to £3.9 million, but revenue from commercial activities – television, sponsorship and advertising, rose from £4.9 million in 2010 to £6.3 million last year.
Net liabilities stand at £54.9 million, compared to £46.2 million in 2010.
Coventry are tenants in their Ricoh Arena home, and have defaulted on the rent, and the club’s venture capitalist owner Sisu is currently in key talks to reduce the burden.
Reports claim Coventry City Council, which funded the arena’s construction and is its 50 per cent owner, is rejecting Sisu’s requests to reduce the £1.2 million annual rent, and calling on the financiers to sell the club if they cannot improve its calamitous fortunes.
Meanwhile, Coventry have been struggling on the pitch and the club’s owners have had to sell the likes of defender Ben Turner and midfielder Aron Gunarsson in recent years to boost the balance sheet.
The transfer embargo on the club was lifted a week ago by the Football League, enabling them to make signings ahead of the new season on August 18 – a luxury Birmingham City cannot enjoy.
