Lessons learned, expensive mistakes... time for a re-boot. Nothing worthwhile ever comes easy. If it did, it wouldn’t be worth doing.
The truth is that nothing in life that’s worth achieving is achieved easily. It’s difficult from wherever you start.
A year ago we had a significant financial base from which to start; we had sellable players in Lukaku and Barkley in particular (even though the stated intention was to keep our best talent), and we had what was considered to be a formidable pairing of Koeman and Walsh to identify prospects, attract players in and with perhaps the help of Bill Kenwright as arch-negotiator from time to time strike some decent deals.
Whilst perhaps for the first time in our modern history we had the financial resources, we clearly had no strategy, no joined-up thinking and frankly Koeman and Walsh were left without “checks and balances” resulting in an almost complete waste of resources at an enormous opportunity and financial cost. The lack of balance in the squad and the “must have Sigurdsson at all costs” strategy was ample proof of a truly dysfunctional recruitment policy.
12 months on, with many lessons learned, we are perhaps a little wiser under the footballing directorship of Brands and a soon to be announced Head Coach in Silva.
Resources for a spending spree?
One thing for certain though is that in the absence of an enormous contribution from Moshiri, we will not have the financial resources to match last year’s spree.
The first requirement must be to thin out a bulky squad that has many aged and non-contributing members using valuable resources to no benefit to the club whatsoever.
Robert Elstone, the former CEO, projected a total wage bill of £139 million (up from £94 million) for the 2017/18 season. Conservatively Klaassen, Rooney, Bolaise, Williams, Besic, Schneiderlin, Robles, Martina, Mirallas and Sandro account for near 1/3 of that wage bill (circa £45 million). There are of course, others who could be released but of that list, with the possible exception of Schneiderlin in his best form, who is going to be missed and perhaps more pertinently who is required by Brands and Silva?
Elstone’s figures suggested an operating loss of around £14 million this year (against a profit of £43.6 million in the previous year). Assuming transfer costs and receipts are spread over 2 years and there’s not a massive change in the balance between creditors and debtors the club will have spent anywhere from £50-60 million more than it received (ie a significant negative cash flow).
That negative cash flow was funded by Moshiri’s £45m injection post May 2017, the Santander short term loan against the outstanding cash from the Stones’ and Lukaku sales (£32.5 million) and assuming funds had to be put aside for the exchange of contracts for Bramley Moore (£22 million) the ICBC facility arranged last summer.
Funds for transfer activities this summer can come from a limited number of sources. Player sales are unpredictable in their timing and valuations (I reckon the list above could gross £72 million) but they’re also expensive in that agent’s fees must be accounted for. As an aside I believe the club could do itself a real favour by showing agents’ fees as a separate item in the P&L rather than lumping them in with the unexplained “other operating costs”.
Back on topic, player sales are not in isolation a reliable source of funding
In the past we have made use of debt, but in the lead up to an expensive stadium move, it should be assumed that any debt facilities the club can negotiate for itself would be reserved for the stadium and the obvious working capital requirements in the build phase.
The final and third option is for Mr Moshiri to put more money into the club to fund transfers. As is very well known he has already injected £150 million into the club without security of a repayment schedule.
It’s also certain that he will have to put cash into the club for Bramley Moore. Using the figure quoted by Bill Kenwright at the AGM of a total cost of £500 million, with funding of £280 million via Liverpool City Council, there’s still another £220 million to find.
If transfer funds, his existing investment and the likely contribution required for Bramley Moore are added up, we arrive at an eye-watering figure of perhaps £450 million.
Thus, we might be looking at an issue of shares worth £225 million in the near term with another similar raise in a couple of years after the Council funding is spent on Bramley Moore.
Using these figures this would convert his existing investment of £150 million into shares and provide £75 million of funding for transfers.
There are of course, many variables, and I’m just suggesting one scenario. Based on the above, a valuation of the club at £350 million (£10,000 a share) would see the number of shares rise from 35,000 to 57,500.
It’s possible (even probable) that Kenwright, Woods and Abercrombie would sell their shareholding as per the options agreement giving Moshiri a total of 25,746 (73.56%) before the rights issue.
Further board changes
Their share sale would inevitably lead to further changes and recruitment in the boardroom with only Barrett-Baxendale, Ryazantsev and Harris remaining from an initial six some months earlier. I’d like to nominate Brands please!
The above being the case Moshiri would then have a maximum of 48,246 shares (83.9%) if no other single shareholder took up their rights to the new shares.
Critically at this stage, as this is below 90% all other shareholders would still retain the right to call a General Meeting (requiring 10% of the shareholding) and Moshiri would not be able to force minority holders to sell against their wishes. I stress that I doubt that is his intent given the very clear re-assurance he provided John Blain (Chair, EFCSA) in the summer of 2016. Subsequent funding (the second traunch in perhaps two years) would see Moshiri go above 90%. However I’m sure there’s an agreement or two to be made to ensure that minority interests are protected.
