Everton’s Ownership and Leadership, Part IV: Finance and Funding

From a far less knowlegable terrace view, please allow me to pose a question that has alluded me for years: What are the lines of reporting at Everton?

Is there a Human Resources department and are the players and/or the support staff reviewed annually against pre-set goals?

And finally how and by who are this team counselled?

This latter question has alluded me for years given some of the antics we have endured. Examples:- Moise Kean refusing to carry out Duncan Ferguson's tactics; Mason Holgate's attitude before and after his second yellow card; and various other players' off-field behaviour that my learned friends will not permit me to articulate.

The best businesses successfully marry attitude with skill and, while you have again highlighted the lack of skillful macro-management, I would also question our ongoing lack of micro-management in developing the right holistic attitude throughout the club?

Always interesting to be reminded of the players we bought. If we exclude the last year or so, because not enough time has elapsed, of the 24 signing we made only 5 maybe 6 could be described as having worked out. That seems like a dire success rate. If there is no more cash to spend, I can see us selling off our most in demand assets, which are either DCL or more likely Richie, this summer.

As I understand it, this season each place is worth £3.2m, although there may be a covid claw back of £0.5 per place. This means that the difference between us, in our current position and say West Ham in 4th is £18.9m. The fact remains that the rich will get richer, Up to 2018 the foreign broadcasting rights were distributed equally between all PL clubs. For the 2019-2022 deal this payment is performance related.

It is very difficult to compare commercial income since clubs deal with it in different ways Everton show it as 'Sponsorship, Advertising and Merchandise'. The Hummel deal, I believe earns us 7.5% of each shirt sold. The Liverpool Nike deal earns them 20%. Our Kitbag deal was disastrous and even though this has now expired it is still virtually impossible to buy Everton merchandise other than from the club shops or website. I was in my local Sainsburys this week and I could buy Liverpool, Man Utd. Man City, Arsenal and Spurs 2022 calendars, but not Everton.

Merchandise is not just about income, it is building a relationship with fans - existing and potential. We missed so many opportunities to build a fan base in the US when we had Howard and Donovan on the books but completely ignored the chance. The last time I went through Heathrow you could buy a shirt for every PL club except Everton.

This is just a further example of the criminal way in which the club has been run for the past 20 years.

Re the impact of league position versus budget I did comment:

"The increased expenditure, some of it planned but a significant element that resulted from poor decision-making, was compounded by the lack of performance on the pitch. As articulated by Koeman in December 2016, the plan was Europa League qualification by year 2 (achieved) and to be in contention for Champions League in year 3 and thereafter (not achieved). The resulting failure to qualify for Europe massively impacted future revenues against projections. In addition, poorer than projected Premier League placings also reduced the amount of revenue generated. If our average position was say four places below expected over 5 years, there's an income shortfall of nearly £40 million."

There's another on which goes alongside it, which I've seen attributed to Donald Rumsfeld and which seems even more apposite in the Everton situartion:

A's hire A's, B's hire C's

with a further qualification the B's sometimes hire D's.

In other words, those who aren't very good hire people who will neither show them up nor rock the boat. This seems to sum up both the failings of Everton, and, sadly, the success of the lot across the park. (Satanic assistance is another factor of course).

We seem to have a DoF who cannot buy good players; managers who cannot motivate the mediocre players they have; a training regime which results in more injuries than actually playing; and a recovery regime which seems to be able to take very fit young men and turn them into wrecks who recover from minor injuries slower than the average 80 year old.

I still think Moshiri is not the man to be running this outfit, I'm sure he is a first rate accountant/finance director, but a football club needs a monomaniacal, wholly unsympathetic dictator at the top who is happy to fire any of the staff who fail to perform.

I have read all your articles and they are very interesting and informative but, saying that for myself, all they do is make me as a fan feel very low.

What I want to see is what we can do to get out of the mess we are in. Can you write an article that shows us how to get out of the mess we are in?

You're right about Lukaku and Stones, but wasn't it that they both wanted to go, the season before, but agreed to another year? In fact, Lukaku openly expressed his desire to be off... not sure about Stones, other than he wanted off as well.

