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Three Things Worthy of Discussion

By Steve Pugh :  09/10/2009 :  Comments (68) :

Evertonians are split on whether or not to hate Bill Kenwright and his Board of Directors. There appear to be three main areas of contention in this matter.

  • Firstly, is Bill Kenwright a liar with no respect for the fans?
  • Secondly, has his financial handling of the club put us in a detrimental position compared to the clubs we are competing against?
  • Finally, is his proposal to move the club to Kirkby a death knell?

Firstly is Bill a liar? Sorry but yes; some of them are necessary for the good of the club, some of them may well be told with the best of intentions, he may not even be aware that some of them are lies. But some are simply to protect Bill Kenwright, and some are just to help Bill Kenwright (and his board/advisors).

But what I find worse than the lies is the silences, how much better would we, the fans, feel if he kept us informed? Would we be more understanding if he explained why the club had no options but Kirkby? If Sir Phillip Green is bankrolling the club in return for shops, with no funding available for anything else? It would make sense and, whilst not changing my mind in the move, at least I would understand why Bill was doing it.

Financially, how are we doing compared to those clubs around us? I will start with our closest rivals over the last couple of seasons, Aston Villa. In 2003-04, their turnover was over £11M more than ours; in 2007-08 (the most up-todate figures available until the clubs release their 08-09 results in January), our turnover was slightly higher than theirs by a mere £100k.

So, despite the Board's incompetence, our turnover had outgrown that of one of our closest rivals. In the same period, Villa have yet to make a pre-tax profit; our incompetent board managed it once. Neither club doing well but, to be fair, they are both moving in the right direction.

Debt is a difficult one to judge as it appears that we have managed to accrue a lot of debt over the last 15 months (since the end of the 07-08 financial year). The Daily Mail did a review but their data was older than mine and they put our total debts at £26m, I know for a fact that as of end of May 2008 we had long term debts of over £30M. Still, it is likely that Villa’s debts are higher as they were £63M 12 months earlier.

Of course you have to be careful looking for figures on football clubs, there are at least three companies making up Aston Villa Football Club registered with Companies House. This is even more apparent when you look at the clubs we want to be competing with. The mighty Manchester United, debts in the region of £650M, and who owns those debts? Well actually, in some instances, nobody knows. You see the lending houses were so worried about the level of debt the Glazers had accrued on the club that United's debts were put up for sale. According to the Guardian...

Manchester United's loans are being traded around the city. How are we to make sense of the news that Manchester United's enormous debts — £667M as of last year's accounts — are being sold at a loss by crisis-stricken financial institutions in the City of London? Banks, hedge funds and private equity speculators, all wrestling with the economy's general collapse, are (according to the financial data company Markit) flogging off United's steepling loans at 70% of their value.

One well-informed City source said that is the price only of United's "senior" debt, the £425M secured on Old Trafford, the Carrington training ground, the gilded players, season tickets, commercial contracts, on the lock, stock and corporate barrel of English football's most glittering club. A further £90M of loans, which are not secured, are being sold for 50p on the pound, while the rest of the £667M — £152M "payment in kind" debt, loaned originally by hedge funds at a swingeing 14.25% interest — is said to be available for buyers who can name their price.

Naturally the problem with that is that anyone can buy United’s debts and call them in at the smallest provocation, making Manchester United one of the most financially unstable clubs in the world right now. SoccerLens also looked into United's ever-increasing debt problems drawing the conclusion:

This is all good. But here comes a mighty financial challenge (note: I do not want to carelessly use the word “crisis”). The club incurred financial costs of £81M. That is more than what the club has paid the people who make this club — the ground staff, administration and of course players. This is, at least in an academic sense, a highly inefficient and unsustainable cost structure. But there are worse and more practical issues here.

Despite closing the acquisition transaction in the preceding year, the club incurred more debt and re-profiled existing loans this year. Pricing that Manchester United has received from financiers is not going to make things any easier. And given the deteriorating financial health of the club, overall credit tightening and the very nature of the risk financial institutions have taken on red devil’s football, finance costs will only increase.

Let us say, my view so far has been very subjective. Then let us look at some crisp objective facts. Financial institutions do not like to keep their credit lines evergreen for corporate customers unless the business model is one of low risk (eg, a heavily regulated power utility). One day, all banks will ask Manchester United to repay the principal amount which currently stands at £666M.

A very dirty (read: conservative) multiple of debt-to-free cash flow (using current figures for both debt and free cash flow) stands easily above 25x! This is too high, even with all the grace period in debt maturity schedule. Going forward, this multiple must come down or the club will be at mercy of financial institutions (whether or not they agree to rollover). What are the possible ways of doing it?

    Stop piling more debt — not possible until the club makes enough operating income to at least repay its finance costs i.e. interest cover above 1x. Currently, this ratio stands at 0.23x.
  • Continue to post solid revenue growth e.g. at least at least 15-odd % each year. Keep up the branding. Media money is all about that. There is a reason why TV in Malaysia will not pay 2 cents for covering a Derby match.
  • Become more efficient, ie, increase its operating margin. The current 9-odd % is not going to work.
  • Buy like Wenger, not like Abramovich. The club does not have financial liberty as many would think.

According to Gillette, Liverpool FC are in the best financial health for years, despite this article appearing on the club's official website:

Liverpool Football Club have incurred heavy losses, putting the future of owners Tom Hicks and George Gillett in doubt. Figures from the club's auditors KPMG have sparked warnings about the club's financial security.

The club's latest accounts, which were released by Companies House yesterday, revealed that Liverpool paid £36.5 million in interest on their debts in the financial year ending 31st July 2008.

Despite the announcement of a record turnover of £159.1 million and a pre-tax profit of £30.2 million, the club's net debt almost doubled from £43.9 million to £86 million. Kop Football (Holdings) Ltd made a pre-tax loss of £42.6 million, with its net debt rising to £299.5 million.

