Sunderland’s 2018/19 financial results cover the first season under the ownership of Stewart Donald, when they finished 5th in League One following relegation from the Championship the previous year, but lost to Charlton in the play-off final. Some thoughts follow #SAFC
Despite relegation, #SAFC loss narrowed from £20m to £11m, even though revenue fell £5m (8%) to £59m, profit on player sales down £6m and no repeat of £8m sale of old training facility, as expenses were slashed by £50m. Would have been profitable without £20.5m debt write-off. 
The #SAFC £5m revenue decline actually represented a good performance, given that broadcasting fell £9m (18%) from £49m to £40m, due to lower parachute payments, as gate receipts increased £2m (31%) from £6.6m to £8.6m and commercial rose £1.9m (22%) from £8.2m to £10.1m.
#SAFC also managed to significantly cut costs: the wage bill decreased £20m (43%) from £47m to £27m, player amortisation dropped £6m to £4m, there was no repeat of prior year £12m player impairment, other expenses were £5m (22%) lower, while £6m interest payable was eliminated.
#SAFC reported £10.6m loss was the worst in League One, just ahead of Charlton Athletic £10.1m, though in fairness 16 of the 24 clubs in this division lost money. The highest profits were £3.8m at AFC Wimbledon and Southend, but these were both boosted by exceptional items.
Furthermore, #SAFC reported £11m loss was only due to the £21m write-off of debt owed to the club by another group company, Madrox Partners Ltd. Excluding this charge, Sunderland would have posted a £10m profit. Without exceptionals, bottom line improved by £26m over prior year.
In fact, if all clubs’ accounts excluded exceptional items, then it would be a very different story in League One with #SAFC making an impressive £10m profit, the best in the division.
Most of this #SAFC analysis will be based on the football club accounts for The Sunderland Association Football Club, which is owned by Sunderland Ltd, in turn owned by Madrox Partners, where the owners are SJD Leisure Holdings 74%, Juan Sartori 20% and Charlie Methven 6%.
All these inter-company relationships make it more difficult to analyse #SAFC accounts, though one thing that is clear is the write-off of the £20.5m exceptional expense in the football club has been booked as a profit in Madrox, the company set up to acquire Sunderland.
#SAFC reported just £100k profit on player sales, down from £6.6m the previous season, as the club’s main objective was to get players off the wage bill. To be fair, few League One clubs make much money here with the highest profits of £4.4m at Peterborough and Coventry.
The last time #SAFC made a profit was way back in 2006. Since then, they have reported losses for 13 years in a row, totaling nearly a quarter of a billion pounds (£245m at an annual average of £19m).
The picture looks better at a day-to-day level, as #SAFC generated their first operating profit (i.e. excluding player sales and interest payable) since 2006. In fact, this measure of profitability improved by £38m in 2019, as a £28m loss was turned into a £10m profit.
#SAFC £10m surplus is even more impressive, as only one other club in League One managed to produce an operating profit – and that was only just above break-even with £0.1m at Walsall.
#SAFC did well to restrict the 2019 revenue decrease to just £5m, despite relegation from the Championship, as growth in gate receipts and commercial offset lower parachute payment. Nevertheless, revenue has more than halved since Premier League days, falling from £124m to £59m.
In fact, #SAFC £59m revenue would have been higher than all but three clubs in the Championship in 2018/19, namely those benefiting from first year parachute payments: WBA £71m, Stoke City £71m and Swansea City £68m.
However, much of #SAFC revenue is dependent on those parachute payments, which will fall from £39m to £15m in 2019/20 and nothing at all in 2020/21. The club’s TV revenue will then only be around £3m.
As a result, my estimate for #SAFC revenue for the next two years is: 2019/20 £37m and 2020/21 £19m. Former director Charlie Methven acknowledged, “We need to increase other revenues and keep costs coming down, so that we’re still sustainable once parachute payments are gone.”
#SAFC gate receipts rose £2m (31%) from £6.6m to £8.6m, due to 8 more home games, plus 2 trips to Wembley for League One play-off and Checkatrade Trophy final. This was the highest in the division, though still a fair way below the £14.6m peak in the Premier League in 2014.
Even after relegation, #SAFC average attendance actually increased by 16% from 27,635 to 32,157, due to a combination of better performance, new owners and cheaper prices (most around 15% lower). Club attracted 43,000 crowds in the Premier League.
Also impressive was #SAFC increasing commercial income by £1.9m (22%) from £8.2m to £10.1m following relegation, mainly driven by conferencing and banqueting (up £1.4m) and sponsorship and advertising (up £0.5m). This was easily the highest in League One, ahead of Walsall £3.8m.
#SAFC had a three-year shirt sponsorship deal with BETDAQ until 2021, but the last two years have been gifted to Children with Cancer UK following that company’s decision to pull gambling advertising. The long-term Adidas kit deal has been replaced by Nike from 2020/21.
