Thread by @SwissRamble

Sunderland’s 2017/18 financial results covered a second successive relegation. Having finished bottom of the Premier League in 2016/17, they repeated this feat in the Championship to drop into League One. Some thoughts in the following thread #SAFC

This was the last season under former owner Ellis Short before Stewart Donald bought the club in May 2018. Since then, the financial picture at #SAFC has greatly changed, but it is still instructive to look at these financials to understand the reasons for their fall from grace.

Following relegation #SAFC loss almost doubled from £10.2m to £19.9m, as revenue basically halved from £123.5m to £63.7m and profit on player sales fell £26.5m to £6.6m. Offset by once-offs: £8.2m profit on sale of Charlie Hurley Centre; no repeat of 16/17 £9.7m Alvarez payment.

#SAFC £60m revenue decline was largely driven by broadcasting’s £47m (49%) fall from £96m to £49m, as the £42m parachute payment was much lower than the Premier League £93m distribution. Commercial slumped £10.7m (56%) to £8.3m and gate receipts were £2.4m (27%) down at £6.6m.

However, #SAFC managed to significantly cut costs: wage bill was down £36m (43%) from £83m to £47m, mainly due to relegation clauses and released players; player amortisation/impairment dropped £21m to £23m; and other expenses were £4m lower. Net interest payable rose £2m to £6m.

As a technical aside, the #SAFC £19.9m loss after tax increased to a £26.4m net loss (“Total Comprehensive Expense”) after taking into consideration £6.5m of share capitalisation costs.

A review of #SAFC is complicated by the new structure whereby Sunderland Ltd no longer publishes consolidated accounts, so most of this analysis is based on The Sunderland Association Football Club Ltd. As a comparison, 2017 loss was around the same, but revenue was £2.9m lower.

Stewart Donald’s company, SJD Leisure Holdings Ltd, owns 94% of Sunderland Ltd, which owns The Sunderland Association Football Club Ltd, which in turn owns 1879 Events Management Limited and Sunderland Association Football Club Ladies Ltd. Charlie Methven has the other 6%.

Although #SAFC £20m loss was obviously not great, it was by no means the worst in the Championship with the promoted clubs “leading the way” (though adversely impacted by hefty promotion bonuses): #WWFC £57m, #FFC £45m & Cardiff City £39m. In fact, only 5 clubs reported profits.

#SAFC reported just £7m profit on player sales. As Khazri, Lens, Borini, McNair, Osoro & Steel all left in the accounting period, they must have gone for knockdown prices. Furthermore, there were many free transfers, while expensive signings, Ndong and Djilobodji were dismissed.

The last time #SAFC made a profit was way back in 2006. Since then, they have reported losses for 12 years in a row, totaling £235m (annual average £20m). The club has predicted a £10-11m loss in 2018/19, while Donald says “there’s not a chance there will be a loss” next season.

As a rule, #SAFC do not make much money from player sales. In fact, the £33m in 2016/17, mainly Pickford to #EFC, was more than the profits from this activity for the previous 5 seasons combined. It was back to “business as usual” in 2017/18 with just £7m.

#SAFC EBITDA (Earnings Before Interest, Tax, Depreciation & Amortisation), which can be considered a proxy for cash operating profit, as it strips out player sales and once-off items, dropped from £15m to £(5)m, the lowest since the last time in the Championship in 2007 £(9)m.

In fairness, only four Championship clubs managed to achieve positive EBITDA in 2017/18, so #SAFC £(5)m was actually the 8th best in the division and much better than the likes of #BCFC £(30)m, #AVFC £(27)m, #WWFC £(27)m and #DCFC £(21)m.

While in the Premier League, the only real #SAFC revenue growth came from the new, centrally negotiated TV deals. Revenue fell from £124m in the top flight to £64m in the Championship. Due to lower parachute payments, likely to have fallen to around £50m in League One in 2018/19.

Despite the fall, #SAFC £64m revenue was still the 2nd highest revenue in the Championship, only behind #AVFC £69m, but just ahead of #Boro and #NCFC £62m. This underlines the extent of Sunderland’s under-performance, as they somehow contrived to finish way down in 24th place.

Obviously, #SAFC revenue was boosted by a £42m parachute payment, as was also the case at #Boro and #HCAFC, followed by #AVFC and #NCFC £34m, then #CardiffCity, #FFC and #QPR £17m.

If parachutes were to be excluded, #SAFC £27m would have been the 5th highest revenue in the Championship, though a fair way below #LUFC £41m and #AVFC £39m.

With the parachute payment falling from £42m to £34m in 2018/19, I estimate that #SAFC had around £50m revenue in League One, which was 5 times as much as the next highest clubs: Rotherham United £10m, Blackburn Rovers £9m, Portsmouth £9m and Charlton Athletic £7m.

#SAFC TV revenue was £47m lower in 17/18 at around £49m, despite a £41m parachute payment, which was significantly higher than the £8m most Championship clubs averaged. In League One parachute payment will fall to £34m in 18/19, then £15m in 19/20 and zero in 20/21.

My #SAFC revenue estimate is: 18/19 £50m, 19/20 £30m, 20/21 £15m. Methven acknowledged, “We need to increase other revenues and keep costs coming down, so that we’re still sustainable once parachute payments are gone.” Happily, club says has already grown other revenue by £2.5m.

#SAFC gate receipts fell by around a quarter (£2.4m) to £6.6m, a long way below the £14.6m peak in 2014, despite 2 more home games, as average attendances plummeted from 41,287 to 27,635. The income was mid-table in the Championship, but only around half of #AVFC £12m.