And this from the Echo:

The accounts for the year ending July 2008 showed Liverpool made a £10.2m profit but the parent company Kop Football (Holdings) Ltd made a substantial loss pre-tax loss of £41m, mainly due to interest payments totalling £36.5m. The accountants added: "The group has credit facilities amounting to £350m which expire on 24 July 2009. The directors have initiated negotiations to secure the replacement finance required by the group and these negotiations are ongoing."

The club’s turnover was a record £159.1m compared to £133.9m the year before, with a profit of £10.2m. That was reflected by a similar turnover for Kop Football (Holdings) of £161.8m – most coming from the football club – but it suffered an overall loss of £41m.

The majority of the loss was down to interest being paid on the £350m refinancing loan it took out with Royal Bank of Scotland and Wachovia last January. — Pasted from

Liverpool have since refinanced their debts, but at what cost?

Chelsea are sitting pretty as long as Roman is happy, of course if he leaves they will have 18 months to pay back somewhere in the region of £736M.

In fact, the supposed big 4 account for 2 thirds of the Premier League's total debt, £2bn out of a total of £3bn. They say that this is fine because they have tangible assets of £1bn and about £450M more in the form of players and other non-tangible assets, you do the maths.

Of course what they really mean is that they are fine as long as they have Champions League football and everything that comes with it. Without their Champions League money could United afford to pay £81M in financing costs, what about Liverpool and their £36.5M? Now put Man City into the picture, 5 teams into 4 places... I see cracks appearing.

So what does this have to do with us? Well Bill Kenwright could have sold out to someone like the Glazers, or Hicks and Gillette, and we could now be sitting on the precipice; he could have sold to Mike Ashley, in which case DM would be in charge at Newcastle and we would be in the Championship...

I admit we are struggling to maintain the status quo with some of the clubs around us, but we are coping. We are the team that sits behind the big 4 unless somebody knocks us of our perch this year; only time will tell.

Bill tells us he is looking for investors 24/7... obviously he isn’t, that is just a turn of phrase, but what I hope he is doing is looking for the right investors. Not somebody that has to plunge the club into debt just to buy it, not somebody that will abandon the club to rot in the way the Glazers have with Tampa Bay, just because they have a new toy.

What we really need is somebody that has enough nous about them to increase the clubs turnover. Whilst £75M is an improvement, we need to be looking at Spurs with a turnover of just under £115M. We can’t compete with the big 4 on turnover unless Uefa make some serious alterations in prize money for the big European competitions, or we get into the Champions League. But Spurs should not be bringing in £40m more than we do.

If I was Bill, that is what I would be looking for, and I would hope that the fans would be patient. Of course I would explain it to the fans but that's me...

With regard to Kirkby I will be very brief. It is impossible to say for certain whether Kirkby will be the end of our club; everything that is said at the moment is speculation, albeit at times based in logic and solid research. We will only know whether it is a good idea after the fact. Unfortunately, that will be too late if it proves to be the wrong move.

As a club, we have two choices: we take a risk on moving to Kirkby and face a potential disaster; or we stay at Goodison and look into alternatives... and face a potential disaster.

What are the odds on a move to Kirkby helping the club to grow? Will it result in crowds growing? Will it increase our turnover compared to increases in debt?

What about improving Goodison? Will that increase turnover compared to increases in debt? Can we find someone to bankroll the improvements? Are the improvements actually possible? (Tom Hughes vs KSS...)

In my view, the risks involved with moving definitely outweigh the risks of staying put. Please be clear — I am not saying that Kirkby will be a disaster, because I don’t know for sure, but I think it is too risky for us as a club. In this situation, we should be looking at other options. Mainly in the financing angle.

I know that some of you are very keen on sources, I have marked some in the text; a lot of my figures have come from Deloittes, Graydon and http://www.footballeconomy.com/reports.htm

I have tried to be fair, but I am as biased as the next man and I am sure that this has shown through somewhere. Please, if you comment on this, keep your arguments on the subject of whether the Everton Board of Directors is worthy of our support — and don’t use it as an opportunity to criticise those of an alternate view to your own.

Just because your view is different to mine doesn’t mean you’re wrong, and vice versa. Of course, if you can provide hard facts to prove that I am factually wrong then I will look at them and reconsider my position. I hope you will do the same.

Reader Comments

Note: the following content is not moderated or vetted by the site owners at the time of submission. Comments are the responsibility of the poster. Disclaimer


Michael Kenrick
Editorial Team
1   Posted 10/10/2009 at 18:30:00

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Wow, bit of a financial blockbuster there, Steve. Sorry it took me a while to wade through it and get it formatted for publishing. I did have trouble figuring out what was your writing and what was direct cut-&-paste, so look at that carefully please... especially the material from The Guardian and SoccerLens. (Helps if you use quotes, or add the links, as you did with one piece...)

Regarding the overall conclusion, the current financial model behind Premier League football is clearly untenable... and yet it carries on, digging the hole ever deeper. I still can’t get my mind around the fact that new owners were legally able to burden their clubs with massive loans (and finance charges on those loans) that were taken out by the new owners for the sole purpose of obtaining ownership. How and since when is such a thing allowed?

Jay Harris posts repeatedly to tell us he is convinced Bill Kenwright set the trend by doing something like this 10 years ago, when he bought Everton and the debt jumped £20M. I’m still not convinced and hopefully this doesn’t muddy your admirable request for clarity in the ensuing discussion...
Brian Waring
2   Posted 10/10/2009 at 18:36:44

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When answering a question with "Don’t ask me, I’m just the chairman!" — Says it all really.
Martin Cutler
3   Posted 10/10/2009 at 19:24:48

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Having read this article I’m shocked (not totally surprised because of course I knew footy clubs had debts) but I admit that I’m shocked that Utd (with all their success and average gates, TV etc., etc., etc) are THAT much in debt... whether it’s manageable or not is not the point... that is just a lot of "red", appropriately enough!

