January 28, 2017
With the prospects of confirmation of a brand new stadium on the site of the Bramley Moore Dock arriving very soon, I thought it would be interesting to examine the potential costs, what it means for the fans in terms of future costs and how we could fund the stadium.
I’ll start with an assumption that we’re going to build a state of the art “iconic” stadium housing 60,000 spectators of which 6,000 would be executive or premium seating of one form or another.
How much will the stadium cost?
It’s obviously difficult to give an accurate estimate of costs but based on some research, and a helpful tweet from Dan Meis, I’m going to suggest that the build cost of the stadium is £6,000 per seat, and that the land cost is £30 million giving an estimated cost of £390 million. Of course all major projects risk overspend so, I’ll also make a provision for a total cost of £500 million as well.
Everton to their credit have been very effective in keeping match day costs as low as can be reasonably expected, mainly driven by recognition of the socio-economic profile of the majority of support, plus a desire to attract as many young people to the game through heavily discounted season ticket offers. I am going to assume that those policies would continue even in a new stadium.
One of the keys to keeping regular ticket prices as low as possible is maximising the selling of premium seating. Based on 6,000 premium seats being sold in a capacity of 60,000 it’s reasonable to expect the premium seats to contribute at least 50% of the match day revenues.
It is unreasonable to expect prices to remain static for the next 20 years, so for ease of calculation I’ve assumed a 10% increase every 5 years over the next 20 years.
Earlier last year I created a model which I’ve adjusted slightly in line with increased capacity:
- We build a 60,000 seat stadium with 6,000 executive/premium seats and 20 additional boxes
- Season ticket prices remain the same, executive/premium seats cost an average of £200 per game, other tickets average £50 per game and executive boxes cost £75,000 per season
- The model uses the existing ratio of junior, young adults and seniors among our season tickets
- Assumes we would sell out each game and have 39,000 season ticket holders.
- Assumes 2,500 away supporters at each game paying £30 a head.
- 12,500 non season ticket holders and “turn up” supporters at each game.
- No consideration of cup games/European games for ease of calculation
- No consideration of merchandising income
This model produces an average match day income of slightly more than £700 per head per season – again to keep things simple I’ll use the figure of £700. It has to be stressed this would not mean any price increases for the average fan, the uplift comes from the increase in premium/hospitality spend.
This figure is still hugely below the average per capita figures for our peer group:
|Club||Average matchday income per spectator (2014/15)|
On the basis of a 19 game season and capacity crowds this would produce £42 million in revenue, average attendances of 55,000 would produce £38.5 million (as against less than £18 million in 2015/16).
10% increases in prices every five years would grow revenues to £51 million after 10 years, £56 million after 15 years and £62 million after 20 years.
Quite reasonably everyone must wonder how we can fund a stadium costing anything from £390 million to £500 million. Farhad Moshiri is a wealthy man but no-one, least of all me is expecting him to fund the stadium. There are 3 key components of funding for the stadium (i) the club and third party grant and other funding (ii) naming rights and (iii) debt.
I’m going to start with naming rights. The assumption is that the stadium naming rights partner is also the main shirt sponsor – certainly the highest profile deals in the UK work in that manner with Emirates and Etihad. I think it’s reasonable to assume the same for Everton.
I’m also going to make another assumption that the naming rights/sponsor partner is associated with our major shareholder, Farhad Moshiri. Given the club has already announced USM as the naming rights partner for Finch Farm, and tied the value of that deal in with the major shirt sponsor (£75 million over 5 years), I’m going to suggest that this will naturally extend to the new stadium at Bramley Moore.
How much can is a naming rights deal worth? Again based on some research in the US naming rights market, I’m going to suggest that the naming rights for the new stadium will be worth a minimum of £100 million over 20 years. In terms of contributing to the cost the assumption is that it is paid up front. It is possible it is funded in a separate debt deal guaranteed by the sponsor, but I’m going for a single contribution of £100 million. There may be bonuses for future success and European participation but they may be discounted against the single upfront payment.
For the purposes of this discussion I’m suggesting a 20 year naming rights deal will contribute £100 million to the costs.
On the base case of £390 million, I’m going to suggest £225 million of debt over 20 years.
