Where is the Growth Coming From?

The question for the Everton Board is how do we achieve revenue growth when there appear to be limits on our 3 main income streams, broadcasting, matchday and commercial?

Paul The Esk 26/11/2018 17comments  |  Jump to last
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Revenue growth is so important to any business regardless of whether they’re at the top of their particular industry or market, or as I like to believe Everton should be, a challenger organisation with a view to dominating the market in future years.

The question for the Everton Board is how do we achieve revenue growth when there appear to be limits on our 3 main income streams, broadcasting, matchday and commercial?

Mr Moshiri said in 2017 we can’t be a museum, but we must become self-sustaining. How do we square that particular circle without growth?

To date, Moshiri has invested £250 million into the club, clearing debt and spending (at least until last summer) in a largely unstructured and ineffective manner on players, managers and coaching staff.

Wrong doctors & wrong medicine

I suspect he felt the initial capital injections were rather like an adrenalin shot designed to stir the moribund patient short-term to a recovery phase and a more structured development beyond. Undoubtedly that primary phase lasted longer and was more expensive than expected. Continuing the medical analogy, the wrong doctors were administering the wrong medicine at least until Brands and then Silva were persuaded to join.

Whilst they’ve made the playing side of the club unrecognisable in the short period they’ve been in charge, how sustainable is not only the recovery but the prospects for growth, becoming the challenger and then becoming a dominant force once more?

Now, through the capital injections described, we have an improving squad, an improving manager and a recognised industry leader as a Director of Football. But the question that needs asking is how do we kick on from where we are now? How from a financial perspective do we grow to fund the stability and prospects that Brands and Silva have given a tantalising glimpse of?

We cannot rely upon continued capital injections from Moshiri to fund our on-field activities directly. His focus must turn to investing in the stadium and other future income producing capital projects, not just funding the playing side from his own pockets. Let’s not forget the future Capex requirement is huge and almost immediate, anticipated at a further £200 million.

Of course, player trading is always an option, and indeed it could be argued that with the sale of Stones, Lukaku and even a cut price Barkley that card has already been played. But if the objective is to grow the squad, retention of the likes of Pickford, Richarlison, Gueye, Lookman etc is a must, as is the acquisition of Gomes and Zouma. Whilst there’s always movement of players, we should only allow ourselves to trade valuable assets in all but the most exceptional circumstances.

Creative destruction

In a short interview with Forbes, Peter Moore, Liverpool FC CEO talked of being creatively destructive. That’s an economic concept derived from the work of Karl Marx by an economist called Schumpeter. For Everton it essentially means when you’ve had a business model established for a period of time, if you don’t look to evolve and develop the model you get overtaken. I believe that neatly sums up our recent and increasingly more distant past.

When was the last time Everton was creatively destructive? Our business model has largely remained the same for the best part of 20 years despite the capital injections provided by Moshiri in the last near 3 years. We rely upon broadcasting revenues, an increasingly reduced contribution from match day income, outsourced and largely fixed value commercial partnerships and almost minimal sponsorship activities beyond shirt front, shirt sleeve and Finch Farm naming rights.

Many argue that the model is fine given the size of broadcasting revenues. Indeed, it was highlighted at our last AGM in a positive way. I beg to differ. Broadcasting revenues are driven by success on the pitch. They are the rewards for excellence elsewhere in the business. They are not a gift that guarantees future success. To achieve the highest broadcasting revenues, we must include regular European football, preferably Champions league. I.E, you require success on the pitch first.

This, albeit frankly obvious, statement has passed successive boards by. Broadcasting revenues at mid-table levels are a subsidy and most business that rely upon subsidies are the least efficient and successful. Our past CEO used to claim privately that it was the number of games broadcast on Sky that mattered not having retailing opportunities across America and Asia. I wonder has that belief changed within the club yet?

Matchday

Matchday income is stymied for two reasons. Firstly, the obvious one, Goodison Park – packed to the rafters every week despite offering the worst facilities and sight lines of any major stadium in England. Secondly is the conscious decision to aggressively discount season ticket prices to various concessionary groups, whilst holding prices for regular season ticket holders. I understand the logic and particularly the moral commitment to affordability for large segments of the fan base. However, the question must be raised as to whether the policy is consistent with and helpful to the objective of being a challenger and then a dominant force?

