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Outsourcing is costing Everton dear

May 28, 2017

the esk

In the second podcast of “Everton Business Matters” on The Blue Room Rodger Armstrong, John Blain and myself discussed the shirt sponsorship and launch. For those that listened to the podcast it was clear that none of us were overly impressed with the manner in which it was handled. The feedback from the show was similar also.

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That got me thinking about why would an organisation like Everton perform in the manner it did?

Then the answer struck me, and it’s a fairly obvious one which I’m almost embarrassed to admit I didn’t think about when talking through the launch.

The fact is that there is no financial incentive to do anything other than what we’ve done.

Why would I say that? It’s the nature of the deal with Kitbag (now Fanatics) and Umbro. Through the outsourcing arrangement there’s no incentive to have the shirts available at the time of the launch, no incentive to have the kit available for the last home game of the season.

Not only does this create a poor customer and fan experience, it crucially impacts revenue, not only in the context of shirt and other kit sales, but in terms of the value of sponsorship arrangements.

Why would a premium brand pay top dollar in the knowledge that the outsourcing arrangements impact launch and follow on performance? Sponsors are obviously looking for greater exposure than just shirt sales, there’s the global television audience, media and print pictures, but also presence on the internet.

The outsourcing to Kitbag (now Fanatics) was done for a number of reasons. It de-risked the retailing arrangements for the club, allowed us not to have to carry stock, reduced premises and staffing costs and guaranteed a minimum level of income. At the time the deal was struck, these were all valuable benefits given the financial state of the club, preserving capital, reducing costs and guaranteeing income.

However today, and until the end of the contract in May 2019 we are paying the cost of the deal renewed in 2014, when arguably although pre-dating Moshiri we could have afforded to resume our own retailing arrangements.

The impact of our commercial income performance only becomes clear when it considered versus our competitors:

Commercial Revenues Financial Year 2015/16 (£m)

Manchester United £268,000,000
Manchester City £178,000,000
Chelsea £117,000,000
Liverpool £116,000,000
Arsenal £107,000,000
Tottenham Hotspur £60,000,000
Aston Villa £28,000,000
Newcastle United £25,000,000
West Ham United £22,000,000
Everton £21,000,000
Everton (Adjusted)* £28,400,000*

*The adjustment comes from adding back in gross revenues not accounted for because of outsourcing kit and catering, but also deducting £0.6 million which is the commercial element of broadcasting revenues. All other clubs include this in their broadcast revenues, we strip it out to bolster the commercial revenue performance.

 Now what I consider to be our peer group are self-evidently miles ahead of us in generating commercial revenues.

Our closest rival financially among the top 7 is Tottenham Hotspur and it staggers me that they are generating commercial revenues over twice our adjusted figure. Of course, being in London helps, but it’s not just geography, as Liverpool and the two Manchester clubs demonstrate.

The biggest concern is that the Tottenham figure is before they move to their new stadium in 2018/19, and the end of their current shirt sponsorship deal in  2019. (Update – Spurs have signed a multi-year sponsorship deal worth £25m a year with Nike)

Our stadium move (and corresponding match day and commercial revenue increases) is several years behind Tottenham’s and not likely to be before 2020/21 at the very earliest.

So how do we go about bridging the current £31.4 million gap between ourselves and Tottenham. The question is important because match day income is unlikely to increase significantly barring major cup runs at home and in Europe, and broadcasting revenues will only increase if we leap frog our rivals into a higher league place.

Firstly, the stuff we already know about.

The shirt sponsor deal with SportPesa and the USM Finch Farm naming rights deal works out at £15m (using Robert Elstone’s figures from the GM). That’s an increase of £9.7m per annum on the previous Chang deal.

Other partnerships. Although no figures have been given the Everton/Sure relationship is thought to be worth around £1m a year. Is it reasonable to think we can add a couple more similar arrangements? (Update – we know have Blackwell Global as a new partner)

The impact of European football is important. The 2015/16 commercial revenue figure fell by nearly £6m compared to the 2014/15 figure, the reason given being the absence of European football. With the higher value of new deals perhaps we can see further enhanced revenues in 2017/18, but let’s say somewhere between £6-8 million.

So, there’s an extra £18 million in commercial revenues which using the non-outsourced revenue figure reduces the commercial revenue gap considerably, but we would still be £13.5 million short of Tottenham. (Up-date £28m short following the Spurs Nike deal)

The only answer to bridging the gap further is in the retailing and kit supply deals currently set to run until the end of May 2019.