At an interest rate of 5% that requires annual repayments of £15.8 million, (£316 million in total). Whilst this seems an enormous amount, in terms of the increased revenues that a new stadium creates, and the enormous increase in broadcasting revenues, this is very affordable.
Club & third party funders
From the contributions from naming rights and debt, the club is still £65 million short. Interestingly the City Council revealed the level of contributory funding it made to Liverpool’s recent development (£27 million). I’ve no idea on what basis or whether it was cash or in other forms, but it seems reasonable to assume some contribution, be it directly into the stadium or other funding in terms of infrastructure etc.
Regardless, in these inflated and income rich times, this level of contribution (£65 million) is no longer beyond the reach of Everton football club, be it from income, or in the form of borrowing from Farhad Moshiri – personally I believe it will be from the club itself.
I mentioned earlier the prospect of cost over-runs – a cost overrun of up to a total cost of £500 million could still be absorbed by an increase in debt, increase in stadium revenues or increased funding from the club itself.
The long-held dream of a move away from our beloved Goodison Park as a necessary means of developing the club and allowing us to compete with the clubs above us is eminently affordable and in fact should be cash generative. Through repairing our balance sheet, sensible debt levels and an appropriate naming rights deal we can afford a move to an iconic stadium, all without necessarily increasing the cost of match going to the ordinary supporter.
It’s going to be an amazing few years in the lead up to our first game on the banks of the Royal Blue Mersey.
January 11, 2017
Farhad Moshiri talked at the General Meeting about a window of opportunity. I believe he’s talking about getting success on the pitch – that is the quickest route to growth in the business of Everton and funding the future stadium
I posted a couple of days ago that Manchester United will earn more than £2 billion more than Everton over the next 5 years if our relative positions are maintained – a truly staggering figure. Combined the 6 teams above us will earn between £6.5 bn and £8bn (depending upon assumptions used) more than ourselves if we were not to break the glass ceiling between us.
When you talk to almost any Blue these days and the topic will not only be about what’s happening on the pitch but also what’s happening off the pitch as we strive to catch up on the revenue stagnation of the recent past.
New sponsorship deals, the new stadium at Bramley Dock, new global partnerships better commercial arrangements with shirt manufacturers and distributors are all correctly seen as essential to the future development of our club.
However, I’d like to cast an eye on what’s happening on the pitch not only because I want us to be competitive and winning trophies, but also the impact that a successful team has on the club’s finances.
Clearly to improve on the pitch we need funds, we need capital and we need increased income to remain compliant as our wage bill rises. We also need capital for our stadium and other development projects – I’ll touch on this later.
The key to our development is regular qualification in European football particularly the Champions League – that increases revenues from both prize and broadcasting money but also sponsorship revenues.
The way to achieve that is to invest in our playing squad – it is afterall our results on the pitch which enables qualification in the Champions League and Europa League.
Qualification for European places significantly increases Premier League prize monies, the difference between 1st and 10th place in 2014 was £22 million, in 2017 it increases to near £35 million. However even that is dwarfed by the impact of regular European competition.
Why is it so important?
Performing in Europe brings three major revenue benefits to competing clubs, tv revenues, sponsorship revenues and prize money. Whilst the prize money is not insignificant, the two key elements are the TV revenues and the sponsorship opportunities the exposure brings.
Revenues (prize & TV) earned from European competition 2015/16
|Club||Competition/round reached||Total prize money|
|Manchester City||Champions League S/F||£73.0 million|
|Chelsea||Champions League R16||£60.0 million|
|Arsenal||Champions League R16||£46.4 million|
|Manchester United||Champions League Group||£33.1 million|
|Liverpool||Europa League Final||£32.9 million|
|Tottenham Hotspur||Europa League R16||£18.2 million|
Broadcasting revenues as with the Premier League are a huge part of the equation, and whilst growth in broadcasting revenues alone does not help with the issue of income rising in line with wages, clearly the additional income can be used for funding the stadium development and player acquisitions.
In 2015/16 broadcasting revenues distributed to European competitors increased by 38% from just over £1.1 billion previously to £1.542 billion, a long way behind the Premier League but significant nevertheless.