Not only does the decision impact current cash flow, it implies a continued favourable (in fan terms) pricing policy at Bramley-Moore. I’ve argued and will continue to do so that premium seating (hospitality and executive) should provide more than 50% of the future revenues from Bramley-Moore, but I do believe there has to be a discussion between fans and club as to the implications of continuing the current pricing policies.

New income sources?

Of the current income streams that leaves commercial and sponsorship income. As is widely known the current shirt manufacture and merchandising/distribution deals are up for renewal in May of next year. The absence of news to date suggests the same supplier/distributor arrangements will be rolled over.

The teams above us, the self-styled “Big 6” have taken advantage of their high profiles and negotiated deals way in excess of the £6 million or so we receive annually from Umbro. Spurs now benefit from a £30 million pa deal with Nike. That would suggest Everton could expect £12-15 million in any new deal. However, it is questionable whether Umbro have such global marketing budgets and ambitions to support such a cost to them. Spurs are taking advantage of Nike’s global marketing budget and their belief that association with Spurs promotes and enhances the Nike brand.

Thousands of words have been written about Fanatics (formerly Kitbag) and the difficulties that arise from the current outsourced relationship. It seems obvious, but assuming the relationship continues the negotiated offering must be more akin to that offered to any of the other 9 Premier League clubs that use this company. Surely it is possible to buy an Everton shirt in a retailer of choice and to have the full range of kit and merchandise available in all markets online? As a result, better terms can be offered to Everton?

I suppose the whole of our commercial activities, partnerships and relationships boil down to the simple fact, do we have the confidence, the self-awareness to promote ourselves globally rather than parochially?

If the answer is yes, do we have the people, the resources, infra-structure and plan to go out, promote the Everton name in key markets be they America, Africa or Asia?

From the outside, looking in, the answer would be no we don’t appear to have this currently. The first point to start is bringing people into the business at a senior level who know how to grow a business globally, who have the skills and contacts to generate income from known markets and sectors.

We are currently spending much more than we are earning and that’s likely to continue. Brands will no doubt trim the squad further, completing the removal of the deadwood, but we still need more and better players to cover certain positions which is costly.

As described above, unless our form becomes so good that we have regular European football and preferably Champions League, the only source of additional income in the next 5 years or so comes from turning around our commercial performance, creating a new business model, moving away from the dependency on broadcasting revenues.

Whilst in public the focus has been on Bramley-Moore, the most pressing issue internally for the club must be how to grow our revenues. We can’t afford to wait for the new stadium, we must improve our commercial performance in the meantime.

It will be fascinating to see this addressed at our next AGM. Will creative destruction be on the agenda?

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Reader Comments (17)

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Thomas Lennon
1 Posted 26/11/2018 at 08:48:37
I don't think Moshiri or his partner Usmanov will have neglected planning on the issues you mention. There is a big summer coming up on the financial side as well as the stadium and squad, and there will be for several more years to come.

If I remember correctly Man City achieved what they have through massive 'sponsorship' or 'advertising' deals that saw the business through this transition period? Those, of course, were the days that a top 4 spot was up for grabs and their transition period was much shorter, as they already had a modern stadium - albeit quite a small one but one capable of extracting top dollar during CL matches.

Spurs have achieved similar much more slowly and in a very different competitive environment but only a few weeks back were 'in risk of failure' due to stadium issues, no transfer business etc. Look at this morning's headlines to see how seriously we need to take those 'chip-paper' comments. They had a really good old stadium but still needed a new CL stadium to sustain investment. Solid and unspectacular but getting there - as will we.

If members can remember 10 years ago one of the arguments in favour of the Kirkby move was that a buyer would not have to wait while a new stadium was built before they saw an upturn in finances if we were in a new purpose-built stadium. That wait is here, now and is costly. When the new stadium construction is more tangible, investment will flow, and I don't think that this is from investors that have not already been identified and agreed.

Justin Doone
2 Posted 26/11/2018 at 11:03:33
I don't often get involved in the business side discussions of football because I'm simply a fan of the game and it's annoyed me how pathetically inept we are, but this time..

The global popularity of the Premier league has been an obvious and ever growing platform to increase the clubs fanbase and revenue for 20 plus years that we appear to be blind or ignorant to.

