Press Conference

[Grumpy Old Man]

Why would we go tits up?

£9m to cover next year's losses and/or paying off the rotten core.
Left with a young squad on League 1 salaries.
20,000 odd season ticket income.
Plus whatever cash we can get for the wantaways.
No debt.

That's a lot better financial picture than about 90% of football league clubs.

I suppose it's possible that Donald or some of his mates have £40m in their back pockets but otherwise it's coming out of the parachute payments one way or another.

And it has to be legal for SAFC to support its own purchase or Ellis couldn't have beem able to take a legal charge for the share sale price secured on the parachute payments (which we know he has).

The charge will be in the form of a deed of assignment. It's a straightforward backstop.

Even with wage reductions, our cost base next season will be in the order of £35-40m.

Non-parachute income is likely to be less than £20m (it was only £30m or so in the PL). We have a £19m deficit on transfers which will soak up any incoming transfer fees. Taking away the parachute leaves a £20m black hole without buyiong any players. they've had to demonstrate funding of at least £50m to get FA approval. they have the cash, but not all at once.

 

[andymcnish]

The charge will be in the form of a deed of assignment. It's a straightforward backstop.

Even with wage reductions, our cost base next season will be in the order of £35-40m.

Non-parachute income is likely to be less than £20m (it was only £30m or so in the PL). We have a £19m deficit on transfers which will soak up any incoming transfer fees. Taking away the parachute leaves a £20m black hole without buyiong any players. they've had to demonstrate funding of at least £50m to get FA approval. they have the cash, but not all at once.

How do you get to that figure?

That is this year's wage cost according to the Echo.

Rodwell and anyone who signed this year will have a 40% cut due to relegation clauses.

So who is left from the bloated old guard - the ones on the high wages?

JoS and Billy Jones are out of contract.
Jeremain Lens and Fabio Borini - deals already confirmed. Besiktas will pay another £4.5m for Fabio. not sure about Lens.
Wahbi Khazri (Rennes) and Papy Djilobodji (Dijon), are both on loan in France. We need to get shot of them. Not sure how much of their salaries are being covered by the French clubs.
Oviedo, Lee Cattermole and Lamine Kone - I imagine someone will take Oviedo and Kone.
Anyone else?

So we might have to pay off Catts and Rodwell and we will be left with the younguns. Won't be anywhere near £35m IMHO...

 

[Grumpy Old Man]

How do you get to that figure?

That is this year's wage cost according to the Echo.

Rodwell and anyone who signed this year will have a 40% cut due to relegation clauses.

So who is left from the bloated old guard - the ones on the high wages?

JoS and Billy Jones are out of contract.
Jeremain Lens and Fabio Borini - deals already confirmed. Besiktas will pay another £4.5m for Fabio. not sure about Lens.
Wahbi Khazri (Rennes) and Papy Djilobodji (Dijon), are both on loan in France. We need to get shot of them. Not sure how much of their salaries are being covered by the French clubs.
Oviedo, Lee Cattermole and Lamine Kone - I imagine someone will take Oviedo and Kone.
Anyone else?

So we might have to pay off Catts and Rodwell and we will be left with the younguns. Won't be anywhere near £35m IMHO...

The wage bill in the 2016/17 accounts was £84m. We'll be really lucky to have got it down as low as £35m this season. Other operating costs were £32m, although that was unusually high. That gives running costs of around £67m. We aren't going to be halving that. Far from it.

Our income from non-PL sources in 2016/17 was just under £30m. All elements of that will have reduced following relegation. Our income without PL money would mean a large and inevitable trading loss, and, in conjunction with known creditor commitments, a massive cash outflow.

Why are you so certain that Donald and Methven don't have the personal resources. Their main businesses operate behind unincorporated entities - you can't assume anything based on perceived balance sheet values of what limited companies there are. Or is just that you want this to fall over so we can get "proper" owners in. You know, the kind that commit millions without asking questions, and running up unsustainable debt.

 

[andymcnish]

The wage bill in the 2016/17 accounts was £84m. We'll be really lucky to have got it down as low as £35m this season. Other operating costs were £32m, although that was unusually high. That gives running costs of around £67m. We aren't going to be halving that. Far from it.

Our income from non-PL sources in 2016/17 was just under £30m. All elements of that will have reduced following relegation. Our income without PL money would mean a large and inevitable trading loss, and, in conjunction with known creditor commitments, a massive cash outflow.

Why are you so certain that Donald and Methven don't have the personal resources. Their main businesses operate behind unincorporated entities - you can't assume anything based on perceived balance sheet values of what limited companies there are. Or is just that you want this to fall over so we can get "proper" owners in. You know, the kind that commit millions without asking questions, and running up unsustainable debt.