Earnings from the broadcasting revenues from European competitions for the last 5 years are as follows:
|Club||Aggregate European broadcasting revenues|
|Manchester City||£192 million|
|Manchester United||£137 million|
|Tottenham Hotspur||£36 million|
Playing in European competitions enormously increases the potential for commercial and sponsorship revenues, and importantly revenue growth here can be used to fund wage growth. Although we’ve received the welcome news of the USM sponsorship package plus in-named partner for shirt sponsorship, we are still uncompetitive compared to the regular European qualifiers:
Shirt Sponsorship deals
|Club||Annual revenues||End date of existing contract|
|Manchester United||£53 million||2021|
|Manchester City||£20 million||2021|
|Tottenham Hotspur||£16 million||2019|
Therefore the scale of the revenue opportunities from on the pitch success which will fund our development on and off the pitch are very apparent.
Without European competition the revenue growth opportunities are much less significant, even with a new stadium on the horizon.
Based on the deal with USM commercial revenues before entering our new stadium will at best provide another £13-18 million annually from sleeve sponsorship, newly negotiated shirt manufacturing and distribution deal and possible Goodison Park namings rights deal.
The stadium is going to cost between £350 million and £500 million – potentially it will be the most expensive stadium built in Britain other than Wembley, certainly the most expensive club stadium in Britain and possibly Europe. Whilst it will add to our revenue streams in future years it still has to be funded. As I stated earlier, the best way of funding it will be success on the pitch.
We need increases in income in the short term to fund the growth in wages required to become a success and that will be achieved by improved commercial deals.
However, the thrilling thing for Evertonians is that success on the pitch and European qualification is the quickest route to major increases in income to fund the stadium etc.
It’s reasonable therefore, (almost unthinkable in recent terms for Evertonians) to see continued investment in the playing squad, not only this window which has started wonderfully, but next summer as well.
With a competitive squad we can gain European qualification (and success in the future we would hope). It is a successful football team that becomes the enabler for the stadium and future developments.
Interesting and exciting times ahead, but crucially dependent upon success on the pitch, and that can only be achieved by continued investment in the playing squad.
January 6, 2017
So the news has broken that USM, the holding company of Usmanov, Skoch and Moshiri are to provide £75 million of sponsorship and name rights funding for the next five years. Importantly it is stated that this is the initial term.
I’ve stated many times I did not believe it would be possible for USM or any Usmanov related company to have a commercial relationship with Everton because of Usmanov’s holdings in Arsenal. I still find it difficult to understand how that’s been achieved.
However what is not difficult to understand is the business logic behind the decision – let’s put aside the potential compliance issue.
I’ve stated many times Usmanov will not sell his Arsenal holdings and invest in Everton, covered in detail here.
It’s widely known that Usmanov and Moshiri are extremely close, here’s the strategy and investment decision I believe they’ve made regarding the Premier League.
I believe they’ve made a conscious asset allocation decision to increase their exposure to a market (consider the PL and Champions League a market for a moment) that is booming, revenues and valuations growing at exponential rates.
By Usmanov holding 30% of Arsenal, he has more than £300 million worth of market exposure to the Premier League. Previously that was split between them both. Now Moshiri has £87 million worth of exposure to the Premier League through Everton with the hope that that value will rise significantly through success on the pitch, increased revenues and a shiny new stadium on Bramley Moore to boost the asset value.
Combined therefore they have nearly £400 million of exposure to this booming market.
In order to maximise the growth in value of Everton, Moshiri has had to repair the balance sheet (£80 million interest free loan) which enables the stadium project to be started, and improve non-broadcasting revenues to comply with STCC (short term cost control regulations) in order to increase the wage bill to make the team more competitive.
Thus the easy and most efficient option is to use the resources of a company they own and control to assist in that increase in revenues. What is more, the investment hugely assists name and brand awareness in their most valuable asset USM.
Therefore the business logic is outstandingly simple, efficient and ultimately should be highly rewarding.
Combined they’ve maximised their exposure to the booming Premier League, and the Champions League with the potential for future participation from Everton. At a stroke they’ve created great value for USM in terms of publicity, and through the sponsorship funding enormously assisted Everton in future strengthening of their squad leading to higher revenues, success and a higher valuation.
The logic is outstandingly simple, and it appears compliant with the rules of the Premier League.
It’s really quite brilliant for all involved.
