Ah, 2015. Happy times. Brexit wasn’t a thing. If you asked someone what coronavirus was, they’d probably think it was a hangover after drinking too many of those little bottles of lager.
Our football club was bossing it in the Premier League, still basking in the afterglow of a very creditable run in the Europa League. The club was owned by a collection of (predominantly) locals who enjoyed almost unanimous support, as well as the fans having a considerable stake and influence via the Supporters’ Trust.
It’s amazing to think how much has changed over the last seven years, and none of it for the better.
The reason I think back to 2015 is that it was around this time the Swans Trust put out a series of articles called “Where do we go from here”, talking about the future direction of the Trust and our Club.
Given the events of the last couple of months, it seems fitting that we reassess that question.
End of the legal dispute
You’ll know that for the last few years the Trust has been proceeding with legal action because of the 2016 sale of our club to the majority owners, fronted by Steve Kaplan and Jason Levien. This action was authorised by a vote of the members in 2019 who comprehensively supported it. Fast forward to February 2022, and it was announced three hours before the Trust’s AGM that the Trust Board had settled the case.
Your first reaction to that may be “Hooray!”, and who could blame you. Coming to an agreement that is acceptable to the Trust, that helps it achieve its goals, can only be positive. Also, surely this is a good thing for the club if there is unity between the owners and the Trust? The club even put out a statement saying how great this was, even if it incorrectly (and quite naughtily) stated that the Trust had been taking legal action against the club. That, I’m afraid, is a blatant untruth.
The Trust Board certainly believe it’s a good result, as can be referenced by its comprehensive document, stating that the deal is in the best interests of the Trust and the Club, and outlining what the Trust is planning to do over the coming weeks and months.
Trust Members Reaction
Unless you’ve been living under a rock, or quite sensibly avoiding social media, you’ll know that’s not quite the full story. The reaction of the members at the AGM was unanimous in their condemnation of this course of events.
As a veteran of Trust AGM’s, they are generally very tame affairs with not a lot of controversy, so this was quite historic in that regard. With the Trust arranging a special forum to discuss the deal with the members three days later, their hope was seemingly to focus on other issues during the AGM. That was, maybe, a little ambitious.
That next forum turned the temperature up several notches. In attendance for the Trust were Chair Dave Dalton, board and legal subgroup members Rupert Thomas and Chris Golledge, along with the Trust’s legal advisors Clive Ince and Jonny Cole from London legal firm Goodman Derrick. Dozens of Trust members were also in attendance.
It didn’t go well. While significant efforts were made to answer the questions as best as the Trust and its advisors were able or willing to, there were several fundamental issues raised.
Consultation, or lack thereof
Most anger seemed to derive from the decision to come to an agreement with no recourse to the members. The Trust has argued it didn’t need to, citing both its Model Rules and the wording of the 2019 consultation.
That second part is questionable in my opinion, as the Trust Board at that time was very clear that so long as the Trust hadn’t signed any contracts that had limited its ability to decide unilaterally to settle (i.e. had not signed funding agreements) then they would consult with our members on any deal.
I would not disagree that the Trust Board has the legal authority to make any decision it sees fit, subject to its own rules and the duties of its board members, however it is an interesting legal question whether the Trust’s own previous comments override that. I doubt anyone will challenge it though.
Either way, from the perspective of keeping the membership onside, or even just a moral one, you’d be hard pressed to find much support for it. A supporters’ organisation that doesn’t defer to its membership on a topic it has twice already done so is always going to face problems.
The Trust has strongly argued that it had no choice in this regard, citing legal advice around potentially losing the partners they had for litigation if information was leaked to the members.
This has the inherent assumption that if you consult with the members on the deal, you must also provide the contractually sensitive details of the litigation funding for balance. I’m not sure that argument quite stacks up given that, in the 2019 membership consultation, the vote gave the authority to the board in terms of those agreements.
Even if the Trust Board felt the details of the litigation funding had to be made available to the members, I am sure it could have been done in a way that didn’t break any confidentiality agreements (such as providing high-level information) or released any information to the defendants that could mean this deal was reneged upon (again).
This isn’t a new issue for the Trust and, for as long as this process has been ongoing, we’ve had to tread the line between what our legal advisors said and being as up-front with our members as we can be. Legal advisors are inherently risk averse.