#SAFC average attendances were consistently above 40,000 in the Premier League, but dropped to fewer than 28,000 in the Championship, before bouncing back to over 32,000 in League One, due to a combination of better performance, new owners and cheaper prices.

In fairness, #SAFC attendance of 27,635 was the 4th highest in the Championship in 2017/18, only behind Aston Villa 32,097, Leeds United 31,521 and Wolves 28,298. League One 18/19 ticket prices were cut by up to 40%, though most are around 15% lower.

#SAFC commercial income more than halved by £10.7m (56%) from £18.9m to £8.3m, mainly due to sponsorship falling by £7.9m (81%) from £9.8m to just £1.9m in the lower league. Nevertheless, this was still 9th highest in the Championship, though only half of #LUFC £16m.

#SAFC contract with Dafabet was due to run to 2019, but the shirt sponsor exercised an option to end the deal as a result of relegation to League One. They were replaced by BETDAQ, though there are reports they will also pull out. The long-term kit deal with Adidas runs to 2020.

Following relegation, #SAFC wage bill was cut by 43% (£36m) from £83m to £47m, pretty much in line with 48% revenue reduction, as headcount fell by 51. Presumably includes payoffs to sacked managers, Simon Grayson and Chris Coleman. This is the club’s lowest wage bill since 2008.

Despite the decrease, #SAFC £47m wage bill was still 6th highest in the Championship, within striking distance of all other clubs – with the exception of #AVFC £73m. Must have fallen further in League One, though the likes of Cattermole, Oviedo and McGeady will be on good wages.

#SAFC £47m wage bill was actually the 12th highest ever in the history of the Championship, but to place that into perspective it was miles below #NUFC £80m in 2016/17 and #QPR £75m in 2013/14, not to mention five other clubs in 2017/18 alone.

#SAFC wages to turnover ratio increased from 67% to 74%, but this was remarkably low for the Championship, only above #NCFC 68% and #HCAFC 56%. Over half the clubs in this division have ratios above 100%, e.g. it’s much lower than #BCFC 202%, Reading 197% and #WWFC 192%.

Many #SAFC fans might be surprised to see they had the highest paid directors’ remuneration in the Championship of £2m. Most of this went to Martin Bain, who trousered £1.9m (including a £1.1m severance payment). That makes a total of £3.1m for overseeing 2 relegations in a row.

#SAFC player amortisation, the annual charge to write-down transfer fees over the life of a player’s contract, was cut by £18.9m (64%) from £29.4m to £10.5m, the lowest since 2007. Also wrote-off £12m of player values, meaning an incredible £26m impairment in last 2 years.

Despite the significant decrease, #SAFC player amortisation of £11m was still 7th highest in the Championship, though less than half of (relatively) big-spending clubs like #Boro and #AVFC, both £24m.

After many years of big spending, #SAFC really put the brakes on in 2017/18 with only £1.1m player purchases, considerably lower than previous seasons: 2016/17 £48m, 2015/16 £31m and 201/15 £48m. They were significantly outspent by #Boro £66m, #FFC £31m, #LUFC £28m & #WWFC £25m

The difference in #SAFC activity in the transfer market since relegation from the Premier League is stark. In the last 5 years in the top flight, they averaged £37m annual gross spend (net spend £22m), but this has fallen to just £3m in last 2 years (net sales £24m).

The good news is that, as part of the sale of #SAFC, pretty much all the financial debt has been paid off, leaving less than £1m owed to a group company, compared to prior year’s frightening £162m (£91m owed to former owner Ellis Short, £71m to Security Bank Corporation).

#SAFC £162m gross debt had been the 5th highest in Premier League (and would have been even higher if Short had not converted £101m into equity), but after the write-off their £1m was one of the lowest in the Championship, miles below #Boro £101m and #ITFC £95m.

#SAFC still owed £18.6m in transfer fees as at July 2018, though other clubs owed them £16.2, so net balance was only £2.4m. This has come down from £45m in 2017 and the owners’ comments suggest that parachute payments might have been used to repay the outstanding balance.

The loans provide by Short were interest-free, but the SBC loan carried an interest rate of at least 8.5%, leading to a £6.3m payment in 2017/18. This was £1.6m less than the previous season, but was still by far the highest in the Championship.

Unfortunately, #SAFC no longer include a cash flow statement in their accounts, but we can see that their cash balance fell by £25m from £36m to £11m, though this was still the second highest in the Championship, only behind #NCFC £16m.

#SAFC had no FFP issues in 2017/18, as they had an allowable loss of £83m over 3-year monitoring period (£35m for 2 Premier League seasons & 1 Championship season at £13m). They were compliant even before excluding allowable deductions (academy, community & infrastructure).

There has been some concern that Donald funded £25m of the #SAFC £40m purchase price via parachute payments. It’s a bit complicated, but the owners’ explanation of the transaction suggests they will look to reimburse the club over time. The next accounts will help inform here.

However, there have been media reports that Donald might be selling a majority stake in #SAFC with a consortium led by US investor Mark Campbell mentioned in dispatches. The picture is vague, but Sunderland fans have become accustomed to expecting the unexpected.

Ellis Short himself admitted, “overall my chairmanship has not gone the way I would have wished”, leading to poor results on and off the pitch. In fairness, the former owner did put in a lot of cash, while leaving #SAFC with a fighting chance by clearing the debts when he sold.

Clearly, there is still much to do on the cost base, but there has already been great progress in making #SAFC sustainable. That said, a club with these resources really should be able to get out of League One, so promotion has to be a top priority next season.