I just pray that moving to Kirkby (if we do) doesn’t ruin the club.
Jay Harris
4   Posted 10/10/2009 at 20:18:00

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Steve, can I first of all compliment you on a very lengthy and thorough bit of research.

There is no question that football's debts keep mounting but they’re all chasing the Golden Chalice... No, not the Champions League but the global branding particularly including the Far East. The commercial opportunity is vast and still maturing.

I can't see the bubble bursting until the world market is saturated I’m afraid. In the meantime, I guess selling one player for £80 miilion helps to keep the hounds at bay.
Colin Fitzpatrick
5   Posted 10/10/2009 at 21:07:39

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Congratulations Steve, a very interesting read, the subject of debt is extremely complex and is touched on in a keioc article called the deal of the century, essentially in attempts to explain that debt is a relative concept, for instance if a billionaire owes £5m it’s not a great problem but if a pauper owes £50 it’s a disaster. To do this comparison you need to look at the total debt ratio, Utd and LFC are simply not as indebted as Everton and unfortunately we’re approaching a dangerous level once again, primarily due to a continued lack of investment, a policy of asset disposal and inadequate commercial revenue. There would appear to be only one answer to this.
Steve Pugh
6   Posted 10/10/2009 at 21:39:34

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Colin, I actually read that article during my research and if you look carefully KEIOC have been a bit misleading regarding Liverpools debt in as much as they have separated Liverpool FC from Kop Holdings. Basically Kop holdings is used to hide Liverpools Debt (they are represented by the very short puple line on the graph.) If you use a true figure for LFC’s total debt ratio they run at 2.5:1 compared to our own 1.3:1 (not 131% as KEIOC wrote). Now anything over 1:1 is seen as unhealthy in normal terms and it is true that should the our lenders call in all of our liabilities we would be in shit, but not as much as our neighbours. Man U only have tangible assets of £252m with debts of £666m, giving them a debt ratio of 2.6:1, again much worse than ours. The total debt ratio for the big four as a combined unit is 1.4:1, again worse than our own.

With these figures I am afraid that I have to stand by original position that, whilst our financial position is bad, it is not as bad as theirs.
Peter Hall
7   Posted 10/10/2009 at 23:47:02

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“Three Things Worthy of Discussion”

OK – let’s try number one:

“Firstly, is Bill Kenwright a liar with no respect for the fans”

“Liar” is a strong word and should be used with due care. You give us your answer – “yes” though adding “he may not even be aware that some of them are lies”.

If you call someone a liar, you must show that they have intentionally misled. If they have misled without intention then this is not lying and you would do well not to use the word again until you are aware of this distinction. I misled someone in the pub last week in an argument about which year we first won the league. He was right — I was wrong — but I was not lying.

Worthy of discussion? No.
Eric Myles
8   Posted 11/10/2009 at 02:37:03

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So you’re saying that BK is a liar but it’s OK as they’re just little white lies or he doesn’t know he’s lying?

Sorry I don’t agree. As the chairman of the club he SHOULD know what he’s saying or keep his mouth shut.

"In the same period, Villa have yet to make a pre-tax profit; our incompetent board managed it once". Would that be the year the Rooney money appeared in the accounts? Asset stripping always makes accounts look good but is usually only necessary to cover up incompetence.
Eric Myles
9   Posted 11/10/2009 at 02:44:20

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P.S. Very good informative financial info there and made easy to understand. Thanks.
Steve Carter
10   Posted 11/10/2009 at 02:38:16

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I found this an interesting article, Steve. Thank you. I cannot make a reasonable submission on your first two questions; I’d simply say that it might be a tad harsh laying all the blame on Mr Kenwright for the perceived woes of the club. The direction of the Club is determined by a Board and the shareholders, not him alone.

As to your third question, sadly, I think yes. At the moment we are second fiddle in, what, the fourth or fifth largest provincial city in England? Moving to a town where nobody would otherwise go unless they live there (let’s face it, that’s Kirkby) makes us indistinguishable from Rochdale, Bury, whoever. At least Bolton, despite having headed off to their outskirts, are still the only show around Bolton.

I’ll bore people by saying it again: to avoid your death knell, one or other of the following has to happen:

(1) Find Kings Dock Mark II, and go there this time.

(2) LFC go bust. On your analysis this is perhaps at least a slim possibility; however, obviously it’s something that EFC has no control over.

(3) Relocate right away from the Liverpool area to somewhere where there’s no rivals close by, that people are actually interested in and that ticks all other boxes (sufficient local supporter base, etc., etc.).

I can’t think of anywhere in England though. Of course, for (1) and (3), we need plenty more dosh than we have now.

Robert Daniels
11   Posted 11/10/2009 at 08:34:44

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Yes,
Yes,
And Fuckin Yes.
Good article Steve.
Robert Daniels
12   Posted 11/10/2009 at 08:36:22

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By the way the three yeses, were for Steve Pugh's original questions.
Liar? YES.
Incompetent? YES.
Suicide? YES.
Colin Fitzpatrick
13   Posted 11/10/2009 at 09:46:48

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Steve Pugh, you can’t just simply bend the rules to strengthen your argument. KEIOC show LFC and Kop Holdings separately because they are different entities, you simply can’t just add them together to make things look better or worse.

Despite the ranting of some LFC fans that love the sound of their own voice, Hicks and Gillette haven’t, save for £80m, loaded LFC with debt; their personal debt remains within Kop Holdings; if you wish to add this how far down the line do you go? Do you include the ultimate parent company Kop Investment LLC? No, like I said they’re separate entities and have to be treated as such. It’s the same with Utd and Red Football Joint Venture.

Our debt ratio of 1.306:1 or rounded up and expressed as a percentage, 131%, means that we have 30% more debt than we have assets or put another way we’re technically insolvent — neither LFC or MUFC are in that position.

