Due diligence, my Arse!
 by Paul Holmes 

 MORE QUESTIONS THAN ANSWERS

1. Firstly, the name of Bovis Lend Lease (the Echo; the New Civil Engineer) has assumed prominence as the master builders of Kenwright's dream — "the best stadium in the world"! 
     
2. Secondly, there have been some worrying leaks (From the Terrace) about progressive transformations of the project to meet various potentially conflicting constraints and demands. 

Kenwright, Carter and Gregg may be content to hide behind the silent curtain of due diligence but, as concerned fans, hopefully we still have the freedom to ask questions:

• With the announcement that Bovis Lend Lease are to now develop the stadium at Kings Dock, what has happened to the much heralded HOK partnered by Ellis Williams — the original architects of the Kings Dock project?  Are they still on board?
   
• Have HOK perhaps scored an own-goal after attempting to design a round stadium in a square hole?  
   
• Was their design just not right, or has EFC decided to change things around after enviously eyeing the developments in Japan and South Korea?

Either way, these changes in design and layout at such a late date, after committing to so much expense, could be interpreted as a very curious move.  Particularly in light of the fact that EFC were supposed to have until 1 January 2002 to pass the next post — not withstanding nefarious extensions to the often mentioned due diligence exercise...

As to whose due diligence this is, the exact content of it, and who asked for it, this still remains a mystery.  The original due diligence was applied to determining the viability of the bid prior to Liverpool Vision's approval and English Partnership's subsequent validation of Everton's preferred bidder status.  Now that as been sorted (since July!), the current stage of the project should be more of a consolidation, bringing together sources of funding as well as exponents of diverse technical expertise (eg, Bovis) who will be further refining the design of the project.  

How much of this progress have we been told by Everton?  Nothing!  Why? 

"Our lips are sealed: Due diligence; commercial confidentiality, due diligence... etc."

It should not be forgotten that the original HOK design for Kings Dock was the one accepted by the "givers" of the land, subject to minor alterations.  A major detour from the original plan could potentially put the bid back to the starting point in terms of examination, which would affect the timeline for the entire project, including the "whispered" Public Enquiry and securing overall planning permission.  These represent the two most daunting hurdles to face and overcome once all the "partners" are on board and the money raised.

It is interesting to note the recent comments by Bill Kenwright at the AGM: for the first time, the language of "perhaps… maybe… could all fail…" was used in relation to Kings Dock.  As the magnitude of it, and the risks and pitfalls finally become recognized, are we finally seeing a new realism I have been advocating?  Or, rather than looking to blame others for the potential failure of the dream, are we as fans being steeled for a simple, "Oh well; we tried our best…"?

What is curious still is how the club itself is (we must assume) the main driver pushing the project forward, when normally a scheme of this magnitude would demand the full-time employment of an expensive specialist consulting group or dedicated in-house department overseeing the whole project.  Despite having racked up a bill of apparently £500k in pursuit of the Kings Dock ambition, it would seem amateurish to rely on the current work force incumbent at the club - none of whom have any relevant experience in overseeing such a development.

At the other extreme, perhaps the decision has been made to abdicate complete responsibility for the day-to-day project development to someone like Bovis, although at this late stage it seems strange to be bringing on board an entirely new entity.  Why were they not appointed a lot earlier and involved in the final bidding phases, where their expertise would have been most valuable?

Much has also been made of the fact that the club has already raised the money for its deposit on Kings Dock — some £29M.  Apparently, this money will be lent against the future development, ie, EFC's share of 49% of the whole development.  Irrespective of the potential future project debt being in the region of £150M to £200M (EFC being potentially liable for 49% of this), are we to understand that Everton will be putting absolutely no liquidity into the project?  

But then again, how could they?  No right-minded financial institution would lend £29M to a loss-making company with an overdraft currently standing at around £20M that has posted a loss nearly each year for the past decade!

In effect, before a brick is laid, Everton FC will potentially have incurred additional debt of £29M; presumably this will require their 49% share of the project to be surrendered as total collateral security.  I wonder if the other public and private partners in the project (whoever they are) will be compliant with this???  To allow a commercial partner to gain 49% of any development for no liquid financial input does seem remarkably generous.  We must believe that the need for these other parties to have EFC at the Dock is so great that such unusual generosity, however doubtful and uncommon, is necessary in this case.

Lately, the suggestion of creating a wider share ownership within the club by offering shares to the fan base has been suggested.  The club needs to raise money irrespective of Kings Dock, and on a much faster timeline — that much is certain.  But there are simpler, more direct ways to raise much-needed funds though surely?

Season ticket prices and admission on the gate could go up by perhaps £100 and £5 respectively.  The club has generally avoided this subject, most seasons not even raising the prices in line with inflation.  If this was SOLD properly to the fans by effective communication, and the reasons for it agreed beforehand, then an extra £3M of revenue could be raised each year.

However, the simplest and most effective way for the current majority shareholders of EFC to raise liquid funds is to sell some of their shareholding to one or several interested parties.  £5M for 15% of the stock (assuming a discounted share value of around £1,000 each) would not seem unreasonable in the current climate; but would there be any takers?  Plenty, in this author's humble opinion... 

But could we seriously expect True Blue Holdings to sell a wedge of shares, and just give the money to the Club?  Reducing their controlling interest in the process?  Well, this is essentially what would have happened in the much hyped, much lamented media deal (albeit for a much inflated equivalent price), had it not turned out to be such a badly miscalculated pipe-dream.  Kenwright did say one thing at the AGM that rang true: he does appear to be somewhat out of his depth on this one!

The latest AGM also brought out the baffling matter-of-fact statement that Everton's wage bill last season was £29M!!!  Given that perhaps £2M of this is for "non-footballing" staff, another £2M for coaching staff, simple maths would indicate that the player bill is a staggering £25M!!!  With a corporate turnover of £37M, this would suggest that nearly 75% of Everton's turnover is to pay for the wages of a loss-making company!!!  This is utter fiscal madness.

How this has been allowed to progressively happen is a complete nonsense.  It is the most absurd situation and no financial prudence by Messrs Carter etc can alter the fact that, unless increased turnover and more importantly sustainable corporate profitability is found, then there is no alternative but to rid the club of any wasteful, highly paid, non-performing passengers.  Even if these individuals bring in little or no transfer revenue, this absurd wage bill must be addressed, and quickly.

If the wage bill is similar, or possibly larger in the current financial year EFC will, without a doubt, find itself once again in the "mid-twenties" (that's £25M±) in terms of borrowing.  Even re-financing the debt to a longer term, less expensive commitment may not really help, as this will only reduce the interest but not the capital in the short term.  

This could effectively wipe out the financial benefit of selling Ball and Jeffers — sales that, although inevitable, did harbour the hope amongst a section of supporters that the horrific overdraft would be massively reduced.  Realistically, we must therefore expect to sell off more of the crown jewels, in the form of our best young players, and our Player of the Year, as we have done so consistently for the past five season!  Increased revenue from television and other sources will be not be enough to repair the damage if this situation is allowed to continue.  And what if that income actually starts to decline.... ???

At least we fans now have a "day zero" financial statement.  The club is currently £20M in debt with a wage bill of £29M.  As each subsequent year passes we can monitor the situation for proof of real improvement.  For starters, the corresponding figures at this time last year were £15M and £23M respectively, so are we still heading in the wrong direction???  But at least the annual loss was down from £11M to "just" £3.6M.  

Progress?  You be the judge.

Paul Holmes

  
Last updated: 30 June 2009