January 5, 2017
I thought it would be interesting to look at what was reported at the previous General Meeting back in November 2015. The contrast is stark:
“This (our financial & commercial arrangements) is where the story looks less promising – I get the reasons why we have Kitbag (low risk, requires no capital, produces a steady stream of income) – it’s a relationship born out of a lack of working capital and a lack of expertise within the club, nor the resources to provide that expertise. I genuinely think we are squeezing the asset as hard as we can given the resources available to us (financial and people). The problem of course, is that not much will change until we have investment or new owners.
The comments on the stadium situation, and specifically WHP are not surprising. We have a council, without the resources to back their ambitions, that wants to use the football club as a means of redevelopment in the North of the city. We have a football club currently without the resources and possibly the ambition, that wants to use the council as a means of their own redevelopment – ie a new stadium with significant financial contributions from the council and other parties.
What did surprise me this evening was that the blame game (for seemingly inevitable failure of WHP) has started and started so publicly. Initially I thought there’s no stepping back from either positions now – the Council nor the club will step down – however on sleeping on it, I can see both sides of the argument.
The club should be arguing that the development of WHP with a stadium and additional local resources (low cost housing/retail perhaps) changes what is currently a financial liability for the council into an income producing asset which will foster further development in an area of Liverpool desperate for such. As a private company (they should argue) their role in the transformation should be recognised with contributions from the council/other agencies.
The council meanwhile asks the club for plans, budgets and funding proposals. Given without significant new investment the club can not provide such, the council appear less than willing to extend much goodwill in the interests of getting a deal done.
The problem lies in our inability to fund any development without the investment from new owners or a significant re-capitalisation. I’ll spare the repetition of points made over many months on the subject.
On financial performance of the club, then again we are hamstrung by our lack of capital and the requirement to borrow at fairly punitive rates. Again only capital, and the right people brought into the business can move matters from where they are.
I wasn’t expecting anything new on the search for investors. Whatever activity is taking place is being done in private, as it should, and we’ll only know about it when there’s a conclusion.
Finally a comment on the questions put forward this evening, and the response.
Personally I thought many of the questions were unnecessary, and detracted from the real issues holding back the club, investment, commercial performance and a solution to the stadium issues.
Having said that I think the handling of the questions was poor, it showed a lack of judgement, and was tactically inept. Here was an opportunity to build some bridges, answer the concerns once and for all and develop some positive dialogue – the club missed a trick on this.
All in all a disappointing evening for shareholders and the board equally, an ugly, scrappy event that did little to satisfy the club or shareholders. Everton’s bright lights are currently on the pitch – I only hope the deficiencies witnessed tonight upstairs do not restrict our progress.
The requirement for new investment and new ownership intensifies after last night, it must, otherwise our footballing potential will be lost due to business incompetence. “
We’ve moved a long way since what was perhaps our lowest point.Clearly we’ve got further to go, much further, but the contrast between the 2 evenings is huge.
If we assume under Moshiri’s increasing influence the rate of progress accelerates we are in for a great ride. Good times ahead.
January 5, 2017
So, the most eagerly awaited General Meeting in many a year has passed. 12 hours on and I thought I’d gather my thoughts on the evening, the information provided, and the remaining unanswered questions.
I’ll start by saying this was the most positive GM I’ve ever attended and the contrast between last night and that of 23rd November 2015 could not be starker in any respect. 14 months ago we were floundering, rudderless and just managing to stay afloat despite the benevolent conditions the Premier League had provided for many a year.
On the flipside, a number of issues were not discussed and require resolving, more of that below, but let’s not escape from the fact this was a highly positive evening.
Photo by Mike Egerton/PA Images via Getty Images
It’s often a simplification to say the differences are down to one individual, but in the case of Everton, it’s as near to the truth as you are going to get. Single handedly I would suggest Farhad Moshiri has altered the ambitions of the club, and whilst the work that is required to get us to where he and us the fans wish to be has hardly begun, the evidence is there to be seen and believed.
He’s made the changes necessary in the football management of the club bringing in Koeman and Walsh at a significant replacement cost – this window should see the first evidence of how that alters the prospects of the first team but as time goes on will also show the results of having a structure at Finch Farm, a coaching and scouting system that backs up the already excellent work of the academy and the U-21 squad.
