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Everton, the board and shareholders

July 29, 2017

the esk

I suppose this could have been written at any time over the last 20 years, but I’d like to examine the relationship between the club, the board and shareholders.

The reason for doing so now as against the more troubled times of the past may not be immediately obvious to the casual observer, but I believe given the change that’s running through the club currently it’s a good time to examine the issue more carefully.


Let’s walk through where we stand currently in terms of shareholders and then Board members.

Shareholders first. Everton have 35,000 shares issued and are currently held by the following (as per the last published accounts):

Blue Heaven Holdings Limited* 17,465 49.90%
William Kenwright 4,256 12.16%
Jon Woods 3,116 8.90%
Lord Granchester 2,773 7.92%
Estate of Sir Philip Carter 714 2.04%
Others 9,792 27.98%

*Farhad Moshiri is sole beneficial owner of BHHL

The Board consists of the following:

William Kenwright Chairman
John Woods Deputy Chairman
Robert Elstone Chief Executive Officer
Denise Barret-Baxendale Deputy CEO
Alexander Ryazanstev Non Executive Director
Dr Keith Harris Non Executive Director

The Board holds or represents the holder of, (if we accept that Ryazanstev is a director representing the interest of Farhad Moshiri) 70.96% of the shares of the Company. A figure which has roughly reflected the number of shares the board has held or represented for many years, certainly as far back as May 2004 when Anita Gregg was elected to the Board.

Thus, it is fair to say that shareholders representing 30% of the issued shares have had little or no say in the management of the company for over 13 years.

I can see the argument that the Company as a private company has very few obligations to report to or listen to the thoughts of the smaller shareholders other than through the General Meetings and annual report and accounts. However as has been discussed before, Everton, like other football clubs are unlike usual companies. Given the connection between club, community and fans (some of whom are shareholders) there’s arguably an equitable obligation (even if not strictly a legal obligation) to do more in my opinion.

The relevance of this debate, and the timing of it, is due to the extra-ordinary changes that are occurring within the club.

We have entered a significant expansionary phase in our finances, and the club in the next few years will bear very little in resemblance to the club of just a couple of years ago.

Be it the loan (£80m) provided by Farhad Moshiri to repair the balance sheet, the credit facility (£60m) provided by ICBC, or the significant funds (£3-400m) about to be raised to fund the stadium, shareholders representing 30% of the club have had little or no input, or indeed information about how these changes affect the business that they continue to have ownership of.

For large quoted companies there is a code imaginatively call the UK Corporate Governance Code which examines and suggests best practices for large businesses. Whilst the provisions do not apply to a company such as Everton there should be no reason why the principles behind the code shouldn’t form part of Everton’s structure, accountability and governance strategy.

A key area is communication. The code offers the following principle:  The board should keep in touch with shareholder opinion in whatever ways are most practical and efficient. I have to ask how the current board are achieving this? Is it through the Shareholder’s Association – although not a member myself I do not believe that to be the case. Perhaps several of the other more significant shareholders are privy to more than the 1500 or so small shareholders who have to rely upon the General Meetings and Report & Accounts.

My question is in this age is this sufficient information and engagement given how easy it is to communicate these days?

One area the code is very clear on is the area of independent directors, explaining what is an independent director and the benefits of having such.

There’s a recommendation that the board should have an appropriate combination of executive and non-executive directors (and, in particular, independent non-executive directors) such that no individual or small group of individuals can dominate the board’s decision taking.

 As can be seen from the board composition above, Everton fall significantly short on this provision with only one potentially independent director (Dr Keith Harris) whom depending upon the source used and the reasons for him being on the board may not be independent at all.

The Board currently has two senior executives (the CEO &  Deputy CEO), two directors (the Chair & Deputy Chair) both still significant shareholders, and Ryazantsev who whilst bringing much-needed external expertise to the club’s affairs clearly represents the interests of Moshiri. With the addition of Harris mentioned above, then there’s little evidence of independent representation.

Since Moshiri acquired his 49.9% holding we’ve seen a huge change in our finances (part event-driven but more significantly due to his ownership), a huge change in football management and playing personnel, plus the growing certainty of a move to Bramley Moore Dock.

All huge positives, however the one area we’ve seen no significant change in is the governance of the club and the representation of and communication with the owners of 30% of the company.

In reference to governance, I mean bringing independent talent into the boardroom to challenge and question (constructively) the direction of the directors who are either executives, major shareholders or representatives of major shareholders.

 We are a growing business that needs fresh talent and independent thought in our board room. As a growing business we face fresh challenges requiring different skill sets from the survival strategies of the last 20 years or more.

We also need better communications, a common theme with all stakeholders, but none so more relevant than with the minority shareholders, who in all likelihood, will support the direction of travel, yet would appreciate the courtesy and commonsense of a more inclusive strategy and engagement.

