The close season is one long chain of rumours and counter rumours. Jack Ross’ departure is as certain as him staying where he is. The club is definitely/possibly/probably/maybe not being sold to someone from somewhere between the Far East and the North East of England. We’re definitely signing… you get the picture.
We decided it was best to get an update from someone who not only sits at the big table in the board room but has just arrived home from meetings with the EFL, an organisation who, it seems, has moved Sunderland AFC from the ‘do not resuscitate’ ward to the ‘fit for work’ list.
Sitting in Charlie Methven’s Oxfordshire garden, we started where all fans have to start. We debriefed Wembley.
CM: I think like everyone else, I was very, very sore for a couple of days. I mean, really sore, I can't, not since I was a little kid can I remember being that upset after a game. My daughter was crying, and I wasn’t far off joining her. I think that while the whole caravan was still on the road and still capable of reaching its final destination you can keep going but all that pent up tension and ambition, desire… and you come crashing off it, it's just a shattering blow. And the other problem is that because you're in the playoffs for three weeks, you've reduced the time to do a whole load of stuff off the pitch, in terms of review of that season and preparation for the following season.
ALS: On the pitch we were just short but did the season pan out as expected off the pitch?
CM: I think so, more or less. In terms of the due diligence work we performed and our budgeting at the start, we were pretty much bang on. That is to say, we predicted correctly how the business would run. There’s no doubt that prima facie we were pretty optimistic in terms of the revenues we could raise and the costs we could cut. The EFL looked at it and said we wouldn’t be able to do it (those figures). That's why they insisted Stewart show them £50m. Also, our business plan bore no resemblance to the club's previous business plan, and that always makes people nervous. The EFL thought we were being naïve, as did other people inside and outside the club. Sometimes they said it outright, sometimes it was their body language – like, you could see senior members of staff thinking ‘who are these nutjobs who think that they can do 25% more revenue in a lower league while cuttings costs?’ So whatever else happened last season, I'm proud that we got the business plan right and executed it right. It was mostly about using our experience to work out where the club, as a business, had gone wrong and throwing ourselves headlong into sorting that out as quickly as possible.
ALS: Not knowing which players would stay or go must have been a difficult one to deal with.
CM: I think that for the most part we correctly predicted those who did go probably would go and the same for those who stayed. The big difference between where others thought we might be, and where we ended up, was on the matter of paying off some of the big earners – you know, Kone, Ndong, Rodwell, Djilibodji. The league expected us to pay them a lot to go, but instead we ended up with net payments ‘in’ from those four. And that was one of the biggest differences in terms of what we were able to achieve with SAFC’s numbers compared to what the EFL and others expected. Great credit to Stewart and his team for that.
ALS: A year on, how do the EFL view our prospects?
CM: Look, we’re still not entirely out of the woods – there are still problems to solve before the club is fully on its feet again. But I've just got back from the EFL conference and the mood music there was positive. Sunderland has gone from being the poster boy for all that's wrong with the way football clubs are run to, you know, being debt free and more or less break even, which very few clubs can claim. As you can imagine, there was a lot of chat about the financial difficulties of the clubs who are going to be facing points deductions and forcible relegations and not able to pay their staff. And not just the obvious ones. There are others bubbling around below the surface. And that's causing the EFL a lot of angst. 13 months ago, SAFC was very much a part of those panicky discussions and now we are not.
ALS: And what about the legal cases that were hanging over the club?
CM: Yeah - all either finished or almost finished. The last couple are coming towards the end game. We knew it was going to be really difficult. In the first six months, from May until November, I would guess that at least half of Stewart's time was spent on dealing with those issues. You know, it's really, really difficult, nasty work that the fans don’t see and mostly don’t appreciate. But it really mattered: the deals with Djilobodji and Ndong, the other lawsuits, these were the biggest cashflow swings that the club had on its books. And then the rest of it was just the hard work of cutting costs and boosting revenues. I think that a lot of people knew that the costbase had spiralled out of control, but not many people realise that the revenue base had just absolutely crumbled. Psychologically, as a business, the club had sloppily got used to the Premier League TV revenues. As a result of that, every other revenue line felt relatively insignificant, so gradually all the revenue lines had been shrinking. Corporate hospitality had gone from £3m to £1m, retail had halved, concerts had been abandoned. Even worse, there wasn't a single sponsorship sales person in the whole business. Not a single person.
