Finances chat

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Montysoptician said:
Please explain to me how someone who owns the club outright can owe himself money? I bought a new car in August and took the money from my savings, in your opinion have I done anything wrong and do I “owe” myself money?

I am not naive and understand that as supporters we have an emotional attachment to the club and feel that the club is “ours” but in reality my only investment (and I suspect most others) is a couple of season tickets every year and a bit of cash spent in the club shop.

Irrespective of how he financed the deal and his disingenuous explanations of that transaction, Stewart Donald owns the club and can basically, within the law, do what he wants with it.
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Thank **** I'm not the only one who thinks this way, I can't believe the time someone can spend on going over and over and over on all this when there's literally not a single thing they can do about it!
 
Montysoptician said:
Please explain to me how someone who owns the club outright can owe himself money? I bought a new car in August and took the money from my savings, in your opinion have I done anything wrong and do I “owe” myself money?

I am not naive and understand that as supporters we have an emotional attachment to the club and feel that the club is “ours” but in reality my only investment (and I suspect most others) is a couple of season tickets every year and a bit of cash spent in the club shop.

Irrespective of how he financed the deal and his disingenuous explanations of that transaction, Stewart Donald owns the club and can basically, within the law, do what he wants with it.
Click to expand...

Unlike your car Companies (as football clubs are) are their own seperate legal entity from their owners. Think of them more as a person, in law they are treated that way really - i can put money into a bank account for another person but i can't just take it back again. The director of the company has a fiduciary duty to act in the best interests of the company - that is not always going to be in the best interests of the owner. For instance if the owner decided to pay themselves chunks of money out of a company without reason it would be illegal (possibly not criminally depending on how it was done but certainly a breach of corporate practice, enough to have them removed and fined).

No idea how Donald is financing things to be honest even having skimmed through the above, I would agree there's no major benefit in worrying about it. We get the some thing with Ashley and i accepted long ago there's nothing i can do about it so...
 
ps. what gets people backs up is when clubs are leveraged. Buyers essentially use the clubs own money to buy it and then get the clubs to pay off the debts which they, the owners, had saddled it with. The Glazers at Man Utd are an excellent example of this and Hicks and Gillett tried the same at Liverpool. The difference here is that Sunderland were not in a healthy state when Donald and Methven came in so I have less issue with it. There were no billionaires riding into town to take the club on, yes they are doing it on the cheap but at least they are doing it (and trying to find others with good money who will help)
 
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Guinness Guzzler said:
Firstly, although I can imagine some of the responses you'll likely get, I just want to say cheers for doing this. Regardless of people's opinion about the content it's obvious that the lad has spent a hell of a long time looking into and cross referencing things to try and give as clear an understanding as possible of our financial position. Given that he admits that it's nothing illegal and he isn't trying to suggest that we're screwed financially, it's pretty obvious that he's not a mag and is just a concerned fan who would rather we were doing better on the pitch. I don't see any reason why that should be criticised and tbh he's been quite refreshing in terms of not responding to slightly mocking posts with any sort of abuse. It was getting a bit repetitive and disruptive on the takeover thread when people were just looking for updates on the investment, but I think it's a perfectly good thing to have on a separate thread where you can engage with it if you wish or ignore if you wish.

I admit that I understand very little about finances and accounts, but I'd only make a couple of comments that might be wildly wrong.

Firstly, without meaning to sound dismissive of what you've done, does it really matter if we're getting taken over/ invested in? By that I mean I'm assuming that any due diligence process will easily find similar to what you have found, therefore if there's money to come back to SAFC they will account for it when agreeing the deal. In that sense, since Donald is obviously looking to sell sooner rather than later, do we need to be concerned? I get that it might be an issue if he was here for ten years and nothing seemed to come back that was spent on the football side, but if it's going to be short term I'm assuming that it'll effectively sort itself out.

Also, I understand your concern in terms of how we don't look certain to get out of league one (mind we've been poor and we're still near play offs so I don't think loads will be needed in January to give Parkinson a good chance of succeeding), but when you talk about the £20m and how it could help, do you really think we need to be spending much of it now? It's one of those things, we can't have our cake and eat it, we can only spend it once.

By that I mean let's say he flung £6m at it in July, you'd fancy us to go up (but no guarantee). The trouble is, that would have been to bring in more expensive players (maybe Maddison for one). It would have had to have been spent on players that we feel can make the step up, but very few of those would come here if championship clubs were interested so we'd be fishing in a limited pool and might have to overspend to get them here (like I imagine we did with Grigg's wage since they knew how desperate we were for him to sign). So we spend a decent chunk of the money and it increases our outgoings. Firstly if we don't go up we're then a bit ****ed because our wage bill is even higher when our income drops, but even if we do to up it would add to our costs when we need to be ensuring that we minimise losses. I know we need to spend eventually, but do we want to be overspending on players who might not even be able to make the step up? When we get up we might need to fund a push towards the top part of the table, so are we not better off going up with very minimal costs so that we can do all the work we need to do when we're in the league above and can spend the £20m on players who we can be very confident will do a job?

