What do we want? It’s simple. We want Madrox (or at least Donald and Methven) out and to be sure that the money they owe has or will be paid back. End of story.
The minutes from the Supporter Collective’s meeting with Kyril Louis-Dreyfus told us very, very little we didn’t already know about the future. He’s offered to buy at least enough of Donald and Methven’s shares to give him majority ownership but a deal cannot be agreed upon. The ownership of the club will, according to KLD, be revisited in the summer.
But that’s quite clearly very far from the end of the story.
The extraordinarily important question of what comes next now hangs over the club as we go into the crucial final part of the football season.
After almost a year of relative stability (by our standards at least), uncertainty linked to ownership reigns supreme at the club yet again, and this is entirely due to the misleading way that his original share purchase was presented, and the continuing presence of Donald and Methven at the club.
Louis-Dreyfus took the opportunity of the meeting with Red & White Army last week to apologise for this unintentional misleading. In perhaps the understatement of the year so far, he said that he “may have misjudged the sensitivity of the issue”.
I simply cannot believe that he wasn’t aware of the contempt in which the vast majority of fans hold Donald and Methven; the numbers were all there in the Red & White Army survey results published in July 2021, which state categorically that:
90% of respondents think the current owners should sell to a reputable buyer. Only 3% think they should stay.
A generous reading of this would be that he was so desperate to get day-to-day control of the club, obtuse language was chosen to describe the deal, and journalists were allowed to assume that the majority stake had been purchased. A naive misjudgment of the sentiment of the lifeblood of the club - its supporters - which is now costing us dearly. And whilst we cannot rewind the clock, nobody can be satisfied with the status quo.
As the shareholding previously held by Madrox is now held individually by the three original owners, it is apparent that Sartori will remain a silent partner while he focuses on his political career. The Uruguayan senator will, according to the minutes, “work with KLD to bring the club back to the Premier League and while he is busy with politics, remains committed to the club”.
The clear implication of this is that their combined 61% of the club is what gives a level of certainty behind the agreement that Louis-Dreyfus has day-to-day control, a situation that he repeatedly assured the fan group meeting that he indeed has.
We are also assured that Donald and Methven have been meeting their obligations to fund the club, but what this means in practice we will, presumably, only discover in the accounts once they’re published - and then it will only be up to 2021.
When it comes to the status of that £20m loan made from the club to Madrox, the Chairman was unable or unwilling to divulge where we stand - so we’re left with the statement in the previous minutes that this loan has not yet been repaid in full.
As we learned when Roker Report chose to email fan questions about the sale of the 39% to Charlie Methven last week, Methven and Donald's shares in Sunderland AFC are now currently on the free market - available for the highest bidder to purchase from some London broker. The asking price, £11.7m.
So, what do we as fans want to happen now? Who would we have buy into our club and sit on the board?
Last Friday, we invited people on social media to write a “Readers Corner” post on what they would like to see the future ownership of the club look like. We got precisely zero responses, so I’ve decided to take a look at the various options that might, feasibly, be on the table.
Kyril Louis-Dreyfus and his family increase their share to 80%
This seems to be the most straightforward and logical proposition to most Sunderland fans, if the reaction on social media and in the meeting itself is any guide. The Louis-Dreyfus family quite clearly has the money to buy the shares, indeed they could buy them a hundred times over and still have change for a few Will Griggs.
The minutes tell us that this:
There have been discussions with Stewart Donald about increasing KLD’s shareholding, but to date it hasn’t been possible to agree a deal.
It is likely that a Shareholder Agreement is in place that means that KLD gets the first option to buy the share, and it appears that this has been the case. The thing preventing a deal from happening is, we must presume, his exposure to and tolerance of risk. The implications for the future level of ongoing funding, and, ultimately, the potential return on investment, must be outside of his risk threshold.
We are still a League One club, still dependent on gate receipts rather than TV money for revenue, and therefore still in need of significant investment and for those cheques to be paid from the owner to cover a great deal of the running costs.