 We are progressing as a club and business no doubt, yet on board composition, several aspects of governance, and small shareholder communication and engagement still way off the pace.

NSNO from the board room down.

Updated thoughts on stadium financing, the ICBC deal and potential funders of Bramley Moore

July 15, 2017

the esk

Who will be financing the Bramley Moore Stadium development?

Bear with me on this article. It’s a little technical, but hopefully written in an understandable manner – it draws conclusions from what is in the public domain which may indicate the possible providers of the stadium finance.

Just over 3 months ago the Liverpool City Council released a relatively short paper outlining the proposed (but not agreed) “heads of terms” for providing financial guarantees to assist Everton in finding finance and most importantly lowering the cost of the financing through the provision of a guarantee. The City backed guarantee will be paid for by Everton in annual payments to the City providing the City with much needed income (around £4.5 million per annum)

As you would expect much of the detail in the paper outlined the various security measures required by the City Council in order to provide the guarantee. The main measure is what has been called a security package and comprises of two accounts:

The first is a “Cashflow account” from which on 31st August each year the annual rent will be paid to the SPV.* This is secured by Everton paying in all season ticket revenue, hospitality fees and naming rights income into this account. Only when the rent has been paid will Everton have access to the remaining funds in the account.  (Note this may be the reason for Everton selling the maximum number of season tickets it can whilst still at Goodison Park)

SPV  definition*: 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 second account is called the “Rent Deposit Account” and that provides security for the Council by requiring Everton to make payments for the first 5 years of the lease. If we happened to be relegated within that time we would use our parachute payments to meet our obligations.

How much is required to fund the “security package”?

In page 3 of the Council document there’s a line which describes the security package “as three times the level of rental payments”

Now the rental payments haven’t been agreed or disclosed as yet, but simple calculations of loan repayments over 40 years, and the inclusion of the guarantee fee suggest rental payments of £15-20 million a year initially.

Thus it’s reasonable to assume that the security package provided will be in the order of £45-60 million. This is the reason for my comments on twitter that the club had a significant cash call in the next year or so.

ICBC Credit Facility

At the end of June, Everton announced a ground-breaking deal with the Industrial and Commercial Bank of China. ICBC is recognised as the largest bank in the world by assets and tier-1 capital, and is owned by a company called Central Huijin Investment, which in turn is owned by the Chinese Government. Given the importance placed on football by the Chinese President, Xi Jinping – the importance of this deal should not be lost on anyone.

The deal is to provide £60 million of credit over a three year period “to support the club (Everton) in managing its working capital requirements throughout the season”. There is provision within the documents to increase the line of credit for any legitimate purpose.

As security for the deal ICBC have numerous charges including a fixed charge on our broadcasting revenues through the Premier League, charges over several bank accounts, security on land and a floating charge on all other assets.

So, on paper we have two different forms of credit and funding – the stadium secured by the Council guarantee and the security package (secured against season ticket and naming rights) plus a £60 million facility provided by ICBC secured against our Premier League payments plus other assets belonging to the club. All of that seems relatively simple and logical.

However, on the day of the City Council announcement the Mayor of Liverpool, Joe Anderson said “Liverpool Council will have first take on season tickets, on the players themselves, on the naming rights, on the ownership of the stadium and of the television rights.”

Now there’s no doubt that he’s correct over the season ticket funding, naming rights and ultimately the Bramley Moore stadium itself but he can’t be correct over the players (other assets) and the television rights (Premier League payments) as they’re charged in favour of ICBC.

The question I suppose is that is this just loose language by the Mayor or does it indicate closer relationships in the future?

The City Council provides the guarantee for the SPV to provide the finance for the stadium, that is clear. In the event of default the City Council guarantees payment to the SPV, and in doing so would take control and ultimately ownership of the stadium. In doing that the City Council would then seek to recover any of Everton’s remaining assets (of course, this is largely theoretical – I’m not suggesting it’s going to happen). I’m sure the guarantee would allow the City Council to recover what it could in the event of it being called upon.

That’s fine except the ICBC have a charge over Everton’s other income and assets, and I doubt they would cede their senior position in a fire sale.

In the press release issued in relation to the ICBC deal Sacha Ryazanstev was quoted as saying “The new relationship with ICBC also represents an important step for us in the Chinese capital market, and we hope to develop further commercial opportunities in China in the future”.

Thus, the question I am posing is this:

Is the ICBC credit facility a way of Everton funding their security package for the stadium financing without impacting on-field activities?

If it is, then the natural extension of this and other comments would be that the stadium financing may be being provided either by ICBC or through ICBC connecting with other Chinese investors. The nature of the investment would be extremely attractive – long term debt in a foreign currency (to them), a good credit grade with high security, and index linked throughout the 40 year period.