Now the opinion of Colin Fitzpatrick, Steve Pugh or indeed KEIOC is irrelevant, it simply doesn’t carry any weight whatsoever. To get an expert opinion you need the opinion of an expert; you’ll have no doubt heard of Equifax? Here’s what they have to say about the financial well being of Everton compared with Liverpool, Arsenal and Man Utd: Recession hits Premiership Clubs... I rest my case.

Chelsea are of course in a league of their own, soon to be joined by Man City. But, whilst it’s of some interest to compare and contrast, we’re only interested in one team, our team.

The reality is we’re in a much worse predicament than the clubs that you’ve mentioned. The blame can’t be placed all on Kenwright; this is the result of over 30 years of under investment; but today we find ourselves up shit creek and someone has sold the paddle and the canoe!

Like I said, Steve, good article... but, as we know, debt is a complex subject.

Steve Pugh
14   Posted 11/10/2009 at 11:07:16

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Colin, so what you are saying is that BK could transfer all of the debts owed by Everton Football Club Ltd to Everton Investments Ltd, so that Everton Football club was debt free then we should ignore the debts when we are discussing the financial status of the club? What total and utter twaddle.

Liverpool Football Club is the only asset of Kop Holdings; if Kop Holdings go bankrupt, LFC gets sold off to pay the debts, either as a single entity, or more likely it would be broken up because this generally raises more revenue for the creditors. So including the holding company is necessary to give a true picture of the club's financial situation.

Also, you ignore the figures on United and still claim them to be healthier than us, £666m of debt and only £252m of assets, a ratio of 2.6:1 or 261% if that’s the way you prefer it. That is almost twice as ’technically insolvent’ as we are.

I am not bending rules, I am applying them the way any businessman wanting a true picture would apply them. What you have to ask yourself is whether or not the debts of the holding companies would be ignored if the clubs were sold?

Please remember, whilst KEIOC are doing the right thing in opposing Kirkby, they have an agenda and it is in their interest to put the figures in a way best suited to them. I am just trying to promote a discussion and have portrayed the figures in a straight business view.

Colin Fitzpatrick
15   Posted 11/10/2009 at 11:58:39

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No Steve, I’m not saying any of that, I’m simply saying that is your interpretation of what is going on and it doesn’t equate with the financial appraisal conducted by acknowledged experts in the field of debt. You’re standing by what you’re saying and that’s your prerogative but it doesn’t make it automatically correct.
Ciarán McGlone
16   Posted 11/10/2009 at 12:38:12

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3 questions about Everton — where the answers actually fail to refer to Everton.

I think you should omit the three questions and re-title the article.... ’Do we want to be like the Big Boys’...
Phil Bellis
17   Posted 11/10/2009 at 12:42:41

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Steve Carter...
The direction of the Club is determined by a Board and the shareholders, not him alone...

I believe the overwhelming majority of shareholders have no say in or control over the club
Haven’t they even been denied the right to an AGM?
You’re probably right if, above, you substitute ’unnamed directors’ for Board and ’puppet-masters’ for shareholders.
Steve Pugh
18   Posted 11/10/2009 at 12:45:56

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Ciaran, as far as the middle question goes, I can accept your point, but Bill Kenwright's honesty is definitely about Everton — as is the move to Kirkby... aren’t they?

Colin, my source was Deloittes; I think that they are acknowledged experts in the field of debt.
Steve Pugh
19   Posted 11/10/2009 at 12:54:15

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Also Colin, as there is no name accredited to the KEIOC article, who is this acknowledged expert?
David O'Keefe
20   Posted 11/10/2009 at 12:53:21

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Steve Pugh:

I don’t accept that Everton are coping, but why is the club coping: Kenwright's chairmanship or Moyes's management?

I don’t accept as implied here that the club is coping financially. The reason? Transfer budgets. LFC and the Mancs have transfer budgets, EFC do not. They have to sell to buy. That is based not on any figures, but the last two summer transfer windows.
Steve Pugh
21   Posted 11/10/2009 at 13:05:06

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David, I can’t remember the figures off the top of my head but I know that Man U didn’t spend anywhere near the £80m they got for Ronaldo over the summer, and Liverpool just about broke even, same as we did. That would suggest that things are not looking good for either of them.

When I said "we are coping," I meant that we are not having to finance the club the way the RS did over the summer and nor are the banks desperately trying to offload our debts by selling them on the open market. Whilst our situation is bad, to my mind, that would be worse. But that is only my opinion.
David O'Keefe
22   Posted 11/10/2009 at 13:15:26

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Steve, Man Utd are Champions and have little need to spend £80 million. Liverpool spent £39 million on Johnson and Aquilani and recovered £30 millioon from the sale of Alonso.

It's about financing your operations — that is what is important... nothing is without risk; how you manage that risk is what matters. My point is that those clubs can finance their operations; our club is finding it harder and harder to do so.
Colin Fitzpatrick
23   Posted 11/10/2009 at 13:20:56

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Apologies, Steve, I obviously didn’t make myself clear, the acknowledged experts in the field of debt that I’m quoting are Equifax. I’ve already stated that neither you nor I nor indeed KEIOC are experts.

Deloitte are indeed experts but they’re simply reiterating the financial information found in the accounts, although I wasn’t aware that Deloitte publish total debt ratio figures, maybe I’m wrong.

The total debt ratio is an analysis tool that allows you to compare companies of a different size on a level playing field, forgive the pun. You’re measuring debt by combining separate entities, several companies; if your method was correct Equifax would show Liverpool and Man Utd as insolvent; they don’t therefore your method doesn’t match this expert's opinion in this particular context.

Kev Wainwright
24   Posted 11/10/2009 at 13:47:11

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For the record, if a company is “technical insolvent” or not matters not one hoot. All it means is that the liabilities outweigh the assets. The book value (or asset value) of a business has no relation to its actual value. The best way to see the approximate value is to take the amount of shares issued v the value of one share and even that is not very accurate.

