by Paul Holmes 

 RIDING THE CELTIC ROLLERCOASTER

Celtic announced losses for the last financial year of around £3M.  They play to a full house for nearly every home game.  Their inevitable start in the Champions League each season guarantees extra revenue that can be budgeted for on a yearly basis.  This has to be taken into consideration to the average situation of a Premiership club when attempting to draw vital comparisons.  Ironically their turnover is not dissimilar to EFC.

An example, should they eventually join the Premiership.  They would surely enjoy more TV revenue, but would be unlikely to see guaranteed Champions League football for some time thereafter.  Any financial comparisons need to take this into consideration.  Their turnover would increase, perhaps overall by 10 to 15%.  As to whether this would result in profitability, given their inevitable investment in new players to compete at this higher level, is highly unlikely.  If they were to finish in the bottom half of the Premiership and therefore not qualify for the Champions League, they would enjoy overall an estimated £5M in revenue.  This equates to only one quality signing a year.

It must also be realised that there existed a very different climate towards football when Fergus Mc got involved. Like any excellent businessman he obviously possesses the gift of timing, a characteristic lacking in our current board where EFC matters are related. Fergus Mc`s genuine exit, to create a Real Politik environment and athmosphere looks, on the face of it, a generous and heartfelt offer. However, the cynical would suggest that he was planning an exit strategy well before the Sky fell in or on several clubs. He is that astute.

If we are to take on board as a fact the inevitable emotional “plea for help” from the current directors of EFC then let`s hear it, the truth, regarding their agenda from the horse`s mouth. However, that`s increasingly unlikely given the impending sale of young Wayne and the continued siege mentality of the board of directors.

Fast forward. If EFC supporters were to eventually gain control, it would be a first for a Premiership club to be collectively owned by a supporters trust. The others, cited in the article, are minnows. The sums involved crumbs. The complexity of involvement with a medium sized business such as EFC, and the burden involved, dwarves these previous comparisons.

How could any supporters trust possibly galvanise the necessary skills to create the immediate corporate recovery EFC are in need of? The sums involved and usually billed by for example: PWC, Deloittes, BDO Stoy Hayward etc. are quite substantial. Where on earth would they start?

With arguably £30M needed for transfers over a two-season period, another £70M required to settle the small O/D, settle with bondholders and other debtors, £100M would be required to “re-wire” the club, before any consideration is given towards a ground move or re-development of the current facilities. That’s not taking into consideration the ultimate payout for their exit that the current major shareholders would demand. This is an entirely different situation to the healthy series of problems faced by Celtic in 1995-2001. In simple terms they were not bust.

Are we really suggesting that new shareholders and investors would be prepared to pay six times the market rate for their shares in EFC? Either immediately, or over a slightly protracted period it’s the economics of the mad house, or perhaps more relevant in the current circumstances, the playhouse.

This is not going to happen given that the club is only worth, on the basis of Leeds United's current negative value and Celtic's fairer one, approx. £13M.

It`s irrelevant what timing is adopted for any rights issue to begin, if at all. At face value it appears to be a bail out by the current “owners” of EFC. The smokescreen of this supposed cultured and dignified “Big Conversation” process is all too evident, the board is bankrupt of ideas and EFC is technically insolvent. The club has no provision to meet its short to medium term debts without entering into a fire sale or further borrowings from new pools of credit. Actually, the description “fire sale” would be to assume the club has several assets, it has one, two if you include the manager. Despite the securitisation of the debts the club is on financial respirator, yet again. How this has happened so quickly after the last crisis is anyone guess. Not surprisingly the big tent at the park end has failed to provide £15M for Mr. Moyes`s transfer kitty.

Rather cruelly the previous article in this series suggested that most Evertonians exist in the lower quartile of the economic measurements. To expect to raise fortunes from them is unrealistic. Yes, Celtic managed it, but that process began nearly ten years ago at a completely different peak in the economic cycle. In every respect football existed in its own economic bubble, completely out of step with the harsh realities facing most of corporate life since 2000. The “good times” will never return to football as we now it as more clubs adapt and adopt to sterner disciplines.

