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A Momentous Few Weeks (On and Off the Pitch)

The short, medium and long term future of Everton Football Club will be much clearer on and off the pitch in the coming weeks.

Paul The Esk 07/02/2021 10comments  |  Jump to last

The short, medium and long term future of Everton Football Club will be much clearer on and off the pitch in the coming weeks.

European qualification

On the pitch we remain in with a very good shout regarding European football qualification and quite possibly, Champion's League football next season. Let's be clear this remains Ancelotti and the club's priority and for very good reasons. Qualification for the Champion's League changes all the short term prospects for the club in terms of future revenues, player retention and budgets for the forthcoming summer transfer window.

It would create some headaches for sure, with possible Financial Fair Play penalties sanctions but it would help solve many more problems than it would cause. Automatic group qualification in the Champions League would guarantee prize monies of around £25-30 million in revenue. A successful group stage adds to the funds on offer, with wins paying €2.7 million per game and €0.9m for a draw. Qualification for the round of 16 guarantees a further €9.5 million for example.

Europa League, either through league position or the winning of the FA Cup, pays less but nevertheless qualification guarantees €2.92 million with €0.57million for a win, €0.19 million. Add in the “pool money” and the coefficient payment (albeit Everton's European coefficient is very low — 95th in Europe, equal with Burnley, Southampton and West Ham United). Our last Europa League although very disappointing on the pitch generated €14 million of revenue. Already this season Tottenham and Arsenal have generated more than €10 million at the end of theie Europa League group stages.

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Bramley-Moore Stadium

The saga of Everton's drawn out planning application nears a critical juncture. It is believed that the planning application will be heard before the end of February. There is a scheduled planning meeting of Liverpool City Council on Tuesday 23rd February 2021. Whilst there appears to be little prospect of Liverpool City Council denying approval, there is a reasonable assumption that the final approval will be put in the hands of Robert Jenrick, Secretary of State for Housing, Communities and Local Government. The objections raised regarding heritage, the location within the World Heritage site, and the scale of the development make the “calling in” almost inevitable.

What does that mean in terms of further delays? The Government has a target of 3 months to deal with applications and appeals, however recent research by Planning magazine shows two thirds of the schemes that are “called in” actually miss that target. The average length of time for a determination by the Secretary of State is over 6 months.

Such a delay is obviously costly in terms of pushing back the delivery date of the stadium, but also the additional costs of the continued planning process. Additionally, it would mean from an accounting point of view, the capitalisation of stadium expenses to date (likely to be £50 million by June 2021) would fall into the next financial year (2021/22), not this year (2020/21). Whilst this has no impact from a financial fair play or profit and sustainability perspective, presentationally and for those that only read the headline P&L figures, it does not present the club in the best light. Although having no impact on our cash position, being able to reduce our losses by £50 million is obviously desirable.

Pushing a final planning decision back 6 months from the end of February means end of third quarter 2021. Given the land acquisition and financing has to be completed after planning approval is granted, the famed “spade in the ground” may not appear until the very end of this year meaning a likely stadium completion date of late 2024 at earliest. Every 12 month delay will ultimately cost the club a minimum of £25 million in lost revenues, so the requirement for the earliest completion is clear for all to see.

Speculation in the media and calls in the UK Parliament from Dame Margaret Hodge regarding sanctions and the use of the Magnitsky Act in the US, EU and the UK against the oligarchs, Abramovich and Usmanov have reported incorrectly on Usmanov's association with Everton. As I have always stated Usmanov has no direct or indirect ownership of Everton. It is true however, to say that USM (the holding company with Usmanov as a 49% shareholder (and Moshiri a reported 8% shareholder and Chairman)) are Everton's most important commercial partners now and particularly so if as is expected, USM or one of their portfolio companies is the preferred naming rights partner for Bramley-Moore. Potentially sanctions applied against Usmanov and his assets may prove problematic in the future. However, we are some way from those potential problems becoming a meaningful concern.

Moshiri's shareholding in Everton

When Everton published their latest accounts to 30th June 2020 in mid December 2020, it was announced that following the completion of the January transfer window, Farhad Moshiri would provide a further cash injection into Everton (a further £50 million) and convert some of the existing shareholder debt into ordinary shares. The total value of shares would be up to £250 million covering the £50 million received in November 2020, the additional further £50 million due to be received shortly and the conversion of up to £150 million of the existing £350 million of shareholder debt.

