NOTE: I became a supporter of Sunderland AFC due in whole part to Roker Report. Back in the halcyon days of constant relegation battles in the Prem, I came across a RR article on the main page of SBNation.
The wittiness and intensity struck me - especially as a New York Mets fan - seeing as Sunderland is kind of equivalent in football fandom to being a Mets fan is in baseball. So, I thought, pile on the self loathing and start following the Black Cats.
Little did I realize that Sunderland were going to drop this far and get into this bad of a shape. And now, with the club possibly on the brink of financial meltdown, it’s time to save Sunderland AFC and the folk of Sunderland are the ones to do it.
A Brief History
The NFL’s Green Bay Packers, one of the most storied and successful organisations in the United States’ sporting landscape, were turned into a public non-profit business in the 1920’s.
The importance of Green Bay being a non-profit cannot be understated, and that portion of this operation will be fleshed out later in the article. The reason was simple: they were about to go under financially and needed to raise money.
They sold 1,000 shares at $5 a piece ($75 in today’s money). The club stayed afloat and would open stock purchases up four more times in 1935, 1950, 1997, and 2011. Each increase in stock offerings were done to finance parts of the football operation, recently for upgrades to the stadium.
Sunderland as it relates to Green Bay
Sunderland and Green Bay, Wisconsin, have a lot in common. Both cities are blue collar, hard-working towns. Both cities rely on manufacturing. Both cities are not large urban centres as it pertains to the top level (NFL & Premier League) of their sports.
So the question you may be asking yourself is how the city of Green Bay, population of 100,000, can sell north of 5 million individual shares. It’s an interesting dynamic of fandom and city pride. Green Bay has been able to sell that many shares (raise capital) by being a unique fan/ civic operation.
First of all, pretty much every Packers fan has purchased a least one share of the Packers. In the grand scheme of things, $250 dollars is a minor investment to see that your club survives and prospers.
Secondly, Sunderland, like Green Bay, has a worldwide fanbase. While we may tend to think myopically in the face of a crisis (both the clubs funds and the pandemic), the fact is there are a majority of fans who would plunk down a one time fee to ensure that the heartbeat of their city will stay alive and thrive.
Also, with the way Green Bay has set up their business in that one person can own no more than 4 per cent of the club (200,000 shares or $50,000,000 dollars if you only bought shares in 2011), you can see how Sunderland can easily get to the valuation of the club.
It may be impossible for Sunderland to reach Green Bay’s level of financial fan engagement. However, the amount of money necessary is nowhere near the same.
We’re far from the “Dortmund Model”
Let’s be honest here, the first alarm bells that rang in my head was when the current ownership group stated that they wanted to follow the Dortmund model. I thought they were out of their minds if they actually believed that.
Per transfermarkt.com, Dortmund currently holds around $650m dollars in Player Market Value. Sunderland sits at a hair over $15M dollars. 15 players at Dortmund hold a higher transfer value than the entirety of the Sunderland squad.
Even in 2015/16, Dortmund’s players were worth eight times as much as Sunderland’s Premier League squad.
Now, I hear you, it’s the idea of the Dortmund model that we are talking about. I would say to that, it’s still bat sh*t to compare the two clubs. Dortmund has cache as a European heavyweight competing for Euro glory. Sunderland hasn’t had that - even when competing in the Premier League.
Dortmund can afford a large youth set up, purchase some of the continent’s best youth talent, and play them in the first team. Sunderland, especially now, cannot and have not bought into the youth of the Academy of Light, which has seen many talented youths head out of the door for little to nothing in terms of transfer fees.
To build an academy that is profitable, a club needs to be able to give its youth players a contract at 17/18 and play them to enhance their value. Look no further than Ajax - maybe the pinnacle of youth development - along with Dortmund; they show it’s possible to be both an ambitious club while also being a selling club.
Ajax sold Frankie De Jong for $82.5m after buying him for 1 Euro from Willem II with a 10 per cent sell on fee that netted Willem 63 per cent of their 2019/20 operating budget.
In fact, Willem II made just north of $11m on the transfer, a few million short of Sunderland’s entire squad market value. If you’re wondering why Sunderland haven’t replicated that model, look no further than development and scouting.
As much as Donald and co. have flaunted this Dortmund idea, the reality is that their actions have run counter to their words. Instead of the youth being called into the first team, Donald prioritised the signing, for example, of Will Grigg for promotion reasons as well as trying to show the supporters, “look, we’re trying!”
Call to the Fans and the Public
Look, this won’t be a cake walk to begin with.
You look at the initial $5,000 ($75,000 in 2020 dollars) raised to save the Packers and it’s a pipe dream. I get that. As it stands now, Green Bay has offered 5,011,558 total shares owned by the public. The price ranged from $5 in 1923 to $250 per share in 2011. While the shares carry no weight, cannot be sold (but can be given to immediate family members), and do not give priority access to season tickets (Green Bay currently has a 20 year waiting list for season tickets), it is important as a civic duty.
