Many thanks to David O’Brien for providing this analysis of our former rivals Sunderland AFC which gives a useful financial  temperature check of the angry club on Wearside. David is a qualified, experienced financial analyst and we’re grateful to him for his time here. 

Sunderland recently released their accounts for the 20/21 season.

You may remember that season. It was Sunderland’s third in L1 and despite being reliably informed (again)by their supporters that they’d be “playing Newcastle United next season”, they lost out to Lincoln in the play-offs. This latest failure resulted in a lynch mob with pitchforks and torches attempting to accost Lee Johnson outside the players’ entrance. So pretty much standard fare for SAFC.

Well not quite. The season saw the arrival of their pre-pubescent new owner in the shape of Kyril Louis-Dreyfus, the youngest Chairman in English football. Or at least that’s what we were led to believe at the time. The truth was not quite as simple. More on that later.

But what about their finances? What do the latest accounts tell us about the state of the club? Their future? Can they survive another season in L1? Is there a risk of administration? What would promotion to the Championship mean? Let’s take a look.

The headline figure for their latest accounts is a £12m annual loss. That is their 15th consecutive financial deficit amounting to accumulated losses of over £1/4b (£252m to be exact).To put that in context, only Man City, Chelsea, Aston Villa and Everton have recorded higher losses over that period. The latest loss is the biggest financial loss ever recorded by a third flight club.

How do they manage it?

Firstly, the 20/21 season was their first without parachute payments. Broadcasting income fell to £5.4m (in 19/20, it was £17.2m). This income was actually boosted by EFL Covid support (including contributions made by NUFC and other PL clubs. You’re welcome lads!) so will drop again in 21/22.

Only 4 years previously, SAFC were bringing in £95.6m of TV income in the top-flight. Since then, their total income has dropped by 92%. This is the biggest drop in income ever experienced by a football club anywhere in the world. SAFC don’t just play at catastrophes. This is the mother of all implosions!

Newly relegated clubs from the PL have a massive comparative advantage over their Championship rivals. We’ve seen numerous relegated clubs bounce back at the first attempt as a result. How did SAFC exploit this comparative advantage? By getting relegated to L1. It almost defies logic that a club could squander this cash in such a spectacular way.

And now it’s gone. If they do get promoted to the Championship, they will be competing against clubs who now have a massive relative financial advantage over Sunderland from parachute payments. They will also have to compete with club owners who are putting serious money into financing the dream of getting their team promoted to the promised land of the PL.

Secondly, gate receipts were hugely impacted by the Covid epidemic. Sunderland’s gate receipts fell by £4.4m as all but one game was played behind closed doors. They generated £1.2m through streaming passes / fans not taking refunds.

However, the closure of the Stadium of Light actually saved the club more than those lost gate receipts (about £4.8m).And this is one of SAFC’s main problems. The overheads for running the SoL are huge. It’s a PL stadium hosting games in L1. And their gate receipts barely cover those overheads.

Stewart Donald alluded to this when he bought the club. Most people think that their attendances and PL facilities are an advantage in L1. Actually, the opposite is true. Let me explain.

For their recorded attendances, SAFC’s gate receipts are tiny. In 19/20, SAFC generated £5.7m in matchday income on an average attendance of 30,169. They played 19 League games, one FA Cup tie and two EFL Trophy games at home. That works out at about £9.50 per person per game. The match day turnstile price for adults at North Shields is £10!

Either a huge number of free tickets are given away at the SoL or there are so many concessions that we can only assume that the vast majority of attendees must be OAPs and under 16s.

Whilst giving tickets away for free or at hugely discounted rates may be good to keep up the illusion of a “big club”, the new owners will need to decide whether they want to continue this generous ticket policy. It’s one of the main factors contributing to their financial plight.

In addition to Covid impacting gate receipts, there was also a drop in Commercial revenue (down £2.2m or 34%). Presumably, this was as a result ofconferencing and banqueting at the SoL being unavailable during the epidemic, as well as the closure of the club store. However, the season also saw the first year of a new shirt sponsorship deal with Great Annual Savings for a mere £1.2m a year.

Whilst conferencing and club shop income should recover in 21/22, the latest sponsorship deal reflects the grim reality of life in L1. Due to the lack of media coverage, major sponsors, like the bulk of the country, are simply not interested in the division.

So whilst their income has collapsed, what about their costs?

Whilst they managed to reduce their wage bill by £2.9m, it was still the highest in the division by some distance. It was far higher than all the clubs that were promoted (Hull, Peterborough and Blackpool). They were actually still paying the wages for Lee Cattermole and Bryan Oviedo in 20/21. Both left the club in 2019!!

Their wages to turnover ratio rocketed to 125%. This is completely unsustainable for any club. To note, the EFL are proposing a 70% wage to turnover cap. Even applying the income from the previous non-Covid impacted season, the ratio would be around 88%.  If SAFC do not get promoted, they’re going to have to substantially reduce their wage bill (again).

Whilst player salaries were cut, Director payments rose to £580k. Presumably, a deserved reward for their successful running of the club.

So are they on the brink of administration? Fifteen consecutive losses suggests that they are not, to all intents and purposes, a going concern. They are completely reliant on owner funding to prop them up. As long as the owners are prepared to do this (and have the funds available to do so), they will not fall into administration. If their owners cease to be willing (and able) to do this, administration is a real risk.

Debt is already edging up again after being cleared by the previous gullible owner. Some quiet whispers suggest that KLD is not prepared to subsidise the club from his personal wealth any further. That would equate with his seeming reluctance to increase his minority 41% share in the club. That being the case, they either become sustainable or go into administration.

Can they survive another season in L1? Again, this depends on either their willingness to cut costs to the bone (including selling any Academy prospects) or KLD’s willingness to prop them up. History suggests that it will not be the former so SAFC, like they have been since 2006, will be reliant on their sugar daddy owner.

But what would promotion to the Championship mean? Well, actually, very little in terms of finances. Their match day income when they were last in the Championship was much the same as they generate in L1. Their broadcasting income is likely to remain broadly the same. Their sponsorship deals will not change in the short term.

But whilst income will not significantly increase, their costs will likely spiral. The major cost for any club is players’ wages. Players will expect higher wages in the division above. To avoid a relegation fight, they will need to significantly strengthen. To attract better players, they will have to offer higher wages.

The choice for the owners will be much the same in either the Championship or L1. They can either continue to subsidise the routine annual losses or they can cut costs.Or they can flog the club to Will Storey.

Whatever way they go, it could be a very long and painful road back to the PL.