The intent is for the process of the share issue to be commenced this month. The continued losses and the impact Covid has had on football club valuations means that the share issue will be at £3,000 per share, valuing Everton (pre-issue) at £105 million. This compares to the original purchase of shares valuing the club at £175 million in February 2016. It is also worth noting that Burnley's recent leveraged buy out by ALK Capital, valued Burnley at approximately double this pre-issue valuation.

The process for the issue will be as follows: the directors of the company will announce an extraordinary general meeting giving at least 21 days notice. Given that this is a private placement with existing shareholders unable to exercise their pre-emption rights, the issue of new shares requires a special resolution. However, this is just a formality given Moshiri already owns in excess of 75% of the current shares in issue (the amount required to pass a special resolution). Moshiri's final shareholding as a percentage will depend upon the amount converted from shareholder loans to ordinary shares.

Director of football

In addition to the stadium and share placement, it is also anticipated that Marcel Brands will conclude negotiations with Everton, thereby continuing his tenure as director of football well beyond the expiry of his existing contract in May. Given the economic challenges facing the club and still some legacy issues surrounding existing player contracts (although thankfully decreasing in scale), the need for him to continue the overhaul of existing squads plus significant improvements in the academy required in terms of scouting, coaching and management, an extension of his contract can only be viewed as a positive.

Everton are facing many challenges, some of their own doing, some caused by the global pandemic. How we deal with those challenges and how the club looks as a result will become much clearer in the coming weeks. It is still my firm opinion that the board and executive need strengthening to meet these challenges and those of the future, but until Moshiri is of the same opinion, we can only wish the current incumbents well in all their endeavours in transforming Everton back to the top table of English and European football.

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Reader Comments (10)

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John Pendleton
1 Posted 07/02/2021 at 23:33:01
A timely and sobering reminder, Paul, that this season's dalliance with the top 6 places is not only a pleasant change but an essential prerequisite to allow us to dare to play with the big boys on something like an even footing.

Progress in Europe would bring welcome one-off cash injections but the recurring financial impact of the new stadium is the real game-changer. We simply can't afford to delay this a day more than necessary. That is, of course, making the assumption we have jobs and a disposable income to spend by then.

Continuing with Brands will hopefully help control costs whilst progressing on the field but the largest single variable on our future is the continuing commitment of Moshiri and whether shelling out £50m a season on a hobby is still as much fun as it first appeared.

Great summary once again – gone are the days of being owned by the local butcher!

Derek Thomas
2 Posted 08/02/2021 at 01:11:26
Any cash generated by Bramley-Moore Dock will not make us suddenly; rich, self-sufficient, able to compete with the big boys or anything of that nature. It will go to pay stadium debt. A New Stadium just sucks money from transfers... Arsenal are a prime example.

Amongst other reasons, we're building a new ground because we need one and because Moshiri et al, can make money on it... who comprises the 'et al' is for another thread... if you even bother.

Clubs make money by winning, this allows for more marketing, bigger sponsor deals and more Sky TV money.

Gate money is well down the list... Selling £200 of arl tat, per person per visit, or online is the key.

If you were at the last full house at Goodison... say Dunc vs Chelsea... treasure it; if you were at the Rooney Arsenal game, Wimbledon, Bayern, The Latch's 30 goals. If you were there for Young 1-0 vs Spurs or the 60s in general... even before the Taxi. Treasure them all, write it down before you forget.

The post-Covid norm will be a different beast. Full houses at football grounds won't be happening any time soon in this decade... The Government will legislate social distancing measures to 'educate', sorry, 'help' the public to help the vaccine do its work.

The Bramley-Moore Dock stadium will get built... eventually, but it won't make 'our' fortunes... Just like you buying a new house won't help your business make more money.

Only on-field success will do that.

Jerome Shields
3 Posted 08/02/2021 at 10:18:12
Dereck I agree and fortunately Moshiri has realised on the football side you can't muck about with operations or give money to certain people to muck about with. Brands and his elevation was the start of Moshiris arm length control and Ancelottis appointment filled the other hole in Evertons operations that has existed for over twenty years. If you are a Big Club you need a Big Manager, as Arsenal are finding out.

But I have always thought the major investment for Moshiri was a long term Docklands Development vehicle, with the accompanying international finance manoeuvring. It could be that Moshiri is very much a head of the game, with Goves 'Free Port' muted policy. This is the reason, imo, that certain people are still in situ and Moshiri was prepared the tolerate the Agreements that keep them there, allowing him to get in on the ground floor of such a Docklands investment a reasonable cost. If his priority was a profit generating operation he would, like others, never agreed to such a arrangement.