Let`s cut to the chase, the club, once again, needs a quick fix. The only hope to raise somewhere in the region of £15M is the fans. The only victims of such a potential short term con would have to be the emotionally vulnerable. They have proved their callous regard recently for the fans feelings over the ground move, they are capable of plenty more if necessary. The current Directors are also quite capable of squandering any further funds in 3 years, still selling young Wayne in the summer, and then look for an exit

Even if the bondholders are not fully paid up and the current obligations met, any new owners would still need in excess of £50M liquid funds to improve the impoverished quality of the playing staff, settle on going debts and give the shareholders of TBH their initial investment back. Whatever way its calculated, it simply does not add up.

Everton, “our extended family”? This emotional ploy simply does not work. It smacks of desperation. When pleading to help the club we are indirectly being asked to bail out the incompetents that have driven the club into this latest version of their all too familiar financial crises. With no interested parties, and the major shareholders and directors not on the best of terms, their only opportunity for a dramatic exit, stage left or right, is to sell to the last resort, the fans. Those that have been treated with more contempt during this administration than any other remembered.

The most genuine offer TBH could make is to sell their controlling stake at a massive loss, perhaps selling the 70% for £10M, can anyone honestly visualise this happening given the arrogance displayed since their takeover?

Scenario, it takes dramatic timing, adequate production and skills more akin to the stage than football….

REUTERS - 19 JULY 2004:

Everton`s self proclaimed “owner” Bill Kenwright has today resigned from the board of directors after feeling, in his own words, “heartbroken” by the criticism of fans after the club agreed to transfer England striker Wayne Rooney to Manchester United. The other principal shareholders of the group who control the majority holding of the club have bought Kenwrights shares, partly with the proceeds of the player`s sale and subsequently now placed their approx. 70% shareholding up for sale. Everton will receive payments of £15M spread over 3 years and Butt and Solskjaer will join Everton on 3 year contracts. Coming so soon after a private rights issue, that failed to even raise 8mil instead of the originally anticipated £15M, the club`s head of PR Ian Ross blamed the climate of greed created by “agents” as the reason for Rooney`s move. “As the club seeks an immediate return to the premiership, we felt we had to let Wayne go in order to re-invest in the squad and meet our immediate bondholder payments”. end

Overall suggestions, no spin.  EFC should forget leaking mischievous stories perpetually re Rooney to get us hardened to the fact that he will eventually move on.  David Moyes was quoted as stating that “you`d laugh if you knew were the story came from re Rooney to Chelsea for £35M”  Yes David, we know: from inside.  Perhaps EFC should think carefully when issuing statements that directors take nothing out of the business, only to then declare that in fact one Director's company received £1.4M in fees for his help over the failure of Kings Dock. 

We lost in excess of £10M in the last accounting year, and yet the local papers bizarrely claimed we were actually doing better than expected.  The Club needs to own up to what is going on, and stop trying to gloss over the facts by issuing misleading statements.  We have creditors to the tune of £40M and net debt (increasing daily) of £6M.  We are still in serious financial trouble.  We've sold the silverware, the seats.... heh! why not go the whole 9 yards, sell the Club's soul whilst your at it!  The logic is baffling: an intended share issue timed with deliberately misplaced information regarding a players potential departure?  Only at EFC could two such events collide.

The comparison to Celtic.  They have just announced losses for the half-year of around £3M.  Despite playing to near capacity crowds each home game, Champions League failure has cost them dearly.  To compare their rights issue, some years back, with EFC's alleged intentions is pointless.  The economic climate and feel-good factor for football was approaching its height at their time.  As a current model for our reference, it now bears no relevance.

<< More response needed here to the detail of the Celtic Trust stuff. >>

Securitzation against future season ticket sales: “At the time it seemed good business sense to secure the funds through securitisation; now it seems a bad decision”   So, after two years, the realisation now is that it’s a bit expensive?  Can this really be explained rationally?  Does anyone have trouble with the imagery that we were somehow hoodwinked by a “cheap suited” salesman into signing on the dotted line for 25 years at £2.5M in interest per year?  Perhaps Dunford at last reached for the NTL paperwork in his in tray and signed the Bear Stearns heads of agreement by mistake.  At the time, EFC were desperate to realise £5M of capital and under pressure from their former bankers.  That’s why the decision was made to enter into the arrangement so hastily without much discussion or reference.  It also offered a fantastic and unmissable opportunity to sweep all the financial mistakes of the recent past under the carpet and break the chain of accountability revealed by anyone following closely the past 5 years of published accounts from EFC Co Ltd.