Currently, as we understand it, Louis-Dreyfus, Sartori, Donald, and Methven all pay into the pot on a pro-rata basis, and the minutes say that this continues in line with the plan agreed with the EFL when the ownership structure changed last year.
The financial logic, I can only presume, is that this minimises the risk to KLD, and also ensures that the original ownership group take their share of responsibility for the failure to achieve their goals – promotion to the Championship – since 2018.
This club is Louis-Dreyfus’ first foray into the world of owning his own business, and having other people there to help shoulder the financial risk in this economic, geopolitical, and public health context is sensible. He has seen up close the burden that comes with custodianship of a club with a huge and passionate fanbase at Marseilles, and he’s living it again now.
But with the promise to revisit this in the summer comes the prospect of a renewed offer for the club, but I think it is unlikely that KLD will take all of the shares on offer from the broker.
The potential risks and benefits may have changed by then based on Alex Neil’s ability to guide the Lads to promotion via the playoffs, as will the levels of investment (and the potential range of interested parties).
So who might that other investor or investors be?
Sartori and Louis Dreyfus both increase their stakes
An eminently feasible solution is for Sartori and Louis-Dreyfus to split the 39% on sale between them in a deal that sees Sartori go up to 29% and KLD to 71%. This would be neat and tidy, it wouldn’t materially impact the balance of power on the board of the club, and would mean that new investment plans don’t have to be drawn up.
The question that lingers over this option is why it hasn’t happened already. Surely a private sale of Donald and Methven’s shares could have been agreed upon reasonably quickly?
Why only 29% to Sartori and not an even split? Well, if you hit 30% then you undergo the infamous Owners and Directors test from the EFL.
Back in the spring of 2018. Methven introduced his mate Juan Sartori to his business contact Ellis Short as a potential buyer of Sunderland AFC, but for some reason, they figured it was going to be difficult for the Uruguayan to pass the test at the head of an “international consortium”.
So Eastleigh FC owner and minority shareholder in Oxford United, Stewart Donald, was brought in as the guy to hold the majority of the club when the takeover went through in May 2018.
Juan clearly wanted in, he pushed £3 million into the club to aid cash flow after being handed his 20% for a nominal quid in August 2018. He had previously tried to buy Oxford but saw Sunderland as a more attractive option given our history and potential.
He’s evidently an important, rich, clever, successful, and extraordinarily well-connected bloke. He’s probably got the money at his disposal to buy the shares outright and become the majority shareholder, but he clearly isn’t interested in this.
He’s a politician in South America, an international businessman, and on the board of AS Monaco. Surely, if he wanted to take over the running of Sunderland AFC he could have bought out Donald and Methven at any point in 2020. It didn’t happen then and it won’t happen now.
Some third-party buys out Donald & Methven
According to the minutes:
If a credible buyer with sizeable funds capable of passing the EFL’s Owners’ & Directors Test and who agrees with the vision of the club, wishes to buy shares in the club, KLD would be happy for another party to invest, but will not relinquish control.
The implication here is that a Shareholder Agreement is in place giving Louis-Dreyfus a say over exactly who takes on the shares, and he says explicitly that he won't give up control of the club (again, it really is worth bothering mentioning that this control is presumably gained through his alliance with Sartori - who is going nowhere).
This all begs the question, why would an individual or collection of individuals want to buy a minority stake in our club? It’s something I’ve seen a lot on the socials, and is a very good point. It would certainly cost them in the short term, the ongoing financial commitment will be significant - even as a silent partner Donald has had to put his hand in his pocket over the last year.
What would they get in return? If all 39% is sold, then potentially three seats on the board of the club will be taken by the new partner in the firm. They’d get a share of the profits if the club was ever to make a profit, but the only truly profitable football clubs in England over the last few years have either been at the top (Chelsea and Liverpool) or bottom (Burnley/Newcastle/Norwich) of the Premier League.