#SAFC cut the wage bill by 43% (£20m) from £47m to £27m, which means that this has fallen by over two-thirds (£56m) in two years from £83m in the Premier League. It will further fall this season following the departures of some high-paid players, e.g. Cattermole, Oviedo and Koné.
Despite the decrease, #SAFC £27m wage bill was easily the highest in League One, well ahead of Portsmouth £10m and Barnsley £8m. By my reckoning, this is £10m more than the previous highest in this division, namely Blackburn Rovers £17m in 2018.
#SAFC wages to turnover ratio decreased from 74% to 45%, the lowest (best) in League One. The next lowest were Gillingham 60%, Walsall 61% and Portsmouth 64%. Sunderland have reduced headcount by 226 since relegation from the Premier League, mainly administration staff.
#SAFC directors’ remuneration fell from £2.0m to £285k with the highest paid director down from £1.9m (Martin Bain) to £124k. Also invoiced £320k for key management personnel, which is likely to include Methven’s company. Club have paid £17.5m to directors in last 10 years.
#SAFC player amortisation, the annual charge to write-down transfer fees over the life of a player’s contract, fell £6.2m (57%) to £4.4m, miles below 2016 peak of £30m. Wrote-off £12m of player values in previous season, meaning an incredible £26m impairment in 2017 and 2018.
Stop me if you’ve heard this one before, but despite the significant decrease, #SAFC player amortisation of £4.4m was still the highest in League One, almost twice as much as Barnsley £2.4m. All but three clubs were less than £1m, reflecting limited player investment.
#SAFC “began investing again in new playing talent”, as player purchases rose from £1.1m to £4.8m, including Grigg, Wyke, Baldwin, Power and O’Nien. This was the highest in League One, ahead of Peterborough £1.9m, accounting for around a third of the division’s transfer spend.
However, the difference in #SAFC transfer spend 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 £2m in last 3 years (net sales £17m).
As part of the sale of #SAFC, pretty much all the financial debt was paid off, so now the club only owes £2.7m owed to a group company. This was as high as £162m two years ago (£91m owed to former owner Ellis Short, £71m to Security Bank Corporation).
Similarly, amount owed in transfer fees has significantly reduced from £45m two years ago to just £3.6m. In fact, as other clubs owe #SAFC £5.5m, the net receivable owed to Sunderland is £1.9m.
#SAFC £2.7m gross debt was mid-table in League One, miles behind the likes of Charlton Athletic £75m, Coventry City £37m and Luton Town £35m (all in holding company, zero debt in football club).
In November 2019, after these accounts were published, Madrox received a £9m loan from American backers FPP, which has been used to provide £9m of new share capital to #SAFC. Donald said if the owners defaulted on the payment, the club would fall under control of FPP.
One positive of #SAFC new ownership is the virtual elimination of interest payments, which dropped from £6.3m to just £224k. This was as high as £8.1m in 2016 and amounted to £40m in the previous nine years.
Unfortunately, #SAFC no longer include a cash flow statement in their accounts, but we can see that the cash balance fell from £11.2m to £2.6m, which was the fifth highest in League One, behind Plymouth Argyle £4.2m, Portsmouth £4m, Shrewsbury Town £2.7m and Barnsley £2.6m.
#SAFC ultimate holding company, SJD Leisure Holdings Ltd, does include a cash flow statement, which shows that the operation is profitable before working capital movements. It also shows that Stewart Donald has put £11.2m in (£5.0m in 2018 and £6.2m in 2019).
Donald has put #SAFC up for sale, hoping to get back the £37m he paid for the club in 2018, despite relegation and the ending of parachute payments. He initially only funded £5m of the purchase with his own cash, using £32m of the club’s parachute payments to finance the rest.
Following the £20.5m write-off of the debt owed to #SAFC, fans are understandably concerned that the club will not see this money again, though Donald has claimed this will be repaid in full before the club is sold.
Madrox has stated that it has injected £9.1m into #SAFC in 2019 and £11.4m in 2020, leaving £11.5m of parachute payments to be repaid. This is tricky to assess from the accounts, but 2019 surely includes the £6.2m Donald funding plus £2.8m from other sources (possibly Sartori).
Like all other clubs, #SAFC will be significantly impacted by the COVID-19 pandemic, but they did place players and backroom staff on furlough (with the government contributing 80% of wages up to £2,500 a month), though club will make up shortfall.
Based on practically all financial metrics (highest revenue, wages, crowds, transfer spend), #SAFC really should have secured promotion, but they will instead play in League One for a third successive season, which is a damning indictment of the owners.
That said, Donald has managed to cut costs in line with declining revenue, making #SAFC sustainable after many years of losses. Despite COVID, this should in theory be an easy sale, given the stadium, fanbase and academy, but the asking price is too high for a League One club.
