Today, Sunderland AFC’s annual report and financial statements were released for the year ended July 2016, and they make for interesting reading.
Last week the club released a snippet of information regarding the now released figures, which prompted Ellis Short (or one of his minions) to release a statement acknowledging the find old mess in which we find ourselves.
It is not something that can be fixed overnight, however we have taken the first steps towards making the positive changes necessary by restructuring the club at senior level, including the appointment of CEO Martin Bain last summer.
Implementing these changes was done with the aim of giving us the best platform from which to proactively address the issues we face both on and off the field and that will be our focus moving forward.
Unfortunately, Short is right - this financial mess certainly won’t be fixed overnight. In fact, it will take several years to stabilise the club financially, and in that time we will have to rather frugal if we are to fix our accounts.
Here we take a cursory glance at the information available, courtesy of football finance blog, Swiss Ramble.
Let’s start with the bad stuff
Essentially, if you boil down all of the information available, Sunderland lost money again last season - £33 million overall.
#SAFC £33m loss only surpassed by Chelsea and Villa, both of whom booked significant exceptional items (3/13) pic.twitter.com/yy7zvSLm7L— Swiss Ramble (@SwissRamble) May 5, 2017
That’s the third worst in the league behind moneybags, Chelsea, and financial basket case, Aston Villa - who were relegated to Championship obscurity. This kind of financial hemorrhaging isn’t something we can continue with into the Championship simply due to the fact that the TV money won’t be pouring in to ease our woes. Villa were sold in the summer though, and have been put back on a solid financial footing by their new owner, Dr. Tony Xia, so their situation could potentially be significantly better already.
Year after year the club has lost significant sums of money, going from a £17.1 million loss back in 2014, to a £25.4 million loss in 2015 and now up to a £33 million loss as reported in these recent reports. The club are struggling, and there needs to be a dramatic shift in financial management if we are to escape this current malaise.
Some cause for optimism
Commercially the club made improvements, growing this aspect of the club an impressive 23%, and bringing in an extra £5 million, which is definitely a positive sign even though gate receipts were down in contrast to the year before. The low gate receipts equate to £10 million per season, which despite being the fifth lowest in the league, is quite likely thanks to the club’s efforts at keeping the price of ticketing affordable.
Income from broadcasting was up 4% too, and the club raked in a cool £72 million last season, which will increase to around £100 million this season even if we finish bottom of the pile. You would imagine Short and co. would be keen to use a lot of this money in paying down debt - which is something we’ll examine shortly.
This rise in commercial activity is a positive sign as it demonstrates the fact that the club has identified a weakness, and has made proactive steps to create growth away from broadcasting rights -which will be needed once relegated to the Championship due to its lack of broadcasting wealth. Falling gate receipts will again hurt the club next year, but if the club is able to reduce the wage bill and debt, then those kind of commercial figures would put the club on a decent footing, especially considering promotion winners Brighton didn’t match those commercial figures.
#SAFC commercial income grew 23% (£5m) to a respectable £26m, mainly due to higher retail & merchandising (7/13) pic.twitter.com/QpyXbwJR7S— Swiss Ramble (@SwissRamble) May 5, 2017
A serious cause for concern
The money the club is paying out in terms of wages to its staff (primarily playing staff) is a serious concern that hopefully can be rectified with a relegation triggering wage drops that could amount to 50% per player.
However, in recent years the buying and selling of players has really hurt the club financially. Transfer figures from recent years coupled with the high turnover of players and inability to find consistent profits from player sales is a real concern and has ultimately rooted us in this mess.
#SAFC wages increased by 9% to £84m, higher than champions #LCFC (9/13) pic.twitter.com/1a8xGB5zub— Swiss Ramble (@SwissRamble) May 5, 2017
Furthermore, it would appear the club has had to offer bloated wage packets to players in an attempt at luring them to the club. The wages might not look too large in proportion to other clubs; however, other clubs are far more successful in terms of bringing in revenue and can afford the wages they offer... we can’t.
Take Southampton as an example. Yes they pay around the same as we do in terms of wages - yet they also brought in an extra £20 million due to their strong league finish. Therefore, they are better equipped to spend such a significant sum of money on wages simply because they know their team is capable of playing good football and achieving a good position within the league. This in turn brings yet more money into the club.
Teams like Southampton, however, are financially astute and not only do they sell players at a profit, but they also seemingly live within their means. A great example is the fact that Southampton ahieved European qualification last season while Villa and Newcastle were relegated under similar wage structures.
In relation to our own position, just look at the wages to turnover. Southampton are at less that 70% while we’re almost at 80%. We are literally spending 78% of the money we bring into the club on players who fight year after year to secure survival - it’s not healthy and it’s not sustainable.
Look at Manchester United, they might be in debt, and paying huge sums of money for players, yet they bring in so much revenue commercially that they pay a paltry 45% of their turnover on wages despite their wages being the highest in the league at £232 million. I guess it helps to bring in almost £270 million through commercial activity before accepting £140 million from broadcasting deals. They live on another planet and highlight the disparity that lies between the financial situations of clubs in the Premier League.
#SAFC wages to turnover ratio one of the highest (worst) in the Premier League at 78% (10/13) pic.twitter.com/pHE99hnbBg— Swiss Ramble (@SwissRamble) May 5, 2017
Despite losing £33 million last year, the club has at least found some way in which they were able to reduce their net debt. This a positive, and the debt could be reduced yet again this year thanks to player sales, reduced wage bill, and increased broadcast money.
That being said, this upcoming summer will be a balancing act that requires the club to generate profit not only to help reduce the debt through sales and reduced wages, but also to essentially rebuild a squad from the ground up as around 10 or more players will leave come the start of the summer. Subsequently, thos who do leave will need to be replaced with men capable of doing well for the team whilst potentially being good enough to be sold on at a profit. Not an easy task.
SAFC gross debt of £137m only surpassed by #MUFC, #AFC & #LFC. Comprises £68m bank loans (SBC) & £69m owed to Ellis Short (11/13) pic.twitter.com/HdAvNIDd2e— Swiss Ramble (@SwissRamble) May 5, 2017
The club’s gross debt is a concern obviously, considering how high it is in relation to where we finish in the league, but a strong amount of cash generated last year has left the net debt looking a little better - down from £133+ million to around £110 million. It’s still a staggering amount of debt in an age of Premier League profit, but it does show that the club have proactively reduced debt somehow - which is essential to any form of future progression.
#SAFC loss widened from £27m to £33m. Revenue up £7m, offset by £7m wages increase to £83m and player amortisation/impairment £7m (2/13) pic.twitter.com/m0ETzJUrcg— Swiss Ramble (@SwissRamble) May 5, 2017
It ain’t pretty, but nobody expected it to be. The club have proactively sought to improve specific areas of the club, and could potentially further improve their situation thanks to yet more broadcasting money from this season combined with player sales, reduced wages, and increased commercial activity.
However, and it’s a big however, the club will need to carefully manage relegation and its financial impacts in order to help nurture some form of financial improvement in such a time of transition.
Assembling a new squad while key players leave will be tricky, but doing that whilst also attempting to rectify our debts will be an enormous project. That coupled with question marks lingering over our current owner and manager’s futures will only add to the issue.
We’re in for a tricky few years.