The amount of debt of a company only becomes an issue if the company cannot service its debt — until that point, is it an irrelevance. A body that has made a loan might well be concerned if the asset value becomes less than the liabilities as their debt has become more of a risk. In this case a company might, if it was a condition of the loan, have to pay an increased premium to reflect the increased risk.

The only question over Everton's insolvency would be if no-one would be willing to buy the shares and I cannot see that happening. I therefore contend that Everton will never be insolvent in my lifetime. Think of it as a house in negative equity. The home owners have no issue with negative equity as long as they can pay the mortgage; however, if they cannot and lose the house, it isn’t pulled down — it is simply resold.

I agree with the author of the article when he said that KEIOC have in the past tried to use certain financial reports to suit their agenda and they are not applicable. I use the word applicable rather than misleading as it is a bit of wishful thinking on KEIOC's part, rather than a wilful lie.
Colin Fitzpatrick
25   Posted 11/10/2009 at 14:49:22

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Ken, KEIOC liars? Never!!!
Steve Pugh
26   Posted 11/10/2009 at 14:50:38

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David, you are ignoring your own argument, you said Man U were in a better situation because they had a transfer budget. We do not know whether or not they kept some of the Ronaldo money back to pay some of the £81m interest or they just didn’t want to spend it, but you cannot say with 100% certainty, that they didn’t have to sell to buy this summer just as I cannot say for certain that they did, we can only make assumptions.

As for Liverpool, they sold, Arbeloa for £3.5m, Leto for £1.5m, Hobbs for £1.5m and Hammill for undisclosed fee. Add that to Alonso £30m and you have probably £37m (if Hammill got £500k from Barnsley), Aquilani was £20m, Johnson was £17m, and Krygiakos was £2m. So Liverpool spent a total of £2m, or less if Hammill was worth more. Hardly a massive transfer budget.

I agree that how you finance your operations is important, but I also think that there is a level of risk that is unacceptable. Having to take out new loans to pay off existing loans is not what I would class as good financing. Again, my opinion; you might think differently.
Steven Connor
27   Posted 11/10/2009 at 15:32:29

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Steve Pugh... excellent article mate, very thorough and well researched. This level of debt throughout the Premier League, but especially the ’big four’, is untenable.

The Premier League may think it lives in a bubble but, when we are in the middle of the one of the worst recessions in economic history (on a global scale), the idea that football clubs can ’buck’ this trend is laughable.

The Premier League riches have been acquired hand in hand with the economic boom of the last fifteen years. In fact, many football clubs are the epitome of what has gone wrong with the economy in general... reckless lending and spending based upon unsustainable levels of debt which eventually outstrip the assets that company possesses. Exactly what happened with banks, who then had to be bailed out.

Believe me, if national and international institutions the size of Lehmanns and RBS can collapse overnight because the actual liquid assets or cash reserves they have don’t cover their daily outgoings, then it can happen to Liverpool or Man Utd.

Man City are a shallow bunch of cunts, but if we can't break the top four monopoly (and I think we may have missed the boat for now), it will be interesting to see if they can do it for a few years in a row ... because, as soon as one of those two mentioned above fails to qualify for Champs League, then their whole business model begins to creak.

David O'Keefe
28   Posted 11/10/2009 at 15:21:03

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Steve, using your argument, nothing can be proven either way re Man United transfers. The Ronaldo transfer, however, was the club bowing to the inevitable, the fact that they don’t have a net spend this year is meaningless as their squad did not require an £80 million spend.

It is interesting that you raised the issue of refinancing, however; but I don’t think you know what it is. It is the restructuring of payments — something that the banks are happy to do for the yank owners of our red bretheren.

Considering the money their clubs make, refinancing is a good deal, the debt is extended and repayments are reduced, meaning more spending power for the clubs and more money for the bank in the long term.

Taking out a loan to cover a loan is, ironically, what Everton have done, not (as you mistakenly believe) our red bretheren.

Steve Pugh
29   Posted 11/10/2009 at 16:22:39

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"Paying off an existing loan with the proceeds from a new loan, usually of the same size, and using the same property as collateral."

Pasted from IvestorWords.com

Definition: "To swap out your old loan with a more favorable loan. The new loan pays off the old loan, so you just make payments on the newer (presumably better) loan. Sometimes a borrower will borrow a little extra during refinancing to take some equity out of an asset (known as "cash out" refinancing)."

Pasted from Banking.About.com

Definition
"Acquiring a new (usually larger) loan that retires an older (usually smaller) loan over a longer-term, using the same asset(s) as collateral."

Pasted from BussinessDictionary.com

David, do I need to get more definitions of refinancing for you. Apparently I do know what I am talking about.
Steve Pugh
30   Posted 11/10/2009 at 16:32:33

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Colin, I keep going over the Equifax article and one thing puzzles me. Considering that Manchester United quite openly have debts higher than their assets, and that those debts were being openly traded in the city earlier this year, often at rates as low as 50p in the pound, how can Equifax claim that they have a score of 100 and are solvent? Am I missing something obvious, or is it just that the report was done before the lenders lost confidence?