Too true about Kitbag! It seems to be par for the course, but I suppose it is slowly getting better after the Kenwright era.

Have you any thoughts why Ryazantsev and Usmanov's nephew left recently?

I don't see a shortcut. Bramley-Moore is possibly the one plus on the horizon. But that will squeeze all other finances for a decade or more.

Thank you, Paul for your work and your cogent summary of the situation. It explains a lot, but is not an optimistic scenario.

In regard to recruitment of players it seems to me we should invest more effort scouting the leagues below the Premier League. Unearthing hidden gems, hungry players with something to prove might be more productive than gambling a fortune on second or third rate, but very expensive talents from other Premier League clubs or from abroad.

While not a total solution to our player trading woes it would offer the potential for better value for money. Other clubs have proved astute in bringing players in from the lower tiers. We face such a player tomorrow; Ivan Toney whose 40 goals in 76 appearances for Peterborough ought to have attracted the attention of any club struggling to build a strike force.

Relegation would be nothing other than a total disaster.

These days, our proud record of more seasons in the top flight than any other English club is just about all we have left to brag about.

After a quick count, I reckon that, if you exclude the two "new boys", that is 27 major signings in around 5 years, but only 14 are still with us. That's quite a churn.

But Paul, could you clear up one thing for me? How do you arrive at player trading profit?

For example, if I have read correctly, in 2017-18, transfer fees spent is listed as £183M, player sales is listed as £114M yet player trading profit is at £88M.

I am sure there is some accountancy explanation, probably left out for sake of brevity, but I'd like to know what it is. To me, as a non-accountant, there was a net spend of approx £70M.

And don't overlook the fact that in 1936 we took part in the first-ever televised league match (v Arsenal).

More presciently, I'm sure we're also the first club to spend "£half-a-billion" to make ourselves weaker right across the board for 5 years, now, and in the next 2 or 3 years minimum.

"An' if ya know yer 'istory" – my arse!

Love it! Lol

I think it's to so with the magic of amortisation.

Remember when Man City bought Robinho for £32 million, then sold him for £16 million? They booked a £16 million profit in their accounts!!

Link

If we take Robinho as an example: he was bought for £32.5 million in September 2008 on a 4-year contract, so annual amortisation was £8.1 million. He was sold after 2 years, so cumulative amortisation was £16.2 million, leaving a value of £16.3m in the books.

Sale price to Milan is reported as £18 million, so Man City will report a profit on sale of £1.7 million in the 2010-11 accounts. Therefore, City will show an annual profit improvement of £18.1 million after this deal: £8.3 million lower wages + £8.1 million lower amortisation + £1.7 million profit on sale.

To me, the current mess leaves the club at a massive disadvantage, which looks realistically very difficult to make an overnight emergence from.

That doesn't happen.

The club's rotten to the core and dereliction of competence and duty means, as supporters, there's another long road ahead in our continued purgatory of the Premier League abyss, just being a number. Will the board be looking at next steps and a recovery plan?

If and when Everton get savvy professional business management in, to ensure the business side is managed effectively, remains to be seen.

It's numbing to see which decent players would come to Everton in the future, all facts considered.

Getting a result today at Brentford would be a boost, let's hope so.

Riding the storms is normal but Everton can't last like this forever, 30 years of decline in any business is tough to bear.

Now finance is not my thing, so I'll refrain from attempting to sound like I know what I'm talking about other than the transfer table laid out bare confirming what we knew. That summer ahead of the 2017-18 season was an uncoordinated & mismanaged disaster. It seemed at the time as though several people, with access to money, went to the shops on their own without speaking to the others and all came back with something different. We've literally been paying for that since.

The quote from Moshiri is interesting. To me, it confirms he likes to delegate responsibility and empower those he puts in place. That is fine and standard leadership practice. The problem is his judgement of who those people are. Surely he must see this?

Failure to secure Europe & challenge for the Champions League. An unproductive academy and millions wasted on non-saleable assets. A pretty grim picture. I appreciate there is a link between success and expenditure; however, we are a very good example (unfortunately) of how it is sometimes not about how much you spend, but how you spend it.