This is likely to continue for the foreseeable future so the quicker we get onboard the quicker we can compete. Hopefully Mo is on it but as the Premier league and indeed other leagues grow in popularity the competition gets stronger and we will find it harder to compete.

Despite for over 10 years having global sponsors and globally recognised football players we appear to only have done the minimum amount of effort and communication with them.

It can be argued that player power is too strong and they get the benefits but this is a long term strategy to grow our fan base for the next 25 years and more.

Selling Tim Howard & Cahill merchandise to the USA and Australian markets was such an obvious missed opportunity, both captains of their countries in sports mad markets (although soccer is not the main sport) would have helped get Everton recognised.

A one off game, one off event, isn't good enough. We need continued marketing for an average team who win nothing to try and compete with the Man U's and Real Madrids.

We do great work with the local charity so why not link up with other charities abroad. Schools and education is incredibly important so get involved, run Everton soccer camps focusing on health and fitness with some educational elements. Give away or heavily discount children's kits and other merchandise to get kids and parents buy in.

We currently have a top Brazilian, Columbian and English players that we should be doing something with.
If those individuals are successfull they may not be with us long so we need to maximise their potential commercial opportunity now whilst being in a position to do so, likewise with any other stars in the making that play for us in the future.

Will anything change in the next 5 years, probably not. Even doing a Leicester would not help because the club are not in a position commercially or strategicly to do anything with success.

If we truly want to grow we need to put foundations in place to do so. There more prepared we are the easier it is to believe we can achieve success.

Priority for me as a fan is always on the pitch, but as a club, a business, a community there is so much more Everton could do to help itself whilst helping others.

Craig Walker
3 Posted 26/11/2018 at 13:31:10
A great article Paul.

I'm no business expert but surely it's the performances on the pitch which will bring in new fans and generate revenues. It always seems to me that Everton are milking the same cash cow they've been milking for years (the existing fanbase). I live in Warwickshire now and have done for 22 years. I can't go to the games like I used to because of work commitments. I buy my shirts though, follow the commentary every game, get down in the dumps when we lose and regularly give Everton my hard-earned money - even got a Christmas jumper for this year so I can preach to the already converted.

In my opinion, over the past 10 years or so, the marketing and range of items in the club shop are much improved but the fact that you can only get Everton kit from the two club shops is criminal. The merchandise and marketing are far superior to what they used to be but we still lag behind a lot of other clubs. This is especially noticeable when you live outside of the region. 10 years ago, you wouldn't see Chelsea, Spurs or City fans where we live. Now, every other kid is a Spurs, Chelsea or City fan. We missed golden opportunities in the past and now we're playing catch-up.

I took my lad for the first time against Valencia. It was interesting seeing his reaction and experience compared to my first match when my dad took me. For me, going to Goodison for the first time with my twin brother and my dad was one of THE biggest and most memorable experiences of my life. For my lad, it was a great day out but I don't think he'll cherish it in the same way. I used to love going into St Luke's and having a proper cuppa etc. made by the women of the church congregation. We went in before the Valencia game and it was run by what looked like Everton staff in Everton-branded clothing selling pretty dreadful brews for around the same price as a Starbucks - not exactly service with a smile either. It was a microcosm of the state of football for me. Part of its appeal was the tradition and now it's about commercialism and making a profit. When I got into my teens, I'd go on my own to the game and pay £4 to stand on the Street End. My dad would turn in his grave at today's seat prices. I remember asking him whether I could go against Arsenal in the season we signed Peter Beardsley. When I told him it was £9 because the Street End was all-seater he nearly choked on his tea.

Bramley-Moore is our one chance to gain some parity with our competitors - it can attract the next generation of fans and form a basis for us to attract players and build success. I hope it still maintains the traditions of the match going experience which is what I love about Goodison.

I feel that if we mess this up a la Kings Dock then we will be outside the top echelons of English football for a very long time.

Joe McMahon
4 Posted 26/11/2018 at 14:20:17
Yup, as mentioned many opportunities missed. Steven Pienaar — captain of South Africa when they hosted the World Cup, but EFC did not go to town on it. Kings Dock was the biggest let down of all.

Still being at the shockingly dated Goodison with its blue paint and wood has hit us the most. Our image in the entire Premier League era has been 1960s, Z-Cars, Tommy Steele and Liberace. Or – to sum up: Bill Kenwright.

