As Moshiri faces reality, what happens next for Everton?

So, what next?

Firstly, facts. It remains the case that, at the time of writing, neither Farhad Moshiri nor Everton have officially commented on the status of the proposed purchase by 777 Partners of Farhad Moshiri’s 94.1% shareholding in Everton. It has been reported through the usual media sources that Moshiri is “unconvinced that 777 Partners have the funds to complete the deal”.

For once, Moshiri’s judgement is correct. Why it has taken him quite so long to reach this point is anyone’s guess given the huge, mounting body of evidence not only built during the last eight months, but that would have been evident in any robust due diligence process prior to agreeing to the proposed sale.

The idea that this is some brilliantly devious method of getting Everton through the season via an unsuspecting third-party funder bears no credence either. Moshiri wanted the 777 Partners bid to succeed as it represented the best offer for him, and he wanted it completed as quickly as possible. The fact that it didn’t is yet another testament to Moshiri’s judgement. For 777 Partners, this was a deal that Josh Wander in particular wanted, but one that was advised against by some within the 777 stable.

The zombie state it has left Everton Football Club in for virtually the whole of the season is testament to Moshiri’s complete dereliction of duty to the club, shareholders, stakeholders, employees and fans alike.

The choice of 777 Partners as potential purchasers and the unwillingness to call time on what was never going to be achieved has caused almost irreparable damage to Everton Football Club in terms of our reputation, our competitiveness, and our attractiveness to other buyers.

As things stand

As things stand, we are secure in the Premier League for another season. We have enough cash to see us through the immediate term. What we don’t have is access to capital, nor the ability to repay creditors, particularly those overdue.

Our current creditor position is approximately as follows:

MSP Sports Capital – £160 million; 
Rights & Media Funding – £225 million, 
Metro Bank – less than £5 million; 
777 Partners – an estimated £192 million 
Farhad Moshiri – shareholder loans of £450 million.

 Football creditors will include outstanding transfer payments including last summer’s business and are likely to be in excess of £70 million. I am assuming payroll and HMRC are up to date – there’s nothing to suggest they are not.

That suggests gross debts of approximately £650 million excluding the outstanding shareholder loans.

MSP Sports Capital was due to be repaid by mid-April 2024 and remains unpaid.

Rights & Media Funding have provided a 5-year rolling credit facility. A rolling credit facility is the corporate version of a credit card. It offers funding to a certain amount for a certain time and can be drawn down at any time subject to the credit and time limits. As of 30 June 2023, the Rights & Media Funding facility stood at £150 million on a 5-year term, £52 million on a 3-year term, and €28 million with 34 months remaining.

The term of the 777 Partners loan has never been disclosed.

In terms of security, &and Media Funding have charges over Everton’s bank accounts, fixed charges over Everton’s property portfolio, and a floating charge over all other unencumbered assets.

777 Partners have a subordinated security arrangement with Rights & Media Funding. This puts them before unsecured creditors but behind all other secured creditors including football creditors.

MSP Sports Capital Options

MSP Sports Capital has two distinct security arrangements. One is a standard fixed charge over all the assets of Everton Stadium Development Company Limited. This means that, in default, MSP can acquire the stadium to recover their loan.

Alternatively, MSP has an option to acquire 50% plus 1 share of Everton’s issued share capital. That currently would equate to 67,501 shares in Everton Football Club. These shares would be acquired from Blue Heaven Holdings, the Isle of Man Company that holds Farhad Moshiri’s 94.1% shareholding. Exercising this option would give MSP majority control over Everton Football Club.

Much has been written about MSP exercising either of their options in the event (as now appears apparent) their loan is not repaid.

It’s worth examining both scenarios. It has to be said, in isolation, exercising either security arrangement is clear-cut for MSP, its limited partners or, importantly, Everton Football Club. MSP triggering one of its two rights does not solve Everton’s problems.

Whatever the solution is, the assumption must be that Moshiri’s £450 million of outstanding shareholder loans are written off completely.

