Sunderland’s finances, released late last week, paint a stark picture. Enormous cost-cutting measures and a successful campaign to raise commercial revenues simply aren’t enough to put a club of Sunderland’s size on a sustainable footing in League One. As such, Sunderland posted a loss of over £11.2 million for the 2018-19 season.
The financial picture detailed in these accounts only report up to July 2019, and any other measures taken by the club to cut costs and increase income since then aren’t public knowledge. As such, it’s difficult to accurately understand Sunderland’s current position, though Donald did note recently that he hopes to have the 2019-20 accounts available by November.
What is worth mentioning is that this latest set of accounts - as well as those that will detail the 2019-20 - include parachute monies as part of the club’s income. £20.5 million of the 2018-19 parachute monies remains a point of contention as this money was seemingly used by Madrox to buy the club from Ellis Short before being written off as a debt owed to the club by Madrox - hence the club posting a loss. Donald, though, insists Madrox will repay this money,
What is a major worry is that the 2020-21 season will be the first whereby the club don’t have parachute money income to rely on, much of which was used to fund the club’s purchase. The fact that losses are still large despite letting go of over 100 staff amidst heavy cost-cutting exercises, is a major cause for concern - even if the club’s hierarchy did boost matchday and other commercial incomes. That means an automatic loss of at least £15 million when compared to 2019-20. This will likely leave people feeling anxious about the future.
The 2018-19 reports show that the club did reduce player wages to around £27 million - a reduction of over 40% compared to 2017-18. Undoubtedly, the club will have reduced this number even further last season and this summer.
Although the figures in this latest financial report stems from the previous season; it’s still worth remembering that the 2019-20 season will have been a difficult campaign financially as the club’s income from matchday operations will have undoubtedly been impacted by football’s shutdown in the face of Covid-19 and the subsequent season ticket PR disaster.
As such, Sunderland are seemingly in a difficult position moving forward: how much more cost-cutting can the club perform as running costs continue to be much higher than income, especially as this coming season we won’t have parachute payments to help fill the void?
Any party interested in owning Sunderland AFC have serious decisions to make, because from this latest set of accounts it’s clear to see that a club of Sunderland’s size simply cannot live sustainably in League One, where TV money and other sponsorship incomes aren’t adequate enough to sustain bigger operations.
The potential introduction of an EFL-imposed salary cap and squad size limits could, perhaps, help to solve our sustainability issue, but with so much opposition to the EFL plans, their potential implementation is not guaranteed.
Subsequently, decisions have to be made as to how Sunderland should operate as a club and a business. While EFL limitations would offer some reprieve to our outgoings, it would also hinder our ability to compete financially - like a true double-edged sword. There is a fine balance that needs to be struck between realism and ambition here.
The first option available to the club is to simply continue to reduce costs in order to bring down yearly losses. The question that must be asked, though, is whether there’s any real fat left to be cut?
The player wage bill is the most obvious place to start, and this summer it will be interesting to see how the club operates in the transfer market. The departures of Duncan Watmore, Jon McLaughlin, and likely Aiden McGeady will certainly free up a large chunk of money. Jack Baldwin, Joel Lynch, Alim Ozturk, and Ethan Robson moving on will also have freed up money, too. I’d be fascinated to know what the club’s wage budget is set at ahead of this coming season and how much it has fallen since the last published accounts - especially if the club is preparing for EFL limitations
Bringing in players on deals worth less money than those of players who have departed the club is an option to help reduce the club’s outgoings, but there’s a balance to be struck between financial practicality and ambitious recruitment; Sunderland can’t afford to stay at this level, but they also need to be careful with their expenditure. As such, trying to find the appropriate balance will be a genuinely difficult act for whoever is in charge of the club’s finances and budgets.
Another option that the club really need to consider is their approach, not only to signing new players, but also developing them and then selling them to teams higher up the footballing food chain. Selling talented players at much higher prices than what you signed said players for is a method that has helped clubs like Dortmund and Brentford find success
To embrace this model, you need to be willing to give young, hungry players a chance to prove their worth - something the EFL sanctions encourage by not limiting the number of Academy products in a club’s squad within the overall cap. It’s a strategy that everyone in the club needs to buy into, and unfortunately for Sunderland that hasn’t really been the order of the day. Instead, younger players have been allowed to join clubs in higher divisions for relatively small fees that don’t help the club in the long term. Giving these players professional terms and a pathway to first-team football has to be embraced.
Bali Mumba’s touted fee of £350k, including add-ons, could have been multiplied had the club nurtured his undeniable talent. Instead, Mumba now goes to another side coy with their recruitment, Norwich, who are set to sell one of their young talents for a fee north of £20 million - with Tottenham, Bayern Munich and Inter Milan set to bid on Max Aarons who was acquired from Luton’s U23 side several years ago
The recent departure of Sunderland’s recruitment team is said to coincide with a desire to move towards a recruitment model that embraces analytics and data in the pursuit of talent. Sunderland simply must look at cultivating young talent as a means to help fund the club in the long term.
If Sunderland can help players like Luke O’Nien, Jordan Willis, Denver Hume, George Dobson, Lynden Gooch, Elliot Embleton, and Jack Diamond to develop into attractive propositions for clubs higher up the football ladder, then income from transfers could help to fill the void left by the now-evaporated parachute payments.
Short term investment is required in order to get such strategies up and running, but the sales of Jordan Henderson and Jordan Pickford highlight the profits there to be made.
Whichever person or persons owns Sunderland in the coming weeks, the financial picture painted by the most recent set of accounts is sure to be key to their planning for the club’s future.
The club’s losses persist in the face of cost-cutting measures and parachute payments helping to make ends meet. This season, though, Sunderland will have to make do without the latter and might have to further explore the former.
The argument could be made that any potential owners looking to buy the club would need at least an additional £20 million per-year in order to keep the club progressing off the pitch while outside of the Premier League - unless the EFL push through their plans for wage caps and limiting squad sizes
The worry for fans, though, is whether there’s anybody out there willing to take a risk on investing in Sunderland.