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Sunderland asking price is too high

The authoritative Swiss Ramble takes a close look at Sunderland's financial results.  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.

Despite relegation, the club's 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 £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.

The 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.

The club 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 the club 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 £59m revenue was easily the highest in League One, a full £47m more than Portsmouth £12m. It was around 10 times as much as the average revenue in the Division and comfortably surpassed the previous highest, namely Wolves £33m in 2014.

Much of the club's 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.

Even after relegation, the 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 the 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.

The club 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, the £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. The wages to turnover ratio decreased from 74% to 45%, the lowest (best) in League One.

Based on practically all financial metrics (highest revenue, wages, crowds, transfer spend), Sunderland 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 the club 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.
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