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Sunderland’s financial future - where does Coronavirus leave the club?

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Parallel universes, silver Linings and strategic thinking... a quarantined induced ramble on Sunderland’s ability to come through the Covid-19 storm.

Sunderland v Bolton Wanderers - Sky Bet League One Photo by Alex Dodd - CameraSport via Getty Images

May 1 2020. Administrators were yesterday called into Championship football club Sunderland AFC, after its owners indicated that they could no longer fund the club’s huge ongoing losses and bank debt. Stewart Donald, who bought the club in May 2018 from US billionaire Ellis Short, said that the unforeseen combination of the Coronavirus, an inflated playing bill and the imminent end of the club’s Premier League parachute payments had combined to create the “perfect storm”.

“We gave it our best shot,” said Donald. “The fans were desperate to get the club back in the Premier League as quickly as possible, so I decided to splash all the money I could find on new players, in the hope that if things got tight we could get new investors into the club to help out. But with the virus, nobody is interested, and we have just run out of money.”

The administrators have indicated that the Wearside club will be broken up into segments, to optimise the chance of paying back the club’s £40 million bank debt pile, in an environment where nobody wants to buy football clubs until there is visibility on when live football starts up again.

A deal to sell the Academy of Light to an unnamed party that plans to convert the training ground into a conferencing venue is already believed to be in the works, and it is thought likely that the Stadium of Light is going to be sold to a property giant who will charge the new owners of the club an annual rent of £400,000.

Bidders are now being sought for the club at £1, but with the commitment that they meet footballing debts of £30 million. If the club finds itself unable to attract a new owner who will meet those payments then it will become just the latest EFL club to go bust, but by far the largest name yet.

Somewhere, in a parallel universe, this scenario could all too easily be playing out. Fortunately, however, here in our own universe, things played out entirely differently. And that is no stroke of luck, rather it is by design.

Sunderland v Bolton Wanderers - Sky Bet League One Photo by Alex Dodd - CameraSport via Getty Images

Short term pain, long term gain

Before I go any further let me stress, as I have done in previous articles, that I don’t for one minute think the current owners have got everything right. In my view they could have done more to introduce modern footballing techniques into the recruitment strategy and put experienced heads into key positions rather than handing them to friends.

But, in my view at least, they got the really big things right. As reviews of STID 2 make clear, Donald and Methven decided against gambling the club’s future for the present and instead took a far more difficult path.

They slashed an unsustainable and unviable cost base as fast as possible. They worked to get the revenues higher and fought their way through a quagmire of legal cases to get overly expensive players who couldn’t even be bothered to report for training off the books.

As a result, as the club’s parachute payments come to an end in a couple of months’ time, the club is now reportedly debt-free, breaking even and has £10 million cash in its bank account. What’s more it has a reputed playing wage bill of about £8 million, against revenues of about £20 million – keeping them firmly below the 60% limit imposed by EFL rules.

It’s also worth pointing out that, according to numerous press reports (albeit the figure has not been independently verified), the £20 million revenue excludes the outstanding parachute payments.

Sunderland v Gillingham - Sky Bet League One Photo by Ian Horrocks/Sunderland AFC via Getty Images

Looking for silver linings

This is undoubtedly a strong position to find ourselves in, particularly as the footballing world grapples with the implications of the Covid-19 pandemic. This unexpected interruption, both to the competition and club’s cash-flows, is undoubtedly going to impact decisions that our rivals will be making in the coming months on everything from transfer planning to contract extensions for players and everything in between.

Yet, while many of our fellow League One clubs will have to rely on the EFLs £50m relief package and discuss wage deferments with their players, Sunderland are in a position where neither of these measures will be required.

What’s more, as we look for some glimmers of sunlight in the current storm that we are all living through, the club is, based on what is in the public domain, going to benefit financially from crisis.

The £2m business rates that incensed Methven back in July 2018 were calculated based on us being a Premier League club have been suspended as part of the government’s response to the crisis. By my maths that’s 10% of the club’s revenues that will no longer being spent during the next 12 months.

In addition to this, the club will be saving 80% of its expenditure on non-playing staff as well over the next three months after last week’s news that many of the non-playing staff had been placed on furlough. For those that have slammed Donald and Methven for cutting costs with redundancies in the past, it’s worth noting that, unlike many of the other businesses utilising this scheme to protect jobs, they have committed to paying the other 20% so that employees are not out of pocket.

When you combine these two ‘benefits’ you’re talking about saving approximately 30% of the clubs revenues that had been committed to expenditure over the next three months. At the same time there will be minimal impact on incoming cash thanks to the fact that we had already played the vast majority of our home games.

Sunderland v Bolton Wanderers - Sky Bet League One Photo by Alex Dodd - CameraSport via Getty Images

Time on our hands

So, as we sit with time on our hands and limited ways to spend it, as a club we can take stock of our position, and unlike many other clubs in the pyramid, plan for the future.

As other EFL clubs beg for hand-outs and plead with agents to defer payments to players, the opportunity suddenly looks massive for us.

The market in this summer’s transfer window is almost certainly going to be awash with Championship players who their current clubs simply cannot afford to offer another deal to. After all, they will likely be paying their players the money they have asked them to defer now throughout the autumn, with cash flow unlikely to be available to add new players.

League One clubs – who will have to hand back their ‘up-front’ solidarity payments come the autumn – will simply be in no position to turn down even low-ball offers or their better players. As a result Sunderland, whether under Donald or a new owner, should be able to stock up on bright young players and experienced Championship pros for peanuts.

Sunderland v Fleetwood Town - Sky Bet League One Photo by Mark Fletcher/MI News/NurPhoto via Getty Images

The benefit of being strategic

If I recall correctly (and if you doubt me go seek it out, after all you will have the time to trawl through Google and podcasts, it’ll kill some time) this is exactly the situation the ownership committed to putting us in when they first took over. If memory serves me correctly, they claimed if they could put the club in a stable financial position then they would be able to make better strategic decisions on investment when the time was right – rather than the reactionary ones that are seemingly part and parcel of the football business world.

And is that not where we find ourselves now? Not only capable of dealing with an unforeseen disruption but also in one where we can strategically plan to make ourselves stronger while others invest all their energy into surviving the storm.

So, as I already mentioned, is it not wise to use some of that newfound time we all have to perhaps reflect that while yet another 1-1 draw or losing to teams we should, on paper, be beating at home is disappointing that success is built in the long term. Not, as some would have you believe, from hoying money around in pursuit of quick fixes and instant gratification.

After all, you’d be hard pushed to find anyone that would describe the one time Donald bowed to fan pressure, broke from his model and splashed the cash (ahem Will Grigg) as good for the club, or a success. That in itself, having seen the trailers and reviews of STID s2, is almost worthy of a post in its own right...

Of course, there will be those who think I’m fantasising, I’m not: I am simply applying the maths and basic logic. After all business is about ‘survival of the fittest’, not “triumph of the fattest”. And as we enter this crisis, we look like the fittest kid on the block.