The financial challenges for Kyril Louis-Dreyfus due to Madrox involvement if Sunderland win promotion via the League One play-offs

Football finance expert Kieran Maguire says Sunderland’s 2020/21 accounts were probably as good as they could have expected after the entire season was played behind closed doors.
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The Black Cats made an operating loss of £11.7 million during the last campaign, with television and media revenue dropping significantly from £17,195,000 in the 2019/20 season to £5,378,000, following the end of Premier League parachute payments.

Matchday revenue also declined from £5,658,000 to £1,222,000 last season, with fans unable to attend games due to the Covid-19 pandemic, while Sunderland still had the highest wage budget in League One at £11,864,000 per year.

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The Black Cats’ conference and banqueting revenues also fell by around £2 million, yet Maguire says the club should be able to recover following the return of supporters this term.

Sunderland chairman Kyril Louis-Dreyfus.Sunderland chairman Kyril Louis-Dreyfus.
Sunderland chairman Kyril Louis-Dreyfus.

“In the main they are probably as good as can be expected,” Maguire told the Echo when discussing Sunderland’s 2020/21 accounts.

“Certainly the revenue is down and you’d expect to get probably another £5million a year from matchday sales. They normally do quite well out of conferencing at the stadium as well so those are the positives. I would expect revenues to bounce back by £6-7 million this year.

“Wages are certainly high by League One standards and based on my figures from last season Sunderland were paying players on average just over £6,000 a week.

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“That compares to about £2,000 to £2,500 for the rest of the league so they certainly have the biggest wage budget in the division.”

"I think fans might also be slightly surprised at having the highest paid directors – £244,000, up from £165,000 - so that could be something to do with the takeover, or could involve some form of pay off due to the change of ownership. The exact details we don’t know.”

Sunderland’s wages remain high

Sunderland’s weekly wage budget of around £228,153 accounted for 125 per cent of income, yet, as alarming as that percentage looks, it’s not completely uncommon in the EFL – particularly in the Championship.

“UEFA say it should be 70 per cent,” said Maguire.

“In the Championship last season the average was 120 per cent and we had some clubs paying more than double their income in wages.

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“The Championship is the worst division in the whole of Europe when it comes to lack of cost control and that’s a challenge for the EFL and club owners.

“Sunderland fans will want them to be competing for the play-offs in the Championship next season if they are promoted from League One but doing that on a wage bill of around £12million is not going to be easy.“

“There are potentially alarming numbers in the sense that wages are 125 per cent of income but Covid is responsible for a lot of that.

“Obviously these figures are not good, clearly they will probably have the biggest losses in League One, but they should bounce back significantly in the season 2021/22 and they still get amazing crowds for League One.”

More challenges in the Championship

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Still, the 2020/21 accounts show the challenges for Sunderland’s majority shareholder Kyril Louis-Dreyfus, who, despite wanting to purchase a bigger share of the club, still owns just a 41 per cent stake.

The strategic report which accompanied the 2020/21 accounts spoke about creating a sustainable business as Sunderland aim to ‘return to the Championship and ultimately the Premier League.’

But while the Black Cats are hoping to win promotion via the play-offs this season, there will still be financial challenges if they escape the clutches of League One.

“If you go up to the Championship your TV money goes up from around about £1.5million to probably £7.5million,” Maguire added.

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“At the same time you tend to find that wages go up a lot quicker as well because the average wage in the Championship is around £16,000 per week.

“Sunderland are presently paying around £6,000 per week so if they go up either contracts will be renegotiated or people will have step ups in their contracts.

“League One is probably a more sustainable division than the Championship if you want to be competitive and that is the paradox of football.

“If you want to move on it’s a talent-based industry and you have to pay for the talent.

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“I understand the sustainability comments and I think that is the owner trying to dampen down expectations, because if the club does go up I think the first thing fans will say is what’s going to happen in terms of recruitment. I think he’s being a bit cautious there.”

Ownership model could cause problems

Sunderland will also have to be wary of the EFL’s profit and sustainability rules, which only allow clubs to make losses of up to £39million over a three-year cycle, if the owners guarantee to cover the losses based on their equity (not including loans).

If they don’t the losses allowed are much lower, down to £15million.

That presents another issue for Louis-Dreyfus, with Stewart Donald (Sunderland’s former chairman under the old Madrox regime) still owning a 34 per cent share in Sunderland, with Juan Sartori and Charlie Methven owning 20 per cent and five per cent stakes respectively.

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As Maguire points out, this could restrict the funds Louis-Dreyfus is able to put into the club.

“I think the challenge for Louis-Dreyfus is you also have Stewart Donald hanging around,” said Maguire.

“If Stewart Donald wants to maintain the proportion of shares that he owns then for every pound Louis-Dreyfus puts in then Donald and Methven have to put money in as well, that just makes things a little bit messier.

“He (Louis-Dreyfus) could certainly lend money to the club to fund transfers or he could come to an agreement with Donald, Methven and Co that he could put more money in in the form of shares and that will increase his stake.”