A slightly bitter/sweet moment for me to be honest, but whilst I want to focus on the positives it right to say that progress on Bramley Moore is not as far as I and others had hoped or anticipated. However, we are left in no doubt that it is Bramley Moore that is the primary site for building our iconic new stadium. We are in the words of Robert Elstone “two or three months away” from that decision being finalised.
Joe Anderson’s comments were interesting and in a complete contrast to the last AGM were wholly supportive of the club’s plans as evidenced by the infrastructure spend announcements made in the last few days.
The club are making a statement of intent, they, we want a world class stadium on the banks of the Mersey and it’s clear that’s what they are striving for. This should not be lost on any Blues, we are no longer talking about Destination Kirkby, Kings Dock or a flat pack stadium in Walton Hall Park – the scale and impact of Bramley Moore is at a different level and once finally confirmed sets us on an entirely different path – it is a huge positive in my eyes.
Future Funding and ownership
This was touched upon in terms of our current funding arrangements. It’s clear that Moshiri has provided £80 million of funds to remove the secured debt and the restrictions of the covenants surrounding it, plus the early repayment of the then R&M Funding loan against broadcasting revenues. As forecast previously, from the projections that lending will be in the order of £20 plus million by the year end, again repayable from the broadcasting revenues received this season.
What I thought particularly interesting was the comments re smaller shareholders, of whom there are still 1500 or so. There appears to be no plan to acquire our shares in the near future which indicates that Moshiri is not intending to acquire the club in its entirety, at least in the short term.
This is extremely interesting and needs to be revisited as it has significant impact on the future funding of the club and stadium. It suggests that a raise of capital by issuing new shares is very unlikely in the near term. Perhaps as the funding plans for the new stadium becomes clearer we can revisit this.
Sponsorship & Commercial Revenues
It is now well documented how far our sponsorship and commercial revenues are behind our peer group, and last night we saw the first signs of an improvement in the very low base from which we start.
The precise details of the shirt sponsorship/Finch Farm naming rights deal were not announced but the £15 million a year closes the gap considerably on Spurs who at £16 million a year (until 2019) were nearest in the group of 6 above us. It’s a good start in the catch up game.
However there was no comment on our shirt manufacturing and distribution deals with Umbro and Kitbag (now Fanatics). Although the existing deal runs to 2019, it is in the context of the group ahead of us, highly uncompetitive and I hope will be addressed in the coming months.
In terms of increasing the number and range of commercial deals (we have 10, our rivals have between 18 and 33) no further information was provided. Again this is an area that requires further attention self-evidently.
Board composition & future governance
This topic was not really discussed, yes there was a bit of fluff about Harris, but I’ll stick to the comments I have made previously – the club will be better run if the board reduces its concentration of major shareholders and representatives and senior employees.
For the sake of an increasingly complex business new talents have to be brought in, and for the sake of corporate governance, at least one independent non executive would be most welcome.
It goes without saying that the board should be congratulated on their attempts to make watching football as affordable as possible particularly when one considers the future expenditure required for a new stadium and of course the squad.
I’ll conclude by saying the GM was a highly positive affair, the club is far from being the finished article, we are in fact just waking from a deep slumber whilst our peers have been making hay in the sunshine. We’ve a huge amount to catch up, but for the first time in many years I saw the evidence that we’re giving it a go and under Moshiri’s direction have a more than fair chance of achieving it.
I’ll finish with Moshiri’s comment “It is not just enough to say we are special. We don’t want to be a museum, we want to be competitive and we want to win.”
We know we are special, we know our history, and we want a glorious future.
Nil Satis Nisi Optimum.
January 2, 2017
Thoughts before the General Meeting, January 4th 2017
This article first appeared in the Liverpool Echo on 2nd January 2017
This is no ordinary General Meeting, it’s the first General Meeting of shareholders since Farhad Moshiri acquired 17,465 shares giving him a current stake of 49.9% in Everton.
I’m assuming that football matters will be dealt with at the AGM by comments from the Manager as has happened in recent years. Whilst perhaps not quite with the oratory style of Martinez the hope will be that Koeman talks with greater substance.
