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What’s Going On With Sunderland's Finances?

After a turnaround in fortunes on the pitch over the course of the last month the January transfer window now hangs tantalizingly on the horizon, and Sunderland fans will be wondering just what the new year will have in store for our club. Here, Tom Atkinson looks at the club's financial situation and analyses the immensely difficult task that both David Moyes and Martin Bain have to undertake.

Sunderland Unveil New Manager - Martin O'Neill Photo by Stu Forster/Getty Images

Looking back to December of last year, Sunderland were sitting in 19th place after losing their fifth game on the trot.

However, after Sam Allardyce coaxed around £15 million from the club’s coffers to bring in the promising trio of Lamine Koné, Wahbi Khazri, and Jan Kirchhoff - Sunderland’s fortunes took an impressive upturn.

Come the end of the campaign, we avoided relegation - instead consigning the old enemy to at least one season in the maelstrom of the EFL Championship. Beatific times gripped the club, and with Sam Allardyce at the helm, the fans felt confident that the 16/17 season would be the season to end our eternal struggles.

But alas, nothing is ever quite so simple on Wearside.

The Allardyce-FA affair has been covered in great detail, and I will not tread old ground; however, the end result was a protracted summer ending with chaos at the club. David Moyes was ushered into the manager’s office and given a matter of weeks to forge a squad capable of Premier League safety.

To be fair to David Moyes and all involved with the first team, the current squad certainly look up for the fight and current form would suggest that they are capable of battling to safety. Yet, with January looming large, fans will be intrigued as to what Sunderland have to offer in the upcoming transfer window; unfortunately, if you think the club will splash the cash on a series of first-team quality players, then I’m sorry to say that you will most likely be sorely disappointed.

Financial Fair Play

The issue that is stopping Ellis Short from dipping his hand into his pocket (as has done regularly in the past), is Financial Fair Play (or FFP).

Ah, Financial Fair Play, the spectre of the Premier League - a term bandied around when discussing transfers, contracts, and all things financial. But what is it?

FFP is an interesting concept that was formed in order to prevent club’s from buying their way to oblivion - think Leeds and Portsmouth and the subsequent fallout from their ill-fated splurges.

From its inception, however, FFP has changed from year to year and has ultimately become a shadowy term that exists both on the periphery of club football whilst also existing at the centre of the way in which clubs are run. Essentially, FFP is a mutating ideology that has very little clarity - Google 'FFP 16/17' and you will find very little explanatory literature.

From what I can gather, though, FFP in the Premier League also has another name now - going by the term: Premier League Short Term Cost Control Rules. In essence FFP not only looks to prevent clubs from making more than a £35 million loss per season - punishable by fines, points deductions and possible transfer embargoes - but also looks to limit spending on player’s wages.

This is what is hurting Sunderland.

www.financialfairplay.co.uk
Source: http://www.financialfairplay.co.uk/

What The Finances Say

Before I go any further, I must make it clear that despite pouring my heart and soul into this research, there are some assumptions that must be made regarding Sunderland’s wage structure and overall financial health.

Most media outlets and websites dedicated to football finances do agree that Sunderland are teetering on the edge of capacity with regard to their player wage bill, but ultimately we aren’t privy to that information right now. For all we know Sunderland might have reduced their wage bill down below the important £67 million mark, but that’s not a train of thought that many analysts buy into.

The above image provides a diagram that breaks down the current FFP rules that Sunderland face. The initial question asks whether the club have a wage bill of over £67 million? The answer to that seems to be yes - with most online sources putting Sunderland’s wage bill somewhere between £68 and £70 million. For argument’s sake we will proceed with the notion that Sunderland spend more than £67 million pounds per year on player’s wages.

If we do indeed spend that much on player’s wages we next have a choice to make: which year would we like to use as our base year?

The base year provides a comparison by which the club can gauge its improvement or failure in dealing with excessive wage demands. According to The Guardian last year our wage bill was reportedly £77 million whilst during the 2012/13 season, our wages were listed at £58 million. As you can see, the club have stringently followed FFP guidelines - increasing the wage bill by the £19 million allowed - and it would appear at the beginning of this season we were left with around £7 million to spend on new wages.

Take into account that around fifteen players left the club this summer including the likes of Fletcher and Johnson who must have been on a substantial amount per year between the two of them, and you might think things are looking up.

Yet alongside the plethora of departures from the club, ten players came into the club with three of those as loan signings. Alongside those new faces: Patrick Van Aanholt, Jermain Defoe, Lamine Koné, Vito Mannone and Jordan Pickford were all awarded new bumper deals. The question that remains is how much do we have left to play with? In all honesty, probably not a great deal.

Now the next option that deserves some consideration, is whether Sunderland will use the January window to free up some of the wage bill in order to finance future acquisitions.

January & Beyond

Before we dive into speculating about January and beyond, the below video is worth a watch in order to understand the serious financial issues surrounding the club.

We already explored the issues surrounding our wages and lack of maneuverability due to FFP, but to break the video down into key points, Sunderland in 2015 (the latest financial records available) made around £101 million in revenue. Most of that, however, was thanks to the new broadcasting deal which brought in around £69 million. And this is a serious issue.

