Sunderland AFC accounts: Kyril Louis-Dreyfus plan, debt to ownership and transfer spending explained

Sunderland AFC released their accounts for the 2022/23 campaign on Thursday morning, outlining the figures for their first season back in the Championship after a long stint. The headline was a £9 million operating loss, but what else did we learn from the accounts? Here’s everything you need to know as we take a closer look and outline the club’s financial position more generally…

WHY SUNDERLAND MADE A SIGNIFICANT LOSS

Sunderland lost almost £4 million more than their promotion campaign out of League One, which is relatively simple to explain. TV and Media income surged from around £3 million to just over £10 million, but this was outstripped by the rise in the club’s wage bill which went from around £16 million to £25 million.

In a nutshell, this explains the immense financial challenges that all clubs in the Championship face if they are not in receipt of parachute payments. The wage bill has to grow significantly to realistically compete with those teams dropping out of the Premier League, but the income streams are nowhere near enough to bridge the gap. While a huge fan base like Sunderland’s helps in terms of gate receipts and commercial revenue, that alone is nowhere near enough. It’s why, like it or not, the odd player sale is important to Sunderland’s strategy. It’s also why the EFL have been so aggressive in calling for a new financial deal which will increase the Premier League’s contribution to the pyramid, and why they are so keen to see parachute payments overhauled in favour of a merit-based approach. As of yet, however, there has been little to no progress on either front and so the current system remains very much in place.

It will change slightly next season when a major new TV deal with Sky Sports kicks in, which is estimated to be worth an additional seven-figure sum to Championship clubs each season. The facility fee awarded every time your club features on TV will also grow. While this will make a difference, it’s unlikely to bridge the gap entirely. 

SUNDERLAND OVERACHIEVED SIGNIFICANTLY LAST SEASON 

Sunderland’s wage bill (note, the £25 million figure relates to all club staff, though players clearly make up the vast majority of this) confirms what was widely thought: they were not one of the biggest spenders in the division and overachieved significantly in finishing sixth last season. Their wage bill was around midtable for the division across the campaign, as too were their losses.

The club continue to be in a relatively strong position in terms of the division’s Profit and Sustainability Rules, which limit losses to a total of £39 million over a three-season period. So the room to invest in the squad for the ownership is absolutely there, but these results also show the scale of losses that will be incurred if the wage bill rises dramatically and quickly.

COMPLEX TRANSFER SITUATION EXPLAINED

Sunderland’s accounts showed a £308,000 profit on player trading, down from £1,243,000 the previous year. This primarily reflects the fact that there were few significant departures in the period covered in the accounts, while there were also fewer sales from the club’s academy (young goalkeeper Toby Bell’s departure to Chelsea being a rare exception).

That headline figure masks a much more complex position in terms of where Sunderland are at with fees both paid and received. For one, much of the club’s significant summer transfer business took place outside of the accounting period. That included the deadline-day acquisitions of Timothee Pembele, Adil Aouchiche and Nazariy Rusyn on long-term contracts, and more significantly the sales of Lynden Gooch, Isaac Lihadji and Ross Stewart. The accounts elsewhere show a £7,370,000 spend on transfer fees, and £1,151,000 recouped. The accounts also reflect the fact that most modern-day transfer fees are paid in instalments, rather than in a lump sum up front. The accounts therefore go on to explain that Sunderland owe £2,938,535 in future instalments, while £830,000 is owed to them by other clubs. Factor in the sale of Stewart set against those broader figures and you get a much better overall picture of Sunderland’s recent transfer spending.

CLUB’S GROWTH FOR PLAN EXPLAINED

That Sunderland ran up such significant losses while running what was a comparatively wage bill for the level sums up their challenge to win promotion while moving towards sustainability. 

Their plan to do so is two-fold, both of which are outlined in the accounts. The first is on the pitch, their plan to invest in young players and create a clear pathway for academy players to break into the first team. This is seen both as the most cost-effective way to obtain talent, and also creates assets who could potentially be sold on for a significant profit - allowing for a pot of money which can be reinvested to grow the wage bill as required. The notes accompanying the accounts celebrate Sunderland having the youngest squad in the Championship, as well as their excellent ongoing record of having an academy graduate in every squad. Even if the recruitment strategy will be slightly ‘tweaked’ this summer to add more experience to the squad, there will not be a major overhaul.

These accounts also make clear that Sunderland believe growing their commercial revenues is absolutely essential to future sustainability. Those revenues rose sharply in the final campaign in League One, but grew only modestly in this year in question. Kyril Louis-Dreyfus says in the accounts that there will be significant investment in order to grow these revenues in future, with a planned wind farm on club land near the Academy of Light seen as one key development. We have already seen some of the other plans begin to bear fruit, with hummel announced as the club’s new kit partner and Fanatics this week announced as the company who will overhaul the retail offering. These developments are just part of a much wider plan to overhaul the club’s offering to fans, of which David Bruce is ultimately in charge. Bruce arrived from a role at the MLS as the club’s Chief Brand and Commercial Officer earlier this season. There’s clearly a lot more to come on this front.

The club’s project to bring 5G to the Stadium of Light, spearheaded by outgoing Chief Commercial Officer Steve Davison, is also moving towards a conclusion. Davison has also been instrumental in bringing concerts back to the stadium, which will be an important ongoing revenue stream.

CLUB DEBT CONTINUES TO GROW 

One of Ellis Short’s final acts as Sunderland owner was to clear the club’s debts both external and internal, writing off what he himself was owed and paying off any remaining creditors. While his successors inherited a perilous scenario in terms of some of the club’s obligations, particularly the eye-watering wage bill they were taking into League One, it gave Sunderland a chance of a reset.

The club remained debt-free for a period of time, until the loan from the FPP group that had considered buying the club. Kyril Louis-Dreyfus cleared this debt when taking control of the club, again leaving it debt-free. Since then, however, a not insignificant debt has grown to the shareholders as a result of their investment in the club, which the accounts state in the year in question to have been £5.5 million.  Mercator, which is registered in the Cayman Islands, is the parent company which ultimately owns Sunderland AFC. Kyri Louis-Dreyfus and Juan Sartori are the two shareholders, mirroring the arrangement of the club’s ownership. The debt to Mercator has now risen to £18,050,000. Sunderland do not and will not pay interest on this debt.

Sunderland continue to insist that this debt will not remain, as it is the intention of the ownership to convert this to equity at some stage in the future. However, it’s another year in which that has not happened and it’s one of the many things that it would be beneficial to hear more from the ownership from in terms of a plan to do so.