One thing that will not help our credit score is our CCJ. (Which is unforgivable in my book.) Our repayment score is also very poor compared to similar types of company, and similar sizes of company.
Colin Fitzpatrick
31   Posted 11/10/2009 at 16:51:05

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Steve, Are they the PIK notes being traded? I know when they were originally issued they were earning the holders 16%. To be honest I can’t answer your Equifax question, the report is the latest one, five months old, another should be available soon, I’d be surprised if their rating has changed.
Dennis Stevens
32   Posted 11/10/2009 at 17:04:44

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I’m no expert in debt management, as my bank could no doubt confirm, but didn’t Southampton try this "the debt’s not on the club, but the holding company & it’s them that have gone bust, not us" type of argument, only to find they were still docked points?
Brian Waring
33   Posted 11/10/2009 at 17:05:11

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Kev, "If no-one would be willing to buy shares and I cannot see that happening" Isn’t that already happening, Kev? I might be wrong here, but hasn’t BK been looking 24/7 for someone to buy the club? So therefore there is no-one willing to buy the shares.
Steve Pugh
34   Posted 11/10/2009 at 18:02:49

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Colin, the PIKs, £152m are being traded, on a "name your price" basis. The senior loan, £425m which was secured on "Old Trafford, the Carrington training ground, the gilded players, season tickets, commercial contracts, on the lock, stock and corporate barrel of English football’s most glittering club" is being traded at 70% of official value, and £90m of unsecured loans are being traded for 50p in the pound. The story hit the media in late March so it is possible that the next Equifax report won’t be so favourable.
Steve Pugh
35   Posted 11/10/2009 at 18:07:08

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Dennis, good call, I’d forgotten that.
Kev Wainwright
36   Posted 11/10/2009 at 18:22:24

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Brian, whilst I have no insight, I suspect that Kenwright is not looking to sell his shares. My point is that the club wouldn’t be wound up if we couldn’t pay our debts.

I can see no way at all that someone would not come and buy the shares for a penny and take on the debt. In effect you are being the fixtures and the place in the league. If you take Newcastle, I suspect that Ashley knows the value will shoot back up once he gets back into the Premier League, and he can easily finance the debt.

I really cannot see the point of a debate about the trading of debt, of Man Utd and if they are insolvent. There is no way that Man Utd will be wound up as a company in the high court.

This whole thread is not based in any reality.

Dennis Stevens
37   Posted 11/10/2009 at 20:11:02

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Brian, Kenwright has been looking "24/7" for "investment", not a buyer. It was clearly stated at the inquiry that no Board-members are intending to sell their shares whilst DK is in the offing.
Brian Waring
38   Posted 11/10/2009 at 20:39:39

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Dennis, I could have sworn that I heard BK state something like, the club has been for sale from day one, maybe I’m mistaken.
Dennis Stevens
39   Posted 11/10/2009 at 21:29:52

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I’m not familiar with that comment, Brian, although it may be no more than a recognition that ultimately everything does have it’s price. However, the confirmation that none of our Board currently plan to sell their shareholding is a matter of record, along with confirmation that they have put not one penny into Everton FC.
Michael Kenrick
Editorial Team
40   Posted 11/10/2009 at 21:14:09

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Brian is right, though, to remind us that this distinction between searching "24/7" for "investors" versus searching "24/7" for "buyers" is a relatively new play at semantics.

It may be worth revisiting this article that appeared in the Liverpool Echo 15 months ago, clearly saying that the club was for sale, and that Bill would step aside. Although the fact that nothing ever came of it, other than something of a convoluted denial from Ross. The Russian, American and Dutch investors mentioned were never identified.

Interesting that the author, Andrew Edwards, is listed as an Assistant Editor, but does not appear to have ever written anything else relating to Everton. Unfortunately, the local rags have a horrible record when it comes to reliable reporting of behind-the-scenes Everton shenanigans.

Dennis Stevens
41   Posted 11/10/2009 at 21:52:41

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Michael, I think the "semantics" as you put it is merely a case of some supporters realising what Kenwright has actually said is "investment" & that has often been assumed to mean "buyer", leading to accusations of "liar" when those expectations aren’t met. I don’t see anything from the Club in that article that indicates Kenwright or any Board-member is looking to sell their shareholding.
Richard Jones
42   Posted 11/10/2009 at 22:21:06

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So Dennis what you're saying is Bill Kenwright has never led us to believe that the club was for sale?
David O'Keefe
43   Posted 11/10/2009 at 22:23:51

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It’s a linguistic trick — we think it means one thing, he another, we hold him to it and then complain — his response: "I’m sorry if I misled you it was a misunderstanding..."

Then again, maybe he had the investor all along.

Dennis Stevens
44   Posted 11/10/2009 at 22:26:54

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I suppose, when it comes down to it,we are only speculating as to what Kenwright may mean when he says "investment". However, let’s not forget that anybody wishing to gain control of the club isn’t going to do it with just Kenwright’s shareholding. Any take-over would have to include agreement to sell from the major shareholders so as to gain the new owner control of the club.

So, unless other shareholders such as Earl (Green?) are willing to sell, Kenwright won’t find it too easy to do so & may even wish to remain, in order to safeguard the club he loves (I’m giving Bill the benefit of the doubt here).

Michael Kenrick
Editorial Team
45   Posted 11/10/2009 at 22:21:31

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Dennis, your observation is strictly correct, in that there is nothing from the club... which is somewhat in line with my insinuation that the whole thing was a pack of lies anyway... and therefore probably not a very good source to cite.

However, I’m sure there have been other occasions, including I thought one AGM, where Kenwright had said something like "the club is for sale, it has been from Day One". Not that I fully believe it, mind; it’s more an example of the lies and duplicity that passes for "openness and transparency" [cough, splutter!]
Michael Kenrick
Editorial Team
46   Posted 11/10/2009 at 22:38:42

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Dennis, the thought about controlling the shares was that Jon Woods was basically Kenwright’s sidekick, and would always vote his considerable wedge of shares with Kenwright. Earl was apparently courted for the same reason — that he would not rock the boat, and his involvement was perfect in order to rid the Boardroom of the troublesome Gregg family.

My feeling now is that Kenwright’s and Earl’s shares are actually controlled by Sir Philip Green, that he is calling the shots, and that Jon Woods goes along happily with the majority.

