It’s amazing how many figures get thrown around when it comes to the valuation of Sunderland. In conversation with Nick Barnes, Stewart Donald has confirmed that he just wants to take out what he has paid in. And, at first glance, that sounds fair.
He then said that the amount paid is £37.6m. Is that right?
It is important that fans understand exactly what is happening with the club and so I have prepared this summary to help fans understand what the current owners have spent and where the above price comes from.
I have discussed these figures with Chris Weatherspoon and we are agreed on what follows. We have both written about this on a number of occasions but it’s important that this is spelled out line by line so there can be no doubts.
In the meeting between the club and RAWA it seems one of the club representatives said that Chris should get his facts straight or shut up. What follows are facts either based on legally required and filed documents, press reports which the club have confirmed or clarified and conversations held directly with directors and former directors of the club. Between us, Chris and I have worked as Accountants and then Chartered Accountants for 30 years and hope the following is useful to fans and board members alike.
The first thing is to take the valuation of the acquisition which has been published (as legally required) in the accounts of both SJD Leisure Holdings Limited and Madrox Partners for the period ended 31st July 2018 (note 10 in the SJD Leisure accounts and clearly in the Balance Sheet of Madrox Partners Limited). This doesn’t mean that’s what was paid, it simply means that’s what they have agreed to pay. That figure is £37.0m.
The SJD accounts then tell us two other important figures. They confirm that Stewart Donald paid £5m into the group at that point and a total of £14.6m being paid by the group of companies externally. Logically that means Ellis Short was paid the £14.6m and, logically, that’s made up of the £5m from Donald and an additional £9.6m. The accounts of Madrox and SAFC show that, at that point, SAFC had lent Madrox exactly £9.6m so we have to assume that that money was paid to Short by Madrox having first been lent to Madrox by the club.
We then move into the following year’s accounts. These have been reported in a large number of places and the club have all but confirmed the information reported as being accurate, most recently in the meeting with RAWA.
Those accounts show two things.
First that a further £22.4m was lent by the club to Madrox to clear the amounts to be paid to Ellis Short (so we’re now up to £37.0m paid to Short) of which £5m is paid by Donald and £32.0m has been lent to Madrox by the club to pay to Short.
Secondly, we’re told those accounts include the write off of £20.5m of debt due to the club by Madrox. There’s nothing illegal in that but, based on the place we’re told it has been reported in the accounts, it has been reported incorrectly. We’ll be able to clear that point up as soon as the accounts are published.
Those accounts take us up to July 2019 and, after that date FPP got close (we’ve had this confirmed by Donald at their meeting) to buying but decided to lend money to Madrox instead. This loan is approximately £9.6m (based on exchange rates at the time). At that point therefore, Donald has paid £5m, the club has lent Madrox £32m (of which £20.5m has been written off) and FPP have lent Madrox approximately £9.6m. Short is still £2.4m, erm, short of the original figure we’re aiming for.
Companies house published paperwork shows that the loan to Madrox is secured against club assets and also shows paperwork highlighting the introduction of £9m of shares to the club at that point (from Madrox). This is money introduced into the club by Madrox (in the form of shares) and, in a way, the FFP money has been used to reduce Madrox’s debt to the club.
At around the same time, Donald and Methven were happy to tell anyone who would listen that they’d paid an additional £2.4m ‘of their own money’ into the club. It makes sense that that clears the amount owed to Short and leaves us with the following position…
Paid by the current owners - £5m + £2.4m + £9.1m = £16.5m
Paid by Madrox via debt from the club and subsequently written off - £20.5m
The £20.5m according to press reports and effectively confirmed by Stewart Donald is the figure he insists will be (and he claims has been to some extent) repaid. Without accounts it is impossible to confirm that one way or the other but hopefully it is clear from the above that the introduction of £9m shares did not clear any of the £20.5m. That was effectively the clearance of the first debt of £9.6m, not the second.
The position based on all available data is therefore clear. If Donald and co repay the full £20.5m, there is an argument that the club is, as the accounts suggest worth £37m (I would assume the difference between his £37.6m and the £37.0m in the accounts is expenditure over the last few months – it is highly arguable as to whether this would increase the value of the company but that’s neither here nor there).
If Madrox received that £37.0m, the first thing they’d have to do is clear the debt to FPP of £9.6m. If there is any expectation that new owners should take on that debt, the asking price should clearly be £27.3m. And if there is any suggestion the club should accept the fact that the £20.5m has been written off and isn’t to be repaid by the current owners then the fair price becomes £6.8m.
I suspect that Donald is asking for £37.0m ALONG SIDE the club taking on some of Madrox’s remaining debt and accepting the write off. That would clearly be entirely unacceptable for any potential investor and should, in my opinion, be entirely unacceptable to the fans as well. It is exactly the sort of analysis that an accountant would highlight to a potential buyer during a purchase process, something that I suspect has happened on more than one occasion (please note, quite rightly we do not have any evidence from the actual accountants involved, just our own experience of due diligence processes).
The other thing that would happen in due diligence and the buying period is negotiation. Is the club worth what he paid? Would a potential investor accept Donald’s argument that the losses are smaller negates the lower position of the club in the professional structure? Would they decide the values of the current squad are higher or lower than the squad at the time Donald bought the club? Does the loss of talented young players in the academy and two more years or wear on the structures and buildings of the club net off against the new seats in the ground?
My opinion on these points is irrelevant and can only, and should only, be addressed between the buyer and seller in negotiation. But the starting point for that negotiation not only requires a willing buyer, it also requires a willing seller. Very few buyers pay what is being asked at the start of negotiations and even fewer negotiate upwards.