The Packers cannot be relocated. The Packers cannot be held hostage by an owner. The executive board is voted on by the shareholders. The stability the franchise has shown over the past 100 years is remarkable in the sporting landscape - worldwide. Add the fact that the fans have a vested financial interest, and you have a recipe for success and a feeling of the club being part of you and your city.
By Green Bay setting the franchise up in this fashion, there is no longer any lip service paid to the fans about it being a Supporters’ Club. The supporters now become the club. In Green Bay, the largest shareholder (at 4 per cent) was a local newspaper magnate who invested large sums in the team as it benefited him both personally and professionally for the Packers to stay in Green Bay and become internationally relevant.
Sunderland has businesses that can afford to inject capital in the form of stock purchases into the club so that there isn’t a one-share-per-investor model.
The £40 Million Fallacy, and a “Zombie Company”
The club is worth £40 million, I’ve read.
Well, no. No, it’s not. It’s not anywhere near that.
One thing that you can take to the bank is that if the club was not struggling financially, they would’ve already been purchased by one of the consortiums rumoured to be interested. When a consortium worth billions of dollars looks at the books and backs off, that’s a huge red flag.
“Zombie company” is a financial term that basically states that the company is dead but still operating. It still may be able to walk, but in reality it’s the walking dead.
Could the argument be made that Sunderland is a zombie company? Albeit with a different road to becoming human again in comparison to a retail or wholesale business?
Sunderland has assets (though not many on the pitch) and its largest asset is the fans. Not many companies can say they will have 30,000 people show up at their door to pay them money for their product once or twice a week, not to mention buying a pint, a burger, and/or a shirt.
On the financial front, we do have some knowledge of what is going on with Sunderland AFC due to the fantastic reporting in the local and national media. We also had a rare glimpse into something that shocked me in season two of Sunderland Till I Die.
At one point, Donald’s wife insinuated in the kitchen that he could sell the club due to stress. Donald didn’t seem enthralled with the notion and talked about how cool it was to own the club.
In my experience dealing with businesses and business people, the moment they step out and say how cool it is to own something and they are not so wealthy as to be too big to fail, it’s a massive problem. What it says, in essence, is that the owner is way over their head financially and that no one will purchase said company while it’s in such financial disarray.
If I were to bet on it, I’d wager that Donald and co. have been playing a game of financial whack a mole the entire time, partly because of the situation they were put in by the Short era, and partly because of their own doing.
It’s not the worst thing in the world - but obviously not a positive sign - when a club starts borrowing against future income or assets. Some clubs, like Tottenham and Arsenal, have loaned money against the club in order to fund stadium building or enhancements. However, in both cases these clubs were able to convince their huge sponsors to put in an initial lump sum against which to raise capital. It’s quite another when you are borrowing against the club to perhaps stay afloat.
From the outside looking in, that seems exactly what’s happening at Sunderland.
And from a fan standpoint, we need to look no farther than the Glazer family at Manchester United. We constantly hear about the $500m that could’ve been reinvested in the squad that instead has been spent on paying down the loan payments from the purchase.
If only Sunderland had that problem!
If you asked me to guess how much Sunderland were worth, off the top of my head, I’d say £1. You may think that’s shocking but then I would tell you that Ken Bates bought Chelsea in 1982 for that same amount. I’d imagine Sunderland’s books look a lot like Chelsea’s circa 1982.
What has been reported in The Times is that Sunderland were purchased for around £40 million and that Donald and co. may have invested as little as £5 million, using parachute payments to help fund the purchase of the rest of the club.
Arguably, the club is worth around half the alleged amount paid - especially is 50% or more of the actual purchase monies came from the club’s own coffers.
Now let’s once again look at the Green Bay Packers and speculate what it would cost for Sunderland fans to bring in roughly £20 million to buy the club from Stewart Donald and co. A £250 stock price would need 80,000 shares to be purchased in order to pay the current owners £20 million for the club.
In Green Bay’s case, each shareholder owns, on average, about 14 shares. That would be a little over 5,700 people (Worldwide Mackems Unite!) spending a little over £3,500 per person to purchase the club and pay off the debt to acquire Sunderland AFC.
Easier yet, it would be around 22,000 people buying a little over £909 worth of shares per person. As I wrote above, if say, 15 Sunderland businesses were ready to purchase the maximum allowed shares of 4% each, they would spend around £800,000 each to own a combined share of 60% of the club. This would equate to £12 million expenditure on 48,000 shares.
This would leave 40% of the club, or 32,000 shares valued at £8 million for the public to snap up. I.e. 32,000 fans buying one share each at £250.
You can manipulate the numbers to change what percentages people can own as a maximum, or to make it easier for companies to have a greater stake (i.e. raising maximum allowed percentage buys to 6%) but the point stands that this can be accomplished.
Lastly, we are working under the assumption that the fans/businesses would need £20 million to buy the club from the current owernship group, but that sum may not be needed. The ownership team at Sunderland may be ready to cash at a much lower price in order to avoid future financial issues. Clubs like Charlton were sold for £1 in order for their old owners to simply get rid of the club and its expenditures.
After that, it’s about building the club in the way the fans want to see it. As a self-sustainable club that uses its profits to help develop the local community with youngsters coming through the ranks that fight for the red and white. That would be something, no?