Together, they represent something like a commanding 75% control of the club. And the inference is that, since Sir Philip stands to gain presumably from the retail palace that will be Destination Kirkby, then he ain’t for selling just yet...
Dennis Stevens
47   Posted 11/10/2009 at 22:46:04

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I can’t help wondering whether Kenwright might have been better off accepting Gregg’s offer & proceeding with KD. We’d have been playing there by now & Gregg’s "reverse-mortgage" doesn’t seem so bad now in comparison to the projected cost of DK. Perhaps in seemingly helping out a mate Green was really just helping himself & now Kenwright’s stuck with it. If so Earl’s perhaps there to also make sure Kenwright doesn’t rock the boat. All speculation of course, 2+2=5 & all that.
Steve Pugh
48   Posted 11/10/2009 at 23:43:44

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Speaking of shareholders, what does anyone know of BCR Sports Ltd? Considering I can’t even find them at Companies House, I assume it’s something I should know but I can’t think and not knowing one of our biggest shareholders bugs me. Also why can’t people just buy one lot of shares in one name?

8,146 BCR Sports Ltd
7,053 Bill Kenwright Ltd
3,209 Jon Vincent Woods
3,203 Jon Woods Ltd
2,773 Grantchester
1,830 Arthur John Abercromby
973 Bill Kenwright
973 Barnett Waddingham Trustees Scotland Ltd
714 Philip David Carter
473 William Kenwright

Why do we have to have three Bill Kenwright variants?
David O'Keefe
49   Posted 11/10/2009 at 23:59:49

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Registered in the British Virgin Islands, Steve.
Richard Jones
50   Posted 12/10/2009 at 00:01:26

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Apparently they don't have to name shareholders there....
Michael Kenrick
Editorial Team
51   Posted 12/10/2009 at 04:45:51

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BCR Sports Ltd is the company through which Robert Earl bought his Everton shares from the Greggs. Probably plenty of good tax reasons for all these shadow companies and identities...

I see someone yet agains raises the issue of directors and indeed shareholders "not put a penny into the club". While it’s a good soundbyte guaranteed to raise ire, isn’t it just a tad unreasonable? Why should we as fans expect someone who has already shelled out millions of pounds (to someone else) to obtain the shares and perhaps secure a Directorship, to ten pu even more money into the club?

Let’s just say they should... and I believ they have to at all, buit there are obviously plenty who do: exactly what instrumet or mechanism would you expect them to use to make that investment?

Share purchase: only possible if new shares are issued by the club (eg, a rights issue), which triggers a load of other requirements and has the effect of diluting eveyone’s share value; hardly attractive.

Loan guarantees: this is probably what Sir Philip Green provides, without actually handing over any cash. It enables the club to build debts it may otherwise not be capable of... not exactly a good scenario, but if that’s what funds our diminutive transfer budget, can we complain?

Outright gifts: Who are you kidding! You think these people got mega-rich by giving their money away?!?!

Loans: this is apparently the Abramovich model... probably works if you have a lot of disposable funds you need to keep moving around...

So, I’d be real interested to know — especially since the paltry wealth of our main directors has now been made public (Kenwright – £2-3M; Woods – £5M) — just how do you this simple business of them "pumping money into the club" actually working???
Steve Pugh
52   Posted 12/10/2009 at 09:00:24

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Thanks guys
Ciarán McGlone
53   Posted 12/10/2009 at 13:45:27

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Why should an owner of a company invest in that company?

Because investment generally leads to increased performance making the company worth more — unless of course there is some other way of extracting money from the company while keeping your investment at zero!

Investing in a company one owns is also a good indicator that you actually give a fuck about said company.
Michael Kenrick
Editorial Team
54   Posted 12/10/2009 at 14:58:26

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So... good mental rant, Ciarán... but you failed to explain how they should go about it... what specific mechanism do you suggest? I’m interested to know... especially if — like Kenwright and Woods — they simply do not possess the readies. Or did you miss that point?
Ciarán McGlone
55   Posted 12/10/2009 at 15:14:01

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Mental rant?

You asked a question I answered it.

Anyone who doesn’t have the money to finance a football club to a reasonable standard shouldn’t own one...So that covers Woods and Kenwright...

As for Earl... ’gift’ as you call it - is no such thing..it is fiscal stimulation aimed at increasing the value of the company - and provided by a major shareholder and recepient of any gain ... it is not simply giving money away as you suggest. But then again he’d rather stash his in the Virgin Isles.
Michael Kenrick
Editorial Team
56   Posted 12/10/2009 at 15:32:54

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You haven’t answered the question at all. And for you to state that people who own a football club... shouldn’t — that is ostrichism to the extreme. Fact is they do own substantial shares in the club. Agian I ask, exactly how should they finance their football club "to a reasonable standard" (whatever that means)? By what fiscal mechanism?

What fiscal stimulation are you talking about with Earl? You are suggesting he just gives wads of dosh to a club that has multiple owners? Are you insane? Why would he do that? Does anybody in their right mind do that in business?
Ciarán McGlone
57   Posted 12/10/2009 at 16:10:17

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This is the question you asked — which I choose to answer.

"Why should we as fans expect someone who has already shelled out millions of pounds (to someone else) to obtain the shares and perhaps secure a Directorship, to then put even more money into the club?"

You seem to be ignoring the answer... and repeating the misleading proposition that investing in ones own company is some sort of charity donation... There’s obviously intricacies involved with the other maor shareholdings — for recovery of a proportion of the investment on any potential realisation...

Are you seriously suggesting you think it’s a good idea that the owners of companies should not invest their own money in their business? Or that it’s usually not in their best interests to take such course of action?

ps: The fact that Kenwright is a shareholder, doesn’t mean he should be.
Robert Daniels
58   Posted 12/10/2009 at 16:29:31

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Can't they spend the Kitbab money, isn't that what its for?
Robert Daniels
59   Posted 12/10/2009 at 16:31:36

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Kenwright either can't or won't invest in the club; if you can;t invest in your own business and it's loosing money, you have to sell or take a refinancing option. The mere fact that he doesn't want to do niether, lends to the belief that his hands are tied, or they have ulterior motives.
Dennis Stevens
60   Posted 12/10/2009 at 16:58:59

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The obvious way to invest money into the club is via a new share issue. This would mean that somebody holding, say, 10% of the current shares would need to buy 10% of the new issue in order to maintain their shareholding. Of course, if you’re skint you won’t want to do this because you can’t afford to buy more shares & so will end up with a smaller shareholding in percentage terms.