Me? No I'm quite happy with them and think the position looks decent moving foward.
The Echo says this year's wage bill is £35m - so after relegation and getting rid of the old guard named above it should be significantly less next year - and as I said there's £9m spare of the parachute payments even if £40m of them are secured for Ellis and another few million from Lens/Borini and possibly other sales - so we'll be fine.

I thought Donald said he was worth around £10m personally? The Eton bloke will be worth less. If they have to put £40m in they will borrow one way or another...or they might tap up other investors for a slice...

 

[Mackem Tommy]

Me? No I'm quite happy with them and think the position looks decent moving foward.
The Echo says this year's wage bill is £35m - so after relegation and getting rid of the old guard named above it should be significantly less next year - and as I said there's £9m spare of the parachute payments even if £40m of them are secured for Ellis and another few million from Lens/Borini and possibly other sales - so we'll be fine.

I thought Donald said he was worth around £10m personally? The Eton bloke will be worth less. If they have to put £40m in they will borrow one way or another...or they might tap up other investors for a slice...

I think he was quoting, then said he'd had to prove they had the money for approval so it was a load of bollocks basically.

Not to get in the way of what is a fairly high level debate by RTG standards.

 

[pele]

The wage bill in the 2016/17 accounts was £84m. We'll be really lucky to have got it down as low as £35m this season. Other operating costs were £32m, although that was unusually high. That gives running costs of around £67m. We aren't going to be halving that. Far from it.

Our income from non-PL sources in 2016/17 was just under £30m. All elements of that will have reduced following relegation. Our income without PL money would mean a large and inevitable trading loss, and, in conjunction with known creditor commitments, a massive cash outflow.

Why are you so certain that Donald and Methven don't have the personal resources. Their main businesses operate behind unincorporated entities - you can't assume anything based on perceived balance sheet values of what limited companies there are. Or is just that you want this to fall over so we can get "proper" owners in. You know, the kind that commit millions without asking questions, and running up unsustainable debt.

You're talking tosh, Grumps. And, you know it. There's no chance of these guys being 'in it' for any other reason than ego and a quick buck if they can get it. The financial implications mean that it can't work and will never work. Until the money grabbing agents and the players apathy disappear, then we are doomed. Doomed, Grumps, I tell you. Doomed.

 

[Grumpy Old Man]

Me? No I'm quite happy with them and think the position looks decent moving foward.
The Echo says this year's wage bill is £35m - so after relegation and getting rid of the old guard named above it should be significantly less next year - and as I said there's £9m spare of the parachute payments even if £40m of them are secured for Ellis and another few million from Lens/Borini and possibly other sales - so we'll be fine.

I thought Donald said he was worth around £10m personally? The Eton bloke will be worth less. If they have to put £40m in they will borrow one way or another...or they might tap up other investors for a slice...

Donald has put £10m into Eastleigh. His mother put another £10m into Cornfield, a corporate director of Madrox. Estimates I've seen are that the Donald family is worth well over £100m.

There is one further practical consideration in favour of the argument that nothing will happened to the parachute payments - League 1 FFP. This requires that a club's wage bill is no more than 60% of turnover. As the owners have promised a substantial player budget (by which they mean combined transfers and wages), to strip out any of the parachute will cause a very real reduction in the available wage budget. Removing it entirely would trim the wage budget by around £21m. there's no logical reason for them to hamstring themselves when the need to retain cash (and turnover) within the club to effect the changes they need to make is so great.

 

[andymcnish]

'Putting money in' has a lot of different meanings when you are discussing corporate finance. It doesn't just mean putting cash in for ordinary shares.

As does 'family worth'.

He might be able to raise it by borrowing against assets and then lend it to the holding company so it can pay Ellis but that still leaves the SAFC Group owing him the £40m.
In theory he could put £40m in as equity into the holding company (so there is no debt) but any lender funding paying Ellis out will want to take Ellis' security over the parachute payments and separate security over Donald's shares in the group.

I doubt Donald is rich enough to have £40m cash just lying about. If I'm wrong I'll be very happy. As is it I'm still pretty happy - even on the assumption that £40m of the parachute payments is directly or indirectly funding the price, there's enough left to see us more or less stable and have a good punt at getting out of League 1 next season.

I'm not sure why FFP is relevant. Neither wage bill nor turnover are affected by balance sheet items such as debt.
I suppose if we need to get wages down we might have to increase debt/reduce cash so we can pay off Rodwell and Catts' contracts, but the structuring of the share payments and loans won't affect the FFP calcualtion at all will it?