So that’s the gamble any potential new investor is taking if they’re looking for a return - either reach the big time of the Champions League and go global, or scrape by and potentially yo-yo between the top two tiers, banking the TV money and parachute payments along the way.
Yes, the rules of the game are changing, and hopefully more financial and governance regulations will be put in place in the near future, but the Championship is still notoriously expensive and risky to get out of (see Derby County, below).
The sustainable, gradual, player development model has worked for Brentford, but we do not have the academy rejects of every London club to pick and choose from or the allure of life in the capital. We are making progress in this direction, but this is slow progress. If we can sell a Dan Neil or a Dennis Cirkin for big money in a couple of years, it might just work, but those are big ifs and, as KLD himself said, he wants a new investor to be bought into this vision.
Therefore, whichever way this plays out, an individual who only had the purchase price of £11.7m available would be no good for us. They need to be willing to invest beyond this and over the long term, or else there’s no point.
Someone with deep pockets and the intention to ultimately take over the club could start with a minority shareholding and seek to build their holding over time – as Stan Kroenke did at Arsenal – as a means to gain a foothold before buying out other minority shareholders to wrestle control of the club for himself. But that requires willing sellers.
As we know, the Donald and Methven shares are being sold through a broker, and it may be that - unless there’s someone lined up - KLD and Sartori are presented with a new partner as fait accompli. But as Sartori and Louis-Dreyfus are going nowhere, logic would suggest that they will be looking for someone they already know, someone in their clique, someone that they trust, to join them on their journey.
So who on earth could any new investor be?
The new boys in town, some of them are flush with money earned by getting other people to invest in intangible assets and then cutting and running before the bottom falls out of the market for whatever coin they’ve minted. Others have made it their business to con football fans into purchasing their digital currencies on the promise of choosing the music in the club changing room. Yet more have cashed in by getting some washed-up ex-pro to flog digital receipts for monkey jpgs to unwitting mugs.
There are some very legitimate uses for blockchain (distributed open ledger) technologies, and some people have made a hell of a lot of money developing products that help to secure financial transactions and track manufacturing supply chains. The owner of London City Lionesses, for example, is the wife of one such fintech entrepreneur who is indulging her interest in women’s football (without, apparently, the need for any actual fans).
It’s an inherently energy-intensive business, volatile, controversial, and potentially lucrative. Fortunes are made – and lost – in minutes. Football is seen as a way of legitimising new wealth and gaining social and political status, not to mention an army of potential advocates willing to go into online battle if they think that it means at some point they’ll be able to sign a few decent footballers.
Sartori, interestingly, has been at the forefront of regulating (and also promoting the use of) crypto-currency in Uruguay. Maybe, when it comes to finding aligned investors, it’s the crypto-bros who will step in.
Football clubs are notoriously attractive to the big-time private money funds that buy into failing companies to turn them around, and extract untapped value, usually by stripping out the fat and selling off the best assets. They have land, they have established brands, they have dependable sources of income (us). I’m absolutely sure that KLD and Sartori have connections with the high-finance worlds of Mayfair and New York.
In my opinion, the fact that the Dell-FPP proposal back in the summer of 2019 fell flat on its face was probably one of the best things to happen to our club in recent years. One big and unmitigated positive from the KLD deal was that the FPP loan secured against the Stadium and Academy was repaid in full. As far as we are aware, there are now no charges against the club.
After lending Madrox a few million for cash flow, a mixture of the same people in the guise of MSD went around the EFL selling high-interest loans to clubs that couldn’t get loans from banks.
We note with a sense of horror that one of MSD’s customers, Derby County, is currently at serious risk of going bust and seeking another round of financing from them just to get to the end of the season intact.
Surely this kind of investor would be a buyer-of-last-resort, and one that – if KLD has any say in it – he would be reluctant to share decision making with.
A Sovereign Wealth Fund
Oil-rich countries – especially dictatorships with little other economic prowess and entrepreneurial culture – know that the game is almost up. They will not be able to continue pumping liquid out of the ground and into the engines of our cars for much longer – the planet literally cannot take any more of it.
