Growing sense of optimism at Sunderland

There appears to be a growing sense of optimism around the Stadium of Light, as evidenced by Sunderland fans once again demonstrating their loyalty to the cause by enthusiastically reacting to a humble kit launch, while they have also welcomed new manager, Régis Le Bris, with open arms.

Last season the team’s form fell off the proverbial cliff, so much so that they lost 10 of their last 15 games to finish a lowly 16th in the Championship, just six points above the relegation zone. Furthermore, the team offered some desperately dull football for their fans, in stark contrast to the attractive, progressive displays of the previous season.

The supporters’ frustrations would not have been helped by the lengthy delay it took to hire Le Bris. In fact, the Frenchman was announced a full four months after Michael Beale was sacked in February.

It’s been fairly widely reported that Sunderland failed to appoint the preferred candidate, as Will Still reportedly rejected an offer in favour of joining French club Lens, who admittedly could offer European football, while respected coach Liam Rosenior also dropped out of the race.

Given the protracted discussions, this does raise the question of why the leading choices opted to go elsewhere. Some have speculated that this might be linked to the poor quality of the squad, while others have suggested that this could imply that the club’s finances are not good enough to compete at the higher levels in the Championship.

Ownership

Kyril Louis-Dreyfus (KLD) became Sunderland’s controlling shareholder in February 2021, when he bought 41% of the club, though the previous ownership group retained 59%, split between Stewart Donald 34%, Juan Sartori 20% and Charlie Methven 5%. Even though he only acquired a minority stake, this deal still gave Louis-Dreyfus full control of the board.

This transaction made Louis-Dreyfus the youngest person to ever own an English football club and even now he is just 26 years old. That said, his late father Robert once owned French team Olympique de Marseille, so his family has been around football for a while.

In June 2022 Louis-Dreyfus increased his stake to 51% after buying out Charlie Methven’s 5% and another 5% from Donald, who also sold 10% to Sartori. That increased the Uruguayan’s shareholding to 30%, while reducing Donald’s to 19%.

Then in May 2023 Louis-Dreyfus and Sartori acquired Donald’s remaining stake, so the current shareholding is 64% for KLD and 36% for Sartori.  That definitively brought to an end the involvement of Donald and Methven in the club, which many Sunderland fans will surely have welcomed, given the fairly bleak times during their tenure. Indeed, Donald had admitted, “I know fans want me out and I'm desperately trying to get out.”

Viewers of the excellent Netflix documentary “Sunderland ‘Til I Die” would probably be in agreement, as the Donald/Methven partnership did not exactly cover itself in glory in the show.   Methven is now CEO at Charlton.

Sunderland have frequently competed in England’s top flight, having been in the Premier League from 2005 until 2017, but there then followed two consecutive regulations, which dropped them down to League One, where they stayed for four long seasons.

Given the storied history, the large fan base and the big stadium, this is a club that should really be playing at the highest level. However, as Louis-Dreyfus pointed out, “This period we’re going through now is the longest Sunderland has even been outside the Premier League.”

Under KLD the club has “embarked on a strategy to create a sustainable business that aims to return to the Premier League”, though it was acknowledged that “this requires a long-term outlook”.

It is difficult to criticise any football club that has the aspiration of being sustainable, i.e. relying only on money that it generates from operating activities and player sales, rather than being bailed out by the owners, but it also has to be recognised that this approach has rarely worked in the Championship, at least in terms of clubs securing promotion. Indeed, the clubs with the best looking financials often end up being relegated to League One.

2022/23 financial results

On the pitch the 2022/23 season was extremely encouraging, as Sunderland finished 6th in their first season back in the Championship following promotion from League One, though they were defeated in the play-off semi-finals by Luton Town to prevent them from going up two years in a row. Despite the promotion, Sunderland’s pre-tax loss slightly increased from £7.2m to £8.9m. Revenue rose £9.4m (36%) from £26.1m to £35.5m, but this was more than offset by operating expenses growing £12.6m (36%) from £34.5m to £47.1m.  In addition, profit from player sales dropped from £1.2m to £0.3m, though the club did book £2.3m of other operating income.

