How the Premier League's new financial rules will impact Sunderland's transfer spending

Florent Ghisolfi spoke about Sunderland’s summer transfer window for the first time on Tuesday night, stating that the club would try to improve the squad but that an overhaul similar to last summer is unlikely.

Ghisolfi also admitted that player sales are a possibility down the line, but that the club are under no pressure to sell. This summer Sunderland will also have to meet a new set of Premier League financial rules, with Squad Cost Ratio replacing the current Profit & Sustainability system. So what do these new rules mean for Sunderland and their spending power, both this summer and beyond? Here, we take a closer look…

So first and foremost, how do the new rules differ?

While PSR limits a club’s overall losses over a three-year period, SCR limits what a club can spend season to season. In short, clubs are allowed to spend 85% of their overall revenues on first-team costs which includes wages, agent fees and amortisation (the process by which a transfer fee is accounted for over the length of a contract). For clubs in Europe, this dips to 70% to fall in line with UEFA’s rules. Club’s net transfer profit/loss averaged over a three year period will also be factored in, with every transfer adding (or subtracting) to this total based on whether a profit or loss is made against a player’s book value at the time of a sale. So for example, Sunderland’s sale of Tommy Watson to Brighton for an initial fee in the region of £10 million will benefit them for three years to the tune of around £3.3 million (this is a rough estimate to illustrate the point).

Clubs will agree their estimated revenues with the Premier League in the summer, thus setting their budget for the season ahead. A review will take place in March and any club at risk of breaching their limit will be assessed again in the summer. Any club in excess of their limit but by less than 30% incurs a fine but not a sporting sanction, with whatever they spend in excess of the initial limit then subtracted from their breathing room in the following seasons. Teams in the ‘red zone’ (i.e above the additional 30% limit) are at risk of a sporting sanction.

The system is designed to try and simplify the rules, get better buy-in from clubs and avoid the long legal disputes that have blighted the league in recent years.

OK - so what does this mean for Sunderland this summer and beyond?

Sunderland are understood to have supported the switch, presumably because of their strong recruitment record and the large and passionate fanbase which will give them an edge on their immediate rivals in the table if they are able to establish themselves at the level. It will also allow them to invest heavily in the club’s infrastructure and academy as that spending does not count towards the SCR budget: that could be key to raising revenues in the long run as the club look to maximise the potential of the Stadium of Light.

However, there’s a reason why clubs such as Brighton and Bournemouth did not support the change as in short, it gives a massive advantage to the traditional ‘big six’ who boast huge commercial revenues both domestically and abroad. It undoubtedly leaves Sunderland with a massive challenge in the medium term, given their lengthy absence from the top tier means they are understandably lagging well behind on this front.

It’s important at this stage to say that we cannot with certainty predict what Sunderland’s current position is within these new rules, as their most recent set of available accounts covers their last Championship system. Both in terms of what they are now earning and spending in the Premier League, those accounts are close to entirely irrelevant. However, we can make some educated assumptions and therefore draw out both the advantages and challenges the club faces. Sunderland’s income will soar this season as a result of Premier League revenues. Last year they had a turnover of around £40 million, with £12 million of that coming from TV money. This year, they can expect a jump of at least £100 million in TV revenue and probably something closer to £120 million. Merchandising and retail deals with companies such as hummel and fanatics are long-term deals and so a surge in revenue here is unlikely in the coming years, but if we factor in a likely boost to Sunderland’s general revenue from increased sponsorship etc as a result of Premier League exposure, we can make an educated guess at a turnover of around £170 million (again, this is a prediction and should be taken as such).

That’s a good starting position (though well behind a lot of top-tier clubs), but then we have to factor in soaring costs. The last wage bill we have for Sunderland in the Championship not distorted by vast promotion bonuses was around £30 million (this was for all staff, but first-team players will make up the majority of it), while amortisation costs in their last accounts were around £10 million. Those costs will rise considerably this year, as the significant transfer spend last summer begins to take effect on their books. It’s impossible to know what level their wage spending is at this stage, but the acquisitions of Granit Xhaka and Nordi Mukiele suggest they are competitive at the level. If we estimate that wages and amortisation costs have tripled, then you begin to see why Sunderland’s room to spend is not unlimited as they will have well over £100 million in expenditure with regards to SCR to counter that turnover. Interestingly, figures released by the FA on Wednesday showed the club’s agent fee spending across the last two windows was £10,627,772, five times what they spent during their last season in the Championship. This was actually the third-lowest in the league but if that rise is a trend reflected across their other costs, you can see how quickly they will be edging up towards that SCR limit.

Then consider that in future campaigns, those profits booked from sales such as Jobe Bellingham and Watson will start to drop off Sunderland’s net transfer calculation. Here you can begin to see that what they do this summer isn’t just about SCR this year, but in the years that follow. Adding more players will increase the wage bill, the agent fee spending and add to the amortisation costs that will already rise to reflect the large number of players signed for not insignificant fees last summer. To illustrate this, let’s consider the signing of Chemsdine Talbi last summer for an initial fee reported to be in the region of £16.5 million. He signed a five-year contract, which means in amortisation terms he’ll cost Sunderland as a rough estimate just over £3 million in their SCR calculations for each year of that deal. What this demonstrates is how Sunderland were able to spend so much last summer without in any way threatening their PSR status, but why that business will have an impact when it comes to SCR in the long run even if Ghisolfi is clear Sunderland’s current position is good.

Put simply, the low costs Sunderland brought up with them to the Premier League are vital to their current position but repeat instances of last summer’s spend are impossible without major player sales if the club are to stay within the new rules.

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So what can we surmise about Sunderland's position in the new rules?

Ghisolfi’s comments are instructive when we consider all of the above. The director of football noted that this summer Sunderland would likely follow the template of the January window in which the club invested but on a much more modest basis. They also invested exclusively in younger players with resale value, highlighting that the signings of Xhaka and Mukiele last summer were an exception rather than the rule. The new rules underline why this model is so important, as big signings that don’t deliver a resale value can quickly eat into that SCR wriggle room.

Sunderland want stability within their playing group and Ghisolfi’s confidence that the club does not need to sell in the short term is a reflection of the fact that as outlined above, they came up with a very solid starting position financially and that one window of major outlay was manageable under the rules. If Sunderland are to compete in the long run with current top-half Premier League teams, then they need to grow their revenues considerably but they will also likely have to bolster their SCR budget by growing their transfer profit. Sunderland look set to invest further in the squad this summer and beyond but it is clear that what they did immediately after promotion was something of a one-off. Sunderland may not have to sell this summer but the occasional departure is inevitable, and without them there is only so much the club can continue investing in the squad without running the risk of pushing their SCR limits.

None of this is unique to the Black Cats and there will be clubs considerably more anxious about how they fare under the new system. Ghisolfi’s upbeat verdict about the summer window can give supporters confidence, but these new rules are worth bearing in mind when we assess what to expect: they are undoubtedly going to have an impact.

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