Disclaimer:
I make no accusation of legal wrongdoing in this text. I urge you to read my words and understand that whatever is happening is not illegal, it is simply a situation that has lacked clarity and provoked many discussions amongst people, but very little fact checking of statements made by the owners and corroboration of this with objective evidence.
I leave it in your hands to decide how comfortable you are with this situation. I have my opinions that I have refrained from adding.
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Right, I'm not going to have this become a farce of a thread, so here's the only ground rule I have - if you call me names or question my right to pass comment about this because you don't like what I'm saying, I'll ignore you, or if it gets bad, I'll report you to the mods, who have been super-fair and actually very good dealing with some of the ridiculous stuff that I've had.
I also have no desire to make my identity public. I am not 'Chris the accountant', or a paid shill for anyone or any other group, or worst of all, a mag. I am a Sunderland fan, I am concerned, but I do not want personal attention. I don't 'have an agenda' beyond a better understanding of why the club appears to not be spending any money on transfer fees for players to get out of the current division, while the owner owes the club a substantial amount.
If you question my working out, I'm more than happy to discuss it with you in the thread, provided that you don't accuse me of all sorts or get personal. If you don't want to read this, please remember that some others do, so don't make that harder by posting rubbish insults.
Remember that I have taken a long time, many months in fact, to check the sources for these things and deliberate on the nuances and details. Nothing I say is without evidence, and I have included that evidence in links during the timeline. This means that nothing I have said is libellous, because it is all attributable to the words of the owners, the accounts, or Companies House and based on fact and truth.
The 30 second, laymans terms version for those that don't want full details:
- In a nutshell, Donald's company, Madrox Ltd, owed at least £20m to SAFC as of the last known comments or figures from SD and CM in the summer of 2019. See page 2, paragraph 5 of this document as CM explains that the club is now 'owed' around £20m.
- In addition, he has taken out another loan via the club in April 2019 of anywhere between (approx) £10-12m that to this point, remains unaccounted for in terms of liability back to the club, despite Donald explicitly saying that 'the bulk' of this loan was specifically used to pay off the remaining part of his debt to Ellis Short for shares in SAFC. Listen to this from Stewart Donald confirming that the bulk of this loan was used to pay off Ellis Short.
- At this stage, Stewart Donald and Charlie Methven have both confirmed that there are no plans to pay off any of the entire debt to SAFC in the current financial year of August 2019 - July 2020. (Roker Rappot Podcast, May 2019)
- They have also made ambiguous statements that allude to circumstances where the debt may not be repaid at all (Read: P2 Final paragraph, 'subject to...')
- The club has spent £0 on new player transfer fees in 2019/20 so far, and Donald is attempting to raise investment, despite claiming that they could run at an upper mid-table Championship level if promoted. Read paragraph 4 of page 3
The much longer version:
Evidence:
Some frequent sources to have handy to cross reference:
RAWA meeting between Charlie Methven and supporters (I have had to use paragraph/page numbers because it's hard to link directly)
Roker Rapport Podcast with Stewart Donald and Charlie Methven (I have provided time stamps for statements)
SAFC accounts 17-18 (Jul 31st, 2018) (some screenshots below for reference)
Madrox accounts 17-18 (Jul 31st, 2018)
This text is based on evidence provided by Stewart Donald, Charlie Methven, SAFC, Madrox Limited and Companies House. Wherever secondary sources are used (such as newspaper reports) I will state this and you have every right to question their accuracy, but when stories can be corroborated, that is also stated.
In regards to Stewart Donald's language and wording, it is sometimes difficult to follow every path and comment. This has been one of the great challenges, but I urge you to listen carefully, and wherever possible I have cross-referenced.
I have very deliberately avoided guesswork on my part, and wherever there are gaps, I have explicitly stated this and worked with as much knowledge as is publicly available. I will, however, state possibilities based on facts.
If there is something specific you want to question the accuracy of, I am happy to discuss this.
May 2018
- Stewart Donald (SD) bought SAFC for '£40m' in 2018 from Ellis Short (ES). Short's company is Drumaville Ltd.
- This deal involved SD using a company, Madrox Partners Ltd ("Madrox") to purchase the club. Madrox owns the club, so whoever owns Madrox owns SAFC. Upon purchase, this was 94% SJD Leisure holdings (Stewart Donald) and 6% Charlie Methven.
- The deal consisted of two parts: £15m in cash to Ellis Short for his shares, and Donald taking responsibility for £25m of debt with a company called SBC, that Short was responsible for.
- This debt was not, at the point of the purchase of the club, SAFC's debt. It was solely the responsibility of Ellis Short (CM, RAWA meeting page 1, final paragraph)
- Both of these things were secured against SAFC's parachute payments and/or club assets, despite the £15m relating entirely to Donald's debt to Short ("personal debt"). This led to 'Charges' being filed against SAFC rather than Madrox.