New ownership almost inevitably means teething problems at best
I said at the beginning if it’s easy it’s probably not worth doing. It seems inevitable that almost every new owner or investor in a football club regardless of their knowledge, intent and intellect have to experience a difficult first couple of years coming to terms with the peculiar business of football.
The very best learn from their mistakes, make the necessary changes in personnel, continue to provide the funding, and if they’ve got good enough people on and off the pitch make a success of it. Failure to continue funding or not attract the right people into the business can have disastrous results (Lerner at Villa, Short at Sunderland for example).
We’re not in that position, we’ve had an expensive year because of the mistakes of last summer. Moshiri has the resources to fund us now, and the remainder of Bramley Moore. With the acquisition of Brands we have a Director of Football that will reduce the financial burden placed on the club currently. With Silva we will have a modern coach playing attractive football. One would hope he’d provide the coach with players to increase our revenues through higher league placings and regular European competition plus some silverware. That’s for the future though – this summer is about recreating the platform to re-boot the Moshiri revolution.
To fully re-boot we need learn the lessons of last summer, provide the funding to make good the mistakes, ensure the delivery of an iconic Bramley Moore, recruit well on and off the field (hence why Brands is so important) and finally bring about a complete revolution in the boardroom bringing in people who relish the challenge and are equipped for success…
Reader Comments (21)
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2 Posted 29/05/2018 at 22:44:21
3 Posted 29/05/2018 at 23:07:00
And definitely Schneiderlin can't be kissing his arse after going missing the whole season – he put himself in the shop window with those last displays.
4 Posted 29/05/2018 at 23:52:12
it doesn't look like Brands was brought in to buy success and Silva likewise (imminent arrival) and, with the bloated squad, there'll be more leaving than arriving in the close season.
I'm expecting no more than a season of transition, whilst hopefully Bramley-Moore Dock moves ahead and we get a spade in the ground; which – along with some positive football – I'll settle for.
5 Posted 30/05/2018 at 00:11:52
It seems toying with relegation is inadvertently good for games shown on Sky/BT. We could spend over £140m in the summer. We'll bring in half of that losing the likes of Rooney and Schneiderlin and another 7 or 8 players knocking around the fringes.
We need an immediate injection of quality with 4 or 5 quality signings. For argument's sake – Rose £40m, Lascelles £25m, Sari £30m. Zaha £40m + Bolasie, Balotelli on a Bosman. Total: £135m.
6 Posted 29/05/2018 at 00:12:55
The players weren't good enough. The manager wasn't as skilled as we thought he was and the same could be said for the DoF. The cost of the mistake is that we can't sell the flops and get our money back. So we're stuck with them.
Moshiri is going for the opposite approach now. Instead of buying players believed to be good enough for 6th and clawing our way up, place by place, we're going to sign players who can be top 4 quality and develop and coach them to that level.
By focusing on younger players we can have a better chance at resale value if things go wrong. Also a younger player can be eased into the side, whilst an older big name player has to immediately perform to the ability he supposedly has, with little patience for him to adapt.
This model relies on the head coach being a top class coach and the Director of Football working closely with the academy and focusing signings on players we need immediately for the first team (ie, left-back) and young players to supplement perceived deficiencies in the quality of those coming through, along with any special talents our scouts find.
I'm very optimistic about the future. I've been waiting for a good coach to come in and focus on developing younger players. I just hope the new dawn is not a false one.
7 Posted 30/05/2018 at 00:18:37
I cannot see the relationship between Brands and Silva working, or for that matter any manager.
Any manager worth his salt could only successfully report to the owner.I could not imagine Catterick, Kendall, Ferguson, Shankly working in such a structure.
8 Posted 30/05/2018 at 00:27:35
9 Posted 30/05/2018 at 00:36:12
They were employed because the real targets weren't interested.
Moshiri needs total control to take the club where it needs to be.
The death grip that Kenwright and cronies have had on the club is soon to be over.
10 Posted 30/05/2018 at 00:54:17
Hopefully we will have a minimum 5 of those you mentioned Out and at least 2 of those you hope for In. By Christmas, I would like to think that the powers that be will have done a deeper due diligence on the playing staff and act accordingly.
11 Posted 30/05/2018 at 01:13:04
As for mentions of FFP, that's just in place to stop us breaking into the existing cartel. Ignore it and pay the paltry fines for doing so or it's 7th forever!
12 Posted 30/05/2018 at 02:05:33
Therefore our short-medium term strategy must be focussed on youth and a sell to buy policy (or a limited budget).