Several clubs have broken existing deals, notably Chelsea, in order to sign new more lucrative contracts. Of course, there is a cost to this, Chelsea broke their then existing deal with Adidas 6 years early to sign a 15 year £900 million deal with Nike.

Now we’re not in that league, but the paltry deal we have with Umbro is thought to be worth a maximum of £6 million a year, and with only two years to run must be ripe for review at least at the end of next season? (Tottenham receive £10m a year from Under Armour, Liverpool £24m from New Balance, Arsenal £34m from Puma, Manchester United £75m from Adidas)

Let’s assume we break the Fanatics and Umbro deal a year early, yes there’s a one-off cost which is treated as an exceptional item, but relative to the benefits it must be considered surely?

The benefits would be ability to control own sales, run own campaigns and massively increase the distribution base for kit sales at a time when our profile should be rising strongly on the back of European football, continued advances in our league position, and the publicity and excitement surrounding the (by then) impending move to Bramley Moore Dock.

It should mean an end to the farce that was the launch of our 2017 kit and new sponsors.

Realistically the only way to bridge the commercial gap between us and our next commercial rival is to bring retail activities back in house and seek an improved deal with a shirt manufacturer on the back of our much improved and increased profile.

We’ve a year to sort it out given next season’s arrangements are in place, in my opinion it should be a major priority for the club and board.

Usmanov bid does not make move to Everton more likely, in fact the reverse

May 20, 2017

the esk

There seems to be as much interest in Alisha Usmanov and his activities by Everton fans as there are by Arsenal fans these days. Perhaps given the link between Moshiri and Usmanov, and the USM sponsorship of Finch Farm that is understandable.

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The late breaking news of yesterday (Friday 19th May) that Usmanov had tabled a bid for Kroenke’s shares at Arsenal has of course, re-ignited interest. Therefore (for what they are worth) I’ve penned my latest thoughts on the matter.

I don’t believe for a second that this changes the prospects of Usmanov divesting himself of his Arsenal shares and pitching up on the banks of the Royal Blue Mersey. Let me explain why.

His bid can be viewed in several different lights.

It can be considered as warning shot across the bows of Kroenke and the board in the sense that it highlights the difference of approach between himself and Kroenke, it puts pressure on Kroenke to respond, and perhaps to act following the FA Cup Final. The act may well be to remove Wenger from the manager’s position, either by moving him to a director of football role, or by leaving the club altogether.

Given the lack of influence Usmanov has, a bid, subsequently leaked to the press, may be his only way of applying pressure on Kroenke.

The bid itself is interesting in terms of where it is pitched. On the face of it, and as reported by most of the press it shows a healthy premium to the current share price. Based on the closing price last night, the market values Arsenal at £1.13bn, Usmanov’s bid values Arsenal at £1.54bn. Usmanov is offering a 36% premium on the quoted price (very close to the premium he paid Moshiri for his shares).

However, the market undervalues Arsenal. Using the Markham multivariate model, Arsenal on 2016 figures is worth £1.37bn. However, on estimated figures for 2016/17 Arsenal is worth more than £1.67bn, reflected by increased broadcasting revenues and higher profitability. Of course, the accounts next year may take a hit through the absence of Champions League football, but that would be viewed as temporary and partially offset by the large increases in Europa League payments.

Thus, it’s a fair argument to suggest that the “bid” is nothing more than an exercise in putting Kroenke in a more difficult position, and forcing change at the end of a disappointing season (for them).

Alternatively, it may be a low ball bid to gauge the response of Kroenke, a means of testing the waters. Whatever the response is from the Kroenke camp privately would indicate one of two things – “no, we’re not selling at all”, or “no, not at this valuation”. If it’s the latter, then the onus is on Usmanov to up his bid significantly.

There’s talk of two other potential bidders, unnamed currently although I suspect one may be the Nigerian billionaire Dangote. Other bidders entering the fray would be interesting, but until such time as there is concrete evidence of such, in my opinion they’re not hugely relevant.

The reason there’s such interest in the goings on at Arsenal of course, stem from the idea that actually Usmanov’s real interests lay in getting out of Arsenal and joining his business partner Moshiri.

Many are speculating that this bid news, when it fails, will be the last straw and result in Usmanov selling up. As I’ve spoken about at length, this is not easily achieved even if he wished to do so (which I obviously don’t believe to be the case).

Selling after a failed bid (even if the bid was not necessarily a serious one) is a strange tactic. Most very successful investors only ever sell voluntarily from a position of strength, not perceived weakness. I would stress again if it was Usmanov’s intention to sell his holding I doubt he would attempt a bid most likely destined to fail before selling his holdings. He would be doing his utmost to extol the virtues of an Arsenal holding, not demonstrating his dissatisfaction with the majority owner.