 

[everstar]

'Putting money in' has a lot of different meanings when you are discussing corporate finance. It doesn't just mean putting cash in for ordinary shares.

As does 'family worth'.

He might be able to raise it by borrowing against assets and then lend it to the holding company so it can pay Ellis but that still leaves the SAFC Group owing him the £40m.
In theory he could put £40m in as equity into the holding company (so there is no debt) but any lender funding paying Ellis out will want to take Ellis' security over the parachute payments and separate security over Donald's shares in the group.

I doubt Donald is rich enough to have £40m cash just lying about. If I'm wrong I'll be very happy. As is it I'm still pretty happy - even on the assumption that £40m of the parachute payments is directly or indirectly funding the price, there's enough left to see us more or less stable and have a good punt at getting out of League 1 next season.

I'm not sure why FFP is relevant. Neither wage bill nor turnover are affected by balance sheet items such as debt.
I suppose if we need to get wages down we might have to increase debt/reduce cash so we can pay off Rodwell and Catts' contracts, but the structuring of the share payments and loans won't affect the FFP calcualtion at all will it?

didn't he say in the interview he had to show the EFL 50m?

 

[Grumpy Old Man]

'Putting money in' has a lot of different meanings when you are discussing corporate finance. It doesn't just mean putting cash in for ordinary shares.

As does 'family worth'.

He might be able to raise it by borrowing against assets and then lend it to the holding company so it can pay Ellis but that still leaves the SAFC Group owing him the £40m.
In theory he could put £40m in as equity into the holding company (so there is no debt) but any lender funding paying Ellis out will want to take Ellis' security over the parachute payments and separate security over Donald's shares in the group.

I doubt Donald is rich enough to have £40m cash just lying about. If I'm wrong I'll be very happy. As is it I'm still pretty happy - even on the assumption that £40m of the parachute payments is directly or indirectly funding the price, there's enough left to see us more or less stable and have a good punt at getting out of League 1 next season.

I'm not sure why FFP is relevant. Neither wage bill nor turnover are affected by balance sheet items such as debt.
I suppose if we need to get wages down we might have to increase debt/reduce cash so we can pay off Rodwell and Catts' contracts, but the structuring of the share payments and loans won't affect the FFP calcualtion at all will it?

The wage limit is a percentage of turnover. You can't go over 60%. If the parachute payments are diverted, they stop being turnover, unless you;re talking about getting the cash in, and then immediately loaning it out, thereby wrecking your cash flow for the entire season. You seem utterly intent on "proving" that the parachute payments will be used to meet the purchase price. Why?

 

[andymcnish]

didn't he say in the interview he had to show the EFL 50m?

What does that mean though? He might need to show a credit line of £50m, cash of £50m or a net worth of those involved of £50m. Still so long as he can fund a decent League 1 run and we stop losing money hand over fist it'll be fine...

 

[Deleted member 7101]

What does that mean though? He might need to show a credit line of £50m, cash of £50m or a net worth of those involved of £50m. Still so long as he can fund a decent League 1 run and we stop losing money hand over fist it'll be fine...

He said it himself in his interview....it means £50m of available realisable assets.

 

[bedlington mackem]

The Sunderland fanbase has been damaged badly, generations of fans. Going to league 1 will have a bad effect. Sunderland will never get above 35,000 average again.

Not sure I agree as it would not surprise me if we get 35,000 for our first home game. This takeover could have a similar effect as the move to the SOL. Most of our supporters just want to see winning attractive football, regardless of the division we are in. The crowds will soon come back if that is the case and or if a new hero (like Phillips ) is found

 

[Abu Dhabi Red and White]

Besiktas will pay another £4.5m for Fabio.

Eh?

 

[andymcnish]

The wage limit is a percentage of turnover. You can't go over 60%. If the parachute payments are diverted, they stop being turnover, unless you;re talking about getting the cash in, and then immediately loaning it out, thereby wrecking your cash flow for the entire season. You seem utterly intent on "proving" that the parachute payments will be used to meet the purchase price. Why?

'Utterly intent'?
I just see a lot of corporate deals (I'm a corporate lawyer) and that's my assumption.
These people tend never use their own personal funds if they can borrow them instead against the corporate assets.
The main reason is that extracting cash from companies to individuals is rarely tax efficient except on a final sell-out. That's the way it works.

So we have a deal here where we know that the Target company is getting in £48m at known times in the future.
The buyers have agreed to pay £40m price at some times in the future.
We also know that the price is secured against those future receipts.