Hopefully, done correctly, we can consolidate ourselves as at top 7 team, maybe break the top 5/4 occasionally, and get some silverware and play good, attractive football.
In the immediate season, sale of players like Bolasie and Rooney to be replaced in house by Dowell and Lookman. Further consolidation into the squad of players like Baningime, Robinson, Kenny, Vlasic, and maybe Williams meaning we can focus our signings on a few specific players, dealing with specific areas of the first team.
13 Posted 30/05/2018 at 06:16:50
As for ignore FFP and pay the paltry penalty (Andrew #11), the paltry penalty may be exclusion from the transfer market for a period of time and the associated losses due to contracts expiring and the inability to improve on-field performances and therefore TV appearance remuneration, unless of course you think we will be so successful in the transfer market this year that it won't be a problem.
The least of our worries may be Bramley-Moore as it may not yet have a strict timetable although a few months delay would probably be another season at Goodison.
14 Posted 30/05/2018 at 06:39:01
As fans, I think we would accept not winning trophies if it meant there was a clear strategy to improve the squad and style of play and put a badly needed new stadium in place at the same time. Fair enough, if we win a trophy, great. But I would accept the club not going all out to achieve instant success.
With the Premier League, a top finish is very achievable. Fans would take this as it meant we were staying somewhat competitive, where qualifying for European football and gave us something over the course of a season to keep our interest.
Fans were miserable this season as there was nothing to make us feel happy about in terms of the club, there was nothing of interest, no positivity. A clear strategy, actual progress, and pride in our own young players, would go a very long way next season towards banishing the pain of last season.
15 Posted 30/05/2018 at 07:45:50
Are you sure about that, Paul? Many lessons have been taught, but there is no clear sign that Moshiri has learned anything.
I said last year that we were building a house without giving any thought to putting a roof on it. I fear this time around we are going to try to use sky hooks to suspend a roof over a non-existent house.
The appointment of Brands was pleasing but, without learning lessons from the past, Moshiri has chosen his manager/coach and pursued him without giving a second thought to other possible candidates. A really big mistake and proof positive that he has learned nothing. How can he know what others can offer if he doesn't speak to them?
Silva is a mistake, the fact that his kecks rolled up last year simply for being mentioned as the target of a club this size should have been enough to rule him out of the running.
I worry that so many of those who whooped and cheered at Moshiri's previous choices are back cheering this one, it's as if they are working on the theory that the law of averages will ensure that he (and they) will get it right sooner or later. They won't. His and their judgement will always let them down.
If Silva was anywhere near as good as some have made out, we would be fighting off competition from top clubs for his signature.
16 Posted 30/05/2018 at 07:52:48
We have an overloaded squad and quality has to be the priority, so even if our net spend this summer is zero, that is fine with me. We do not need 38 paid professionals, 3 No 10s or 8 centre-backss to break into the top 6.
A squad of 25 talented players, paid well, motivated will sustain our challenge.
What we really have to worry about are the future plans of Kenwright and Woods. Their intentions, greed or rights to refuse dilution could make it impossible for Moshiri to put more money in.
Put it this way, by injecting £150m as a loan with zero interest and no fixed repayment, Moshiri made his acquisition of Everton more expensive for himself. He originally paid £85m for 49.9% of the club. That went to Kenwright and Co. He then injected £150m into the club for no additional return. So that is £235m he spent and what he has to show is 49.9% ownership of the club's net profits (bearing in mind he earns nothing from zero interest on the £150m injection).
Perhaps the £150m injection was part of the deal to buy into the club. But, it would value the equity of the club at an eye watering £470m (since £235m would buy 49.9% in this scenario).
An equity value which is more than 15 times the annual net profits of a business (15x valuation multiple) is generally viewed as being expensive – as it takes 15 years to recoup your investment from the current annual level of net profits. The only way to make it a shorter time frame – eg, 7.5 years (ie, half the time) – would be for those profits to double.
Everton would have to consistently generate profits of £30m a year to justify a valuation above £450m assuming a 15x valuation multiple; arguably the club would need to generate more than £50m a year to bring the multiple down to more reasonable levels. As we all know, the club is nowhere near that type of sustained profit making.
In any case, it is not likely that the club will make net profits in the medium term given Elstone's recent remarks.
In fact, I would say that the club needs at least another £150m from Moshiri for the stadium alone. Assuming a £500m cost, I simply don't see the council voting through a £500m loan. A loan for half the amount – £250m – seems more plausible. Moshiri putting up £150m on Everton's behalf reduces the gap to be bridged to £100m / 20%. A combination of naming rights, sponsorship, debenture schemes would surely raise such an amount.
So, can you see Moshiri putting in another £150m on an interest free, no fixed repayment basis, taking him to an investment outlay of £385m into Everton for only 49.9% of future net profits?