The concern now, given the prediction that we might be constrained by FFP until the January 2023 window, is that we cash in on what saleable assets remain. That puts Calvert-Lewin, Richarlison, Digne, Doucouré and Mina firmly in the shop window. After that, what's left?

Looking at the chart that 2019 summer when £110M was spent on players and wages increased to £160M was an absolute killer.

Managerial instability brought confusion and disruption to plans and targets but Marcel Brands had to take responsibility here. What an abject failure this window was. £110M spent, wages up to a record £160M and no players bought who improved the first team. How any DoF survives that litany of failure defies belief, a truly shocking performance from Brands.

There are spurious rumours of there being interference from above with regards to the Iwobi signing in this window, who knows the truth with any of them?

Whichever ever way you cut it, that 2019 transfer window is still a lead weight attached to a drowning man. To me, Marcel Brands is living a charmed life, why is that? Is it an acknowledgment of outside pressures being influential in some failed transfers? Even if that is so, it makes him weak and a yes-man.

Maybe he is still there because tough lessons have been learned by all, and change is now belatedly being embraced.

But it's not just our first-team sales that's the issue, it's also the lack of any investment return from our youth teams and players coming through to compensate for spending large amounts on first-team players. There have been many articles written on this and comments but, if we were to truly measure the success of our youth set-up, it's got to be woeful.

Calvert-Lewin was bought into the youth set-up about a year before he started getting into the first-team squad on a regular basis, so Sheffield Utd did the work on him, so it's really only Tom Davies (2016 he made his debut) and Anthony Gordon in the last 5 years. Neither of which are taking us forwards and I doubt would make any significant value if they were to be sold.

Calvert-Lewin being sold would be a huge profit clearly but where are the others that can bolster the first team and/or drive resale value to help us reduce the losses?

I would love to see the analysis of players now playing in the Premier League for all the teams that have come through their academy. Even money bags Man City and Chelsea seem to be playing academy graduates on a more regular basis now.

Bringing through young players can bring energy and positivity to the team and would be something that the fans would get behind more so than another mercenary being paid top dollar who doesn't seem to care.

We managed to bring in Carlo and Benitez - so can attract managers with knowledge of the game.

The easy fix is to continuously assess each person involved in recruitment in terms of their recruitment IQ – ie, how good are they at judging if a player is good enough and has the potential to be like a Richarlison or a Dave Watson?

A lot of job roles have Continuing Professional Development (CPD) metrics – why not our own player recruitment department in terms of finding the best players we can bring in?

And develop an internal model for different types of players to scout. Just like normal organisations have a job description for an accountant or payroll manager or sales rep or account manager or nurses for different wards.

Yes – very assumptive and I'll hold my hand up. But the figures kindly posted on this thread speak for themselves and the recruitment department has to start a dialogue on how to improve the model that exists today.

Otherwise more spending leads to more debt in simple speak. Not just a one-off fee debt either, more like... Player acquisition = transfer fee + millions in annual wages too.

We now have a club owner who is only Hampering the Business.

I've reached the point of dreading coming on this forum because there's too many armchair experts that think it's all so simple, just sack the manager etc. This goes some way towards saying it's not that simple!

One more thing that might help explain things is to see how much longer we're committed to wages for the players we have (if they won't leave and we're not using them). I can't claim to fully understand the Financial Fair Play rules but clearly it's a major issue affecting our options. I believe we're getting towards the end of quite a few now, aren't we?

My biggest concern is the inevitable "sack the manager" calls. Come on, Benitez is hardly an idiot. He's succeeded far more than he's failed. But if we've learnt anything, surely it's that an annual change of manager simply means we never build a squad that's consistent with any manager's idea of what to do.

We simply keep the merry-go-round turning, and the current guy so far hasn't had any real chance to change anything and half to three-quarters of our squad simply aren't up to it.

We'll need better players, and a 'name' manager is our best hope of attracting them. I know this is slightly off the finance question but to me, you can't separate them fully.