Phil Smith has been reviewing Sunderland's latest accounts. Here, he looks at the club's position with regards to the Championship's final rules and how they are performing more broadly
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00:00One of the things I thought would be good to talk about is obviously PSR, Profit and Sustainability Rules,
00:05because I thought that was something that would be quite important to talk about.
00:11So it's a little bit complicated with Profit and Sustainability Rules.
00:15So what obviously happens with Profit and Sustainability Rules is that clubs are limited in the championship
00:21to a certain number of losses over a three-year period.
00:26So this breaks down in slightly different ways.
00:29So overall, a club can lose around £40 million over a three-season period and remain within the rules.
00:37But that is slightly skewed by the fact that in order to reach that upper limit,
00:41money has to be injected by your owner as equity, not as loans.
00:45That's not really how Sunderland operate.
00:47The accounts show that Sunderland's debt to its ownership group is about £19 million.
00:52And that's loans from the club's holding company Mercator, which is obviously owned by Kirill Dreyfus and Hans Sertori.
01:00The club have said in the last couple of accounts in the notes that they would convert this loan into equity at some stage,
01:06but that hasn't yet happened.
01:07So from my understanding, Sunderland's loss limit for to be within the PSR rules would be lower than that figure I've just mentioned, £40 million.
01:15Now, I still think that Sunderland will have absolutely no PSR issues whatsoever.
01:20So if we look at the last three years, which they've reported, which gives us a clue,
01:24obviously this year, £8.1 million, the previous year, £9 million, and the third year, the last year in League One, is £5 million.
01:30So the losses are fairly stable.
01:32Now, you've also got to put into consideration that not every penny a club spends is included in the PSR regulations.
01:38So one significant cost, which will run into millions of pounds a year that isn't counted towards PSR, is running a Category 1 academy.
01:46We know Sunderland invest a lot of money in their academy.
01:49Those costs are not related to PSR.
01:51So by my calculations, by my assumptions, Sunderland are in absolutely no PSR trouble whatsoever.
01:56And that's a real positive.
01:57And it's an important part of what they're doing.
02:01And it should mean that if they are in the championship, and hopefully they're not this summer,
02:05hopefully they're in the Premier League, there does seem to me to be plenty of room for investment.
02:09So I wanted to just zoom out a little bit and talk about what does this really mean about Sunderland and their place in the championship?
02:16Well, I think the obvious thing to say is that they're not where they want to be yet in terms of main sustainability.
02:21But remember a couple of things.
02:22In terms of this season, they sold Jack Clark for what we think was a fee of around £15 million up front with potential add-ons
02:29at the start of this new account period, at the start of this season.
02:32So that will be a significant financial boost for them.
02:35They have a new TV deal, which while that won't be anything near the kind of sums we're talking about with Jack Clark,
02:41that will offer a little bit of a boost.
02:43And obviously there's a potential that before the end of this account period, at the end of the season, there might be another play sale.
02:48So there is a possibility that Sunderland could go into profit for the first time in almost 20 years for the current season,
02:54which would obviously be a significant boost.
02:56There won't be any costs from changing manager.
02:58I think it's pretty clear with Gilles Lebris seeing this season out.
03:01And that's another positive.
03:02So I think there's a chance Sunderland could be in profit this year.
03:04And that would be a really impressive achievement given the performance on the pitch.
03:09Their losses are pretty standard for championship level.
03:12I would say they are not a club that are kind of wasting money, that are hemorrhaging money in compared to their rivals.
03:18If you look across the rest of the championship, the clubs that have reported so far, Sunderland are performing fairly solidly.
03:23They don't have the best financial returns.
03:25But a lot of the clubs who have had better returns so far, they've either had significant play sales,
03:30which we know is something that it will happen with Sunderland more and more in the coming years.
03:34But they also have posted much lower losses than quite a few of their rivals.
03:39So I think that in terms of the championship, they are doing okay.
03:44The reality is that if you win the lottery, whatever you do, don't buy a championship club.
03:48It is the fastest and easiest way to lose an awful lot of money.
03:52And that's the reasons we've talked about is the way that the parachute payments distort the league.
03:57Now, of course, Sunderland had the opportunity to benefit from parachute payments when they dropped out of the Premier League themselves a while ago.
04:02But the club was in such a bad state that they weren't able to do that.
04:06And they actually managed to get relegated again.
04:09So the reality is that I think what these accounts show is that whether we like them or not,
04:14and they are hard to stomach sometimes, play sales are absolutely vital as long as Sunderland are in the championship.
04:19If we want Sunderland to keep growing, their squad to keep growing, their costs to keep growing because they're signing better players,
04:25there has to be a balance where some players leave. That is just the reality.
04:28I think we're seeing some positive signs in terms of the model working.
04:31As I say, in terms of those player profits growing, also in the revenue continue growing.
04:36But I think the reality is what these accounts show is that for Sunderland to be sustainable in the long term,
04:40they need to get to the Premier League.
04:42That is an absolute game changer in terms of television and media revenues.
04:45Obviously, your costs will grow with that.
04:47But to fully capitalise on the potential of the club, they need to be a Premier League club.
04:56So I think on the whole, there are some positive signs in this.
04:59The losses are coming down.
05:01I think the scope is they'll probably come down again next year.
05:05Revenue is growing, albeit quite gradually.
05:08So I think there are some positive signs for Sunderland fans.
05:11Obviously, we'll keep an eye on that situation that I mentioned in terms of the club is in,
05:16as I say, around £19 million of debt to its ownership group.
05:20Now, they keep saying that they'll convert that to equity, essentially.
05:24It's very different to the debt we had in the Ella Short era where some money was owed to Ella Short,
05:30but a lot of it was owed to an external company as well, which, of course, some were paying interest on.
05:34So it's a very different situation to that.
05:36It doesn't have any impact on the day-to-day running,
05:38but hopefully that's something that does get converted at a later date.
05:43So I think there are some positives in the account,
05:46but I think the reality either shows that it's very, very difficult to be a Championship Football Club owner.
05:51As I say, it's probably the easiest way to lose money.
05:54You can see why there is such a push for financial reform
05:57and maybe a fairer distribution from the Premier League.
06:00So, yeah, hopefully that's given you a little bit of an overview.
06:03As I say, I'm absolutely not a financial expert.
06:05There's a lot in these accounts that I can't really speak to too much.
06:08As I say, I think Kieran Maguire is an excellent follower.
06:10Just for more championship, across the championship,
06:14some of the things he posts on there are really, really insightful.
06:17So, yeah, by all means, go away, have a look at some of the experts
06:20and see what they're saying about these accounts and the days to follow.
06:23Hopefully, that's just given you a little bit of an overview of, A,
06:25how some underperform, especially against their championship rivals.
06:28So, I hope you enjoyed it.
06:29We'll be back with some reaction after the pressing game tonight,
06:32on the whistle tomorrow, loads of stuff.
06:34So, keep your eyes tuned to the channel.
06:36Thanks for watching.