Phil Smith: Sunderland's accounts reveal the major challenge facing Kyril Louis-Dreyfus plus the Madrox questions that remain

All things considered, a reminder of the scale of the challenge Kyril Louis-Dreyfus has undertaken in rebuilding Sunderland and making it sustainable is probably not needed.

Thursday, 29th April 2021, 6:40 pm

Should there be any doubt whatsoever, though, then the club's latest accounts have underlined it.

Covering a period running from July 31st 2019 to August 1st 2020, the figures of course do not reflect the time in which Louis-Dreyfus has been in charge.

They nevertheless give us an insight into the club he inherited, and the immense challenges that he is facing in both the short and long term.

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Sunderland released their accounts covering the 2019/20 season on Thursday morning
Sunderland released their accounts covering the 2019/20 season on Thursday morning

The headline numbers themselves are not particularly alarming; Sunderland recorded a loss of £2,622,000, This is a figure that pales in comparison to many of the results posted during the Premier League era.

Sunderland's cause was also not helped by the final chapter of the long-running Ricky Alvarez saga, which cost the club in excess of £5 million.

Alvarez had contested his initial award relating to lost earnings and partially won his case in the Court of Arbitration for Sport.

More relevant to Louis-Dreyfus' era is the considerable drop off in the club's other revenues.

Most stark in the 2019/20 accounts was the steep decline in television and media income, which fell from £39,948,000 to £17,195,000. This fall can be accounted for in the steep drop in Sunderland's parachute payments from the Premier League, which they are no longer receiving and will therefore present a significant gap in the next accounts.

Other income streams fell, in part you suspect due to the ongoing challenges on the pitch, and more obviously as a result of the initial months of the COVID-19 pandemic.

Sunderland lost three home games at the end of the 2019/20 stadium, which in part accounts for the fact that gate receipts were down from £8,602,000 to £5,658,000, while conference and banqueting revenue fell from £4,136,000 to £2,138,000.

Though Sunderland were again supported in remarkable numbers this season by those who renewed their season cards and or bought streaming passes for games, it is clear that these revenues will have taken a significant hit during a campaign in which all games have been played behind-closed-doors.

As well as addressing that, Louis-Dreyfus has also inherited a footballing operation in major need of a rebuild and these accounts very much underline that.

The club's operating expenses and wage bill fell considerably once again, though the latter remained very high for the level at £14,504,000 (across the whole club).

That small loss overall was propped up by the sale of numerous academy talents, with player trading returning a profit £3,382,000.

The sale of George Honeyman to Hull City did fall into this period, but the money can mostly be accounted for in the high-profile departures of players such as Bali Mumba, Logan Pye and Joe Hugill.

Those fees may have helped in the short term, but very clearly they have left the club without some of its most valuable talent in the long run, which will not aid Louis-Dreyfus in his endeavours to use the academy to drive sustainability.

Spending on the U23 side did increase prior to Louis-Dreyfus' arrival, which has been reflected in the considerably improved results at that level, but the academy more broadly is one of the many areas that has been left in need of investment.

Most damningly, despite the Madrox regime that preceded Louis-Dreyfus stating that the £9,000,000 loan from the FPP group would be used to rebuild the club's infrastructures, staffing levels across the board fell again and the accounts show capital expenditure spending was minimal.

The chairman has already taken considerable steps to address this since his arrival, and much more will evidently be required over the coming months and years.

The accounts also leave questions unanswered as to what extent Madrox have, or are in the process of, fulfilling their stated promise to repay all parachute payment monies used to fund their purchase of the club.

After removing their legal obligation to do so in the last set of accounts, the group told The Echo that the remaining balance owed to the club stood at just under £11.5 million. That figure was based on an injection of funds to the tune of £11,375,000 in this accounting period.

There was no comment on whether this included the FPP loan, while the accounts released today by the club's ultimate controlling company SJD Leisure Holdings show a contribution from Directors of just over £2,000,000 (Madrox's accounts are yet to be released).

This is where a number of unknowns emerge.

The FPP loan was repaid in full shortly before Louis-Dreyfus took charge, but it has not been made clear subsequently who was responsible for this.

Nor is it known to what level Madrox funds were used to manage the club through the ongoing impact of the pandemic through the first six months of this season.

It is also not known at the stage whether Madrox, as Stewart Donald had previously said they would, sold the club at asking price before replacing the outstanding balance of funds.

Given that all three members of Madrox remain shareholders at the club and have on recent occasions attended games, it would be not unreasonable for supporters to expect a transparent update on this process in the near future.

For Louis-Dreyfus, the accounts underline the vast improvements needed across the board if he is to rebuild Sunderland in an era of reduced parachute payments.

As well as his own personal investment, he will need to harness the immense power of the support, and succeed where so many others have failed in building a recruitment model that not only improves the quality of the squad, but drives revenue.

The road to sustainability is, at this stage, still a very long one.

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