Thus, to conclude, from my own perspective, whilst the news is interesting and what follows in terms of changes at Arsenal (if any) by Kroenke will be carefully watched, it only further confirms that Usmanov’s interests remain at Arsenal, either as a 30% shareholder in an improved company (by result of changes in Wenger’s position) forced by the pressure of a bid, or he becomes the outright owner as the result of finding a valuation acceptable to Kroenke.

The latter I find highly unlikely, the best Usmanov can hope for is management change, and the gratitude of those Arsenal fans no longer supporting Wenger.

For Everton, we’re entering the most important summer perhaps of our existence, were we either prove ourselves to be an attractive sought after side by those players we wish to recruit or not, plus continued advances off the pitch with further stadium related news.

It should also be considered there’s nothing in the proposed  Bramley Moore stadium funding structure that demonstrates the expected arrival of another multi-billionaire into the club any time soon in fact quite the reverse.

That’s what is going to maintain our interest through the summer, not the impending arrival of Usmanov, which in my opinion has never been on the cards, and is further evidenced by yesterday’s news.

60K, 60K I say….. the case for a 60,000 capacity

May 13, 2017

the esk

In his most recent press comments in the Liverpool Echo, Everton Chief Executive  Robert Elstone had the following comments to make regarding the possible capacity of the new stadium on Bramley Moore:

“We have reasons to be confident on capacity. As evidenced this season, Everton remains as ambitious as ever and will continue to challenge for a place in the Champions League

And also, right now we have 10,000 prospective season ticket holders waiting for the release of around 3,000 seats, so we’re confident that we can fill a considerably bigger stadium”

Of course, that begs the question how big is “a considerably bigger stadium”?

One of the easiest ways of judging future capacity requirements is by breaking down existing classifications of supporters to see where we fit with our Premier League peers.

Thus I’ve broken down other clubs capacities and attendances by the following: season ticket holders, executive seating, away fans, and numbers of “walk ups” which include non-regular supporters, visitors, and match day tourists (like it or not but there is a market there and as long as it doesn’t destroy the atmosphere it shouldn’t be ignored)

Before looking at how achievable the assumptions may be, I’m going to examine how realistic is it to fill a 60,000 seat stadium by using the following breakdown:

season ticket holders

42000

executive/premium seating

5000

away supporters

3000

“walk up” supporters

10000

Total

60000

Using a number of sources (the actual sourcing of the information was much harder than anticipated) I’ve drawn up a chart which breaks down as follows. The “walk up figure required” is the number required to create a capacity attendance.

Team Capacity season tickets executive seating away seating walk up required
Man United 75,731       55,000            9,000       3,100          8,631
Arsenal 60,362       45,000            7,000        3,000           5,362
West Ham 60,000       50,000            5,000        3,000           2,000
Man City 55,097       40,000            5,000        3,000           7,097
Liverpool 54,074 25,000 8,000 3,000 18,074
Chelsea 41,837      25,000            7,000         3,000            6,837
Sunderland 49,000 28,000 3,000 3,000 15,000
Spurs (old) 32,000 25,000 2,000 2,000 3,000
Spurs (new) 61,500 45,000 8,000 3,000 5,500
Everton (GP) 39,500 32,000  1,350   3,000          3,150
Everton (BM) 60,000 42,000 5,000 3,000 10,000

On the face of it all these figures look very achievable.
Season ticket sales would need to match current sales plus current waiting list. We have proved with competitive pricing and innovative concessionary classes for young and old we can massively increase demand for season tickets.

In addition, the experience of all clubs moving into new stadia is that season ticket sales, and their waiting lists increase when a new stadium is built. Arsenal for example, grew their season ticket sales from 20,000 in their final year at Highbury (capacity 38,500) to 45,000 on moving to the Emirates.  Similarly, Manchester City doubled season ticket sales, and the greatest success was actually achieved by West Ham, going from 25,000 to over 50,000.

Whilst I consider the figure of 5,000 executive seats to be lower than I would aim at personally, I hear that this is in the range the club expects to sell, so I’m using that figure. In terms of our peer group it is at the low end of the scale which obviously can impact match day revenues.

Away fan figures are governed by the Premier League rules, so are capped at 3,000.

Finally we have what I call walk up spectators. Now clearly in this day and age they are not supporters who just walk up on the day of the match. Nevertheless for a multitude of reasons, they are supporters who through cost, family and work commitments or  fans increasingly living away from Liverpool who cannot make every match and thereby book tickets on a match by match basis.

