ALS Exclusive: SAFC’s Finances Explained, by Stewart Donald

There’s been loads of myths, rumours and downright lies circulating about how the club’s debt has been arranged following the takeover. Many writers have covered it, but no one has really understood, or got to grips with reality of the situation. So, we sent ALS’ resident accountant, Giles Mooney along to quiz Stewart Donald, so this issue could finally be put to bed…

At the end of April Ellis Short confirmed that an outline agreement to sell the club had been made with Stewart Donald and, as part of the deal, he would clear all of the club’s debts.

We were all united in our first thoughts.


‘All of them?’

Our negative view of Short and his team blinded us to the idea that he might actually be a decent bloke after all. Since then various figures have been thrown around, various explanations of who owes what to whom suggested and, as a result, the opportunity for nay-sayers to say that it’s all smoke and mirrors and we’re still in debt has continued.

The latest confusion and panic followed another explanation by Stewart Donald at the RAWA AGM at the SOL on July 30, which, as far as I could see, showed us that everything was OK, but some took to be signs of impending doom. So, I decided to end it once and for all and ask our Chairman some very dull questions which us accountants ask when working on deals to sell businesses.

So, first things first. Buying a business is easy. You agree a price and agree a date. The date is important for various reasons but, for the purpose of this article, it sets out when income and expenses belong to the seller or the purchaser.

The price paid by Donald is £40m on the understanding that Short would clear all debts of the club at the agreed date. Those debts stood at around £152m, some owed to him, some to a bank (SBC).

As well as the obvious debts mentioned above, there are always other costs that will crop up that exist before the deal is completed but actually happen after. This could be a £1,000 plastic plant pot or a £5m Argentinian. This also includes things the company was paying for over an extended period of time – anything from cars to Costa Ricans. Some of these will be known before the deal is done and some won’t. Donald agreed to take on paying for all such costs.

Of course, the upside is that, if you agree to take the costs, you get to keep the income when, for example, a player they thought would have to be given away, is sold for proper money. For the most part it’s swings and roundabouts.

However, there are certain things which are so fundamental, so sizeable, that you don’t take the risk. You get the seller to agree that they’ll pay for certain specified (warrantied) items.

This warranty process is always difficult (what to include and what to miss out) and it can slow deals up massively.

In this case, the whole purchase was done quickly (and, as we approach the start of the season, thank goodness it was or we’d never have got everything done that’s been achieved). The problem is that, to save time, both sides had to accept that the warranties had to be quite vague in some areas. This means that, now some costs have been discovered, Donald and Short need to discuss how to resolve them. Worst case scenario Donald has to lump it, best case is that Short accepts he should pay. This was confirmed by the Chairman to me earlier today. “(Costs) have materialised and substantially so. Clearly the agreement can be referred to and Ellis and I have discussed this and are working in the spirit of the deal as much as the agreement itself to ensure we get a fair conclusion to these items.”

Yet again, it seems that Ellis is trying to be fair and accepts that things crop up in business. We may well never know what the results of those discussions are. Worst case scenario, the club has to pay a few extra bills it hadn’t anticipated (but would have had to pay if the deal had happened or not).

It’s worth remembering that, to be allowed to buy the club, Stewart Donald had to satisfy the EFL that he could afford to pay for the club to carry on in business. We always knew the EFL tests were far from easy, but Stewart confirmed just how much he had to prove – “I had to provide the EFL with proof of liquid funds to cover the purchase price, losses and cashflow for two years. That was obviously quite a lot.”

This tells us that, without Sartori, Stewart Donald has liquid funds (money he can access quickly, not just property or loans) to cover the club for two years without season ticket sales, TV, player sales etc. Any rumours he was bluffing on his own personal wealth end there.

And so, to the big question. The purchase price and the loan write off. It was well known that Ellis had agreed to wait for his £40m but when would the loans be written off? And why was so much of the club still held as security? We now have an answer to those questions.

Ellis Short has written off all of the personal debts and almost all of the bank debt, around £25m still existed at the time of the deal. There could be any number of reasons he wanted to do it that way and none of them really matter to the club so let’s leave that to one side.

He agreed that, as he received his slices of the £40m, he’d pay off that remaining £25m. He has, we learned last night, received £15m of his £40m and so the bank debt will now stand at approximately £10m, when he next receives a chunk of money from Stewart Donald, the bank debt will fall again until the bank is owed nothing. We learned that all of this happens over the next 18 months.

The bank accepted this structure as long as the club acted as guarantor for the money owed until it is paid. This is a simple way of structuring and a quick way (see above) because the bank already knows what things are worth at the club. The fact Short owes the bank and Donald is paying him doesn’t prevent the bank holding security against the club. We’ll know that Short has been paid enough to clear the remaining £10m because the club and the bank will formally advise Companies House that they no longer need the security. That will just leave Ellis.

Short accepted the delay in payment in return for similar security from the club. Once Donald has paid Short all of the £40m, that security deal disappears too. Short’s security is what I’d expect from someone who made his billions in failed company restructuring (he knows all the tricks). Short has security against the cash of the business (the bank account) and also the bricks and mortar (the Academy).

If Donald doesn’t pay the money, the bank and/or Short can demand the payment from the club. Worth noting that Stewart has confirmed to me that the charges are ‘reducing charges’. This means that, now the amount owed has fallen, the amount that can be demanded of the club also falls. This is different (and better) than most mortgages where non-payment means you lose your house, no questions asked.

Stewart explained to us “If I do not make those payments (the bank) has a charge on the Academy and also the bank account. Ellis has taken all the debt and paid it out apart from a portion which he has left outstanding owed by him rather than the club… (he has) reassigned that debt from the club to him personally. He is then paying that off as I pay him. Any interest accruing is Ellis’ issue not the club’s.”

So, in summary, Ellis really did pay off the debts. He and Stewart Donald have done a deal very quickly which means there are a few more odd clauses than a deal which might be ironed out over months but none of them to the detriment of the club.

As it stands, Ellis owes the bank about £10m and Stewart owes Ellis about £25m. The club is like the annoying blue thing in the Amigo loans advert (and, if the EFL says Donald can afford it, he can afford it!).

Of course, what happens next is also interesting. Will the club return to a debt position in the future? It would be stupid to rule it out, most businesses will have debts of some sort. The key is to ensure they’re manageable, structured and part of an overall plan.

Stewart confirmed to ALS: “We have lots of financing options from commercial to personal but one thing is certain (any new debt) to me, Juan or even a third party or commercial debt will be way below what it was. That is my challenge because whether it is me or anyone else, the club wants as small a debt as possible and that is the plan.”

A plan I think we can all get behind. The deal is done. It’s a good deal for all concerned and all parties come out of it looking professional and ethical.

Now, on to more important matters, who’s playing up front on Saturday?