They need to diversify their investments or die, and they need to sanitise their public image or risk the stream of foreign investment and support for their economies disappearing to cleaner and safer shores. They also need vehicles upon which they can sell their other products, be those luxury airlines or futuristic megacities for the super-rich in the desert, and places to entertain their friends.
Football is, despite the Abramovich era coming to a close, still an attractive place to put the wealth extracted from other nations; it serves so many purposes - and it’s really cool too. So Newcastle United is majority-owned by PIF, the Public Investment Fund of Saudi Arabia. The Qatar Public Investment Authority owns Paris St Germain.
The Louis-Dreyfus Company is 45% owned by Abu Dhabi Developmental Holding Company, a sovereign wealth fund of the United Arab Emirates. However, I find it highly unlikely that Sunderland AFC - as famous as we are, as widely exposed our brand has been through Netflix, and as big our potential certainly may be - is going to be on the radar of this kind of state investor.
I also doubt that the ethically minded people at Red & White Army would welcome the investment of the oil wealth of another country into our club, with all the questions that would raise about our self-image as the antithesis of Newcastle United.
The Supporters Trust leads a fan consortium
I argued for the creation of a Supporters Trust for Sunderland AFC early in 2020 as a backstop - a guarantee that if all went to pot we would have the mechanism in place, an entity approved and regulated by the Financial Conduct Authority - to use to save the club if it was at risk of going under.
Converting the Red & White Army supporters group into a Community Interest Company was a long and difficult process overseen by the dedicated people on the committee, and as a fanbase, we should be eternally grateful that these folk stepped forward and put in the hours to get us into the position we’re now in.
Right now, the club isn’t going bust; we’ve got two closely allied billionaire owners who, as mentioned previously, together hold 61% of the club. There is risk and uncertainly, there is a sense of crisis and despair, but with this, there is also a unique opportunity.
The threat of season ticket holders refusing to put their money behind the club due to the continued presence of Donald and Methven and, potentially, yet another season in the third tier, is absolutely real and was expressed at length during the Fan Collective’s meeting with the Chairman.
A number of others are just sick of the nastiness, negativity, and relentless drama that now seems to be a leitmotif of small but vocal sections of the fanbase, and are considering walking away after a lifetime of loyally turning up on cold nights at Roker Park and the Stadium of Light.
What does 5% of the club buy you? It buys you a seat on the board, and it buys you the right to require circulation of a written resolution and can require a general meeting to be held. It buys you input and oversight, but no control.
A friend of mine who has been closely involved in AFC Wimbledon advised me recently that, in his view, putting our efforts into buying a stake in Sunderland AFC would be the most productive outlet for fans. This would be the ideal and something that I hope that the RAWA board is actively pursuing.
There are precedents in football for Trusts to take out low-interest loans from cooperative financial institutions or local authorities in order to fund share purchases that can then be repaid over the long term. The difficulty comes in funding the ongoing financial commitments, a 5% stake would likely require an annual commitment in the hundreds of thousands, so we would need to negotiate this with KLD, perhaps as an annual gesture of goodwill towards supporters. Creative solutions can be found when the will is there.
But as I have now repeatedly written, in the meantime we should be asking for the introduction of the golden share and shadow board model that the Football Supporters Association advocates and the Crouch Report proposes.
None of this was on the agenda at the Fan Collective Meeting this time around, neither were KLD’s intentions with regard to supporting or opposing the implementation of the key proposals of the Fan Led Review.
Yet these are key questions that require asking. That’s not to take away from the need to know when the Madrox loan will be repaid, or when Donald and Methven will finally leave the building for good.
They’re not going to make the headlines, nobody will get a hundred likes on their tweets for banging on about these matters. But when we’re looking at what we want for the future, about how we ensure we have much greater oversight, greater input, and a modicum of control over this institution that shapes so much of our social lives, they surely must be put on the table at some point.