But in doing so you starve your business of the cash it needs to develop & so grow in value, which means you may end up costing yourself more, as your shares may not grow in value as much as if the business had received that extra investment. It’s hard to imagine what vehicle Kenwright proposes to use for bringing in additional investment from one of these billionaires that are hiding from him 24/7, as a share issue would seem the obvious mechanism.

Roll on DK, eh?

Michael Kenrick
Editorial Team
61   Posted 12/10/2009 at 21:08:59

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Dennis, I think you’re right, a share issue is the only viable mechanism. It’s been suggested a number of times during the Kenwright era but resolutely resisted... I wonder why?

a) Because the last thing Kenwright could afford would be to dilute the value of his shares... especially if he actually owes a big note on them. His big pay-day comes when he sells those shares for (hopefully) a lot more than he owes/has paid on the loans. The last thing he would want is to reduce that rate of return... especially if it is already marginal due to whatever loan agreements he has in place...

b) Because, to offset the dilution effect, you have to buy up a portion of the new share issue... but guess what?! Bill’s got no money! He can’t afford to participate in a rights issue!!!

Interestingly, a massive rights issue is exactly what Peter Johnson did in 1996. 25,000 new shares at £500 each. For a brief period when Everton were really good (under Joe Royle) the value of those shares appears to have sky-rocketed. Inside less than a year, Johnson sold off 17% of his holding, and he may have made as much as £20M.

Overall, Peter Johnson did remarkably well out his "investment" in Everton FC Co Ltd.

But just how well did Everton do... ???
Michael Kenrick
Editorial Team
62   Posted 13/10/2009 at 04:38:08

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Ciarán, you haven’t really answered that question, and you certainly haven’t answered the question of what mechanism current investors should be using to pump money into the club they partially own... And you haven’t providing a logical rationale for them to do such a thing.

Put yourself in their place: they have already "invested" a massive amount (admittedly not actually in the club, but to the prior owner of the shares), to purchase a part interest, with the acknowledged aim to hold it for a while... maybe years... and then sell it on, hopefully at a profit. Return on Investment.

Only you now have the petulant arrogance to say that is not enough: they must invest more money — over and above their primary investment in shares (or they shouldn’t have purchased interest in the club in the first place — how obnoxiously arrogant of you!) — although you’re not saying how they should do this.

Not surprising to me really, because, as I’ve pointed out, none of the obvious methods for investment make much sense from the investor’s perspective. They do from the fans’ perspective, of course, and that’s where you’re coming from. But hopefully even you will see how utterly irrelevant that perspective is.

So, once again, the challenge: you’re a major shareholder in Everton. Are you just going to sit on your investment? Or are you going to pump more money in, year after year? For what return? Through what fiscal mechanism? Try to come up with something that actually makes sense this time.
Ciarán McGlone
63   Posted 13/10/2009 at 10:59:14

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Ok Michael.

If you don’t accept improving one’s business as an acceptable answer as to why an owner should invest in their business then fair enough.

But that’s as far as I go with this one....especially consideering your childish personal insults. Poor form.
Steve Pugh
64   Posted 13/10/2009 at 13:03:44

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Michael/Ciaran,

As a fan, I totally understand Ciaran's need for the owners of a club to invest their money into the club. However, there are lots of businesses out there that grow simply by reinvesting the profits they make.

Naturally this won’t work at Everton because we don’t make enough profits. That is why I would prefer the board to look at ways of increasing turnover rather than looking for investors. If our turnover was as good as Spurs, people would want to invest because there would be an obvious return. At the minute there is very little visible return on investment for someone buying into the club.
Ciarán McGlone
65   Posted 13/10/2009 at 13:27:02

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Indeed Steve,

And sometimes in order to facilitate increasing turnover... money needs to be spent.
Steve Pugh
66   Posted 13/10/2009 at 14:40:19

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The question is, Ciaran, where should we spend the money?

How much more could we realistically expect to earn by improving the team? Taking into account increased wages etc. Are there any revenue streams that we are completely missing out on? What about entire marketplaces? Especially Australia and South Africa.

Then there is the retail side of things, does the club even try to sell through places like Argos, Tesco, John Lewis, etc? Living in Norfolk I see loads of Evertonians, many of whom would love to be able to buy an Everton Advent Calender, or similar, but all you see in the shops are the big 4, and Leeds, Aston Villa, West Ham, Newcastle. Ok quite a lot of stuff from quite a lot of clubs, but never us.
Jay Harris
67   Posted 13/10/2009 at 15:02:09

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Steve Pugh, I totally agree. I’ve been banging on about this for years.

We’ve got one of the poorest commercial income streams in the top half of the Prem at about £3 million, while Spurs are getting around £40 million.

But while you’ve got a chairman who says "Only Newcastle fans buy shirts" what do you expect?

Besides his lies, my biggest criticism of Kenwright is not that he doesn't have money but doesn't have the inclination to generate it at EFC — apart from selling players or mortgaging assets.
Victor Johnson
68   Posted 16/10/2009 at 10:42:58

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The key ’investment’ of any owner is to find the right management team to maximise business performance.

The really big question, I feel, is whether the current management team (not the owners) is driving the business in the best possible way, taking into account obvious environmental constraints (Sky 4 monopoly, credit crunch, etc).

Are they inceasing revenues, both by volume and number, adequately? Is the club reducing its operating expenses in such a way that long-term value is not threatened?

Are they fully utilising the assets the club has at its disposal (both tangible and intangible)? The ’growth model’ of the management team may well be seen as the investment ’back-up’ Ciaran is looking for.

And in aswering the above questions it seems rather obvious that for the owners (as investors) all roads lead to Damascus... Kirkby.

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