You've got to remember that Donald has always said you should get out of this league with minimal/ no spend in terms of transfer fees. The fact that we seem to be doing it on the cheap is likely a reflection of that belief rather than any unwillingness to put his hand in his pocket. We were close last season, this season he obviously believed that Ross could do it and now has given Parkinson the chance. From the way we've approached the last two games I think there's every chance we can go up without needing much of the £20m spent. That's his call to make and i can understand the logic for keeping our powder dry as it were as long as it works, and we're too early in the day to suggest that it won't. He no doubt hopes that we stay in and around the play off places (which we should) and then maybe some minor adjustment in January might see us still have plenty time to target the top two.

If we don't go up the money will likely (I'd have thought) be needed to cover costs since our parachute payments stop, so we'd have a big reduction in income. Is holding back the money now not just a sensible approach rather than spending it, or most of it, now and making things worse if we don't get up? If we're a year or two down the line, struggling financially, still in this league and he hasn't paid it back then it's an issue, but for now I see it as simply being part of his plan for the club.

Again though, just my thoughts and I might be miles out/ inaccurate on various things, just thought you deserved a considered response and slight alternative viewpoint given the work you've put in. I'm glad we've got fans who care enough to do the work you did though, you're only trying to make sure the owners are being good custodians, I'm sure even they'd agree that that's healthy
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This is spot on for me.
Also, we are limited by FFP/SCMP so the club can't spend as much as it likes on players.
Plus how do we know he hasn't already repaid most of the £20m? There were a lot of legacy payments required for old players etc. It could be down to £5m now, just enough to cover next season's loss.
 
Montysoptician said:
Please explain to me how someone who owns the club outright can owe himself money? I bought a new car in August and took the money from my savings, in your opinion have I done anything wrong and do I “owe” myself money?

I am not naive and understand that as supporters we have an emotional attachment to the club and feel that the club is “ours” but in reality my only investment (and I suspect most others) is a couple of season tickets every year and a bit of cash spent in the club shop.

Irrespective of how he financed the deal and his disingenuous explanations of that transaction, Stewart Donald owns the club and can basically, within the law, do what he wants with it.
Click to expand...
Because he used the club's parachute payments (instead of his own money) to pay Ellis Short for the club. So he owes that money back to the club.
 
haslam said:
Unlike your car Companies (as football clubs are) are their own seperate legal entity from their owners. Think of them more as a person, in law they are treated that way really - i can put money into a bank account for another person but i can't just take it back again. The director of the company has a fiduciary duty to act in the best interests of the company - that is not always going to be in the best interests of the owner. For instance if the owner decided to pay themselves chunks of money out of a company without reason it would be illegal (possibly not criminally depending on how it was done but certainly a breach of corporate practice, enough to have them removed and fined).

No idea how Donald is financing things to be honest even having skimmed through the above, I would agree there's no major benefit in worrying about it. We get the some thing with Ashley and i accepted long ago there's nothing i can do about it so...
Click to expand...
Trying to take money out of someone’s bank account would be illegal, Kittenmittens specifically states that Stewart Donald has not done anything illegal.

In order to understand, I like to reduce everything to the lowest common denominator that's why I used the example of my car (I could invent all sorts of scenarios which would make that transaction illegal but they would just be red herrings).

I wrote that " Stewart Donald owns the club and can basically, within the law, do what he wants with it" so I am not sure what your point is.
 
Kittenmittons said:
Can you elaborate? The two most cited sources in the OP are Stewart Donald and Charlie Methven. Whatever you take from this, I don't know how it could be that the sources aren't good enough, because they're first hand accounts by the owners themselves!

For some reason the conversation reminds me of Trump.

'Its a witch hunt!'
'No, there is evidence from multiple sources that he did it'
'The evidence is ridiculous and agenda driven! I refuse to believe it'
'He has said that he did it'
'Yeah... but... even if he did it, is it wrong?'
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I have no wish to get into an argument with you KM, but the sources and quotes are often open to (mis)-interpretation, especially when they are presented without context. A slip of the tongue ('takeover' as opposed to 'investment', spoken by whoever, can be spun many ways, for example. This is my last post on this thread, enjoy yourself, I have no further interest.
 
Montysoptician said:
So he owes the money to himself?
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No, he owes it to his football company. Haslam explained above, why that's not the same as owing it to himself. Another way of looking at it is that he could have taken the parachute payments from the club, and used that money to pay off his personal debts (to Ellis Short). If you take money out of your own company, you need to eventually repay it, unless the company owes you that money (e.g. for dividends, wages, loan owed to you).

I know it's all via Madrox Ltd but I'm trying to keep it simpler.
 
The buying a car analogy doesn't work.

Here's the best and simplest analogy I have:

Imagine I own a company that has 1m in cash in the bank.

Last year the company made 500k, but had costs at 1m, so a 500 grand loss.

Now if I took the 1m cash in the bank as a directors loan and used it to buy a mansion, would that be a good thing for the company?