I’m aware the above is conjecture and I’m making assumptions, but there’s a logic to the final assumption for certain. I’m hoping the answer will be provided very soon, (rightly or wrongly) as we are already beyond the initial time frame set in the document by the City Council.

Just as matters have warmed up on the pitch in recent weeks, off the pitch is likely to get just as interesting and fast moving, what a time to be an Evertonian!

Analysis of Everton’s £60m, 3 year facility with ICBC – updated 7th July to include charge information

July 5, 2017

the esk

This evening the Liverpool Echo broke news that Everton under the direction no doubt of Moshiri and Ryazanstev, have negotiated a £60 million credit facility for three years with ICBC Bank. ICBC is owned by a company called Central Huijin Investment which is owned by the Chinese Government. As such it is the world’s largest bank by total assets, and  this is their first Premier League deal.

The credit facility is totally separate from the financing of the stadium, which hopefully will be announced in the near term. It is for working capital purposes – ie normal business expenses and player acquisitions. It confirms the comments made in late March that the stadium would not affect the ability of the club to compete in the transfer market this summer.

The key parts of the facility are as follows:

  • 3 year, £60 million facility
  • The facility will be for working capital purposes, not for the stadium
  • The credit facility is secured against Premier League revenues firstly, and then other assets of the club.
  • The loan terms will be at a much lower rate than previous lending arrangements through Vibrac and Rights and Media Funding.

Details of the charges can be found here:

It does raise interesting questions in terms of the SPV being created, more comments when those details are released.

This is a hugely significant development. It opens up Everton to to the capital markets of China at a time when there is huge political interest in football both in China but globally.

Significantly it differs from other injections of Chinese capital in the Premier League and elsewhere in that it is done through lending rather than the issue of shares, as per other clubs. It is consistent therefore with the wishes of Farhad Moshiri not to issue more shares in the club, diluting smaller shareholders in order to fund our ongoing expansion.

From a footballing perspective it also provides an explanation as to why there is no pressure to sell Lukaku or Barkley (assuming we wish to keep him) despite our incredible spending spree in the transfer market.

Now several Blues may be concerned that this is a high risk strategy,but in my opinion it is not. It demonstrates two things to me.

It is a return to the world of major institution funding for Everton, an avenue closed for a number of years in the recent past.

Firstly a major bank, the worlds largest bank has confidence in providing debt (albeit secured against future Premier League revenues) to the club and in particular the strategy put forward by Moshiri. The fact that it is a Chinese Bank speaks volumes for our reach, and the status of the club financially.

Secondly, it shows huge confidence by Moshiri and the board that we are going to drive revenues forwards to meet this obligation, and that we have significant investment opportunities be it players or otherwise in front of us.

I’m finding it difficult to overstate the significance of this, in terms of the facility, the vision to allow it, the partners concerned and the potential for the future. This is truly a moment when we can say good bye to the old Everton dealing in the murky back waters of the BVI.

This is ground breaking in every sense, and a further demonstration of the new world in which Everton operate. As innovators throughout our 139 year existence, we have broken new ground again.

Not only are we excelling in the transfer market, we are now mixing it in the capital markets without cost to shareholders. It is a hugely significant moment in our history and further demonstrates our direction of travel .



Football shirt manufacturer deals – a barometer of a club’s appeal

July 1, 2017

the esk


 Shirt manufacturer deals are big business, and highly topical with the new Chelsea Nike deal starting today, as indeed is the new Spurs’ Nike deal.

 Everton are contracted to Umbro until the summer of 2019, having signed a five year deal back in 2014. As is usually the case, no official figures were released but it was hailed as our largest deal to date, doubling the previous Nike deal worth £3m a year, with an estimated value of £6m p.a.. It is thought that part of that revenue is shared with our distributors Fanatics (previously named Kitbag).

 By comparison our competitors, the remaining members of the magnificent seven have the following deals:


Manchester United £75 m a year with Adidas, contracted to 2024
Chelsea £60 m a year with Nike, reported as a 15 year contract to 2032
Arsenal £30 m a year with Puma. Reportedly switching to Adidas in 2018, estimated £60-90 m a year
Liverpool £28 m a year with New Balance, reported as a 10 year contract to 2027
Spurs £25 m with Nike, “multi-year” contract
Manchester City £20 m with Nike. Reportedly switching to Under Armour in 2018

 As I tweeted yesterday, we’ll earn circa £12 million in the next two years whilst Manchester United earn £150 million, and even Spurs will earn £50 million from their shirt manufacturer.