If anyone else mentions the failed NTL deal then I'll lose the will to live.  Coming so close after the highly visible takeover, they offered £5M for a 10% share of EFC — nothing more.  That valued the club then at £50M, significantly more than the wholesale price in relation to TBH's purchase of approximately 70% of the Club for around £20M.  If Kenwright used this as a hook to get others interested in investing then that is a matter between them as individuals.

LONDON, England — 22 March, 2002 - Everton Football Club is pleased to announce that they have raised £30 million in new funding.  The financing, sole-lead managed by Bear Stearns International Limited, is a securitisation of Everton's current and future season ticket receipts.  The proceeds will be used by the club to repay existing bank debt, develop training facilities and make transfer funds available to their new first team manager, David Moyes.

The statement could not have been clearer — EFC get the opportunity to put their financial house in order by clearing all debts.  No need to repeat in the near future a “Ball and Jeffers” exercise and all the sickening character assassination that accompanied it.  In short, we get time to rebuild and re-create on a solid financial footing, whilst putting down the foundations of one of the finest training/academy centres in the UK.

Nearly two years on, has the securitisation of all the debts led to an improvement in the financial state of the club?  Have funds been released for David Moyes?  Has the building of the “state of the art” academy commenced?  The fact that Mick Rathbone still has at his disposal at our “rehabilitation training and fitness centre”: a stretching rack, a blood letting bank and a leech farm tells its own story.

Perhaps Sean Davis took a look in the summer and very quickly had second thoughts.  It's hardly conducive to protecting the well-being of our prized young asset.  Who surely will, at some stage, need to enjoy the standards of recuperation available to Owen and Gerrard at LFC.  We shouldn't worry though.  His new employers will ensure he gets the very best at Man U.

Two years on from this exercise in supposed financial prudence EFC have used the facility to singularly stay in business and remain arguably solvent.  There have been no extra funds for David Moyes.  EFC have managed to keep up the yearly interest payments to bondholders (well one; the others due inside a month) roughly 2.5mil a year.  However, when your home ground can be considered collateral and potentially called in at any time it does tend to concentrate the mind.  “You don`t need 5mil to buy a 5mil player!”  That`s right Bill, highly quotable as ever, we prefer to conduct a little shell game and hand it over to bondholders every two years to cover up the financial mess you've got yourself and the club into..

It must be a crippling pain in the current cash-strapped circumstances when you hand over such a large sum to repay some of the outrageously poor judgement made in relation to financial decisions in the past.  It's impossible to imagine the feeling of utter abject failure.  Not using it for a healthy down payment on a Sean Davis or a Scott Parker is criminal, but to cover the tracks of a situation that was so needlessly created through misguided ambition compounds the pain and embarrassment.  However, when you're searching down the back of every polyester-covered seat in the Alex Young suite for spare change to pay for Rooney's lost match day balls, it illustrates the obvious predicament.

Since TBH took control, the inherited and documented debt of circa £13M was incredibly doubled inside 2 years.  The suggested inference at the time was that selling Ball and Jeffers would go a great way to wiping the slate clean.  Within a year EFC is then £30M in debt, that doubled again the next year, with the long term 25 years x £2.5M payments.

When Bill Kenwright, through the vehicle of TBH, took control of the club, he will have ensured that through his oft mentioned “due-diligence exercise” he knew exactly the overall debt and the state of the finances.  Any pathetic re–writing of history does not wash.  The current “owners” of the club are solely responsible for the debt — not Peter Johnson or Walter Smith.  The club was not close to administration under Johnson.  He would have not let that happen given that he only had to step in with a smaller cash injection to protect his own valuable position.  EFC has sailed a lot closer to the abyss under TBH's control — a fact that many will testify to.

Securitisation is big business these days and surprisingly simple once you “get it”.  Our mortgages are traded in this manner unbeknown to most of us on a daily basis.  Bear Stearns have also identified the healthy growth market of Stadia building as a massive opportunity.  How gut wrenching when you realise that LFC are also considering securitisation to obtain the funds to build their stadium.  They are attempting to secure 75mil.

However, here's the killer application in contrast to EFC.  Their repayments will be met by the extra 25,000 season tickets.  They get a new stadium, we get to pay off a mountain of debt created by the stupidity of the current directors; the comparison is a vicious blow.  Perhaps LFC will turn some "state of the art” Bose speakers in our direction on their opening day so we can hear the collective laughter from their management and boardroom as they finally leave us for dead whilst we entertain Port Vale.

