Investment Investigated

It’s amazing how quickly people are writing up full analyses of financial positions based on one article and three lines at Companies House. Let’s check the facts.

Paperwork has been filed at Companies House that tells us no more and no less than that the share capital of Sunderland AFC has been reduced to £1m and that the share premium account has been removed.

The share capital in the last accounts was £152m and the share premium was £106m so reducing them from £258m to £1m sounds terrifying but, to be honest, is unlikely to mean anything at all. Remember that the share capital was only £30,000 before the club was bought but we had huge debts. Some of the biggest companies in the world have share capital of £1, some of the less successful have billions in share capital. It is nothing to do with the investment because, first of all, this isnt the information that gets filed during an investment and secondly, and this is the important bit, the MSD partners aren't investing into the club. They're investing in Madrox Partners Limited, the company that owns the club.

The most likely answer is that, as part of the long due diligence performed by the new investors on the club, it was agreed that tidying up the various reserves in the company was a sensible part of the ongoing tidying up of the business side of the club.

Far more important than share capital is the other half of the balance sheet – the assets, the cash, who the club owes money to and who owes the club money. Is there further tidying up about to be done here?

When the club accounts were published, there was a debt owed by Madrox to the club of around £10m. That needed tidying up at some point and, just maybe, this is that point.

We’ve been told that the money being paid in by MSD is going into Madrox, not the club. Let’s say it’s £10m (as that’s an eight figure sum as mentioned in the article) and we know it’s going into Madrox and then on to the club. The correct accounting treatment of that would be to cancel out the existing £10m and mean the club isn’t owed money by Madrox anymore. It would also mean Sunderland AFC had £10m to spend on infrastructure, scouting and similar without having to borrow that from anyone else. That further tidying would make sense if the plan is to make the club more attractive for suitors.

The obvious question then is, having left the club tidy with Companies House, debt free and with money to spend on infrastructure improvements, ready for someone to buy it, what do the MSD partners get out of the deal they’ve done with Madrox?

As a Sunderland fan, my answer is, I don’t care. I don’t care if they’ve paid £10m to wear Charlie’s match day outfit, have a go in Stewart’s helicopter or to be introduced to some of Juan’s new parliamentary friends. That’s between them and, if the club is left in a tidy position separate and ready to be sold, happy days. Perhaps it would then be ready for MSD to have first refusal to buy or perhaps someone else to acquire the shares of the club directly. Maybe Juan? What did the article’s comments about Sartori’s increased involvement mean? Who knows…

I might be wrong of course. Until accounts are published by all of the parties involved, we won’t know what money has moved from where to who and when but if we only take two things away from today, it’s that the club’s finances are being tidied up and, after everything the billionaire friends of Michael Dell have seen and heard about the club and the owners, they’re prepared to do business with them. Unless they are bad businessmen (and their bank balances would suggest they’re not), this gives me huge reassurance that the club is not quite the basket case many would have you believe. Are we in a wonderful rosy position? No but the oil tanker that was out of control seems to be slowly turning and the stories of doom are clearly not as accurate as some would tell you.

Perhaps as fans we can just get back to wondering how the hell neither of our strikers can score from 12 yards out.