Sunderland's owners respond to Echo questions on £20.5m parachute payment 'write off', Juan Sartori and proposed club sale
Sunderland supporters have reacted with significant concern to the news last week that £20.5 million of parachute payments used by Madrox to purchase the club from Ellis Short has been ‘written off’ as an ‘exceptional operating response’ in the upcoming accounts.
The Echo sent a series of questions to Sunderland AFC and asked for comment on the various issues.
Madrox, the company set up as the vehicle to acquire the club and in which Stewart Donald, Juan Sartori and Charlie Methven are shareholders, responded.
We then asked for clarity on some of the issues raised in a series of follow-up questions.
The questions and responses can be read below.
Questions relating to the ‘exceptional operating expense’
- If the club’s ownership remains committed to paying back the money used to help purchase the club from Ellis Short, for what purpose has the obligation to do so been removed?
Madrox responded: “When entering into the investment with FPP it was a condition of the agreement to do so. The terms of that agreement are confidential but clearly for them to invest in Madrox it is cleaner and gives them more comfort if Madrox has no liabilities.
“This, however, does not prevent Madrox from investing funds in Sunderland to replace the parachute payments as promised.
“Indeed, since the writing off of the debt Madrox has done just that, providing an additional £11,375,000 to the club, thus replacing a large portion of the parachute payments as we promised we would do.
“We are still only two years into our original five-year financial plan and we explained to the fans very early on that these monies would be replaced over time. That is exactly what is happening and actually at a faster rate than originally planned.
“With regard to the query over timing, what we can confirm for those who are not accountants or are not familiar with the process of producing financial year end accounts is that we had to write this off in the financial year to 31 July 2019 due to the fact that the accounts were signed off post the FPP financing, so the 'tidy up' exercise we went through in October 2019 had to be reflected in July 2019 to show a true position. This is perfectly normal accounting practice.
“For those fans that are not aware, companies are given a number of months to finalise their figures before they are signed off and published and there is nothing unusual in this process.”
Questions relating to Madrox’s funding of Sunderland AFC
-The club stated in response to the national newspaper reports that ‘since year end’, Madrox has put £11.5million into the club. Is this all from shareholder funds or does this include the funds injected by the FPP group?
Madrox responded: “The detail around Madrox’s financing is private but we can confirm there are funds still within Madrox from all our investors that can be deployed as needed for Sunderland AFC or indeed other ventures we are looking at. Madrox has a wider investor base than it did when it acquired Sunderland from Ellis Short and a greater capacity to access additional funding when needed.”
-The same statement said that Madrox had invested £25million into the club in total. Again, does this include the FPP funds?
Madrox responded: “We can’t comment on the individual financial arrangements due to confidentiality with all our investors.
“However, Madrox can confirm that in addition to the £5million deposit paid at completion we have injected into the club £9,075,000 in 18/19 and £11,375,000 in 19/20.”
(The Echo has seen funds injected into the club in 2018/19 and 2019/20. This is before and after the financing deal was struck with the FPP group).
-As a result of the above, how much, at this stage, do Madrox believe they owe the club and how much remains owed to the FPP group?
Madrox responded: “Madrox believes and has made it clear that we will replace any parachute monies which they warned may be temporarily used.
“These will be replaced as needed, debt free and interest free as Stewart Donald has promised they would.
“Within the original purchase price of £39.6million it was believed that up to £25million may be used in parachute payments to contribute to this figure.
“As of today Madrox has invested funds so that this figure has reduced to just under £11.5million.
“Again, we advised this money would be replaced over time as per our business plan and this is exactly what is happening and will continue to happen until the figure is reduced to zero and the club benefits fully from these funds.”
- In response to the above answers, the Echo asked for clarity: Does the ‘wider investor base’ mentioned refer to the FPP group, or are there further investors in Madrox and, by extension, Sunderland AFC?
Madrox responded: “Any investors in Madrox are protected by confidentiality agreements but should any shareholdings alter the relevant notifications would be issued.”
- The Echo also asked: How exactly is Madrox replacing the funds, ‘debt and interest free’?
Madrox responded: “There are a number of ways such as gifts/donations or share issues to name but a few and as mentioned we have already placed over £10million back into the club since the write off. This is without the club incurring any debt or interest so not only can it be done, it is being done and with substantial funds.”
Questions relating to Juan Sartori
-The reports on Friday allege that Juan Sartori paid just £1 for his shares in the club. Is this the case and what is the justification for this?
Madrox responded: “Juan Sartori has invested millions of pounds into Sunderland and has done so via Madrox on an interest free, debt free basis to the same proportion as the other investors.”
- In response to the reports, the club said that Madrox affairs are confidential. How can this be the case when it serves solely as the vehicle through which Sunderland is owned?