Charge 1 (Ellis Short's company Drumaville Ltd owed an unspecified amount, later clarified as £15m, secured against Black Cat House and the Academy of Light)
Charge 2 (Ellis Short's debt to SBC corp of £25m that must be settled by SAFC to end this charge (1.1))
- Charges give us a good way of understanding where debts are owed, albeit they are only removed once the entire debt is satisfied, so if I owe someone £10, and give him £5, the charge would still be on my account even though I'd paid 50%. When I paid the next £5, it would be removed.
- The charges filed against the club meant that if Donald is unable to pay any of the debts above, the obligation would fall on SAFC to use the club's parachute payments to pay them, or risk losing the Academy of Light and Black Cat House to creditors.
- Stewart Donald paid £5m of the £15m that he owed Ellis Short as 'a deposit' and negotiated a further £400k discount for 'staff issues', leaving an outstanding amount of £9.6m in cash and £25m to SBC as debt. These were Stewart Donald/Madrox's debt, but secured against the club.
- At some point between May 2018 and the accounts for SAFC being published in July 2018, a payment or payments was made to an unknown company (or companies) by Madrox using £9.6m of the club's cash reserves.
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- The only thing that we can be certain of is that the entirety of this cash was NOT used to pay off Donald's debt to Ellis Short. Donald claims that this is the case and it is factually correct.
We know this because had it been entirely used for that purpose and paid off Donald's remaining £9.6m debt, the 'charge' that Short had on SAFC would have been removed. As it happens, this was not removed until April, 2019.
- Why SD chose to loan £9.6m, an amount that Madrox had outstanding to another creditor, and then not use it to pay that creditor, is unknown.
- What we do know is that it has understandably caused some confusion amongst people seeking to understand the ultimate recipient of the funds, as the amount matches an amount previously owed. We have no way of determining why the figure of £9.6m was used.
- Gap/interpretation: SD does not explain what the money was used for, but the likeliest explanation is that this money went to SBC, as they are the only other known creditors of Madrox.
- It is theoretically possible that £9.6m was paid off the SBC debt in the summer of 2018 from the club's cash reserves from 18-19 parachute payments, and the rest (approx £15.4m) was paid in August 2018 from 2019/20's parachute payments.
- It is possible that the £9.6m was used for other debts that the club owed, but had this been the case, it is unclear why SD would then have agreed to pay the club back the £9.6m.
- It is therefore a reasonable assumption that the £9.6m was used to satisfy a debt that was attributable to Madrox and Stewart Donald, rather than an SAFC debt (Alvarez, for example). Had the money been used to pay off the Alvarez deal, for example, why would SD class this as a loan to his company if it was not Madrox's debt being paid?
- July 2018
- SAFC and Madrox's accounts were dated July 31st 2018. At this point, Madrox owed approximately £37m in debts. £9.6m to SAFC, and approximately £27m to another unknown creditor, likely to be SBC.
- SBC's debt of £25m incurred an interest rate of around 8.5%p/a on the last known figures. £25m + £2m interest is £27m, but as Madrox does not publish detailed accounts, we do not know exact figures or creditors.
August 2018
- In August of 2018, the £25m SBC debt was satisfied and the charge removed. SD has confirmed that the club's parachute payments were used to satisfy this debt, and SD therefore owed the club this £25m.
- At this point (August 2018 after the SBC debt was paid), based on the wording of Stewart Donald and Charlie Methven, the debt from Madrox was 'around' £25m to the club, due to be replaced 'over time'.
As no payments are known to have been made to Short, it is an entirely reasonable assumption that Madrox also separately owed £9.6m to him at this stage.
- On 21st August 2018, Uruguayan businessman Juan Sartori (JS) was appointed director of Madrox. We know that he acquired a 20% share in the company for £3m. This reduced SD's shareholding in Madrox to 74%, CM remains with 6% (Dragon PR Limited) and Juan Sartori (Arvesa Corp) holds the remaining 20%
- We cannot say whether the £3m went to the club's bank or SD (or his holding company, SJD holding). The shares were SD's to sell, and he had a number of options:
Send the funds to SAFC to settle part of his debt to the club (approx. £25m)
Send the funds to Ellis Short to settle part of his debt to Short for shares bought (£9.6m)
Send the funds to an account in his own name (the shares were his to sell and profit from).
- Gap in knowledge/Interpretation: Of these options, based upon the characterisation of JS's investment and subsequent reduction in the amount that Madrox owed the club according to Methven in the RAWA notes, it is likely that the money passed directly to SAFC, reducing the debt that Donald held to the club to around £22m, and helping with running costs, transfer fees, or any other SAFC outgoings in the 18/19 season.
