Future of Spartan Sports and founder Kunal Sharma under question

It should have been a sponsor's dream, except Clarke did not have one. His bat, which had become the most watched advertising board in the country, did not bear any sponsor's stickers during his marathon innings.

Clarke had ordered for them to be removed as his contract was expiring.

For Kunal Sharma this was a moment to be seized and he pounced. The Wollongong-based founder of the Spartan Sports empire signed Clarke to a six-figure contract with much fanfare. The deal was done in time for Clarke to be swinging a Spartan branded bat on his way to a double-ton a few weeks later in Adelaide.

It was the second big deal for the brand. A year earlier the Spartan brand had secured the signature of Mitchell Johnson. It would go on to sign MS Dhoni, Sachin Tendulkar, Kevin Pietersen just to name a few.

But six years after bursting onto the scene, Fairfax Media can reveal that parts of the Spartan empire are in financial strife.

While the Spartan group is mulling a listing on the Australian Securities Exchange, the company’s wholesale arm is beset with debts.

Spartan group company SSG Wholesale (Australia) -- known as Spartan Sporting Goods until May 21 -- was put in liquidation by creditors on May 23.

The company, an importer and distributor of Spartan products in Australia, owes creditors, including the tax office and ANZ Bank and host of trade creditors and lower tier lenders, $8.5 million, according to liquidators at BRI Ferrier.

Other Spartan companies, such as Spartan Sports International and Spartan Sports Brands, which was set up on May 4 just weeks ahead of SSG Wholesale’s collapse, are not in financial trouble.

Liquidators are now investigating the business affairs of SSG Wholesale and claims of insolvent trading, uncommercial transactions and unfair preference payments to “brand ambassadors” that liquidators may look to claw back. The matter has also been referred to the corporate regulator for further investigation.

At the same time Sharma has been reorganising his assets. In July, Sharma put up for auction the seafront mansion he owns with his wife Natalie at Barrack Point outside of Wollongong after a host of lower tier lenders slapped caveats over the title.

Sharma has also granted a personal guarantee over loans to several financial lenders, according to a search of the personal property and securities register.

Sharma did not respond to a series of detailed questions from Fairfax Media about SSG Wholesale and other Spartan companies.

His lawyer says: “My client disputes many of the assertions in the liquidators report, in particular any suggestion of insolvent trading or withholding company records.”

“He adamantly denies any wrongdoing in relation to the management or administration of the company. Given that the liquidation process is continuing its premature to further respond to your questions.”

Over the past six years, Sharma has built a reputation in cricket for rubbing shoulders with famous players. His Twitter timeline is a picture gallery of the who's who of world cricket.

He's had access to the Australian dressing room, considered to be sacred ground, and even posed for a shot with Clarke and the World Cup Australia won in 2015.

One source told Fairfax Media that Sharma would bring equipment to players which they do not need just so he can sit and chat in their hotel room.

What they do want from him can be harder to attain. It's understood Johnson last year threatened legal action over unpaid fees. The Spartan brand has since agreed on a payment scheme which has been met.

SSG Wholesale, sources told Fairfax Media, was also significantly behind in its payments with Clarke, which strained Sharma's relationship with the former star.

Clarke received his money and remains a company ambassador. He says he is not aware of any financial difficulties at Spartan, and does not own shares or equity in the company.

"I've got a great relationship with Spartan and have been with them for a long period of time," Clarke says.

"And I have a great relationship with Kunal the owner."

Maintaining positive relationships with cricketers is a key concern for any brand and Spartan is no exception.

Despite the host of elite cricketers acting at various times as brand ambassadors, only test cricketer Joe Burns is listed among the creditors to SSG Wholesale, owed $35,000.

According to liquidator David Coyne from BRI Ferrier, SSG Wholesale made several potentially unfair “preference payments” to brand ambassadors ahead of its collapse.

This includes four payments totalling $48,000 and five payments totalling $41,250 and a tenth payment to a single ambassador of $32,780.85.

Under insolvency law, liquidators can request that unfair preference payments be repaid to a company to pay out other creditors.

None of the brand ambassadors are named in the report and Fairfax Media is not suggesting that any brand ambassador was aware that a payment they received from SSG Wholesale may have been an unfair preference payment.

Coyne’s report also raises questions about the management of the company ahead of its collapse.