They're not considering allowing us to play at their new stadium, but Rick Parry is just too cute an operator to announce this until they have received their inevitable planning permission.  He'll play the political game up to the death.  They'd rather forego any hand out from the council than share with us.  By the way, who at the council is suggesting that a huge hand out would be given out?  Was any one else aware Mike Storey was now officially the Chancellor of Liverpool?

The Leeds Lesson:  With a weathered eye, the EFC Boardroom will have watched the Leeds situation unfolding.  There were mischievous mutterings that EFC was considering administration recently.  Watching Leeds fail to escape their obligations will have gained the Board's full concentration that bondholders are ruthless in their expectations.  Leeds's bondholders are pressing for re-payment; the quickest way of getting some pound of flesh, rather than none, would be administration.  They ultimately hold the security over Elland Road, so they would be paid back a significant proportion of the debt.  Discussions have been held that, in and after admin LUFC, could rent the ground.  They would then be a virtual club, a franchise.  No home, no roots, no direction; how far is Milton Keynes?  Only the skills of a brilliant insolvency practitioner, Trevor Birch, has kept Leeds alive thus far.  He has skillfully used the relegation issue in his favour.

With an average net loss of £5M per annum over the past four years and now having to find an extra £2.5M for the bond payments, EFC could waste a £12-15M injection inside three years if the current Board continue their reckless mismanagement.  Could you really trust them not to?

Is there a solution whereby the money could be raised and satisfaction be guaranteed that it could be put to good use?  Perhaps.  The only route by which they could not waste the money is for the extra funds raised to be kept from the current board's control.  Putting it into a trust fund — and for that fund to have, as its executors, individuals who are not direct beneficiaries would be a starting point.  Let the ESA raise the money with the Club's help and distribute it to the Board when they see fit for specific projects.  This is the only way there can be transparency on the spending of the money.  To spend vast amounts of energy in raising such sums and then deliver those funds up in a sacrificial manner to those that have failed previously would be utterly reckless.  However, is there not too much arrogance amongst the present directors to allow themselves to be treated in such a childish manner?

Oh and watch out for a bit of blackmail along the way… “Well if we don't raise the sums we may have to consider the unthinkable and begin to consider selling…"  The fact that the player does not want to leave and EFC would only get a deal similar to that Arsenal struck over Reyes could result in the club feeling very little immediate financial benefit.  Despite the tabloid nonsense, it would never wipe out the debts, you cannot approach bondholders and ask for an early settlement discount, it is not an agreement regulated by the consumer credit act.  There are two ways to settle EFC's current debts: administration followed by winding up, or to pay under the terms of the agreement.  Even £15M clear profit on Rooney's sale would not make the dent — although it would have before the securitisation took place.

Can someone please explain the wisdom of allowing so many contracts to expire in the next 12-18 months?  We have got the whole Bosman thing havn't we?  How many of EFC's current squad can think of pastures new in the next 12 months or are we so ahead of the game in our strategy that we see all players moving onto short term/loan type deals?  Well its worked for the mighty Bolton hasn't it?  I shudder to think the day has now arrived that we duplicate the business plan of our illustrious short term Lancastrian neighbours.  Being offered only £1.5M for Radzinski by the opportunistic Blackburn should ring alarm bells.  The worth we place in players may not be mirrored by others.  If the accepted wisdom is that he's the most likely to go to realise some much needed funds, then we've definitely got problems.

Only the truly naïve are fooled by Duncan's apparent rise in form.  Dunc, we know you're playing for a new contract or wanting to run it down to con some other club to match your wage demands.  Collectively we're bored; you've been found out big time.  No sooner you get your extension you'll develop a rare nut allergy that'll require as the only antidote more stocking of your fine collection of wine and scotch in your well protected cellar.

I urge the ESA to not be seduced by the directors of EFC.  You have an opportunity to send out a strong message that you are very concerned.  Demand answers and discuss solutions.  Peculiarly you find yourself in the driving seat but you must stand firm and not simply allow the club to run rough shod over you in an attempt to buy more time.  If you are leading the drive and promotion of the new share issue it is potentially your friends, your family, and fellow supporters that could be digging deep.  You have the responsibility of ensuring that such a precious amount of money, particularly considering its one of final source, is spent wisely on your collective wish list.

Paul Holmes
3 March 2004

Please note: Just because we publish an article does not necessarily mean that we at ToffeeWeb agree with the views of the author — Publication policy