Let’s explore the options

Holding the stadium company is a good deal as long as there’s a viable tenant (ie, Everton Football Club). However, for Everton to be viable, the football club alone and no longer owning its own stadium, it would have to clear (or significantly pay down) its debts and have a fresh injection of working capital. It’s a model that can work – neither Manchester City nor West Ham United own their stadiums, and a long lease has a capital value; however, both those clubs do not have Everton’s debt burden, nor is Everton’s future tenure in the Premier League as strong even as West Ham United’s.

Additionally, acquiring the stadium would require additional capital to complete the construction of the stadium and meet the interest costs of the fallow period between handing over the keys and the start of the 2025-26 season. All of this is possible, but would require MSP to remain committed, add new capital, or provide a new long-term, sustainable debt provider.

It also requires a viable, solvent tenant – a recapitalised Everton Football Club. From my perspective, it is difficult to see how – even with the net proceeds of a stadium sale to MSP – this can be achieved without significant debt restructuring. One has to assume that 777 Partners, in a post-failed bid world, would not be the most accommodating of creditors (especially if they ultimately enter “bankruptcy” in the USA or their creditors make aggressive demands on their assets). The Leadenhall allegations will cause many lenders to look at their loan exposure to 777 Partners or related companies. A-Cap and potentially 777 Re going forwards similarly. 777 or their administrators (equivalent of) could only do so by the sale of assets, or the calling in of their own security arrangements.

Thus a viable Everton in the above scenario is only likely to be achieved (in my opinion) though administration. The most senior debt holders would be paid, the junior and unsecured creditors would be in a much more difficult position. Clearly no one wants this, the human cost is horrendous besides the reputational damage to the club.

However, it has to be recognised that the responsibility for that lies with the current owner and directors of Everton Football Club. It is they who have created this unholy mess.

Alternative Option

The alternative option for MSP is to take up their majority stake in Everton Football Club Company Limited. That gives them control but doesn’t solve the funding issues for the club, nor the debt, nor the completion of the stadium. It only makes sense in conjunction with other solutions.

As above, when discussing the stadium option, there’s no logical reason for anyone to assume a majority position or be a new investor in Everton Football Club if there’s not a debt restructuring. With 777 as significant but junior debt holders, it’s difficult to see an agreed restructuring. The secured debt holders are relatively comfortable in a full return of funds in administration, so there’s little incentive to negotiate.

Realistically, in this scenario (as above) administration is the likely outcome prior to new investors either acquiring the club completely or becoming co-investors with MSP.

For MSP to retain a majority stake, they would have to participate in any equity raise. An equity raise is essential to pay down debt to sustainable levels and recapitalise the business. In doing so it opens the door to a sustainable debt package secured against the new stadium (as with Tottenham Hotspur and Arsenal). Given where we are in the interest rate cycle, such a deal might be relatively short term with the option to convert longer when interest rates are lower (as Arsenal did).

I suspect a new share issue to a new investor is possible but, unless the investor acquires the whole business and provides the future capital, they would be left with control (ie, majority holding) but leaving two significant minority holders in Moshiri (Blue Heaven Holdings) and MSP. Not a situation Moshiri or MSP would necessarily welcome, although for Moshiri it does present the opportunity for a future pay date.

MSP investors would remain invested until MSP’s stake could be sold at a later date.

No simple solution

There is no simple solution here. The scandalous way the club has been run, the choice of preferred purchaser in 777 Partners, and the delay in Moshiri realising 777’s inability to complete (a realisation only dawned upon by endless reports of their financial failings) has put us in this position.

Removing 777 Partners from the equation is only the first necessary step to a solution. More accurately, by their own deeds, 777 have removed themselves despite any further denials that may be offered. Their position is likely to deteriorate further in the coming weeks, again with considerable human cost – take the Bonza employee treatment as clear evidence of such.

Sadly, the idea that Everton can escape all of the above without administration is in my opinion, wishful thinking. That is a reflection and the responsibility of Farhad Moshiri and his directors. There are investors, buyers, funders in the wings as stated. But for them to be public in their interest at this stage makes no business sense. Sadly this has to play out.

Everton will continue; we have a huge amount to offer the new owners aside from our history. However, sadly the detritus of Moshiri’s terrible reign and his choice of would-be purchaser has to be cleared first.

Note: This is a personal opinion piece, provided free of charge at theesk.org, for those who choose to read it. It neither represents nor supports the interests of any existing or future backers of Everton Football Club.

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