Now let's say I agree to repay that loan 'as necessary', so if we make another shortfall, I'll make it up by paying back my debt. Sounds fair?

But this year, I also fire half of the staff, and the company is now only spending £500k a year, with revenue of 500k, its treading water. So there is no shortfall, and I don't need to put any of the 1m I owe back in.

Now next year, we have an opportunity, we're in the top 50 companies in the uk at what we do, but a new contract is out there if we have more members of staff to handle it and invest in our tech infrastructure. Getting that contract would push us into the top 40 companies, and the rise in revenue could get us hiring more staff and winning more contracts, we could even be in the top 20 companies.

Now imagine, with all of that on the line, if I refused to hire the members of staff, and instead said that we'd have to just continue as we are, and hope for the best, despite me owing the company twice as much as would be needed to satisfy the new contract, and telling people that I have the cash to repay it, but I won't.

If you were a shareholder in that business, how would you view my actions?
 
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HeatonMackem said:
No, he owes it to his football company. Haslam explained above, why that's not the same as owing it to himself. Another way of looking at it is that he could have taken the parachute payments from the club, and used that money to pay off his personal debts (to Ellis Short). If you take money out of your own company, you need to eventually repay it, unless the company owes you that money (e.g. for dividends, wages, loan owed to you).

I know it's all via Madrox Ltd but I'm trying to keep it simpler.
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So it is illegal then?
 
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Montysoptician said:
Trying to take money out of someone’s bank account would be illegal, Kittenmittens specifically states that Stewart Donald has not done anything illegal.

In order to understand, I like to reduce everything to the lowest common denominator that's why I used the example of my car (I could invent all sorts of scenarios which would make that transaction illegal but they would just be red herrings).

I wrote that " Stewart Donald owns the club and can basically, within the law, do what he wants with it" so I am not sure what your point is.
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My main point was just that companies are specifically very different to anything else you could own. They are their own legal entity and not really comparable to anything else to be honest (not having a go, just how it is), I'd love to say the reason was due to protecting employees (which is how it is often framed nowadays) but it actually comes from the industrial revolution and protecting banks and investors. Bascially if you trashed your car it's your problem, if you trashed your company it has a knock-on effect to many others (suppliers, investors, employees, etc) so you aren't allowed to just do with it as you want (for bigger companies, if you have a small one it's not so much of an issue).

You are correct to highlight the words "within the law" and from what we know he hasn't done anything illegal (as i say in the ps afterwards I think SD and CM are doing their best), there are certainly immoral practices though which are legal but drain money from companies (I could bore you all with Mike Ashley information but this is probably not the time or place!) and that is, i think, what kittymittens is wary of. The parachute payments money is a valid point of concern but in fairness to SD he has been open about it all.
 
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Kittenmittons said:
The buying a car analogy doesn't work.

Here's the best and simplest analogy I have:

Imagine I own a company that has 100k in cash in the bank.

Last year the company made 50k, but had costs at 100k, so a 50 grand loss.

Now if I took the 100k cash in the bank as a directors loan and used it as a deposit on a house, would that be a good thing for the company?

Now let's say I agree to repay that loan 'as necessary', so if we make another shortfall, I'll make it up by paying back my debt. Sounds fair?

But this year, I also fire one of the staff, and the company is now only spending £50k a year, with revenue of 50k, its treading water. So there is no shortfall, and I don't need to put any of the 100k I owe back in.

Now next year, we have an opportunity, we're in the top 50 companies in the uk at what we do, but a new contract is out there if we have another member of staff to handle it. Getting that contract would push us into the top 40 clubs, and the rise in revenue could get us hiring more staff and winning more contracts.

Now imagine, with all of that on the line, if I refused to hire the second member of staff, and instead said that we'd have to just continue as we are, and hope for the best.

If you were a shareholder in that business, how would you view my actions?
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I will put the same question to you, is Donald's actions in taking the money out of Sunderland AFC illegal?
 
It's not illegal. I've stated that. I'm asking you now, if you were an investor in the above company, would you ask the owner why we couldn't use the money he owed to finance the new contract?
 
haslam said:
My main point was just that companies are specifically very different to anything else you could own. They are their own legal entity and not really comparable to anything else to be honest (not having a go, just how it is), I'd love to say the reason was due to protecting employees (which is how it is often framed nowadays) but it actually comes from the industrial revolution and protecting banks and investors. Bascially if you trashed your car it's your problem, if you trashed your company it has a knock-on effect to many others (suppliers, investors, employees, etc) so you aren't allowed to just do with it as you want (for bigger companies, if you have a small one it's not so much of an issue).

You are correct to highlight the words "within the law" and from what we know he hasn't done anything illegal (as i say in the ps afterwards I think SD and CM are doing their best), there are certainly immoral practices though which are legal but drain money from companies (I could bore you all with Mike Ashley information but this is probably not the time or place!) and that is, i think, what kittymittens is wary of. The parachute payments money is a valid point of concern but in fairness to SD he has been open about it all.
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Thanks for your responses, very enlightening I'm on grandparent duties now so will read digest and respond later
 
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