Taking an overview of such deals ask yourself 'is it likely that the amount and timing of the instalment payments for the shares is linked to the amount and timing of the future income instalments and that the latter are therefore directly or indirectly funding the former ?'

The answer is 'more likely than not, yes'.

It might not be the case - it could just be coincidence and Donald might already have £40m down the back of his sofa that Ellis doesn't want right away for some reason.
But I doubt it.

I assume Ellis has left in £9m of the parachute payments as that is neededto steady the ship/pay off Rodwell/Catts etc but will get the £40m price paid from the other £40m of the parachutes one way or another.

If we are really getting a full £48m plus whatever we get for Borini, Lens, Kone and any others we can shift, and Donald puts another £5-10m in for transfers etc., we'll have a warchest the like of which league 1 has never seen. Maybe £65m. I really don't think we are that loaded. Hope I'm wrong of course...

 

[Grumpy Old Man]

'Utterly intent'?
I just see a lot of corporate deals (I'm a corporate lawyer) and that's my assumption.
These people tend never use their own personal funds if they can borrow them instead against the corporate assets.
The main reason is that extracting cash from companies to individuals is rarely tax efficient except on a final sell-out. That's the way it works.

So we have a deal here where we know that the Target company is getting in £48m at known times in the future.
The buyers have agreed to pay £40m price at some times in the future.
We also know that the price is secured against those future receipts.

Taking an overview of such deals ask yourself 'is it likely that the amount and timing of the instalment payments for the shares is linked to the amount and timing of the future income instalments and that the latter are therefore directly or indirectly funding the former ?'

The answer is 'more likely than not, yes'.

It might not be the case - it could just be coincidence and Donald might already have £40m down the back of his sofa that Ellis doesn't want right away for some reason.
But I doubt it.

I assume Ellis has left in £9m of the parachute payments as that is neededto steady the ship/pay off Rodwell/Catts etc but will get the £40m price paid from the other £40m of the parachutes one way or another.

If we are really getting a full £48m plus whatever we get for Borini, Lens, Kone and any others we can shift, and Donald puts another £5-10m in for transfers etc., we'll have a warchest the like of which league 1 has never seen. Maybe £65m. I really don't think we are that loaded. Hope I'm wrong of course...

You maths is way off. The 2018/19 parachute will be around £38m. We will have other income of around £20m.

Against that - wage bill around £25m, other operating costs about £16m.

That leave a cash inflow of around £17m.

We have transfer commitments of £19m net from previous seasons.

If you strip out even half of the parachute to pay Short about £20m in instalments that leaves a cash outflow of £22m before transfer income.

To provide a decent League 1 transfer budget, you'd need to find about £25-30m in player sales.

It might make sense to you from a deal perspective. I'm telling you it makes zero sense if you want to run a sustainable football club. Take off the corporate finance sunglasses, and start thinking like the man who has t make a success of actually getting this club out of the division it's in. To structure the deal the way you suggest would destroy that prospect. I ask again, why would a rational manager do that?

 

[makempride]

No he won't. That money is the club's, not the owners', and, in the absence of debt, they have no legal way of getting it out. Short will be paid £40m by them. Short has security over them; all that means is that he can take the parachute payments if they default. They will probably have to inject a small amount (well under £20m) to fund transfers and running costs, but will hope to have to put in less than that.

so its not the parachute payments thats buying the club ? they are and the parachute payments are used to fall back on if they cant pay?

 

[Grumpy Old Man]

so its not the parachute payments thats buying the club ? they are and the parachute payments are used to fall back on if they cant pay?

That's my understanding, yes.

 

[Super Colin Todd]

Me? No I'm quite happy with them and think the position looks decent moving foward.
The Echo says this year's wage bill is £35m - so after relegation and getting rid of the old guard named above it should be significantly less next year - and as I said there's £9m spare of the parachute payments even if £40m of them are secured for Ellis and another few million from Lens/Borini and possibly other sales - so we'll be fine.

I thought Donald said he was worth around £10m personally? The Eton bloke will be worth less. If they have to put £40m in they will borrow one way or another...or they might tap up other investors for a slice...

They've already gave Ellis 15 mill of the 40 owed (buying), so they still owe him 25 mill plus currently the running costs of the Club are significantly higher than what's coming in to the Club.

 

[andymcnish]

You can do all sorts of timing things with inter company loans, but either the £40m share price is coming entirely out of personal funds and being paid directly to Ellis by them and doesn't generate any debt for SAFC or it does generate that debt (most likely to a holding company).
In the first case, if what Ellis says about us now being debt free is true, we are minted.
In the second the only spare cash is what the new guys put in or borrow and what we can raise from sales. We will be OK but look for much more limited spending...