December 20, 2016
This article first appeared on Grandoldteam on 19th August 2015.
There’s almost no argument that new investment is not required – investment in the team, the stadium and commercial operations. Few have examined the timing of this investment and the consequences of delay.
The time for new investment is now. The club cannot afford to wait any longer.
The new broadcasting deal which starts in season 2016-17 widens the gap between the successful clubs and the less successful.
Last year the club with the 7th highest broadcasting revenue (Everton) received £12.5 million less than the club receiving the most (Liverpool). In 2016-17 that gap will be £20.9 million. The gap between 1st and 10th in order of broadcasting revenue grows from £22 million to £35 million.
Tie that in with the difference in gate receipts and commercial income between Everton and our peers and you can clearly see that the income gap will widen further.
Not only that, but all our peers have a balance sheet which gives them the opportunity to spend heavily in the transfer window should they wish to do so.
The gap between the Premiership “haves” and “have nots” will continue to grow more quickly as the broadcasting deal revenues flow into the Premiership.
Paradoxically, the increase in revenues across the Premiership makes Everton more vulnerable on the pitch, and importantly for the Board (who own 70%) of the club, makes the equity value of the club more vulnerable also. Why? Because as the income and balance sheet gaps between Everton and our peers grow, the amount of investment required to bridge the gap increases, thereby reducing the current value of the equity.
Similarly if the value of the equity falls then the cost to existing shareholders of future capital raisings through issuing new shares increases.
Inactivity now threatens the value of the Board members individual holdings.
Control (or loss of) is often a reason quoted for the Board not to issue new equity in return for new investment. The Board can issue more than 12,500 shares without subscribing for shares themselves before losing control.
If the club is worth £140 million, then the shares are worth £4,000 each – that being the case the club can raise £50 million without subscribing for new shares, nor losing control. If the figure of £200 million is used, then over £70 million can be raised.
The point though is that to do this it must be done now. Failure to re-capitalise the business now will significantly reduce the Board’s ability to do so in the future, and will significantly reduce the value of their holdings.
£50 or £70 million will not solve Everton’s capital requirements, but it would allow investment in our key assets, the playing squad.
I’ll talk further next time about the funding of our two other priorities, the ground and commercial operations.