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Significant investment by FPP has been made

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Grumpy Old Man said:
You don't sound like a thicky at all. It's quite technical, but could be important going forward. I'll try and explain it as simply as I can, but it's not straightforward.

When a company issues shares, they have what's called a nominal value - the face value of the share. In the case of Sunderland Ltd, this is 1p; for SAFC Ltd, it's £1. However, shares are normally sold for more than that when they're issued. That brings in more money than the nominal value of the shares - the difference is put into something called a share premium account, which forms part of the company's reserves. The other main part of a company's reserves are retained earnings, the accumulated profits over they years (or, in Sunderland's case losses). In the case of Sunderland, these reserves had grown piecemeal over the years, to the point where the club had a huge share premium, and equally huge losses.

The reason this is important is that a company can only pay dividends from what are known as distributable reserves, usually meaning retained earnings. Other reserves, including the share premium account, are called non-distributable and can't be used to repay shareholders. In Sunderland's case, the retained losses were so large that there was no prospect of the club having distributable reserves for the foreseeable future. It also makes that side of the balance sheet look really untidy, and gives a misleading view of its solvency if users only look at the retained earnings number

If a company is clearly solvent (and the directors have to submit a signed declaration to that effect), it can, with the agreement of 75% or more of the shareholders, either reduce its issued share capital, cancel its share premium account, or both. This has the impact of increasing the distributable reserves and making the balance sheet look much neater. It also opens up the possibility of dividends being paid in future.

Why is this important? Well, one potential initial investment method for FPP would be to take up what are known as preference shares. These usually have no voting rights, but are compensated for lack of control by a guaranteed dividend (usually x% of nominal value), which has to be paid before any dividends to ordinary shareholders (that's why they're called preference shares). This is the way MSD invested in the Florida Marlins. Obviously, to pay a preference dividend requires distributable reserves. Now. I'm certainly not saying that this is the intention. However, it does make it a possibility. Quite often, preference shares also come with a right to conversion into ordinary shares - this could provide FPP with a means of taking control gradually if they went down that route.
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Thanks for the explanation GOM. I think I followed that but not sure. So does this show their intentions are to gradually take over?
 
DJM said:
So Grumpy, is it your view (as others keep alleging) that SD has taken money out of the club?
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No, it's my view that the parachute payment was used to repay the last £25m of the SBC loan, which was transferred to Drumaville when the deal completed, as evidenced by the appearance of charges in the hotel company relating to a £25m loan facility secured on the assets of Drumaville, Sunderland FC Hotels Ltd, and Short-owned company in Bermuda.
 
Grumpy Old Man said:
Spending the transfer fees was never the issue. The issue was not going over the wage ceiling of 60% of income. Even now, it's a double edged sword though. If we bump up the wage bill now and don't go up, it would create a bigger problem in the summer unless the investment was repeated. It's not as straightforward as it seems.

See above
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So in other words, we have an overpaid/underperforming squad...and recruitment is still going to be an issue?
 
woodlebert said:
Clubs normally announce this stuff when investment happens. I don’t think there have been filings since September
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Charlie said investment was coming at a talk in last week. To be honest, it's not a takeover, so there's not a huge amount they could announce, and it's difficult to put in user-friendly terms (as I well know).
 
Grumpy Old Man said:
Undoubtedly, although nothing will be said publically about it.
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so they have created more shares insafc...which madrix have bought..thus putting money into the club-is that right?
at the other end? if the capital was provided to madrox..we dont know yet if it was a loan t madrox or new shares in madrox? is that right?
if it wss new shares in madrox that would imply the current woners have reduced their stakes? is that right?
Grumpy Old Man said:
Except that we have clear evidence of £9m in new shares issued on November 1. Where the hell do you think that money has come from? It may not have come directly from FPP into SAFC, but that's sure as hell where it's ended up.
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yes sorry-hasdnt aread your earlier post about the filings at companies house..
Grumpy Old Man said:
Except that we have clear evidence of £9m in new shares issued on November 1. Where the hell do you think that money has come from? It may not have come directly from FPP into SAFC, but that's sure as hell where it's ended up.
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The times artic;e mentioning the takeover orignally said SD had put more than £10m in..could this money be that..? a tidying up excercise before what comes next?
 
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GBSAFC said:
so for all of us who arent spreadsheet/ ffp n*nces... does that mean we can spend anything upto 9m in Jan and not face ££ penalties
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The money is not intended for transfers from what I gather, but for the infrastructure of the club. Scouting, academy, stadium improvement etc.
 
kildaremackem said:
so they have created more shares insafc...which madrix have bought..thus putting money into the club-is that right?
at the other end? if the capital was provided to madrox..we dont know yet if it was a loan t madrox or new shares in madrox? is that right?
if it wss new shares in madrox that would imply the current woners have reduced their stakes? is that right?

yes sorry-hasdnt aread your earlier post about the filings at companies house..