It is the opportunity for the major shareholders and board to lay out their plans for Everton in the coming years. It is the opportunity for Moshiri to expand on his programme comments in March 2016
Of course, since then we’ve had his lengthy interview with Jim White on national radio which filled in a number of topics, and confirmed his ambitions and intentions on and off the pitch. However given the manner in which it was delivered, and the medium used it still does not satisfy the requirement for more formal communications from the club.
The key part of his interview included the following comments:
“I think with the stadium the fans must know we have done the hard bit,”
“The club was restricted [in its ability to] expand Goodison by banking covenants so we’ve repaid the debts, we have the finances.
“I went to Liverpool a few weeks ago with Bill [Kenwright]. We visited all the sites with the Mayor. The club has taken soundings from fans and in our mind we know where to go. We are committed.
“So my point to the fans is that I can just reassure them that they will have a stadium that rewards their loyalty and their passion support for our club. This is my key aim.”
“We don’t have the flexibility that Chelsea and Manchester City had in the days before Financial Fair Play. We can only invest what we spent last year, plus £7 million, plus increasing commercial income.
“So the way to compete is to build a big stadium, to increase merchandising and commercial income and we have no restrictions to spend.”
Thus I think it’s reasonable for shareholders (and fans) to expect information on the following topics which I will expand upon below:
It’s been well documented that Bramley Moore is the preferred site, and as I’ve mentioned previously I believe we have agreement of an option to acquire subject to planning permission. Singularly this is the largest single decision the club will have made perhaps ever. Quite simply shareholders need clarification. I don’t believe it’s a coincidence that the General Meeting has been delayed almost as far as the Articles permit.
- Clarification of the location of the stadium
- Outline details of style and size of stadium
- Best estimates of anticipated time frame
Future funding & ownership.
From the accounts it is clear that the accumulated debt (short and long term) has been cleared by Moshiri’s injection of £80 million at the end of the financial year, however despite record revenues received this year from the Premier League broadcasting deals it is clear additional funding will be required for squad development, working capital, and specifically the funding of the new stadium.
- How will this funding be achieved, and what impact does the future funding have on current shareholder ownership?
- What are the short term and medium term funding requirements?
- How will they be financed? Debt or further issuance of shares?
- If there is a further issue of shares what will be the mechanism?
- Is it the intention of Mr Moshiri to acquire further shares via his options agreement and then to underwrite a further issue of shares?
Board composition & future governance
As the club enters a new expansionary phase, it makes sense to examine the skills required to maximise the opportunities before us, including adding additional talent to the board and senior management positions within the club.
- What are the plans to strengthen the board further, recruit additional talents and reduce the concentration of shareholder and senior employee representation?
- Will the board seek independent directors to improve corporate governance?
- What are the plans to bring additional senior executives into the business to maximise our commercial successes in the future?
Commercial performance and development plans
In the latest report and accounts commercial revenues fell despite recruitment in this area.All our competitors and peer group saw significant increases in commercial revenues from retailing, entertainment and particularly sponsorship opportunities.
- Aside from the absence of European football, what are the causes of this and what has been done to address this issue in the future?
The outsourcing of commercial activities were probably necessary in the past given the precarious balance sheet and P&L accounts of previous years. However that is now not an issue for the club.
- Given the lost revenue opportunities of not managing commercial and retail activities in house when does the board expect to resolve this issue?
Our sponsorship revenues and number of commercial relationships are dwarfed by the 6 biggest revenue earners in the Premier League.
- What plans are there to improve sponsorship, shirt manufacturing and retailing arrangements?
With just 10 commercial partnerships we trail our rivals, for example Manchester City have 33, Arsenal 31 and Liverpool 18.
- How does the board proposed to increase the number of commercial arrangements and maximise the revenue opportunities from each?
In my experience the most useful General Meetings are those that look forward as well as holding previous actions to account. Given the changes we are about to encounter in the business of Everton, and the changes in match day experiences for Blues when the new stadium arrives, the General Meeting provides a marvelous opportunity for the board and major shareholders to update and inform shareholders and fans of the times ahead.
My hope and expectation is that this opportunity is not passed up, there’s no reason for it, in fact grabbing the opportunity can only be beneficial for the club, shareholders and supporters alike.
I look forward to a successful and informative General Meeting.
January 2, 2017
I’ve been fortunate enough to talk about the Blues on several radio stations.
Most can be found here