RAWA RAWA/Club Official Minutes/Newsletter



Grumpy Old Man said:
OK, here’s my take on what happened. Some of this is, of course speculation, particularly about what may have happened before the change of ownership, but, in my view, it’s consistent with subsequent events and the club’s account of them. I should make it clear that this is very much my own interpretation, and nothing to do with RAWA or anyone else.

The driving force in getting a deal over the line was a change in attitude from SBC. They didn’t want to lend to a League 1 club, and were starting to feel at risk. So they started invoking guarantees and/or threatening foreclosure, effectively forcing Short’s hand.

Short was able to come up with a deal where the debt would be partially cleared immediately by cashing in the club’s bond lodged with them (£23m in the 2018 accounts, but subject to currency fluctuations) and making a cash payment himself. This would leave £25m to be repaid from the parachute payments receivable by SAFC Ltd in July and August.

As the deal approached, Short made the decision to leave the club apparently debt free, by clearing the internal and external loans by means of a share issue. As part of this, the debt would pass to Drumaville, although payment would still come from SAFC. This allowed Short to make his claim. The reality of course is that the club still had the obligation to repay that £25m. It had simply been moved off balance-sheet. The simple solution would have been for Short to swallow his pride and leave the £25m in Sunderland’s books.

Enter Madrox. They are told that the deal is £37m, £12m for the shares in Sunderland Ltd, and £25m to pay off the SBC loan now sitting in Drumaville’s books. The £25m is specifically stated to be payable from the parachute payments. The problem is that that this creates a cost of investment of £37m to Madrox as a separate legal entity. Still, the hope is that the parachute can be reassigned to facilitate this. Nobody has thought to question whether the PL will allow this. They can’t, as it’s against PL regulations; it has to go into an account in the name of the club receiving the parachute payment. There is thus no alternative to the money coming into SAFC, and being passed through Madrox (in paper terms anyway), since Madrox is the legal entity with the debt to Drumaville. This movement is what created the balance between SAFC and Madrox. The £9.6m balance in the last accounts is the value of the July parachute instalment; the remainder of the £25m will have gone across in August. The final payment for the shares was made in April, when Short lifted his charges.

If you look strictly at legal form, this can be interpreted as SAFC meeting part of Madrox’s purchase price. However, the underlying substance is that the parachute was used for the purpose originally intended by Short, namely paying down the SBC loan.

It’s a legitimate question to ask whether that loan payment could have been made by the owners themselves. I’m not so sure they could. Firstly, it’s possible that the need to use the parachute was written into the share purchase agreement. Alternatively, raising £25m in cash by the end of August may not have been possible. After all, agreement had already been reached to pay to the share price in instalments. What we can be reasonably sure of is that those payments were used to pay off the loan, as the charges over the club weren’t removed until the end of August.

I’m fairly sure that there is no legal obligation on Madrox to repay the balance, although, as they put investment in themselves, it should come down anyway. It simply means that the money they put in comes off that balance, rather than creating new soft debt in the club.

What we’re seeing here is the aftermath of a very badly constructed deal overlaid on a ham-fisted debt reorganisation to allow the previous owner to claim the club was handed over was debt free. That was very much not the case.
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Thanks for taking the time to explain that,it does put a different complexion on the opinion I held on the matter prior to reading that. Very interesting.
 
Longovicium said:
A physio once had to join in training or something according to Stewart IIRC. Even though we had a squad of 23 at the beginning of last preseason.
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I think he said someone had to join in with O'Nien as everyone else had finished and gone home but O'Nien wanted to stay back and do extra training. Had nothing to do with squad numbers.
 
The poster has not articulated his argument well at all but from the outside it could appear GOM with every good intention has now become some untouchable Financial Guru with a growing number of disciples to leap to his defence that won't hear a word against or in contradiction to his interpretations.

This does put him in a strong position to extend his influence beyond number crunching with his recent posting history appearing to be very sympathetic and defensive of the heirachy.

Such criticism is healthy if constructive and reasoned which is not the case if the first response is false accusations from both sides.

Just my 2p worth in the hope of balance.
 
Grumpy Old Man said:
I would appear someone's been banned. For the avoidance of doubt, I didn't report.
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Grumpy, serious question if you don't mind.

Would not technically accounting for the TV money is these calculations mean that if we did get the club self sustaining we would then have a surplus of the same TV money to fund transfers etc?

It makes sense to me to try and get our expenditure in line with our income without it as if and when the TV bubble bursts we would be in a far stronger position
 
MirdifMakem said:
The poster has not articulated his argument well at all but from the outside it could appear GOM with every good intention has now become some untouchable Financial Guru with a growing number of disciples to leap to his defence that won't hear a word against or in contradiction to his interpretations.

