To complete the analysis of Everton Football Club Company Limited Report and Accounts for 2022/23, Everton Stadium Development Limited warrants its own analysis, particularly in the context of the treatment of interest costs, the revision to the previous year’s Accounts and the impact this has on PSR calculations.

Everton Stadium Development Limited (ESDL) is a wholly owned subsidiary of Everton Football Club Company Limited (the Group). The sole purpose of the company is to “act as a development vehicle for future group activities in relation to the new stadium project”.

The previous directors William Kenwright (deceased – although stated as resigned 24th October 2023), Denise Barrett-Baxendale (resigned -12th June 2023) and Grant Ingles (resigned 12 June 2023) were replaced by the current board which is composed of Colin Chong (appointed 16 June 2023) and John Spellman (appointed 16th June 2023)

Results:

The profit and loss account is important in the impact that it ultimately has on the club’s overall PSR calculations. Obviously at this stage of the development, the company generates no income, therefore all expenses drop straight to the bottom line.

The audited accounts show a loss for 2022/23 of £3.55 million – compared to a restated loss of £0.926 million for 2021/22. The original presentation of the 2021/22 accounts showed a loss of £21.67 million which included interest costs of £20.74 million.

In a change of accounting policy, all relevant interest costs relating to the stadium construction are now capitalised and not expensed through the profit and loss account.

The £3.55 million operating losses includes the cost of an average number of 13 employees costing £0.512 million.

Balance sheet

A company’s balance sheet displays the company’s total assets and how the assets are financed, either through debt or equity. In the case of ESDL the assets are the value of the stadium development at the end of the year, plant and machinery, debtors and cash in the bank.

The value of the stadium is calculated by the cost of the development (including capitalised interest) at the end of the year. By 30 June 2023, it had increased to £410,607,997 an increase on the restated £189.1 million (2021/22) of £221.5 million. Until the stadium is completed this asset will not attract any depreciation.

The current assets are debtors £81.5 million and cash of £3.48 million. Included in debtors is advanced payments of £69.9 million to the main contractor Laing O’Rourke.

ESDL’s creditors (i.e. people they owe money to) include trade creditors, amounts owed to the parent company, VAT, PAYE and accruals.

In total that amounts to £539.1million.

As at 30 June 2023, Everton Stadium Development Limited owed its parent company (Everton Football Club Company Limited) £422.7 million. This loan is unsecured. The interest cost has been capitalised within Assets Under Construction.

Additionally, Everton Stadium Development Limited owed £106.9 million as at 30 June 2023. This is secured by fixed and floating charges on the assets of the club. It is a 1 year facility and is the loan referred to in the conditions relating to 777 Partners acquisition attempt. The loan size increased beyond the year end date and now stands at £158 million – it is broadly known as the MSP loan.

Included within the funders of this loan are MSP Sports Capital, local business owners Andy Bell and George Downing, plus Farhad Moshiri via his Isle of Man company Bluesky capital. The loan attracts market rates of interest and those interest costs have been capitalised within Assets Under Construction.

Net liabilities

As a result of the above Everton Stadium Development Limited was in a net liability position at 30 June 2023 of £43.0 million.

The parent company has provided a letter confirming that intercompany balances will not be called in within 12 months of the signing of the financial statements (14 January 2024).

As with the parent company and the warnings contained within note 1c of their Financial Statements, the directors state they recognise the uncertainty of future revenues, savings and future funding required. The directors report states efforts are underway to secure future funding.

Conclusion:

The evidence of progress in construction of the new stadium is plain for all to see and the planned opening is set for the beginning of the 2025/26 season although construction is expected to be completed midway through the 2024/25 season – subject to financing.

Entering the final stages of construction it is clear though that the stadium is not fully financed (as per the audited group accounts) and despite the previous public claims of the CEO, Colin Chong.

It is clear that the funding of the stadium, and indeed the very existence of the club is entirely contingent on the resolution of the ownership issues which has tormented the club for many, many months bringing undue stress and concern to fans and employees alike. We are very close to a resolution (good or bad, including the possibility of administration) one way or another, although I must stress I do not believe that Moshiri’s chosen new owners 777 Partners will succeed in their quest.

Moshiri’s role in this fraught, existential crisis should not be under-estimated.

I am genuinely concerned that going forwards the amount of debt the stadium and the club has to bear as a result of the enormous increase in construction costs and the failure to secure long term debt when interest rates were at historic lows will remove much, if not all of the financial benefits of a new stadium.

Of course, the threat remains of potential administration if there is not a resolution to the ownership issues. However, whomever ends up acquiring Everton Football Club has to provide sufficient equity funding (despite the numerous capital calls it will face) to maintain debt at sustainable levels.

Please follow the following links for parts I and II of the analysis of the 2022/23 accounts.