Either way, I believe the primary issue was the need to consult with the members on the terms of the deal itself. Even if time, confidentiality, or other, pressures were so acute that the normal timeframe for consultation could not be adhered to, surely some creativity could have been used. In an extreme case, the discussion and vote could have taken place within an EGM or even within the AGM itself.
It’s not as if the AGM date was set in stone, and in fact the Trust Board was not in compliance in holding the meeting after January 31st (the deadline as per the Trust’s Model Rules). We can only assume the AGM was held later due to this deal, a safe assumption given that some of the paperwork that has now arrived at Companies House specifically cites 15th February, which was the date of the AGM, as the date that elements of this deal was agreed.
What is the deal
Regarding the deal itself, the Trust will receive £500,000 upfront in compensation, purportedly from the former shareholders, and a similar amount for every future season the club is in the Premier League, for a maximum of three seasons.
Who is going to end up paying this money is far from clear, with the Trust citing confidentiality agreements with the majority owners and Jake Silverstein. This does leave open the possibility that it will be the club that is paying the Trust this money in the future, not those the Trust was taking legal action against.
Money into the Trust is a good thing in my view. Money coming from the club isn’t. I know the Trust has received dividends from the club previously, but the Trust always voted against these and only received them as it was outvoted by the other shareholders.
One of the more telling details is that the money received immediately only actually results in a £100,000 gain when compared to the costs of taking the legal action to this point. Looking back at previous Trust accounts prior to this action being taken, it probably means the Trust has funds approaching £1m in the bank. Not unsubstantial, but how useful probably depends on your views on what it can use funds for.
In the absence of any comment from the Trust, we will have to wait until next year’s AGM for more detail, unless more information is forthcoming before then.
The Trust’s shareholding in the future
One of the long-held concerns of the Trust has been how it can ensure permanence within the club, retaining a stake and access at board level. This looks to have been achieved to a degree with the conversion of 5% of its shareholding to “Class A” shares, which cannot be sold even if ownership of the club changes, with the rest of the club’s shares (including 16% of which are Trust owned) being converted to “Class B”.
This means that, if new shares are issued, thus reducing the existing shareholders unless they contribute, the Trust will always retain 5% of the voting rights through the issue of a single “Class C” share. This is a very real scenario given that the club issued £12m of convertible loan notes last year, to Jake Silverstein, the majority owners and “other parties” of whom we know nothing (and neither does the Trust, as per its comments).
On the face of it, that seems like good news, but again there are caveats. That 5% only relates to voting rights, but what about the economic rights? We can tell from the newly filed Articles of Association of our club (sent to Companies House a mere two months after the AGM) that the Trust can’t sell them without approval from the majority shareholders and, if dividends are paid in the future, that will be based on number of shares, not voting rights. From a financial perspective, what are they now worth?
One of the other provisions in the new Articles is that the Trust has “tag” rights in the event of a change in control of the club. How the Articles defines that change of control is by a sale of Class B shares, of which Swansea City LLC (the Delaware incorporated vehicle used by Kaplan/Levien to buy shares in our club) holds the majority.
However, this won’t apply to the Class A shares. If the club is sold, maybe to parties truly unpalatable rather than just the normal types of wronguns, would the Trust prefer to simply sell the shares to retain a war chest for any future catastrophes? That 5% is now tied in, whether it wants to be or not.
There are also questions about how watertight those tag rights are, especially if there are changes in who owns Swansea City LLC. It’s not as if we even know who owns that now. There is nothing in the Articles that covers this situation.
The Trust states it is covered in the overall agreement, so we can only assume that’s in the new Shareholders Agreement, which members do not have yet have any visibility on. Clarity on that point is essential, otherwise it looks like a big gap.
Other elements of the deal
The fact that the Trust retains a director appointment, currently through Terry Sinnett, is good news, although obviously something we’d already had. It’s a shame a second director position couldn’t have been obtained, with the agreement being limited to a non-voting observer position, which again the Trust already had (although originally termed an Associate Director). While we’re always going to face the potential to be outvoted, the more representation the better.
The Trust has commented it is now in a position that many other Trust’s would be envious of, with a guaranteed shareholding and seat on the board. True enough, but we already had that. It was enshrined in previous agreements which, from the Trust perspective, we argued still held.
Although, playing devil’s advocate, if the board aren’t meeting often (the Trust has stated that there has only been one board meeting since the summer) then that benefit is limited. However, directors do have rights to information and access that the rest of us do not.