Simon Smith
5 Posted 27/11/2018 at 01:07:41
I personally hope Moshiri gets big Usmanov onboard and to fuck with all the financial worry... but hey, that's just me. 🤣 🤣
Amit Vithlani
6 Posted 27/11/2018 at 04:11:44
"If the answer is yes, do we have the people, the resources, infra-structure and plan to go out, promote the Everton name in key markets be they America, Africa or Asia?"

To be fair to the club, in one of those markets, Africa, some strides are being made. The SportPesa deal, Tanzania visit, and the match against Gor Mahia went a long way towards raising the club's profile.

Soon after, the RS opened their first Supporters club in Kenya and a stream of high-profile ex-Reds have come or are coming to Nairobi (Fowler, McManaman, Carragher).

On the Premier League Fanzone (watched globally) there are more Blues fans phoning in and wearing the shirt, notably from South Africa and India. I think the club's on-line distribution deals may be enabling a wider audience to purchase merchandise.

I cannot comment on the experiences of fans in America and Asia, but in Africa (certainly East Africa) I have noticed a significant profile increase.

There are perception issues on whether certain markets are lucrative – certainly with Africa and perhaps poorer parts of Asia.

This is undoubtedly a fair economic argument as to why these particular markets may not see greater visibility from the club. East Africa, which is a poor region by global economic measures, might be an anomaly driven by the SportPesa contract.

As for the more attractive parts of Asia and indeed the US – it would be good to have the experiences from the Blue brothers and Sisters who live there.

Andy Osborne
7 Posted 27/11/2018 at 05:18:39
Great article, Paul.

I think there is one more revenue stream that has been missed. The Academy.

At any given time, we have 40 to 50 players in the academy, with the "hope" or "expectation" that one or two make it to the first team squad. That leaves a lot of young players that will not make the grade at Everton, but who will or could have successful careers at other Premier League, overseas or lower league clubs.

I am not sure of the numbers, but here is a guess. If we aim to sell 10 players per year at $3mill to $5mill each, then that is a significant revenue. What are your thoughts on this?

Eric Myles
8 Posted 27/11/2018 at 06:13:38
Amit, there's 2 issues with the Asian regions

1) The abundance of cheap imitation shirts (except ours!!) means that there won't be any sales in the region. Both the dedicated RS and Utd. shops where I usually live closed down and integrated into a general sports store with less merchandise available.

2) The locals want to support the teams that are seen as winners. One guy I spoke to last weekend where I currently live was telling me that he follows the EPL through his 9 year old son who was a Utd. supporter, is now a RS supporter but wants to change to support City.

Chang made a small difference to our profile in Thailand as in their dedicated sports pubs they gave out Everton merchandise every weekend to customers watching the matches.

John Raftery
9 Posted 27/11/2018 at 11:09:40
We have stepped up a few gears on the marketing and commercial front in the past couple of years. On the pitch, we have stood still as perennial also-rans. Therein lies the crux of our problem. As others have noted, we will not come anywhere near to matching the commercial performance of the teams above us until we enter the Champions League and/or start winning trophies on a consistent basis.

We had Nike as our kit manufacturer for a couple of seasons in 2012-14. I can't recall how much they paid for that privilege but the fact we then switched to Umbro suggests it was not a great deal. At the time, I heard our top selling named shirt in the first year of the Nike deal was for Fellaini. The volume sold? Seventy! Not the sort of number which would excite a shirt sponsor.

Amit Vithlani
10 Posted 27/11/2018 at 12:26:04
Interesting, Eric, can you imagine having a child who changes the team they support every week?

My heart goes out!

Brian Harrison
11 Posted 27/11/2018 at 13:13:29
Seems that there are as many discussions between fans over the finances of club as there is over the playing side. I understand the need for growth and sustainability but the average fan of which I am one, can have no impact on the financial running of the club. All I can do is buy my season ticket every year like I have for about 50 years, and hope that the people in charge run the club properly which will keep Everton in the top flight.