“Our investigations with respect to insolvent trading have been limited due to the lack of books and records, however, we are of the view that the company’s failure may be attributed to poor strategic management and poor financial control,” Coyne says in his report.

A general view held by those who have dealt with Spartan is that its organisational structures don't always match its honourable intentions.

Take for example Spartan's million dollar sports giveaway, run in conjunction with the Australian Sports Foundation. The initiative, announced in December 2016 and promoted by Clarke on Nine’s Today Show, pledged to give $1 million of equipment to clubs and schools nationwide.

Out of the 1100 clubs and schools who participated, "one to 200" have not received their equipment, the ASF said in August.

"Spartan are responsible for filling all those orders and shipping to relevant clubs. Spartan underestimated the logistics with supplying those balls and distributing," ASF chief executive Patrick Walker says.

"It's very frustrating for us at ASF because we're the middle man giving tax deductibility for the donation. Spartan are responsible for fulfillment and distributions. We have been working very closely with Spartan to make sure they honour the commitments under the agreement.

"They assure us they are continuing to send out deliveries [and] intend to complete all orders under the grant program."

Walker believes Spartan's offer was genuine but they had underestimated the logistics of distributing nationwide.

"By the time they got to deliver and fulfill an order they've been out of stock," Walker says. "There's lots of contributing factors."

Rebel Sports and Kingsgrove Sports, two of the biggest retailers of cricket goods in the country, no longer deal with the Spartan group of companies, which makes it more difficult for the company to compete against established brands.

Kingsgrove have not taken Spartan stock for two seasons, their relationship strained when Spartan started selling direct, effectively making them a competitor.

Rebel's key partners are now Gray-Nicolls, Kookaburra and, to a lesser extent, New Balance.

"We haven't purchased anything from Spartan for 12 months now," Rebel Sports managing director Erica Berchtold said.

Berchtold says Rebel has a “good honest relationship” with Gray-Nicholls and Kookaburra.

“We both work together in building a program to build the sport overall and we also have a very good, healthy relationship with Cricket Australia where we work with them on growing the women's game and the grass roots preparation.

"We didn't feel the need to have anyone else try and play in that space."

While Spartan has faced stiff competition and supply issues, at least some of SSG Wholesale’s financial issues are linked to a dispute with the ATO.

Sharma states in his report as to affairs for SSG Wholesale that the company’s debtS? total $4.2 million, while the liquidators estimate the full debts of the company to be $8.5 million.

Sharma’s lawyer says his client “disputes the claim by the ATO”.

“That alleged liability accounts for the difference in the amount outstanding to creditors,” O’Brien says.

According to the liquidator’s report, SSG Wholesale claimed approximately $4.5 million in research and development costs for the 2015 and 2016 financial years. This claim was subsequently disallowed by the ATO.

Coyne says SSG Wholesale owned no intellectual property but instead had a licence agreement with related entity KNCR Sharma Family Trust to use its IP in Australia.

“We understand that KNCR Sharma Family Trust has recently transferred some or all its IP to the newly incorporated Spartan Sports Brands Ltd”.

SSG Wholesale also had 12 motor vehicles subject to financing including Mercedes Benzes, according to liquidators.

Yet while SSG Wholesale is in financial trouble, the Spartan Sports empire bats on.

On August 10, “Spartan Sports” announced it had “terminated its licence agreement with SSG Wholesale for the distribution and servicing of their products in Australia. The agreement with SSG Wholesale (Australia) was terminated in May 2018.”

“Spartan Sports is very pleased to announce the new licence for all distribution and product servicing in Australia has been assigned to Planet Sports PTY Ltd.”

Sharma is a former director and shareholder of Planet Sports. Its current director and shareholder is Spartan Sports Pakistan PTY Ltd managing director Kamil Khan.

At the same time, the three-month old Spartan Sports Brands has done groundwork for a listing on the Australian Securities Exchange, raising $3 million in recent months from investors to pay for willow and to fulfill existing orders.

Sharma resigned as a director of Spartan Sports Brands on May 14 but is listed as Spartan’s founder and chief of product development in a glossy investor presentation. His wife Natalie Sharma remains a director of the group.

Despite the company being recently incorporated, the investor presentation shows Spartan Sports Brands recorded total sales of $23 million in 2015, $17 million in 2016 and $20 million in 2018. The company is projected to make $42 million in sales in 2018 and $61 million in 2019.