It is also a shame that concessions that relate to things that are fundamental to us as a club weren’t part of this agreement. For example, veto rights to ensure the club’s colours could not be changed, the club couldn’t be moved from the city, or the club’s name being changed. All stuff discussed within the latest fan-led review and stuff you wouldn’t have thought any reasonable owner would have an issue with. We know, from a quick glance down the road, that things like this can happen.
No day in court
For some members, the big issue is that the legal action is now not going to happen. For some, they wanted their day in court so that the world could see how the sellouts, and those they sold to, wilfully stiffed the fans and the Trust, with no real thought for the future of our club. While I can understand this view, a responsible Trust can’t act purely on emotion.
For others, and I can fully understand this view, it was the prospect of the Trust obtaining a significant war chest should the club ever get into difficulties. While the Trust will see some funds coming in with this settlement, it’s certainly going to be far, far less than the amounts that a successful legal case would have brought.
What that exact figure would have been is up for debate, a fair chunk of any award would have gone to those that were funding the case, but if things had gone to plan it would have been a healthy 8-figure amount. That really would have provided some real security for the future of our football club for future generations.
We must remember some things about the legal process. It takes an age, it’s highly unpredictable and, even when you win, you may not get what you want. The legal advice was that it would take years to get to court, and COVID has made that situation worse. The Trust could have lost, or even won but not got the sort of award it would have wanted.
We can say that the expert QC guidance the Trust received is that it was very likely to win the case and, if so, would compel the other parties to buy the Trust’s shareholding at 2016 valuation (approximately £21m), but there are no guarantees about either aspect of that. If the Judge had ordered a sale at current valuation, not the most likely situation but still plausible, the Trust may have won and been forced to sell its shares for a lesser figure which, after the litigation funders had taken their cut, seen nothing in return.
Conversely it could have lost, and been no worse off than it is now, as the funding agreements meant the Trust’s partners took the costs risk in that scenario. It was a complicated business and far from the certain outcome some people like to think it was.
How likely the Trust was to win the case has also been mentioned. The Trust have stated that the QC provided a 60% chance of reaching this most likely outcome. What percentages, or phrases such as “very strong”, mean in practice is very much open to interpretation. There’s no such thing as a sure thing. In my view at least, those who were most bullish about our prospects in court occasionally had a blind spot in this regard. However, the fact that there were people prepared to fund the case, and legal professionals were prepared to work on a contingent basis, should show us that there was a very real prospect of victory in court.
The Trust has also stated there were potential scenarios that the initial funding round would have been insufficient, particularly in the event of an appeal, and the Trust would have been on the hook to either find further funding or take the hit themselves, potentially needing to fundraise from its members or sell its assets (i.e. shares).
That is possible and a very real concern, however these were these were theoretical possibilities not probable outcomes. I’m not sure how that differs from what we knew in 2019 when the members were consulted on this matter.
If the Trust Board seriously believed that there could have been total certainty in how things would have panned out in the future, then that was misguided.
Given these uncertainties, and the general undesirability of legal action for many reasons, I think the Trust always had a duty to explore potential settlements and I can understand the strong desire to settle.
I also think the current board had a duty to progress with this current deal if it believed it was the right way to go. Where that argument fails is that (a) the Trust had to allow the members to make that judgement and (b) the Trust had, and has, to be completely upfront and honest about what the deal means, and the detail within it.
Smoke and Mirrors
As it stands, the Trust is hiding behind confidentiality in not providing full answers to many questions. It took two months for the Articles to be filed at Companies House (which does seem to imply the deal wasn’t quite as complete as was originally presented), and even now the Shareholders Agreement is still not visible. Plus, of course, we can’t know what we don’t know. Is there something else in that Shareholders Agreement that is unpalatable?
In my view, this position cannot possibly stand. Frankly, it should never have agreed to such clauses in the first place, even if pressured to do so. If they do exist, every effort needs to be made to remove them and, if that is not possible, explain what and who is blocking them. That would tell us plenty.
If the Trust does not do so willingly, it will not surprise me if the membership forces the issue, unless those who are so disenfranchised simply don’t renew or resign their membership, as has been happening. You only have to look at the Trust’s Membership group on Facebook to see that the questions are far from being resolved. Whenever the Trust posts on Twitter, there is an outpouring of anger. It’s an untenable situation.