So we took over a business with a costbase of £50 million, hoping to do £15.5m in revenue. I said to Stewart that I thought we could do £20m, but that was more wishful thinking than anything else. In the end, we settled on £18.5m as a tough but realistic target, but in fact – with the help of the fans, of course, and getting to Wembley twice – we did end up doing over £20m. Those revenues didn’t come from one big thing – it was just hundreds and hundreds of small wins, in commercial and marketing. That has been Tony Davison, my and our team’s year: hammering away at the small wins, within the overall philosophy we set out at the start of the year: ‘One Club; Your Club.’ That was a philosophy deliberately aimed at making the club more fan-focussed, and I’m really grateful that the fanbase were so supportive.
We started a business club, which had been something Tony and I had done at Oxford. It builds a forum where we get to know people and understand their businesses better. Only speaking to shirt sponsors, short sponsors, back of shirt sponsors is a dangerous game. What happens when one or two of those drop away, suddenly it’s: where do we go from here?
A good example of the business club working is the Checkatrade semi final. We were told by the EFL that we’re allowed to put a shirt sponsor on the sleeve, but it's quite short notice. The game is going to be shown on TV, back to the North East and an awful lot of people will be watching that in the evening so we thought about which of our business club people would most benefit from having that exposure in the evening. The Dominos guys were exactly right for that. Not massive money but – as I say - a football club’s revenue base is built is off the back of small wins. Now when you get to the Premier League, it can feel different, but it mustn’t change. If you can keep that small win mentality going then when the tide turns in your favour on the pitch, then you really do max out. That mentality has to be led by the senior people, and Sunderland had it under John Fickling in the late 90s. But it was lost subsequently, which meant that when the club finally was relegated it was a shell of a business.
These are lessons that Tony and I have learned when we did work at Arsenal and at Spurs. For Daniel Levy, for Danny Fiszman and David Dein, no detail was too small. Everything has to be operating to its maximum efficiency if you're going to be competitive. By definition, if everyone has the same TV revenue, the way you out-compete is in non TV revenue. So doing things like casting aside the concerts and not bothering to sell sponsorships, and letting corporate hospitality crumble, is just suicidal.
ALS: And has the corner been turned?
CM: We’re about halfway there, I’d say. Halfway to being a truly sustainable, competitive club in a position to punch above its weight, rather than below it. I regard the operating model as being separate from parachute payments. The parachute payments are meant to help fill the black holes which inevitably come when you leave the Premier League. I've been frustrated by people thinking that the Club had some sort of right to spend parachute payments on new players. They are there to pay off debts or legal cases or to pay off players who are too expensive. That's what the point of the parachute payments are, not as a way of getting yourself into even more trouble,
I digress! So: we inherited a model, which was cost base of £50m and a forecast revenue base of £15.5m so an operating loss of £35m on an ongoing basis. We're now at revenues of £20m and a cost base of just under £30m. Right now, our final parachute payment means that we bridge that gap this season, which is great but, because I'm having to look forward to July 2020, when the parachute payments stop, we are still working, working, working to get those costs down further and the revenues up to match.
I think that, realistically, by next June the cost base needs to come down to around £22 or £23 million. I don’t think I’m breaking any state secrets to say that we’ve still got some very highly paid players on the books whose contracts are gradually running down. Reduce those salaries and the current overpayment on business rates (which will stop in 18 months’ time) and the model will start to look healthy – coming close to break-even with the top playing budget in League 1 or a top 10 playing budget in the Championship. As commercial and marketing guys, that is my and Tony’s job: to provide the club with the business base off the pitch that allows it to achieve its potential on the pitch.
ALS: Is there a worry that fans were loyal for a year but might not be as loyal in year two? Could that effect your revenue line?
CM: Oh, sure – I’d be naïve to think that the current level of support we enjoy will persist indefinitely in League 1. I think we will be OK this year, provided we start Ok on the pitch. We've sold nearly 22,000 season tickets already, which is more than we'd sold at this stage last pre-season. So if one might imagine some good players being signed, and some reasonable results in preseason, I'd hope that season tickets will be up towards 23,000 by the start of the season, which would be better than last year. Corporate hospitality sales just started, and they've started really strongly, retail sales are well ahead of where they were last year. So the sense I get is that the vast majority of fans are giving us a fair chance. And, I hope, reacting to the various improvements we have made in these areas. But, don’t worry, we are under no illusions: this is the season it has to come together on the pitch. It’s really important for Sunderland that we get promoted this season.
ALS: OK, so let’s talk about how that will work and who’ll be involved. Who’s who around the boardroom table going forwards?
To be continued…