This does put him in a strong position to extend his influence beyond number crunching with his recent posting history appearing to be very sympathetic and defensive of the heirachy.

Such criticism is healthy if constructive and reasoned which is not the case if the first response is false accusations from both sides.

Just my 2p worth in the hope of balance.
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There are viable ways to bring up legitimate concerns about the owners’ strategy without violating the terms of the SMB but that fellow certainly wasn’t using them :lol:

And I didn’t report him either
 
chunksafc said:
Grumpy, serious question if you don't mind.

Would not technically accounting for the TV money is these calculations mean that if we did get the club self sustaining we would then have a surplus of the same TV money to fund transfers etc?

It makes sense to me to try and get our expenditure in line with our income without it as if and when the TV bubble bursts we would be in a far stronger position
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The problem is that, at PL level, the wages are such that you can't help but rely on it. It's damn near impossible in the Championship, to be honest. The owners have already said that the extra TV money will be swallowed up by additional wage costs after promotion. What they don't agree with is using the parachute as a transfer kitty. The intention of the parachute was always to give clubs a breathing space to adjust to the financial realities of the lower division. Of course, you can use a as a transfer fund, and if you go up first season, it's a gamble that pays off. However, if you don't, all you've done is kick the can a year down the road, and adjusting is harder. What they want, and I agree with this, is that the club is sustainable from recurring income. That will include the TV income appropriate to the division. In this model, transfer funds need to come from a combination of operating profits and transfer income.
 
Grumpy Old Man said:
The problem is that, at PL level, the wages are such that you can't help but rely on it. It's damn near impossible in the Championship, to be honest. The owners have already said that the extra TV money will be swallowed up by additional wage costs after promotion. What they don't agree with is using the parachute as a transfer kitty. The intention of the parachute was always to give clubs a breathing space to adjust to the financial realities of the lower division. Of course, you can use a as a transfer fund, and if you go up first season, it's a gamble that pays off. However, if you don't, all you've done is kick the can a year down the road, and adjusting is harder. What they want, and I agree with this, is that the club is sustainable from recurring income. That will include the TV income appropriate to the division. In this model, transfer funds need to come from a combination of operating profits and transfer income.
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Thanks for the reply, Its worrying that every club is so dependent on something that could disappear fairly quickly.

Guess I was hoping for the impossible of a self sustaining club with th TV money as a war chest rather than having to be a billionaires play thing
 
Grumpy Old Man said:
The problem is that, at PL level, the wages are such that you can't help but rely on it. It's damn near impossible in the Championship, to be honest. The owners have already said that the extra TV money will be swallowed up by additional wage costs after promotion. What they don't agree with is using the parachute as a transfer kitty. The intention of the parachute was always to give clubs a breathing space to adjust to the financial realities of the lower division. Of course, you can use a as a transfer fund, and if you go up first season, it's a gamble that pays off. However, if you don't, all you've done is kick the can a year down the road, and adjusting is harder. What they want, and I agree with this, is that the club is sustainable from recurring income. That will include the TV income appropriate to the division. In this model, transfer funds need to come from a combination of operating profits and transfer income.
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They won’t agree with using the PP as a transfer kitty as they used a chunk to be able to finance the purchase
 
seanwharton said:
They won’t agree with using the PP as a transfer kitty as they used a chunk to be able to finance the purchase
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That was the last pp was it not? Although it does sound like we've already borrowed against some of this next one.

Donald said we have pp to spend on transfers this year. Methven had a pop at fans saying it pisses him off that fans think pp will be used for transfers. Clear as mud currently.
 
samaistonsrightfoot said:
That was the last pp was it not? Although it does sound like we've already borrowed against some of this next one.

Donald said we have pp to spend on transfers this year. Methven had a pop at fans saying it pisses him off that fans think pp will be used for transfers. Clear as mud currently.
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It's very evident that there are things that Donald and Methven don't agree on. It's one of the things which comes with having multiple owners. The fall-out between Usmanov and Kroenke, which was admittedly worse because each held enough shares to stymie the other, virtually paralysed Arsenal.
 
Grumpy Old Man said:
It's very evident that there are things that Donald and Methven don't agree on. It's one of the things which comes with having multiple owners. The fall-out between Usmanov and Kroenke, which was admittedly worse because each held enough shares to stymie the other, virtually paralysed Arsenal.
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I know. Which makes it almost impossible to know if they will use pp payments. Mind, disagreeing is one thing. One calling out fans, over something the other is saying, is another.
 