The times artic;e mentioning the takeover orignally said SD had put more than £10m in..could this money be that..? a tidying up excercise before what comes next?
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As I said above, the obvious (and far more straightforward) way of treating that cash would be by reducing the amount owed by Madrox to SAFC. Issuing shares does nothing to change that balance.
darius said:
The money is not intended for transfers from what I gather, but for the infrastructure of the club. Scouting, academy, stadium improvement etc.
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That's what's been said, but, is there was an intention to spend in January, wouldn't it be better to make it look like it's going somewhere else, or else the Sunderland price is suddenly three times anyone else's.
 
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Grumpy Old Man said:
As I said above, the obvious (and far more straightforward) way of treating that cash would be by reducing the amount owed by Madrox to SAFC. Issuing shares does nothing to change that balance.


That's what's been said, but, is there was an intention to spend in January, wouldn't it be better to make it look like it's going somewhere else, or else the Sunderland price is suddenly three times anyone else's.
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I think it already is to be honest as everybody else thinks we are loaded.
 
darius said:
The money is not intended for transfers from what I gather, but for the infrastructure of the club. Scouting, academy, stadium improvement etc.
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The interesting bit for me is whether the money coming in increases the amount we're allowed to spend on wages due to the wage/ turnover ratio changing. This money is meant to be spent elsewhere, and I'm sure it will be, but that means that any money the owners are able to put in (and Methven mentioned they all put money in just before FPP did) should be able to be spent on strengthening the squad because they don't need to spend on infrastructure anymore. We don't need much but say 3 or 4 million should (yes, I know, Grigg!) get us the quality we need to back Parkinson and get us up. If the investment has raised the allowable wage limit then that's a massive plus because previously it seemed we couldn't add much to the wage bill even if the owners wanted to buy a couple of players
 
Guinness Guzzler said:
The interesting bit for me is whether the money coming in increases the amount we're allowed to spend on wages due to the wage/ turnover ratio changing. This money is meant to be spent elsewhere, and I'm sure it will be, but that means that any money the owners are able to put in (and Methven mentioned they all put money in just before FPP did) should be able to be spent on strengthening the squad because they don't need to spend on infrastructure anymore. We don't need much but say 3 or 4 million should (yes, I know, Grigg!) get us the quality we need to back Parkinson and get us up. If the investment has raised the allowable wage limit then that's a massive plus because previously it seemed we couldn't add much to the wage bill even if the owners wanted to buy a couple of players
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As it's capital coming in, it will increase the wage ceiling. However, as I said above, whether it's wise to do that to the fullest extent is debatable. Do that and fail to go up, and you could end up in a worse situation than before unless more investment (which could only be for the purpose of hitting the cap) was forthcoming. It's essentially a bet on getting promoted, and we should know better than most that that can never be guaranteed. It's actually a very fine balancing act.
 
Grumpy Old Man said:
As it's capital coming in, it will increase the wage ceiling. However, as I said above, whether it's wise to do that to the fullest extent is debatable. Do that and fail to go up, and you could end up in a worse situation than before unless more investment (which could only be for the purpose of hitting the cap) was forthcoming. It's essentially a bet on getting promoted, and we should know better than most that that can never be guaranteed. It's actually a very fine balancing act.
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Confirms the thoughts of some of us on here that plans for the future have been mapped out,but for these to work as intended,we must get out of this league this season.
 
Grumpy Old Man said:
As it's capital coming in, it will increase the wage ceiling. However, as I said above, whether it's wise to do that to the fullest extent is debatable. Do that and fail to go up, and you could end up in a worse situation than before unless more investment (which could only be for the purpose of hitting the cap) was forthcoming. It's essentially a bet on getting promoted, and we should know better than most that that can never be guaranteed. It's actually a very fine balancing act.
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Yeah I agree with that, I'm not suggesting we should take it back up to the ceiling! But we likely will need a player or two if we want to maximise our chances of going up so any additional wriggle room will be good, even if we only use a portion of it. As an example, Parkinson likes having a physical striker, we look fairly weak throughout the side, and Wyke (the nearest we have) isn't reliable in terms of either quality or fitness. Freeing up some funds for a better version of him might be the difference between going up and staying down, and it likely wouldn't hammer the wage bill, just as long as we can spend a little bit whilst still ensuring we're fine if we don't go up
 
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