Paul the Esk is actually giving a fact based analysis of the actual factors that will get Moshiri there and the factors that won't. Moshiri is well aware of the factors that won't, particularly Regulatory scrutiny and its aftermath. That is the reason why Bill's Luvie Persona is useful, though we are all sick to death of it. It will be well worth seeing Margaret Hodge trying to tie Bill down. Ref You Tub for her previous form.

Paul [The Esk]
4 Posted 08/02/2021 at 11:02:45
Derek, undoubtedly the new stadium benefits the shareholder more so than accelerating us up the financial performance tables, I get that and have written how even a 40% increase in general admission prices has very little impact on the bottom line. However, even after financing costs, an estimated increase in match day revenues of £25 million a year is not unreasonable, particularly given the possible naming rights partner.
Regarding future transfer activity, unless we become regular CL participants we will remain impacted by previous decisions and our low levels of commercial revenue. I suspect the potential lenders (as well as the regulators) are already shaping our existing transfer strategy as we try to reduce costs whilst improving the overall strength of the squad by having fewer but more effective players. It is difficult to overstate the financial challenges we face.
Francis van Lierop
5 Posted 08/02/2021 at 16:42:08
Don't forget there's a new European Cup competition next season: The UEFA Europa Conference League (abbreviated as UECL)

It's primarily aimed at the smaller countries, though the big 5 leagues may enter one team as well.
If we don't qualify for the two already existing competitions, there's a good chance we'll qualify for this one. It won't be as financially rewarding, but then at least we're back in Europe, and we can boost our coefficient.

Thomas Richards
6 Posted 08/02/2021 at 16:45:23
Too late Francis.

LFC have put thier name on the one place available

Allen Rodgers
7 Posted 08/02/2021 at 20:41:28
I don't agree with The Esk when he says it's almost inevitable the Bramley-Moore Dock Stadium will be called in.

Despite worldwide, hysterical clamour, the government have not called in the Whitehaven coal mine after it was approved by Cumbria County Council.

In the above case, the local authority were strongly in favour of the proposal as it would bring much needed jobs. Perhaps the same can happen in Liverpool.

Tony Abrahams
8 Posted 08/02/2021 at 21:37:10
And also much-needed life, Allen, to the finest waterfront in the country.
Don Alexander
9 Posted 08/02/2021 at 00:08:02
Whilst many fans understandably go on about one match after another, and who played where, and how far they each ran and so on, Paul elaborates on the stone cold facts of where we actually are as a club in the wider world (and that's been for all but thirty years by now), and more importantly who has chiefly been responsible for our huge erosion of status whilst sitting in the boardroom supposedly "managing" that precipitous erosion.

Paul and others also rightly allude to the mountain we have to climb to become even plausible in European/World terms, thereby becoming attractive to the media, investors, fans and, oh yes, better players.

Due respect to Burnley but for us now to be rated as they are in Europe is proof of boardroom gross recklessness and/or negligence for decades.

Burnley in history are still associated with their dinosaur chairman Bob Lord but, after 26 years, they got rid of him as the club were headed for oblivion, as we were as a Premier League club pre-Moshiri.

In fairness during Lord's time this "nothing" club won the league, rebuilt their ground, created a state-of-the-art training facility, and produced a series of excellent footballers; Keith Newton, Trevor Steven, Dave Thomas, Martin Dobson and, err, Geoff Nulty serving us well after signing for us from there (and there are many others too).

But they got rid of him anyway.

We've further enhanced the role of chairman for our very own spinosaurus though.

Jeez!

John Pendleton
10 Posted 09/02/2021 at 13:16:37
Derek (#2), The Bramley-Moore Dock stadium won't alone solve our immediate financial challenges but longer-term it should provide opportunities to improve our relatively underperforming commercial operations and to attract sponsorship, players and match-going fans.

Goodison cost the club at first, made money for the club over the next say 70 years or so and is now costing the club money once more (albeit mainly opportunity cost). Same model applies for BMD.

Joining the big boys doesn't equal profit in my eyes. It's being in a position to service bigger debt. The size and impact of that debt depends on the performance of each of Paul's 4 factors and what future broadcasting revenue looks like. And these factors will only come good with success on the field.

The risk of 'going for it' is considerable and the balancing act required needs the skills of a fully functioning governing board with strong and resilient leadership. Whether we have that only time will tell.

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