February 23, 2017
This article first appeared on The Blue Room on 17th February 2017.
In the last few days, I joined the excellent people at www.futbolgrad.com to discuss Everton’s ownership, Moshiri, and in particular the potential involvement of Usmanov. We discussed various scenarios and funding models, which I’ve summarised below.
The original podcast can be accessed here, and is worth a listen, not only from an Everton perspective but also to learn more of the Russian business practices in football:
There are essentially three premises here,
- that Moshiri has acquired his shareholding in Everton in his own right and has his own development plans for the future including investment in the team, creating a pipeline of future players through the excellent academy, improving the commercial performance of the club, and building a new stadium on the banks of the River Mersey,
- (ii) that Usmanov will dispose of his Arsenal shares and join his great friend and business partner Moshiri in making Everton a powerful force in European football once more, or
- (iii) by use of methods established and common in Russia and perhaps several clubs across Europe create a system of dual ownership/influence and investment that satisfies the stricter regulatory regime of the Premier League and UEFA.
Perhaps it’s easiest to deal with point (ii) first.
It’s my belief that Usmanov will not dispose of his Arsenal shares held in Red & White Holdings. I say this for a number of reasons. Firstly, he has stated publicly that it is his intent to hold his shares, for his family to enjoy in future generations.
Secondly, and perhaps more importantly, the sequence of events last February (2016) which led to Moshiri selling his R&W holdings to Usmanov do not sit with the view that Usmanov’s intent has been to dispose of his AFC interests and invest in Everton. Had that been his intent, the more logical sequence of events would have been for Moshiri to acquire Usmanov’s shares, freeing Usmanov to invest in Everton and begin his investment programme that would have surely followed.
Additionally, it has to be recognised that there are real practical difficulties in Usmanov disposing of his Arsenal holdings given Kroenke’s controlling interest and his total disregard for minority shareholder interests. Kroenke is not a buyer of Usmanov’s holding as clearly it provides him with no greater control at Arsenal (he already has that) and it frees up Usmanov to compete with Arsenal at a time when the club is less settled than it has for more than two decades.
Therefore, for me the question is whether or not Moshiri funds Everton’s development alone or with the compliant financial assistance from Usmanov’s (and his own, to be fair) corporate interests – USM, Megafon etc.
To date Moshiri has spent £87 million in acquiring his 49.9% shareholding in Everton, and has options agreements on an additional 23% which, based on the initial valuation, could cost him and additional £40 million to exercise.
In addition to the initial share purchase, Moshiri has provided £80 million in loans to repair Everton’s balance sheet, wiping out long term secured debt and the shorter term pre-payment of broadcasting revenues due from the Premier League. Additionally, his loan provided working capital to pay for the exceptional costs of removing Martinez and his coaching team and then bringing in Koeman from Southampton.
Although not officially confirmed by the club, it is believed he has provided further funding in January 2017 as the club prepares to acquire land on the old Liverpool dock site of Bramley Moore Dock in preparation of a likely 55-60,000 seat stadium designed by the globally renowned stadium architect Dan Meis.
The costs of the land acquisition and stadium build are estimated to be in the region of £300-500 million.
Although by almost all standards, Moshiri is to be considered a wealthy man (Forbes 2017 value his net worth at 2.4bn US$) it is difficult to see how Moshiri can fund this size of development without looking for third party support.
This perhaps is where the Usmanov interests will lie in the future. USM have already been announced as naming rights partners for Everton’s training ground Finch Farm, now named USM Finch Farm, and have acquired additional advertising rights around the pitch side at Goodison. The precise value of this deal is still difficult to establish as it is tied into the announcement that included a new shirt sponsorship package providing in total £75 million over 5 years. The shirt sponsor is yet to be disclosed, and is due any time. The package is a considerable uplift on the previous sponsorship arrangements with Chang, the Thai brewer, but still pales into relative insignificance when compared to the Manchester United and Chelsea deals for example.
Furthermore, they go little way towards the stadium costs, and importantly the anticipated increases in future wage levels as Everton continue their attempt on breaking into the Champions League qualification spots.
Thus with a new stadium to be paid for, and greater investment on the pitch, there is huge scope for greater involvement financially from Usmanov controlled companies. Given the precedent set elsewhere, and the evidence provided both in Russia and in Europe, it is not unreasonable to expect this form of financial assistance through advertising and sponsorship.
I have described Everton as the “last great re-development opportunity” in the Premier League. Moshiri has provided the initial funding, ambition and expertise to start that re-development, and his progress in less than 12 months is startling – a repaired balance sheet, huge progress on the new stadium, a completely new management team and coaching/recruitment structure, plus significant investment in the playing squad.
Not only is the progress startling, but it has to be recognised that Moshiri has completely refreshed the ambitions of our great club, and increasingly the world of football is waking up to our new potential.
Now however, there is a greater need for really substantial investment to build the stadium, improve the team further on the pitch, and provide the investment required to turn around Everton’s commercial performance. The evidence is that USM and other companies in common ownership, with Usmanov’s approval, is providing a significant element of that funding, with more to come.
With the anticipated confirmation of the stadium at Bramley Moore due in the first couple of weeks of March, there’s no better time to make those naming rights and other sponsorship announcements as above.
It is a hugely interesting and exciting time to be an Evertonian, it’s equally fascinating to see Oligarchs work their particular business models to provide innovative but compliant funding allowing maximum exposure to the riches of the Premier League.
February 18, 2017
This article first appeared on The Blue Room on 11th February 2017.