If we start making £30m a year consistently from 2019, he would have to wait for 25 years to earn his investment back.
The only way he earns a return sooner, therefore, is flogging his shares to someone else, and doing a cute deal like Kenwright did. That is only a possibility if the club is heading for a new stadium and shows real sign of progress on the pitch. We know that it took donkey's years to find an investor with no stadium in sight.
Those who think the Sky gravy train alone justifies a £470m equity value need to remember two things:
1 – Inflation in broadcast revenues has inflated wages and transfers;
2 – The nagging thought that Sky may someday not be able to keep paying up still lingers in my mind. Amazon, Netflix and Facebook are lurking but I have not seen them spend any crazy money on sports broadcasting rights as yet.
So, to unlock more cash from Moshiri, what has to happen is that Kenwright and Woods have to agree to dilute their shareholding in a rights offer so Moshiri gets a bigger slice of the returns in exchange for more cash into the club.
This gives the club access to more money over the next 2-3 years as it continues growing revenues, investing in the squad and the stadium.
Kenwright and Woods will hopefully do the right thing and signal their intent to let Moshiri have more shares in exchange for injecting more cash. We will certainly need it.
Should Moshiri put up another £150m of cash, then having made a total outlay of £385m he will expect to own a bigger slice of the shares. How much depends on the equity value. If the club is really worth £470m then £385m should get him more than 80%.
I recall that the Echo reported that Moshiri had an option to buy shares up to 76% of all the shares of the club, but the Echo's report was silent on the terms /price. Hopefully, such option is for an amount of £150m, over and above £235m already spent, TO BE INVESTED BY MOSHIRI INTO THE CLUB and not into Kenwright & Co's pockets.
To make a further £150m investment and take his outlay to £385m, the club will need to show signs of being capable of generating profits above £30m a year, perhaps closer to £40m a year, consistently. A valuation above £450m (15×), and indeed closer to £500m becomes plausible. Then owning 76% for a £385m outlay makes sense (£385/76% = £500m).
So, sustainability is key. Shrewd business in transfers is key: net spend is not a guarantee for success on the pitch, as we have painfully seen. Growing commercial revenues is key. Kenwright and Woods agreeing to dilute is key. With those factors, Moshiri can put his hand in his pockets and entrust paid professionals to get on with the task of transforming the club.
Whilst he is at it, he will hopefully say a lot less to his mate Jim White, avoid making grandiose statements at the AGM, and leave the likes of Brands and the new managerial appointment to do the talking to the Media and the players to do the talking on the pitch...
17 Posted 30/05/2018 at 11:22:32
Robles's contract is up so he will be gone for free; I think the club will let Rooney go for free if it means saving his wage; Williams's age will limit any fee to a nominal amount.
I cannot see any of the remaining players listed, even if we do find buyers, bringing in any anything over £40 million in total. I hope I am wrong though!
18 Posted 30/05/2018 at 13:29:37
All the talk of Silva is also a little misleading. People wanting Emery (before he went to Arsenal), Tuchel (before PSG), Simeone etc... these guys will go to the clubs with success already, they don't want to build it. Why do you think Guardiola goes from top club to top club!? He wants to go to a successful team and make them more successful. Would he be interested in starting from scratch!? No.
Silva is known as a good coach and people person... so we need to see. Moyes wasn't exactly world famous when we got him, but given time and support, he made us as competitive as we have been for a long while.
It will be an interesting summer.
19 Posted 30/05/2018 at 20:02:26
Taking Arsenal as perhaps the most recent example of a top flight club building a new ground, they went from a very successful side challenging for the title to one only capable of winning the cups. That's left them feeling they're under-performing...it's all relative!
Where are we currently? Not realistically competitive in either league or cup, perhaps we need to really state the medium and long term ambitions on the playing side a bit more clearly.
If that is coming out of the new DOFs words so far, in terms of reference to developing the academy/U23s and trying to build a sustainable supply of decent home grown players..I'd think that's sound. Not exactly saying we can't progress as quickly on the playing side as we'd like because of BM, but hinting at it.
Fans expectations are not easily managed, but a joined up approach to player recruitment and robust out policy (though that costs aswell) are really needed and will help keeping support.
So as fans, are we happy to put serious and consistent playing success on hold (realistically, for a few more years) whilst the club structure and new ground take a lions share of the resources?
Personally I say yes, but then I have been waiting (like all of us) for 23 years for silverware and 32 years for title ware! What's another 5??
20 Posted 31/05/2018 at 15:23:32
21 Posted 01/06/2018 at 06:26:03
22 Posted 03/06/2018 at 15:06:35
Moshiri's 49.9% gives him total control as he can't be outvoted.
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