The main driver of Sunderland’s revenue increase was broadcasting, which more than tripled from £3.2m to £10.1m in the Championship, though there was also good growth in the other two revenue streams. Gate receipts rose £1.2m (13%) from £9.5m to £10.7m, while commercial was up £1.4m (10%) from £13.3m to £14.7m.

The last time that Sunderland posted a profit was way back in 2005/06 – and they ended up being relegated from the Premier League that season. Since then, they have reported losses 17 years in a row, adding up to a hefty £272m.   However, the good news is that the club has drastically reduced the size of its losses, averaging less than £7m in the last four years, compared to £20m in the preceding decade.

Sunderland’s ability to make money from player sales has frankly been shockingly bad, e.g. they only managed to generate £12m profit from this activity in the last six years put together.

Loyal support

Sunderland’s 38,653 average attendance was comfortably the best in the Championship in 2022/23, nearly 10,000 higher than Sheffield United, 28,746.  Despite the poor displays on the pitch, last season was even more impressive, as Sunderland attracted an incredible average attendance of 41,028, once again the highest in the Championship by some distance, well ahead of Leeds United 35,989 and Leicester City 31,238.

This means that Sunderland have now enjoyed the highest crowds in their division for the last six years in a row, which reflects very well on the club’s support.   In fact, Sunderland actually had the 9th highest attendance in England in 2023/24, only behind the Big Six, Newcastle United and Aston Villa, which underlines just how big the Wearside club really is.

Sunderland outperformed their wages budget in 2022/23 when they finished 6th in the league, though they almost certainly underperformed last season when they came 16th.

Sunderland have spent £13.0m on player purchases in the last two years, which might not sound like a great deal, but is twice as much as the £6.6m expenditure in the preceding four years. On the other hand, this is considerably lower than the £48m they splashed out in the last season in the Premier League.   

One of the accusations leveled against Sunderland is that many of the purchases in recent times have not been of the requisite quality, as few have made much of an impression on the first team. In other words, it might not have cost much to acquire these players, but sometimes you get what you pay for.  On that basis, it’s slightly worrying that all the arrivals to date this summer have been on free transfers.

Owner funding

When Louis-Dreyfus took charge, the club said that the new owner would “balance the investment in the infrastructure and people with the need to invest in players”.  This suggests that Sunderland are unlikely to open the cheque book in a big way to buy players any time soon, as there are many infrastructure projects in the pipeline, e.g. the club noted that the stadium is over 25 years old, so would require investment (5G connectivity, new access system, hospitality spaces, etc).

In the three financial years since Louis-Dreyfus became chairman, the owners have provided £18.1m of funding, while the only other source of money has been to take £5m from cash reserves.  This was used pretty much evenly to cover operating losses of £11.3m and to make net player purchases of £10.1m with only £1.7m spent on infrastructure.

The £18m of owner funding was actually only the 14th highest in the Championship in the last three years, a long way short of the likes of Cardiff City £87m, QPR £68m, Reading £53m, Bristol City £52m and Birmingham City £50m.

While it is never great to lose money, Sunderland’s 2022/23 loss was one of the smallest in the Championship, while their operating cash flow was actually positive, so they are getting quite close to the club’s stated aim of sustainability.

However, the harsh reality is that breaking-even in the Championship is difficult to achieve, while still being able to compete with better funded rivals (either through parachute payments of generous owners).

Louis-Dreyfus said that it remains the club’s ambition to return to the Premier League within 5 years of acquiring control, which would mean by 2026, but the question is whether their strategy of sustainability and investing in youth gives them the best chance of achieving this.

There is little doubt that Sunderland are a big club with an incredible fanbase, but they still have to earn the right to play in the top flight, no matter how much potential they might have.