Deal Becomes Clearer

Amid all the hullaballoo of the last month and a half or so on Wearside, it has been somewhat difficult to keep up. With new ownership, a new manager, seismic upheaval behind the scenes and no little amount of public utterances to digest, one could be forgiven for some snippets of information passing by unnoticed.

And so, it transpired last week. The publication of legal documents is hardly likely to set many pulses racing and will certainly never gain the sort of traction that spurious transfer rumours seem able to command the moment they drop into the wider domain. Yet it was still slightly surprising that last week’s filing of forms at Companies House went completely under the radar, both within the fanzine community and in the local media.

Those documents might not have thrown up anything particularly ‘new’ but they are instructive in helping our understanding of the recent change of ownership in SR5. For fear of boring you, the reader, to sleep, this post won’t be a lengthy one, but it is still worthwhile to consider those items that were made public last week.

Firstly, a charge was registered that referred to the Share Purchase Agreement (SPA) made between Drumaville Ltd (i.e. Ellis Short) and Madrox Partners Ltd (i.e. Stewart Donald and Charlie Methven) in order to transfer ownership of Sunderland AFC. The SPA is unfortunately not available for viewing but the charge that was registered confirmed that which had been first detailed by Messrs Donald and Methven during their opening press conference on Wearside: their consideration for the shares of the football club is secured against future parachute payments due to the club.

Those parachute payments comprise roughly £34m in 2018/19 and £16m in the following season. As per the charge registered upon Madrox’s taking control of Sunderland, the club is required to set up an account into which future – but not past – parachute payments are to be moved. The club will then only be able to use funds from said account with the written permission of Drumaville. The security guarantees Ellis Short the right to receive at least £25m, with the upper limit due to him unspecified. Given that the new owners have only paid £5m so far for the club, it is widely expected that the charge will be deemed to have been satisfied only once Short has received a further £35m.

As mentioned, that came as no great surprise. Donald and Methven were clear in explaining that they had not paid up the entirety of their £40m consideration for the club. Moreover, Methven advised that which was confirmed in the charge documentation: Ellis Short is not entitled to withdraw those parachute payments from the club, but rather they form a security against which he can draw upon should the remainder of the balance due to him not arrive.

A further form of security emerged later in the week. Two more charges were registered between the club and Drumaville, this time concerning ‘the freehold land and buildings on the east and west sides of Sunderland Road, Cleadon’ (in other words, the Academy of Light) and ‘Black Cat House’.

The unveiling of this on Twitter by yours truly had some rushing to the mistaken conclusion that Drumaville now owned the two assets in question. That is incorrect. Rather, the charges registered essentially take the form of mortgages whereby, should Ellis Short not be in receipt of the aforementioned consideration due to him, Drumaville will be able to seize control of the club’s academy and the ticket office. This possibility would seem at once to be extremely remote; the registration of such charges is simply Short covering his back as much as he possibly can, and the likelihood is that such securities will never need to be exercised.

Not a vast amount to write home about, but it did at least allow us to broaden our understanding of the deal made by Donald and Methven when buying the club. Short, unsurprisingly, is keen to ensure he recoups the entirety of the amounts promised to him. The new owners have allowed the Academy and Black Cat House to form extra security for the outgoing chairman. The estimated book value of those assets is £12-13m, a figure which will be surpassed by their market value but, in truth, the charges over the two assets are much akin to a mortgage on a house: the likelihood of default on the part of the Chargor (i.e. the football club) appears at this moment to be extremely small.

One document that has still yet to appear is that detailing the satisfaction of the charge held by SBC, the external lender to whom the club owed around £47m (being a £70m loan partially offset by a bond the club held) at last check. That satisfaction should have arisen upon Short’s selling of the club, and so we should expect to see proof sooner rather than later.

That it hasn’t appeared yet might seem to be of concern, but there is also the possibility that Short will have wanted the charges mentioned here in place first and foremost before committing to wiping that debt. Whatever the reasoning, that charge should disappear in the coming weeks. It is expected that the charges Drumaville now holds will take a little while longer to be satisfied – unless one Juan Sartori appears on the Sunderland board any time soon.

Thanks go to Jonothan Scollen (@JonothanScollen) for his assistance in understanding the documents which form the basis for this piece.