It’s an issue because we haven’t been able to grow the club commercially, or in layman’s terms: we don’t make enough money for ourselves via sponsorship and transfers. If you removed TV money from the equation, we would have grown our revenue by around £4 million - that’s £4 million in seven seasons. Depressing.

Considering Crystal Palace grew their independent commercial activity by over £12 million in two years, that £4 million figure becomes even more painful.

To add more furrows to our already beaten brows, Sunderland also made a loss of £25 million in 2015 - a year in which most other Premier League teams were posting profits.

Now, a £25 million loss is not enough to incur the wrath of the FFP suits, but it is certainly a big enough loss to raise some serious concerns with the way in which the club has been managed financially. Especially considering the last time Sunderland made a profit was back in 2006 - with a paltry sum of £5 million.

The debt has continued to spiral, and this is a significant reason why Sunderland will be reluctant to splash the cash this January.

It Gets Worse

Before we go any further, it’s worth noting that Ellis Short hasn’t been some complete ignorant moron. He has definitely tried his best to make Sunderland a profitable asset, but ultimately has been let down by those he has appointed in key positions. This makes Martin Bain’s appointment even more crucial - finally the club have someone in charge who not only understands the world of finances, but specifically the world of football finances. Kudos to Ellis.

In fact, of the reported £170 million worth of debt the club find themselves in - £160 million of that has been bankrolled by Ellis Short himself, in the form of an interest-free loan, with £100 million purportedly written off in an attempt at stabilising our sinking ship. The rest of the money owed is to a private bank, who apparently charge us a handsome interest fee of £6 million per year... ouch.

Ultimately the club still owe around £140 million to Short and the aforementioned bank, according to various sources; a debt that hangs over the club like a black cloud of impending doom.

So Why Can’t We Buy Players?

So this toxic combination of a crippling debt and FFP leaves us in a truly grim situation by which we will seemingly struggle to bring in new players this January without selling our own in order to balance the books, so to speak.

There is a way in which we could perhaps circumnavigate the FFP rules, as listed in the below video, but something tells me that the club have probably tried this route already. The failed Udinese model under De Fanti and co. alongside other cost-cutting activities suggest that the club saw the writing on the wall long ago. Yet the incessant cycle of hiring and firing of head coaches and managers has ultimately left us in the financial lurch.

The issue at the heart of this tale of woe stems from our historical dealings in the transfer market. As already mentioned, the club haven’t really made any money aside from what broadcasting rights affords us. Other club’s do, though, and this lets them work outside of FFP frameworks because as long as a jump in wages is offset by a jump in commercial growth - via player sales, sponsorship deals etc. - then clubs are able to increase their spending accordingly.

Sunderland, however, haven’t done this whatsoever. We have solely relied on Ellis Short’s generous hand until it can no longer be used to feed our feeble attempts at improvement. This is the same reason as to why newly promoted clubs can spend so much more than us: not only do they have a huge sum of money thanks to entering the league’s broadcasting rights, but they also have a giant chunk of wage allowances ready to use at their will.

Take Brighton for example, their latest financial records (from 2015) stated that they payed a paltry £18 million per year for wages and salaries. If they were to achieve promotion this season that would mean they would automatically be able to up their wage bill to the FFP maximum of £67 million, if they so pleased - that’s £49 million worth of wages...

So... What Can We Do?

If truth be told, a lot of trust has to be placed into the hands of Martin Bain and David Moyes. They will know the full situation, and even if Moyes claimed to be none the wiser in a recent press conference I would imagine he has some understanding that there’s limited cash to play with in January.

Both Moyes and Bain have spoken about this difficult journey that we must undertake, a journey that essentially must be funded by player sales. In an interview with the club website back in October Bain spoke about the club becoming more “lean and mean” and “efficient” in their business dealings’ going on to further note that:

Fundamentally, the overall financial aspect of the football club is what will help determine our success going forward. So I have a big task in my hands as to how we might look at what we invest, where we invest it - maybe having to realign some of that spend - and that’s probably my biggest task going forward.

Like it or lump it, we should be looking at bringing players to this club and selling them for a greater value.

We have to look at acquiring players at a younger age, too.

And there you have it, straight from the horse’s mouth; in order to develop and rebuild the club both on and off the field, Sunderland will have to sell to strengthen.

As to who leaves, well that’s a topic for a really juicy discussion. One would imagine that Koné’s summer jaunt to Merseyside is still lingering at the forefront of David Moyes’ mind; while Wahbi Khazri too may be viewed as a possible sale, especially after falling out of favour with the Scotsman in recent weeks. Jordan Pickford also presents an opportunity for considerable profit - though possibly in the summer.

As much as I’d love to sit and consider who I’d sell and buy, that decision will ultimately be Martin Bain and David Moyes’ to make as they attempt to rebuild our financially battered club.

In Summary...

And so to bring this foray into the financial world of Sunderland AFC to a close, it is worth reminding ourselves of the perilous task that lays before us.

As haunting debts linger over us with FFP an ever present wraith, our club will now enter a period of our history that will define our future. Are Martin Bain and David Moyes the men capable of mending our faltering fortunes?

God, I hope so.