But as this season is proving even qualifying for the massively less financial Europa League, may see teams who normally compete every year in the Champions league missing Europe altogether. The number of clubs owned by Billionaires has risen dramatically, so were the City owners came in and spent massive amounts that made a difference that isn't as easy as it was for Man City. So while the poster cites Champions League as the holy grail to untold fortunes, this has to be acheived on a regular basis. Now while Silva and Brands have had a big impact in such a short space of time, for them to get Everton into the Champions League will be a massive ask.

Finally, I will just say to Paul that he mentions maybe looking at the season ticket holders who get concessions like me over 65, I only pay £299 for my seat in the Upper Bullens. Well maybe they could charge us the normal price and I would happily pay it, but my Grandson also gets a concession and only pays £95 for his season ticket to sit next to me. For me, I take great pleasure that my club gives concessions to kids, there is nothing better than seeing so many kids going into Goodison Park. I think in the great scheme of things the concessions to some season ticket holders is a tiny amount of money and would in no way be a major contributory factor in Everton growing financially as a club.

Pete Edwards
12 Posted 27/11/2018 at 14:04:57
Just wondering why you think there aren't people in place who can make us a global brand and why you presume the current kit supplier and distribution deal will be rolled over... because, just as with the stadium, the club aren't going to tell you or anyone every last bit of detail about what's going on or what work is being done every day.

We all know the length of the Kitbag deal was the absolute almightiest fuck-up since Kings Dock but to suggest this will roll over because no-one has told you otherwise is short-sighted to say the least.

Dan Davies
13 Posted 27/11/2018 at 19:02:39
Success on the pitch. Cups, League, Champions League.

Big name quality players. A much better product is a must.

It all starts with a billionaire and a new stadium to spoil the fans....

Mark Taylor
14 Posted 27/11/2018 at 19:14:30
The growth in football revenue generally is coming from overseas television rights. I think the UK rights are now pretty much maxed out. One danger there is the first mutterings of individual clubs wanting more direct influence over what they get, rather than via a pool.

In any case, the question is as much: How do we make ourselves wealthier relative to other clubs? — because, if everyone gets richer, you acquire no advantage.

I agree with the author's basic premise is that we need to grow commercial and sponsorship. But that is a chicken-and-egg situation. Sadly our sponsors always seem somewhat second tier.

We've had Chang, a small beer brand in global terms; SportPesa, a small betting company in global terms; Roxio, a small gaming company in global terms. Umbro v Nike as well. Basically we can only seem to get second or even third tier sponsors. Man Utd might consider SportPesa as their East African partner, not as a main sponsor. StubHub is a sizeable business with the backing of eBay but my impression is that is a very limited commercial partnership.

When was the last big name large sponsor we had? I'm guessing it would be NEC who at least were pretty much global leaders in their field. Anyone else?

Peter Warren
15 Posted 27/11/2018 at 20:35:34
I don't worry about finances anymore. We have a chairman who said, "Leave the accounting to me." He's a billionaire, football fanatic and I will leave it to him. Aside from his talks to Jim White, I can't fault Moshiri at all.

However, to answer the question about getting more revenue, seems to be based on the stadium to me — and presumably we're looking for it to be utilised every day of the year as opposed to once every 2 weeks on average? I may well be wide of the mark.

Thomas Lennon
16 Posted 28/11/2018 at 06:13:57
Second-rank team equates to second-rank sponsors, as do second-rank stadia, regardless of stature. Top sponsors need to be associated with the best, so they have to be convinced of our intent to be the best in the only way that matters, spending lots of money to be the best.

Would a top-rank sponsor want to associate itself with a team that finishes 6th and plaster its name on a 1960's stadium? Change the product to change the sponsor, not the other way round. There is a good reason why the only world-class bit of real estate Everton own has a world-class sponsor, USM.

Stan Schofield
17 Posted 28/11/2018 at 20:09:59
It's very simple. If and when we start consistently competing at the top of the Premier League and regularly competing in the Champions League, then sponsorships and all the other stuff that brings in revenue will come. And if we don't, then it won't.

We're finally showing some signs of significant improvement, of attracting very good rather than average players, of getting more noticed for some genuinely creative attacking football. If this progress continues, then we'll compete at the top sooner rather than later.

All the business strategies in the world won't change this. It's all down to getting success on the pitch. Not necessarily winning trophies, but success in the way indicated. With or without a new stadium, but a new stadium will be a natural accompaniment to this process of improvement on the pitch.

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