As it stands, the Trust Board has decided not to engage online, limiting its engagement to the Trust Pod and email. I think this will be damaging in the long run. I know better than anyone that social media and the fans forums can be unforgiving places, but they are places where thousands of Swans fans engage.
The fans want to back the Trust, but you have to give them a reason to do so. Engaging, state your reasons for doing what you’ve done, argue your case, fight your corner. It may not be fun for a while, but it’s necessary and you’ll have the fans’ respect for doing so. It wasn’t fun for those of us who had to do that in the past during other times the Trust faces crises, but we came out stronger as an organisation for it.
Despite my thoughts on the nature of the deal, and how it’s been conducted, I still retain a fair degree of sympathy for most of the board. They put themselves up for election, even if there wasn’t actually a vote last summer due to lack of candidates.
Getting people to stand for election to the Trust has been a historic issue and I’ll always respect the fact they put themselves out there to do these things. They don’t gain financially from this arrangement, and it does take up a lot of time.
This wasn’t a situation of their making, although they do have to accept their part in how events have transpired. Good people occasionally do the wrong things, especially when badly advised.
Never forget the real villains in all this
We must remember why we are where we are, which is due to the actions of the other parties, in excluding the Trust from the 2016 sale. Jason Levien let that slip at a Fans Forum for the world to hear, so let’s not pretend that isn’t a cast-iron fact, despite the continuing chirping from a few aliases on certain sites.
Just consider what the Trust could have been if it had the opportunity to participate at that time; an organisation with a significant war chest for the future, potentially still retaining a stake within the club, and being in a much better place to represent the interests of the fans, both now and in the future.
It remains a shame that the likes of Jenkins, Dineen, Morgan and van Zweden passed up the chance to cement their legacy for the sake of a small increase in the money they were going to get. I hope that is remembered, especially if any of them ever seek to get back involved with our club (and I suspect one of them will).
Whatever your views on the Trust Board’s actions, and I think it has acted poorly in its handling of this, just remember why we are where we are.
The Future of the Trust
Which brings me back to the start of this piece, and the question “Where does the Trust go from here”. If we look at the Trust Chair’s recent statement, which talks about the Trust’s plans, it is very focused on the “fluffier” aspects of the Trust, talking about communication, fan engagement, engagement with the club’s management team and the club’s Foundation (formerly Community Trust).
All very worthy and necessary activities, although what the Trust had already been doing. The idea that we had been restricted in these activities is a little disingenuous. For example, it’s a simple fact that every single former Supporter Director was, and still is, a Trustee of the Foundation, despite the recent statement saying that link is new. Personally, I never felt I had any restrictions in being able to do the things we wanted to do. Still, a stronger working relationship is a positive.
What the statement didn’t focus so much on was governance. It was telling that, when the statement referenced engagement with the club’s management team, it didn’t mention Gareth Davies, the club’s Chief Financial Officer.
Having visibility into the financial health of our club, both now and into the future, is fundamental to ensuring the club is in safe hands. Previous Trust Board meeting minutes state that they hadn’t received any sets of accounts or financial statements from the summer until late February. That is unacceptable.
Given that the club accepted a £12m loan last year, when we were in receipt of parachute payments, and Julian Winter has frequently stated this season that the ownership group will need to support the club again this year, this would look to be a particular area of concern for the future.
We only need to look across the division to see that most clubs are living beyond their means, spending more than 100% of their income on player wages alone. That is unsustainable and can only lead to problems, as the likes of Derby are seeing now. Borrowing that sort of money, year on year, can see things snowball very quickly.
When the Trust was formed, it was with the express aim of being custodians of our club, ensuring its survival for future generations. While it can perform many of the functions of a supporters’ group, that is not its primary purpose. That must be remembered.
Whether this current version of the Trust wants to perform that role seems open to question, and it does seem like the dispute was settled to focus on other aspects that are different to those core aims. More concerningly, whether the Trust can act as custodians after this deal, whoever is on the Board, is open to question.
Hopefully the passage of time will tell us more, but that will rely on more openness, transparency, and communication from the Trust Board. It will also rely on the club’s management team and the other shareholders being willing to work with the Trust on these aspects. We shall see.
This article was written by Andy Godden, who is a former Chair and Board Member of the Swansea City Supporters’ Trust.