- In August of 2019, Madrox likely owed between £22-£25m to SAFC, and likely £9.6m (secured against SAFC's parachute payments) to Ellis Short.
September 2018
- In September, 2018, Stewart Donald requested that the debt to Ellis Short be reduced by 'around £3m'. This was due to costs that were unforeseen during the due diligence.
- In September, 2019, Madrox owed between £22-£25m to SAFC, and likely approximately £6.6m (secured against SAFC's parachute payments) to Ellis Short.
- Stewart Donald states that the remainder of his payments to Ellis Short regarding the share purchase (the £6.6m) were due to be made in September, 2018. This did not happen, as the charge against SAFC relating to this specific debt was not removed until April of 2019.
January Transfer Window 2019
- In January of 2019, Sunderland sold Josh Maja for approximately £1.75m + add-ons rising to £3.5m to Bordeaux.
- In January of 2019, Sunderland bought Will Grigg from Wigan for approximately £1.75m + add-ons rising to £4m if the club reach the Premier League.
- Gap/interpretation Although the two exact fees are unknown, the characterisation of both is that they were heavily back loaded. It is likely that Stewart Donald made some contribution to the initial Grigg fee, but the amount is unknown. Essentially, it is difficult to establish how much was paid for Grigg, let alone where the money came from to do so.
April 2019
- In April of 2019, Stewart Donald entered into negotiations to sell part or all of his ownership of the club.
- In April of 2019, SAFC took out a 'short term loan' from Close Brothers against the remainder of the 2018-19 parachute payments - April, May, June and part of July.
- This was to enable SD to have 'conversations about possibly raising funds on the stadium'
- As part of the debt to Drumaville/Short was secured against the AOL and Black Cat House, Donald could not discuss raising capital via some land that the club owns unless his debt to Short was paid, therefore, this 'accelerated the payments' to Ellis Short.
- Again, in relation to any mention of SBC in Donald's statements, the SBC charge was satisfied in August 2018, therefore outstanding amounts in relation to the deal to buy SAFC were only due to Ellis Short by April of 2019.
- To work out how much this loan was (the Daily Mail reported close to £12m) Parachute payments are paid monthly (apart from some payments in the summer, which come together). Sunderland were given £34.9m in parachute payments in 2018-19. The monthly amount works out at around £2.9m.
- This puts the loan figure at around £10-£12m. Remember that this is from the 18-19 parachute payments, leaving the 19-20 parachute payments (£15.5m) untouched.
- The 'bulk' of this was used to 'finish off, get Ellis done' referring to Madrox's outstanding debt to Ellis Short (approx likely £6.6m) for shares purchased by Donald during the takeover.
- In April of 2019, the charges against SAFC from Ellis Short were lifted, meaning that this total debt of £15m (later lowered to £12m total) was satisfied.
- Interpretation not a difficult one, this - he couldn't have sold the shares without completing the purchase of them or Ellis Short would have received the profit, so it was a matter of urgency to get Short paid off (see charge). The deal later collapsed anyway.
- The loan was scheduled to be paid off by the club using parachute payments in July of 2019 at the latest, but as the money from the loan was used to pay off Madrox/Donald's personal debt to Short, this proportion of the money loaned and then spent by Madrox should be due back to SAFC.
- This money has not yet been characterised formally as a loan. This means that we do not know whether or not there is any intention to pay back any part of it, despite Donald admitting that 'the bulk of that' was used to settle with Ellis Short.
- 'the bulk' of the loan could refer to any amount from half upwards. If the original loan was £11.3m, for example, we would reasonably assess that more than half of that (£5.7m) went to Ellis Short to pay for Stewart Donald's shares. If the loan was £10m, anything from £5m upwards could be classed as 'the bulk'. As a percentage, it means 50-99% of the amount spent was on the Short debt.
June 2019
- In a June 2019 RAWA meeting, CM described the purpose of the loan as 'all that has happened is that we pulled forward the parachute payments for April, May and June and a bit of July to clear up various black holes that had to be sorted out by the end of May / June.' (RAWA page 3 para 3)
- It is unknown which other black holes they refer to, but Methven does not specify that the money was used to pay off Short, despite Donald admitting this the previous month.
- To date, there is no statement from the club, Methven, Donald or anyone else about whether that money used by Stewart Donald to pay Ellis Short in April of 2019 will ever be paid back to SAFC by Madrox.
- Gap/Interpretation One issue to look out for regarding the loan from Close Bros may be the date. As this debt was acquired by the club late in the financial year and not scheduled to be paid off until July, it is theoretically possible that the loan may not be included on Madrox's accounts in July unless the club had satisfied the debt. This may mean that we would need to wait until April of 2021 to find out whether or not this was done.
