ANOTHER ARTICLE FROM AN ACCOUNTANT: BY PAUL TURRELL



Before I start I will say that it seems very likely that our Club has a few things to be grateful for in the SD/ CM takeover, not least that it seems no one else was queuing up and there was every chance that Administration was on the cards with ES deciding he had had enough. However recent reports from the Times are starting to make your comments that “people in the South would not question the investment made by the US consortium as they understood business better”, look rather desperate, and it’s the fact that we aren’t thick in the north and care about our club that the issues regarding the takeover, the investment, and the sale price, won’t be brushed under the carpet.

Let’s go back to the takeover announcement and the very clear statement from SD “We’ve given Ellis £40m, do that’s the deal, and in return Ellis has tidied up (written off) his debt”. Clear as a bell, the consortium has paid £40m for the shares of our club. If only. It then emerged that £25m was deferred. The Daily Mail’s version of the deal is that an initial payment of £15m was paid however only £5m of this came from SD, and the £10m a parachute payment due to the club. The balance of £25m was also to be paid out of a parachute payment. Whether these figures are accurate only the insiders at the club know and if they are wrong a simple statement would correct it. If they are correct, then the purchase price of the club was £5m as the parachute monies were the club’s assets/ money. The position becomes then further confused when SD said that “the upfront payment was £15m, plus last summer’s parachute payment of £25m, which came in just after we took over and was ringfenced to pay off the last bit of bank debt.” However, you read that it seems to me that the club received its parachute payment and paid off its bank debt, nothing to do with the purchase price. Now try this quote from CM. “We inherited a cost base where the club was costing over £50m a year to run, while the revenue was predicted to be £15m. The previous management said there were parachute payments to fill some of that gap but ignored the fact that there was also a net transfer deficit of £20m. So, it wasn’t just £30m loss but also the £20m that the club needed to pay.” CM seems to ignore that the parachute payments were already ringfenced to pay bank debt off. Let’s have another CM quote that seems to tidy things up. “The reality when you do this kind of deal, and there is still money outstanding on the deal, is that Ellis will want to take security against something so that if we don’t pay, he would have something to cover his money.” However I read that it says that SD will pay the £40m at some stage and as the club have effectively loaned the money to him to buy the shares of the club then he will pay that money to the club. We have to take a time out here as SD did not buy the shares of the club. Madrox Limited - an off the shelf company owned mainly by SD with a share capital of £1,000. Its balance sheet at July 2018 (recent accounts delayed filing) show assets as the shares in our club at £36,988,000 ( presumably another purchase price ) and interestingly creditors of £9.6m to group companies and a further £27m to “other creditors”. If the £27m is owed to our club, and I don’t understand why the club would not be described as a group creditor, then the only means to pay this debt are either by dividends from our club (extremely remote as the club would have to make profits) or by loans to Madrox from either SD or another party. If Madrox defaulted, then it is unlikely that SD would have to step in and the club would go unpaid Fast forward and we understand that the US consortium have made a loan to Madrox of £10m secured on the Stadium of Light. In addition whilst the release of the accounts for the club have been delayed until up to the 30 June 2020, the Times have picked up from a sales memorandum for the club that a debt of £20.7m due from Madrox to the club has been written off as “an exceptional operating expense”. The majority of the debt due from SD to the club has therefore been written off/forgiven/waived/. The response from the club was that “they were obliged to obliged to do so when borrowing £10m from the US consortium FPP”. It makes no sense for FPP to insist on this when lending £10m to Madrox as their security for the loan is over the stadium so it doesn’t matter what Madrox owes the club. The next statement from the club caps it all off. The Times has revealed that Juan Sartori paid only £1 for his 20% of the club. The club deflected confirming this by saying that JS invested in Madrox and “the club is not privy to the detail of arrangements between the shareholders and directors of its parent company. This is a matter for Madrox”. SD CM and JS are directors and shareholders of Madrox and SD and CM were directors of the Club. How on earth can the club not know when it’s the same people? The Club are maintaining that the monies will be paid however then why all of the smoke and mirrors? The reality seems to me, a thick northerner who doesn’t understand business is that the announcement of the acquisition should have read * Madrox owned by SD has bought the shares of the club for something between £5-10m * ES is prepared to white off some £250m he has invested in the club * unfortunately ES wants the two parachute payments due to the club in reduction of his debt before his write off This could be spin by ES as not wanting to be seen to take the parachute payments or spin by the buyers to inflate the purchase price so that when they sell the starting point is £40m. The reality compounded by CV-19 is that the club is worth what someone will pay so it’s all pretty academic. But we don’t need CM telling us that as we are from the north, we don’t understand business just because we don’t buy the bullshit that is churned out by the PR machine I am based in the south but from Washington and would happily have a zoom session with either SD or CM to explain why I am not getting the full southern picture


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