Madrox responded: “Madrox was indeed created as the vehicle in which to acquire Sunderland AFC. However, it is looking at other investments in the sport and leisure sector to complement this. That was a contributing factor in seeking a wider investment base and this along with the fact that some investors wish the detail of their financial involvement, like many people investing in businesses, to remain private, means that Madrox affairs must remain confidential.”
-Supporters were told by Stewart Donald and Charlie Methven towards the end of last year that Sartori would be more visible and engaged. Why has this not been the case?
Madrox responded: “Whilst Madrox is the owner of Sunderland AFC, Juan is fully committed and more involved than ever in the running of the club.
“He has been delayed in a proposed move to London but Juan is expecting to spend more time in England and as a result will be more visible in the future once this happens.”
-In response to the above answers, the Echo asked, for clarity: Stewart Donald said that Juan Sartori had paid £3million for his 20% stake in Madrox. Charlie Methven then said that this was as a proportion of the money paid to Ellis Short at that stage (which was said to be £10million). Does the club stand by both of these statements in light of the document referenced in national newspaper reports?
Madrox responded: “Madrox is aware of the document. Stewart Donald’s statement is factually correct. Madrox was set up with minimal share capital. Both Stewart and Juan chose to invest their money into Madrox as director’s loans instead of share capital and in the process paid a token amount for the shares. This is perfectly normal business practice.”
-The Echo also asked: Does this ‘wider base’ and ‘other investments’ affect the sale of the club, given that Stewart Donald has previously stated that the sale will most likely occur via the sale of Madrox?
Madrox responded: “No, it will not affect the sale in any way.”
Questions relating to the proposed sale of Sunderland AFC
-In a Sunderland collective meeting last June, Charlie Methven told supporters that there would be an ‘adjustment’ in the purchase price should the club change hands. With that in mind, is this money being deducted from the price the shareholders are seeking to sell the club? What is the asking price?
Madrox responded: “The asking price is private but flexible within reason. It has been met numerous times, however the virus and a lack of ability from some bidders to provide comfort around where the funds are coming from and on what terms has contributed to a longer process.
“The key is finding a buyer who has a real capability to progress the football club and Madrox will not sell control of the club to anyone we do not believe has the long term future of the club and its well being at heart – especially when we have the capability to finance the club ourselves having worked hard to reduce the losses and make the club sustainable, as well as subsequently widening our investor base to try and achieve long-term success and stability. Whilst we cannot guarantee the motives of any of the bidders the sale process allows us time to evaluate these potential new owners and our due diligence on new owners is vital. We have promised to pass the club on to the best owners we can in the best condition we can and just like the replacing of the parachute monies this is a promise we intend to keep. We are trying to achieve this but when there is no certainty in the world, never mind football. It is not an easy task as I am sure fans appreciate.”
-If the price has not been adjusted, how will a sale affect the payment of that money?
Madrox responded: “Any potential sale is not affected by FPP or any other investor in Madrox. The club is debt free and will be sold on that basis. Upon sale the internal financial arrangements within Madrox will be dealt with as needed.”
-The national newspaper reports stated that the club confirmed that ‘various parties have met the asking price’. Is this correct? If so, are there plans for the debt to be repaid should the sale progress?
Madrox responded: “There is no debt between the club and Madrox to settle. The proceeds of any sale of the club will see funds return to Madrox and what happens to the proceeds from there will be a matter for the board of Madrox. The club at that point will have no connection to Madrox, it will just have new owners who will have acquired the club debt free.”
In response to the above answers, the Echo asked for clarity: Are you committed to repaying the remaining balance of just under £11.5million into the club if it is sold?
Madrox responded: “We are totally committed to replacing all funds as promised. Any potential sale would reflect this desire.”
-The Echo then also asked: Have the FPP group been approached since your decision to put the club up for sale in January to ascertain whether they would be interested in revisiting taking a majority stake? And can you offer any further clarity as to why they did not purchase a majority stake in the club, as initially intended?
Madrox responded: “FPP and Madrox are in regular and constant dialogue. They are a key partner to Madrox and are aware of all material developments regarding the club. We cannot comment anymore than we already have regarding their decisions regarding Sunderland and should they wish to comment I am sure they will.”
-The Echo also asked: Charlie Methven said in late March that the club was likely to be under new ownership by the end of May. Is this now deemed unlikely?
Madrox responded: “Unfortunately it is unlikely with the development that football may resume without paying spectators. It is impossible at this stage to give a definitive timescale.”
*Phil Smith will hold his weekly Q&A with supporters this Wednesday on the Sunderland Echo site. Any questions can be sent to @sunechosafc or the Sunderland Echo SAFC facebook page.