June 2019 (cont.)
- Unfortunately, we must further question a number of statements regarding the total debt made by CM in June 2019 in the RAWA meeting on page 2.
- When asked about the parachute payments, Methven argued that they were used for the purpose of paying off a club debt. This is inaccurate as the debt was wholly owned by Short at the point that the club was purchased.
- Methven indicated that the club is not lucky enough to both pay off debt and have that money available for transfers.
- When asked directly, Methven answered:
IB: So, in short, the parachute payments from last summer were spent on SBC debt, incurring a debt from Madrox to SAFC, and that debt is being paid off over time.
CM: In answer to your first question: yes. In answer to your second question: that is the current situation, yes, subject, in future, to what I have already said.
- There remains, as of this point, no indication of any schedule of payments that Stewart Donald, Charlie Methven, Juan Sartori, Madrox Ltd, or SJD Leisure Holdings Ltd have to pay back the outstanding amount.
- A final note, on the reasons for seeking investment for future seasons. Based on CM's quotes from June 2019, there does not appear to be a significant need for this, particularly not if Madrox were to repay the £20m+ loan. The following is Charlie Methven's assessment of club finances:
- 'We’re getting to an operating level break even in League 1. If and when the club does get promoted to the Championship, revenue should go up by around £9m, which includes a £6.5 million uplift in tv money, increased sponsorship and ticketing revenue. £30m of operating revenue I believe would be the second highest in the Championship, just behind Leeds. On those numbers, the club should be able to break even with a upper mid-table playing wages budget.'
Summary:
- Sunderland AFC spent £0 on transfers in 2019/20. We are 8th. Stewart Donald is looking for further investment in SAFC at the time of writing.
- Madrox owed the club 'around £20m' (RAWA P2 Paragraph 5) in June 2019, and that number should rise in the next accounts (subject to point 45) in accordance with the Close Bros loan from April 2019 that was not factored into any previous statements about the level of this debt.
- The only comment from Donald and Methven regarding the repayment of any money to SAFC is that it shall be 'drip-fed' into the club as necessary (RAWA P2 Final paragraph), but that they do not believe they will 'need to' put any money into the club in 2019-20.
- If Madrox were to repay the £20m+ debt to the club, which is likely to have risen since, I will leave that to you to decide how substantial the impact on the playing and non-playing sides of the club would be.
PS: Income and outgoings:
This is extremely difficult to do and I've tried to avoid it, but by Donald's admission, they did very well on revenue vs costs this year, which meant that he didn't have to drip feed in as much as he thought (hence the debt is still over £20m).
CM stated in RAWA June meeting that revenue for the year was around £20m, and outgoings around £32m, so a shortfall of around £12m.
By the above calculations, if £9.6m had already left the club for SBC in 17-18's accounts, around £15.5m of 2018-19's parachute payments went to SBC in August, with a further sum of around £6-7m to Ellis Short in April.
This would theoretically leave around £13m of the parachute payments available for the club to use to fund any shortfall without money coming in from Madrox.
Again, it is difficult to get solid numbers on any of these amounts due to contradictions from the board members and the permutations of money leaving the club in certain financial years, but the upshot is that we have no idea how much money Stewart Donald has put into the club to help with running costs, and he has not given any figures on this. I will therefore refrain from estimating.
A final note:
I have tried to be as accurate as possible, but I am open to correction, in fact I welcome it. I have spent a great deal of spare time on this matter, but I am not precious about it, so I urge people who have relevant wisdom that can help to validate or invalidate any of the gaps in knowledge and interpretations to reply.
I would particularly like Grumpy Old Man, if he ever gets a chance, to acknowledge that I have approached this empirically and have challenged my own assumptions at every turn. As an example, when I first saw the £9.6m going out of the club and from Madrox to persons unknown, of course I assumed - as we all would - that it had been used to pay off Short. Why would we not? £9.6m goes out via a company that owes someone £9.6m, what could possibly make you pay off £9.6m of another debt?
It was days later, when I returned with fresh eyes, that I understood that this did not go to Short, and was instead, a red herring. Whether or not it was a deliberate or coincidental figure, I do not know, but it occurred to me some time later, that it has certainly been beneficial to the owners that they were able to plausibly demonstrate that we cannot even read much into accounts.
Food for thought.
I have a meeting on Thursday and cannot devote any more time to this right now without impacting my own real life job, but I'll try to answer any specific questions if I get free time. I may in time post some more about the curious quotes and facts that I have read and heard directly from the owners when researching this. There are literally dozens more facts, snippets and quotes that make for a compelling picture that the club is living in
Interesting Times.
You're completely entitled to your opinion mate, don't take disagreement as anything other than that.
