Interesting Timing

Much remains unknown following Sunday’s news. The intervening 48 hours or so have, unsurprisingly, been filled with no little excitement and plenty of rumour. Stewart Donald, the frontman of the new consortium, is the only figure we know for certain to be involved in the likely new ownership structure.

Donald told BBC Radio Solent that future investment in the club was likely to be “substantial”, but just who is assisting Donald in the funding of such an endeavour remains unclear. Links to the Uruguayan Juan Sartori via his Russian Billionaire farther in law’s fortune appear to be gathering pace but, without anything concrete coming out into the open, it is difficult to know whether this is a mere stab in the dark or something rooted in firmer foundations.

And while the details of Donald’s associates – and the actual deal brokered to buy the club – may take a while to become clear, it is difficult not to wonder about the timing of the new ownership announcement. It came from almost nowhere, surprising another consortium who had progressed well down the tracks and were way past due diligence.

The timing is also interesting when we consider some of the legal and financial realities surrounding the club. As a private limited company, Sunderland Limited (the parent company within which the football club is held) are required by law to submit their financial statements for the year ended 31 July 2017 no later than nine months after that reporting date. That nine-month deadline expired last night, on 30 April. The ramifications of not meeting that deadline aren’t exactly drastic. Fines begin at £150 and max out at £1,500, hardly backbreaking sums.

But while missing the deadline won’t bankrupt Sunderland, it would send out troubling signals, particularly given the club’s well-documented financial woes. Furthermore, in light of said woes, the club is wary of its need to comply with the EFL’s Financial Fair Play (FFP) rules, laid out as they are within Appendix 5 of the league’s regulations. With the club straying close to the edge in terms of the level of cumulative losses allowed by the EFL, any delay in submitting financial information is unlikely to be looked upon favourably.

Within Appendix 5, the EFL lays out a number of stipulations, including the need for clubs to provide evidence of ‘secure funding’ should it be deemed necessary. Secure funding is defined as ‘funds which have been or will be made available to the Club in an amount equal to or in excess of any Cash Losses which the Club has made in respect of the period from T-2 [in Sunderland’s case, 2015/16] or is forecast to make up to the end of T+2 [2019/20].’ Should a club be making significant operating losses and require extra funding (i.e. outside of those funds generated by the club’s day-to-day activities) to keep things ticking over, the EFL requires that it is provided with ‘such evidence… as the [EFL] considers sufficient’.

Given that it is believed Ellis Short has spent much of the season writing cheques to keep the club afloat, it seems likely that the EFL would require some guarantee of Sunderland’s funding going forward. This also represents a parallel with the signing off of the club’s financial statements.

Save for those businesses that are expecting to be wound up, companies seek to present their accounts using the ‘going concern’ principle: an assumption that the company will remain in business for the foreseeable future. Under FRS 102, the accounting framework within which the club prepares its financial statements, entities must provide evidence that they can continue in business for ‘at least… twelve months from the date when the financial statements are authorised for issue.’

Put simply, in order for the club’s auditors to sign off the financial statements for the year ending 31 July 2017, they must be provided with assurances that the club can continue as a business for at least 12 months from the date that the accounts are signed off. Given the club’s operating losses, such authorisation would only be forthcoming if someone – most usually the owner – provided a letter of support, guaranteeing the funding of the business for the next year.

Given Short’s willingness to sell the club, it seems unlikely that he will have been inclined to provide any such guarantee and thus risk tying himself in for even longer. Furthermore, it is rumoured that the other consortium had been working towards an end of April deadline. It is an assumption to suggest that Short himself had outlined this as the key date due to the looming accounts deadline, but it also makes large amounts of sense.

And so does the linking of Sunday’s announcement to these wider realities. In order for the club to both prepare its accounts on a going concern basis and minimise the risk of non-compliance with EFL rules, guarantees of future funding were required. With the club chairman wanting out, that now appears to have come via Stewart Donald and his consortium.

That proves that the group is committed to funding the club for the foreseeable future. To his credit, Donald underwrote losses at Eastleigh throughout his time there and input £9.3m of equity just last season, as well as overseeing the extensive redevelopment of the club’s ground.

This is all laden with conjecture, and as of this morning the club still hasn’t submitted their accounts to Companies House as far as we can tell. They are not yet listed as overdue, but this time last year there was a note advising that the accounts had been submitted and would be available in the coming days. That is not the case this year; if the deadline has been missed (or ignored) anyway, this could all be moot.

But the haste with which the deal has come together is a potential cause for concern. With the general consensus being that Donald and co. arrived relatively out of the blue, there is a worry that they have simply scrambled to meet Short’s deadline, without undertaking the necessary steps to fully understand what now awaits them.

Of course, if those backing Donald are as rich as some hope, this could all be immaterial; a lack of due diligence matters less if you have a bottomless pit of money. But if that isn’t the case, and this is a deal that has been cobbled together quickly, the champagne may need to go back on ice for a little while yet.

To celebrate being complete and utter shite once again, we’re bringing bring back this classic t-shirt from the 05/06 season. Looking back to those halcyon days under Mick McCarthy when we managed to amass an incredible 15 points to see us relegated from the Premier League.

Don’t worry we will reach those lofty heights again but until then we can take comfort in the fact that we’re all... still here when we are shit! Hardcore fans and Sunderland till we die, whichever league we are in and whoever owns the club. Players, manager and chairman come and go. Fans remain. We are the club… click here to view product