For many fans, trading players for profit seems to be frowned upon, or at least considered a questionable strategy for football clubs to engage in. The idea of being a selling club has long been dismissed by fans as a sign of inherent financial weakness.
However, the harsh reality is that without player trading profits, the economics of football would be very different for most clubs including the largest in the Premier League.
Comparison of player trading profits and aggregate profit/loss for leading Premier League clubs 2009 to most recent accounts.
|Club||Player trading profits£||Aggregate profit/ losses (including player trading profits)£|
|Chelsea||242 million||-120 million|
|Manchester United||137 million||109 million|
|Manchester City||66 million||-555 million|
|Arsenal||336 million||185 million|
|Liverpool||111 million||-225 million|
|Tottenham Hotspur||241 million||115 million|
|Everton||99 million||-116 million|
So as you can see from the above, player trading forms a very important part of even the most successful Premier League clubs’ financial strategy.
The principle sources of income for Premier League football clubs in order of relative importance are broadcasting revenues, commercial revenues and match day income. It is from these three sources that clubs hope to make an operating profit, not only to meet financial regulations but also to be sustainable from a shareholder perspective.
However even when profitable at the operating level, clubs can return a loss through the addition of player amortisation, tax, interest costs and what’s known as exceptional items (one off costs such as management compensation).
Player amortisation is often overlooked by fans, and its worthy of a quick explanation. When a club buys a player, the cost of that player is spread over the length of the contract. It does not appear as a one off cost in the year of the transfer.
So, if a club buys a player for £20 million and offers the player a 4 year contract, in the accounts there’s a charge of £5 million each year in respect of the transfer – this is what is known as player amortisation.
The interesting bit is what happens when the same player is sold. Let’s say that after 2 years the player is sold for £30 million to a rival. When this happens the following occurs (for ease we’ll assume both transfers have happened on the same day – in practice they might not, but then the values are just adjusted on a monthly basis).
At the time of the sale, the player’s book value has fallen from the original £20 million (the purchase price) to just £10 million because in accounting terms he’s had two years of depreciation (amortisation). Thus the profit to the club is £20 million (£30m-£10m) and will appear in the accounts as such.
This is really important, for clubs in two separate circumstances – if a club is loss making either at the operating level or because of high amortisation costs or exceptional items, the player trading gain assists in covering those losses and equally if a team is trying to expand quicker than its non-broadcasting revenues and profits permit player trading can meet the shortfall.
The club that perhaps more than any other that has made use of this strategy is Chelsea who typically have covered losses beyond what is allowed by regulators through player trading profits, although it should be noted that Everton have made use of this strategy also.
There’s essentially two sources of player trading profits, the established player who becomes a genuine superstar – Suarez or Gareth Bale for example who produce a huge one-off profit when sold to Europe’s largest clubs, or a more reliable and thought out strategy that involves developing players either youngsters placed out on loan, or squad players who perhaps don’t meet the standards for regular first XI football in the biggest clubs but can do a job lower down the league or in the Championship for example.
For this to become a reliable form of income though it requires considerable thought and investment not only in non-first team players, but in scouting, recruitment and training staff.
Strategy at Everton
With the recruitment of Steve Walsh, and additions of Laurence Stewart and Martyn Glover, I believe this is a deliberate strategy by Everton, not only to develop a small number of players who may play first XI football for Everton, but to develop players who can be sold successfully to other clubs at a profit. The first real evidence of that has been seen this recent transfer window with successful sales (or future sales) of several non-core players and the loaning out of a large group of youngsters, not all of which will make the grade at Everton but may be sold for profit at a later date.
With the likelihood of Everton’s wage bill increasing significantly in the next few windows whilst non-broadcasting revenues remain broadly flat, player trading profits represent the only compliant manner of increasing wages. Additionally, those profits will also meet the losses associated with higher player amortisation costs as the value of our squad rises. However, given the upward curve of our profile and expectations that no longer means selling one of our star players to satisfy this requirement, it can be achieved by selling non-core and younger developing players.
This is a significant development and strategy for the club until such a time as the new stadium is built and out commercial revenues start comparing more favourably than currently with the teams above us.
In order to keep the likes of Lukaku and Barkley, plus future talent like Davies and Lookman, and recruit further established players we’re going to see a lot of transfer activity in the levels below and on the edges of the first team – the activity will include the extended lending of non-core players and the sale at the appropriate time.
Fortunately, (or perhaps by design) we have a manager only interested in playing the best at his disposal, and I for one, am convinced that part of the attraction of having Koeman as manager at Everton was his ruthlessness and decisiveness in sorting players in terms of those he wants to keep and those the wishes to let go. The result is not only a squad that knows it must be at its best to stay but a strategy that helps generate profits to cover future investment in an improved squad.
At the end of most windows there’s usually an aggregate figure banded about, shown as a sign of the excessive amounts of money in football today. Whilst it’s true that there’s more money than ever before, it’s also a fact that there has to be transfer activity, not only for squad development and refreshment purposes but for very real financial reasons – even the clubs with huge revenues need to sell players constantly to assist their regulatory and fiduciary obligations. The downside of course, is that player trading is an expensive form of profit making – a lot of money leaves the game through agent and player fees and legal costs for example, but that’s another discussion.
February 15, 2017
Earlier today I joined the guys at Futbolgrad to discuss Everton, Moshiri and Usmanov – how I believe Usmanov will continue to be an Arsenal shareholder, he’ll not be an Everton shareholder, but we’ll likely see more sponsorship in the months and years ahead.
It’s an hour, but I believe it’s worth the listen…..