ALS’ resident accountant takes an in depth look at SAFC’s accounts, which were published today…

One of the key requirements for preparing a set of accounts is that they should be useful to the reader. Now, we can discuss who a set of accounts are prepared for all day but, when it comes to a football club, I would say that the fans and the local community are key users of those accounts and so details should be disclosed which would be useful to them. Sadly, and to be honest as expected, the accounts for the club and other relevant companies are lacking detail in some key areas.

The accounts should have been filed at least three months ago but the deferral offered by Companies House because of Covid-19 was taken by all companies in the group. The idea of that deferral was to help people struggling to get accounts finished and signed off sent to Companies House without taking health risks. As this opportunity was taken you’d expect the accounts to have been signed off sometime after lockdown began. In fact, the accounts were signed off by Stewart Donald on the 27th January, 2020. The only reason a group would hold on to accounts from 27th January until the end of July is to delay access for people who would be interested in seeing them. But it’s hard to tell what they didn’t want us to see.

Let’s start with the positive and praise the work of Tony Davison and Charlie Methven.

They targeted increases in revenues from ticketing, corporate, sponsorship and hospitality. For a club dropping to League One that was a huge challenge, but they did it. Income (other than TV and media) rose by almost £4m from the Championship season. Of course, it is the missing TV and media figure which requires the greater focus as it represents £40m of the club’s £59m income but, nevertheless, well done to them for increasing potentially sustainable income sources for the club. I say potentially because, who knows how long we will be without fans of any sort and who knows how long fans will attend in such fabulous numbers if we’re offered League One football for much longer.

The other success was reducing players wages. £41m fell to £24m and there are obviously plans for that to continue to fall as that figure includes the likes of Cattermole, Oviedo and McGeady.

The board had often talked about £20m income being about the amount required to keep the club going, i.e. if income was £20m and costs were £20m, happy days.

They have achieved the income side of that equation with a total income excluding parachute payments of around £22m in the published accounts. The costs, however, remain at approximately £48m. To try and give that a scale, if we didn’t pay the players at all, our costs are still £24m and so we’d still make a loss. So, can those costs be cut? Well, that’s after cutting the costs by approximately £38m from the previous year so, unlikely.

The key take away from this is that, while costs were cut dramatically and sustainable income increased, we are simply too big a business to spend very much time in a league where potential sponsorship, TV and media revenues are as low as they are and no amount of cost cutting will change that.

One relatively small question that the accounts raise is a payment made to a related party for management services. This would be a payment to one or more of the directors or owners for work done in the club. It is impossible to know whether it’s a payment to Charlie Methven, Neil Fox, Stewart Donald or people connected to them, like Richard Hill and Tony Coton, but it’s a payment of £320,000 a year. If, for example, it was shared between Methven, Hill and Coton, it would mean they were being paid just over £100,000 a year each by the club. I’d be interested to know who received what, but the club are under no obligation to release that information, so we can only speculate.

And then we move to the area that we’ve discussed many times before – the funding of the purchase of the club and the ownership position.

We already knew that one of the parachute payments (£20.5m) had been written off and this is confirmed in the accounts. This means that Madrox don’t have to pay it back and the club have to accept that it’s gone. This is shown in the two accounts (Madrox and the club) as an exceptional loss of £20.5m and a profit in Madrox.

No disclosure or explanation of this write off is made in either set of accounts which I find bizarre. You would expect to find a note to the accounts or the directors to include it within the strategic report, but it appears nowhere. The strategic report does mention turnover falling by £5m and wages moving by £20m so failing to mention a write off of £20.5m is, in itself, extraordinary. The way this write off is reported is, I believe, incorrect (though not illegal) but I’ll save that issue for the accountants.

The previous articles written on this area were anticipating the debt from Madrox to the club to have fallen to £2.4m (other than the £20.5m above) in these accounts. They have confirmed this and, as confirmed by board members at the time, the remaining £2.4m was paid by the owners of Madrox at around the time of the FPP negotiations. It makes sense that FPP wanted Madrox to owe nothing to the club and for Short to have been paid in full before they got involved.

The accounts show that the write off occurred by July 2019 and therefore the information we were told previously (that FPP had insisted on it and had instigated it) is either incorrect or the accounts are incorrect. The accounts refer to FPP and the events after the accounting date but not in connection with the loan write off.

We had been told that, by the end of the July accounts, the owners had paid £14.1m for the club and the accounts support that. It makes sense for two reasons. First, added to the £20.5m and the £2.4m mentioned above that £14.1m takes us to the mystical £37m valuation.

Secondly, Madrox accounts show that, as a business, they owe £14.2m to… someone that isn’t anything to do with the trading side of a football club. I assume this is the money owed to the owners. The original £5m from Stewart Donald from last year and the extra £9.1m this year. Interestingly, the accounts also show that only £6.2m came from Stewart Donald so, presumably, the remaining £2.9m came from Juan Sartori.

In summary, the position we had already outlined has been backed up by these accounts. At 31st July 2019, Donald had used £11.2m and, I believe, Sartori £2.9m to buy the club. A total of £14.1m. On top of that, the figure in these accounts as still owed to the club by Madrox is exactly the figure we were told was paid towards the end of 2019. Add in that £2.4m and we’re up to the £16.5m I have argued is a fair asking price for the club.

While the accounts clarify the amounts committed to the club and, as I said before, some of the successes in restructuring, the accounts fundamentally highlight why on current cashflow, short term requirement, likely revenues over the next two to three years, squad valuation, asset valuation and amounts invested (or to put it simply, every well known valuation model which exists) the club is worth nowhere near the £37m being asked for.