 Now, one of the initial thoughts is that the deal values are tied to shirt sales. Whilst there’s an element of truth in this it is not the full story as I will explain in a few moments:

Average shirt sales per annum in last 5 years plus shirt sales in 2016:

Team Av. shirt sales pa over 5 yrs Shirt sales in 2016
Manchester United 1,750,000 2,850,000
Chelsea 900,000 1,650,000
Arsenal 835,000 1,125,000
Liverpool 852,000 805,000
Manchester City 342,000 n/a
Spurs 268,000 n/a
Everton 80,000 n/a


It’s clear from the above shirt manufacturer deals aren’t just about the number of shirts sold – for example the value of the Manchester United/Adidas deal equates to over £26 per shirt sold in 2016, and in the case of Everton/Umbro  equates to £75 a shirt because of our very low shirt sales number – more on that later.

 Shirt manufacturer deals are about global exposure for global companies. Because of their knowledge of global sports’ markets it’s a fair assumption that Nike, Adidas, even Umbro know the value of association with leading sporting teams.

 Thus, for the large part, the amount a club receives from a shirt manufacturer relates directly to the club’s global presence.

 There are a number of factors that determine global presence. As we’ve discussed on Everton Business Matters, being a regular in European competition particularly the Champions League helps hugely, as does, of course, being in the Premier League. Participation in these competitions guarantees exposure.

 However, there’s other factors too. If it was just being in the competitions then most regular participants would receive similar amounts and sell similar numbers of shirts.

The biggest factor must be the brand and reach of the club itself.

Take Manchester United, now I know they’ve won huge numbers of trophies over many years, but their commercial success is down to strategic thinking. United segment the market place, looking for global partners as their major sponsors – Adidas and Chevrolet for example, and then drilling down to regional and local levels with their other commercial partners. As a result they strike multiple deals, attract very strong brands to associate with, and offer potential sponsors multiple routes to multiple markets – a compelling proposition for anyone seeking football as a means of advertising and sponsorship.

In terms of what appeals to Adidas, United tick every box, a successful football club, a huge brand, enormous exposure and association with other premium brands in the sponsorship portfolio.

 I’d suggest Chelsea follow a similar strategy and similar appeal to sponsors and shirt manufacturers. Arsenal and Liverpool to a lesser extent and this is reflected in their contract values. It will be interesting to see the value of the Manchester City deal in 2018.

 The other factor must be the abilities of the clubs themselves to negotiate contracts and sell their own proposition. Spurs for example would score highly here, their commercial acumen is widely acknowledged and I’m sure has played no small part in the deal they have with Nike.

 I’d imagine the Spurs/Nike deal is sold partially on where Spurs stand today, but most likely on their plans and expectations for the near future. I’m sure Spurs will have been able to convince Nike that with their new stadium and plans for improving performance on the pitch this potential should be reflected in the price of the Nike contract.

 With long term sponsorship arrangements, you are not only selling where you are now (to the sponsor/shirt manufacturer) but where you anticipate being over the duration of the contract. These expectations have, of course, to be backed by evidence of the planning and investment in the future in order to meet the claims made. Assuming they are realistic and attainable then you can extract value even if your club is not yet at the level proposed or planned.

All the above is fine, but what about Everton?

 We offer the exposure that the Premier League provides, and this year offer Europa League competition which will obviously increase our exposure and future attractiveness.

 As we’ve discussed on Everton Business Matters, and in my last article on here relating to Everton, the brand – we offer so much more than I believe has previously been presented. I don’t propose to repeat the argument in the last article but we have many, many positive attributes and facets to our character and brand that is not reflected in the value of our commercial deals nor the identity of our commercial partners.

 The case for breaking the existing relationship early is compelling in my book (as done by Chelsea, and potentially by Arsenal next year). I’ve obviously not had sight of contracts, but breaking in the final year of a 5 year deal shouldn’t be too expensive, and even if the terms were onerous, such should be the increase in value of a new contract that those costs should be covered.

 Not only would breaking the deal create financial benefits, it would demonstrate a new confidence in the club itself. It would demonstrate that we were proactive, had the ability to promote ourselves attractively and have the substance behind the arguments to gain the support of major sporting companies.

Spurs, whilst ahead of our game in terms of development and recent achievement, have proved it possible to enormously increase the value of their commercial deals (the Under Armour deal was worth £10 m a year, Nike now £25 m), yet I don’t believe have as strong and attractive a brand as we have if presented properly.

Thus, if the executive of the club firmly believe, as I do, that the prospects of the club are now significantly more attractive, and that our global presence is about to expand hugely we should be calling in the executives of all the major manufacturers to name their price for being associated with our future success.

 As the title of this article says, shirt manufacturer deals are a barometer of a club’s global appeal. The Everton barometer was last set back in 2014, it’s time to re-set it to reflect where we now are, and where we are going. In doing so the additional funds will help us on that journey, further closing the gap with our peers.  By contrast to not do so is a wasted opportunity, allows our competitors to move further ahead and may suggest we are not as confident commercially as we should be.