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Further related thoughts to the Bramley Moore stadium announcement

March 28, 2017

the esk

As I wrote here last Thursday, and spoke on The Blue Room Podcast with Dave Downie, the scheme announced jointly by Liverpool City Council and Everton Football Club is highly impressive, innovative and brings the stadium at Bramley Moore within touching distance of all Blues.

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The dust has settled a little and the focus has turned to at what point Dan Meis will produce first drawings of his proposed stadium, and the view is it will be sooner than later, weeks not months. At the same time, the Council Cabinet has to agree the scheme, the SPV drawn up and funding partners determined.

On funding I’ve already heard that several large institutions, some household names, have been sounded out with positive feedback. As I said in my original piece, this is a highly attractive debt instrument to pension and life assurance companies, ticking all the boxes of a low risk, asset backed, index linked, long term debt product.

Having had time to think it’s interesting to realise that the scheme whilst remaining highly attractive does have several consequences, as yet unexplored by the media.

Whilst not in anyway deterring from the attractiveness of the scheme, several items should be noted:

Security Package

The precise terms of the security package required by LCC are yet to be disclosed. The Rent Deposit scheme requires the building up of “ring fenced” deposits over the first five years of the scheme. Additionally in the very unlikely event that Everton are relegated, then we will be required to top up the Rent Deposit Account using parachute payments paid by the Premier League – I look forward to seeing those details.

Impact on any immediate or near term Board changes and/or exercise of options by Farhad Moshiri

One of the consequences of the timetable suggested last week is that

(i) it is unlikely that Moshiri will exercise his options (allowing him to acquire Bill Kenwright, Jon Woods and Arthur Abercrombie’s remaining shares) any time in 2017. It is widely believed that the options relate to the confirmation of the stadium. Hence, until Planning Permission is granted it seems very unlikely he can/will exercise those options.

(ii) as a result it is unlikely that Bill Kenwright and Jon Woods will give up their seats on the Board. Furthermore, it may be less likely that there are executive changes within the club also.

Use of short term funding loans

For several years, Everton have used short term borrowings from offshore lenders to meet ongoing cash flow obligations throughout the season. This form of lending has relied upon the assignment of broadcasting revenues to the lender. Under the terms proposed by the City Council, LCC will have a first charge on all revenue streams (and assets), therefore this form of lending will no longer be possible.

Now it could very reasonably be argued that this form of lending is not likely to be required in future years given the increased cashflow arising from the new broadcasting deals and Moshiri’s £80 million loan to the club, repairing the balance sheet, nevertheless it will no longer be available to the club once we get our financing package in place.

The Usmanov connection

Regular readers or listeners will know I have always said that Usmanov would not be an equity investor in Everton – he would remain a 30% shareholder of Arsenal FC and therefore not able to acquire any shares in Everton.

The structure of this debt deal confirms this view in my opinion. It would be highly unlikely that such a deal would be put in place (long term structured debt) if there was any prospect of Usmanov becoming an owner/part owner of Everton FC.

As we know, through the Finch Farm naming rights deal with USM there is a connection and I’m sure that related companies may well appear in stadium naming right deals in the future. This deal does not change the prospects of that, but does, I believe, put an end to any thought of him being a shareholder.

I don’t want anyone to get the impression I’ve suddenly turned sour on the nature of the proposed deal to fund Bramley Moore, far from it. I’m hugely excited and impressed by the elegance of the proposed deal, something which would not have been possible without the input of Moshiri and his people I’m sure.

This is a fantastic deal for the club, let it be said, I’m just adding a bit more meat to the bone in terms of the consequences of the deal.

I’ve done several models of the financing of the stadium and future revenues, I’ll put up a new one in the next few days taking into account the nature of this deal and our prospects of further increases in commercial income and match day income through the new stadium.

As it’s Derby week – the contrast between what is proposed for us, an iconic stadium on the Banks of the Royal Blue Mersey, and a trip to a partially redeveloped Anfield will not be lost on any Blues.

 

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