March 23, 2017
Already much has been spoken about the news today concerning Everton Football Club, Liverpool City Council and Peel Land and Property (Ports) Ltd.
I’m going to attempt to reduce it down to the minimum and explain the reasons why certain structures are in place.
Let’s start with the big news – the news that Everton Football Club and Peel have agreed heads of terms which will allow (subject to certain conditions) Everton to build our stadium on the Bramley Moore Dock site.
Briefly this is how the deal works, with explanations below:
- Peel are offering a 200 year lease on Bramley Moore to the “funder”
- Everton Football Club are responsible for finding the funder
- The funder will offer a 40 year lease to a Special Purpose Vehicle created by the City Council
- The funder is responsible for all the development costs of the stadium
- The SPV offers Everton Football Club a 40 year (less one day) sub lease. At the end of this lease Everton can buy out the remaining 160 years of the lease at minimal cost.
- Ownership of the stadium will be with Everton at this point
- Everton pay rent to the SPV. This rent covers two elements, the financing costs and a premium paid to the SPV which covers the cost of providing a guarantee from Liverpool City Council. The financing costs are passed onto the funder and the City Council benefit from the guarantee fees.
Who or what the funder is isn’t specified. It can be either a single financial institution like a bank or insurance company, a group of companies, or a high net worth individual or group of individuals. In return for the capital (in excess of £300 million) the funder will see a regular return of capital and income at market rates. Importantly the funder will have this return guaranteed by Liverpool City Council. So should Everton get relegated or football lose its current financial strength, the City Council guarantees payment. (There are security measures also to reduce the risk for the Council, more below).
The Special Purpose Vehicle
Often used in the commercial world. As a separate legal entity it allows businesses and public bodies to park particular projects or investments in a stand alone vehicle. In this case the SPV, owned by the Council collects the rent, pays the financing costs to the funder, and provides the Council with its guarantee fees.
The SPV serves to protect the interests of all parties, largely separate from their other activities.
The role of the City Council
The City Council plays a key role in this whole venture. By offering a guarantee it provides the funder with security against default, thereby reducing the cost of borrowing. As a guarantor the Council charges Everton a fee for providing the guarantee. The cost of the guarantee is calculated by considering the relative differences in the creditworthiness of both the Council and Everton.
The Council receives two benefits from being guarantor. Firstly it creates much needed income for the Council, somewhere in the order of £4-5 million per annum for the period of the lease (40 years). Secondly by enabling Everton to find a funder and thus the stadium development it goes along way to assisting the redevelopment of the whole area – a key objective of the Council.
The Council will also take security from Everton. In addition to the fees payable to the SPV Everton have to put funds aside to protect against future non-payment of their rent. This is not an unusual arrangement, Arsenal for example have a similar arrangement with their funders. In the event of this not being sufficient to meet liabilities, the Council will also hold a charge against future season ticket sales, and all other assets, including players.
Why would Everton go for this type of scheme?
As we get to know a little more about out our major shareholder it is very clear that he brings a level of innovation and sophistication to our business dealings that we’ve not seen since the days of John Moores. A number of things strike me about this deal. It’s elegant and thought through, benefiting all interested parties.
Firstly it’s a great enabler – a scheme backed by guarantee from the City Council, further backed by the resources of an ambitious and likely successful football club is a highly attractive lending proposition. Thus competition should be high and interest costs highly competitive.
It’s very capital efficient both for Everton, and also Moshiri himself. Successful business people excel at making capital work hard, and here’s an example of leveraging up on partners to make his investment in Everton most likely very profitable. For Everton it means not only do we have the funds for a new stadium but we have funds and resources available to continue the development of our squad given the stadium should be cash generative from the moment the doors open.
The scheme also allows us to keep all stadium incomes, participate in non footballing activities, arrange naming rights and potentially be involved in further developments around the stadium.
Don’t get tied up with the idea we are tenants. We are by name because of the nature of the lease arrangement but this is a stadium purchase funded by a long term mortgage. At the end of the 40 years we will own the stadium outright – just like our own homes when our mortgage is paid off.
For the Council, it’s cash generative and is the enabler of significant future development in and around the area – a key objective. This is a highly attractive proposition for the City be in on doubt about that.
There are self-evidently still hurdles to overcome. Financing I don’t see as an issue given the comments above. Planning, again should not be an issue given the Council support, but it’s fair to say this is the greatest risk or variable to the project. Finally there’s the standard project risks of time management, cost control and mitigation of unforeseen problems. One would think on the evidence to date, Moshiri will bring in a highly competent project management team to deliver on time and in budget.
It’s estimated the SPV will take another 3 months to be agreed, meanwhile we continue with Dan Meis the stadium design including fan engagement according to Elstone today. Planning is anticipated early in 2018. All being well that might see us playing our first games at Bramley Moore (insert sponsor name here) at the beginning of season 2020/21.
What does it mean for our future?
Simply – everything. It will move us onto the next level in every sense. Our finances will strengthen, our ability to generate income will increase, and we’ll be a highly attractive club, still in touch with our community, still doing great work, but and perhaps as this is our raison d’etre, most importantly being competitive and winners once more.
The club has changed hugely in 13 months with more change to come. Today is a huge, necessary and brilliant step in the next stage of our redevelopment and I for one cannot wait….
As a footnote – one very important thing – the future use of Goodison – absolutely brilliant news:
“EFC intend to use the Stadium move to facilitate a vital Legacy Project at Goodison Park, delivering health, education, affordable housing and public spaces for the local community which is likely to stimulate further investment in the L4 area and will create social, environmental and economic benefits. Details of this will emerge from EFC in due course.”