Different clubs adopt different models. Liverpool for example rely heavily on this class of supporter through a deliberate strategy of restricting season ticket sales and having huge sales of “tourist/visitor” spectators – currently around 18,000 per match fit this category.

Based on my assumptions, we’d need to attract 10,000 such supporters to each game. That on the face of it might seem a challenge. However we have regularly attracted between 5 and 8,000 such supporters to Goodison Park since the turn of this century and our regular 34-38,000 average attendances. It is only in very recent years with the competitive discounting of season tickets that the numbers of walk ups have declined – not because of demand, but lack of seating. It should also be remembered that the vast majority of these tickets sold at Goodison Park have some of the worst, restricted viewing in the Premier League.

Thus to me, I don’t believe we will have an issue with selling 60,000 seats for all our home games. I’ve not even taken into consideration the likelihood of improved performances, and the real prospect of being a top 4 contender, a Champions League club, and yes, a genuine contender in years to come for the Premier League title.

The club talks of ambition – well let’s not fall at the first hurdle. I’m sure their analysis of demand will meet my own amateur analysis, that a 60,000 stadium can be filled every game.

Putting it in simple terms, we can sell 8,000 fewer season tickets than West Ham, 3,000 fewer executive seats than Spurs, and have 8,000 fewer “walk  up” supporters than Liverpool and still fill a 60,000 seat stadium every home game.

In the words of Mr Elstone “we’re confident that we can fill a considerably bigger stadium”.

“Considerably bigger” needs to be 60,000 otherwise we are selling ourselves short.

But he doesn’t run enough……….

May 1, 2017

the esk

There’s a body of opinion among  some Everton supporters that Lukaku doesn’t run enough, remains uninterested in games for long periods of times, can’t control the ball etc etc etc.

For the avoidance of doubt I’m not one of those supporters, and I want to demonstrate why….

romelu

Often pictures, graphics, numbers or tables can demonstrate a point much more so than words, but first let me explain the logic.

Lukaku is likely to finish the highest goal scorer in the Premier League this season, so I thought it useful to compare him to the other highest scorers since the Millenium.

So I’ve gathered some statistics together including age, team, number of goals scored, number of points won by the highest scorer’s team and critically Premier League position of that team.

Season Player Age Team Goals scored Team position Points
2000/01 Floyd Hasselbaink 29 CFC 23 6th 61
2001/02 Henry 25 AFC 24 1st 87
2002/03 van Nistelrooy 27 MUFC 25 1st 83
2003/04 Henry 27 AFC 30 1st 90
2004/05 Henry 28 AFC 25 2nd 83
2005/06 Henry 29 AFC 27 4th 67
2006/07 Drogba 29 CFC 20 2nd 83
2007/08 Ronaldo 23 MUFC 31 1st 87
2008/09 Anelka 30 CFC 19 3rd 83
2009/10 Drogba 32 CFC 29 1st 86
2010/11 Berbatov 30 MUFC 21 1st 80
2010/11 Tevez 27 MCFC 21 3rd 71
2011/12 van Persie 28 AFC 30 3rd 70
2012/13 van Persie 29 MUFC 26 1st 89
2013/14 Suarez 27 LFC 31 2nd 84
2014/15 Aguero 26 MCFC 26 2nd 79
2015/16 Kane 23 THFC 25 3rd 70
2016/17

The striking point for me is that since 2000/1 the highest Premier League scorer has played for the Champions 7 times and 2nd/3rd teams a further 8 times. None of the Premier League’s top scorers have finished outside the top 4 other than Floyd Hasselbaink way back in 2000/1.

He’s also younger than all the previous top goal scorers other than Harry Kane last year.

His goals are almost exclusively from open play, he’s scored one direct free kick versus Crystal Palace earlier in the season at Goodison.

My personal opinion is that a striker’s first responsibility is to score goals. However I also think Lukaku’s overall game has improved immensely this season, and will improve further over time.

The main point though is he does his primary job, and in my opinion there’s not a better goal scorer in the Premiership at present.

So the scale of Lukaku’s achievement should he finish top scorer is immense. He’s playing for the team that will almost certainly finish 7th, will have gained a point number which for the top scorer has only been lower once since 2000.

The issue for me with Lukaku at Everton is not what he does for the team, it’s what else the team both in terms of tactics and personnel should be doing for him.

Lukaku is doing what great goalscorers do, he scores goals for fun, currently for the poorest team in over 15 years to host the league’s top goalscorer.

The message to the board, and to the doubting fans is we need to build around him next season, and in doing so he’ll score more again.