Grumpy Old Man said:
Both Donald and Stewart ignore TV revenues routinely. That's because they want to recalibrate the cost base is line with recurring revenues (ie ignoring parachute and including only what the TV income would be if we weren't getting them. £1m in League 1). The loss numbers you quote are retained losses (ie before player trading and interest). The disclosed operating losses were £20.3m and £29.5m (ignoring the exceptional charge relating to the Alvarez settlement) respectively. The operating losses ignoring TV money don't bear thinking about, which emphasises just how dependent PL clubs are on media income.

What I think he was saying about the £35m was that that would have been the loss this year if nothing had been changed in the costs between 2017/18 and 2018/19. In other words, since the parachute was going to reduce by £15m to around £34m, that £20m operating loss would rise to £35m. Given that the players who had taken wage cuts on relegation from the PL didn't have a repeat following the second relegation, it's probably not a huge exaggeration of the projected number for this season when they took over. The main driver of any changes in costs between 2017 and 2018 was the reduction in the wage bill. As far as I can see, Bain and Short had made no real effort to reduce overheads in any serious way. In the absence of the takeover, it's likely that Short and Bain would have had to make serious reductions in the wage bill and overheads. Whether they would have done it as well as Donald and Methven appear to have done is open to debate. What the new owners did manage though, and this is I think would certainly have been impossible for the old regime, was to manage to get revenues to hold up, if not increase, while reducing the costs.

With both of them, you have to listen very carefully, because they can, and do, interleave historic, current and projected numbers, and it's not always clear which they are talking about at any one time. Take wages; if you're cutting a wage bill gradually, then your annualised number (current monthly wage x 12) will be lower than the number in the accounts. So, if you start the year with a monthly bill of around £4m, and and it with a monthly bill of £2m, your annualised bill at the start is £48m, at the end it's £24m, but the number in the accounts will be somewhere in between (£36m if it's reduced equally every month). In practice, if you're talking about footballers, savings will be loaded towards the start of the year, as you're more likely to offload players in the summer transfer window.

Hope this helps.
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Thanks @Grumpy Old Man the next set of accounts will be interesting
 
Grumpy Old Man said:
Both Donald and Stewart ignore TV revenues routinely. That's because they want to recalibrate the cost base is line with recurring revenues (ie ignoring parachute and including only what the TV income would be if we weren't getting them. £1m in League 1). The loss numbers you quote are retained losses (ie before player trading and interest). The disclosed operating losses were £20.3m and £29.5m (ignoring the exceptional charge relating to the Alvarez settlement) respectively. The operating losses ignoring TV money don't bear thinking about, which emphasises just how dependent PL clubs are on media income.

What I think he was saying about the £35m was that that would have been the loss this year if nothing had been changed in the costs between 2017/18 and 2018/19. In other words, since the parachute was going to reduce by £15m to around £34m, that £20m operating loss would rise to £35m. Given that the players who had taken wage cuts on relegation from the PL didn't have a repeat following the second relegation, it's probably not a huge exaggeration of the projected number for this season when they took over. The main driver of any changes in costs between 2017 and 2018 was the reduction in the wage bill. As far as I can see, Bain and Short had made no real effort to reduce overheads in any serious way. In the absence of the takeover, it's likely that Short and Bain would have had to make serious reductions in the wage bill and overheads. Whether they would have done it as well as Donald and Methven appear to have done is open to debate. What the new owners did manage though, and this is I think would certainly have been impossible for the old regime, was to manage to get revenues to hold up, if not increase, while reducing the costs.

With both of them, you have to listen very carefully, because they can, and do, interleave historic, current and projected numbers, and it's not always clear which they are talking about at any one time. Take wages; if you're cutting a wage bill gradually, then your annualised number (current monthly wage x 12) will be lower than the number in the accounts. So, if you start the year with a monthly bill of around £4m, and and it with a monthly bill of £2m, your annualised bill at the start is £48m, at the end it's £24m, but the number in the accounts will be somewhere in between (£36m if it's reduced equally every month). In practice, if you're talking about footballers, savings will be loaded towards the start of the year, as you're more likely to offload players in the summer transfer window.

Hope this helps.
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This is an excellent post and while I don't have time to go into any detail, why I struggle with them as owners. Some give the benefit of the doubt, I see them as somewhat more canny than that. In essence, if they throw enough figures into a conversation, convoluting the relationship between various parts of the accounts, they bamboozle a lot of the people asking questions. That's why it's often good to try and document what they're saying in their own words and try to get a reading based on known facts that you cross-reference with their characterisations.
 

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