If all of this was easy, it wouldn’t be worth doing

The truth is that nothing in life that’s worth achieving is achieved easily. It’s difficult from wherever you start.

crest

A year ago we had a significant financial base from which to start; we had sellable players in Lukaku and Barkley in particular (even though the stated intention was to keep our best talent), and we had what was considered to be a formidable pairing of Koeman and Walsh to identify prospects, attract players in and with perhaps the help of Bill Kenwright as arch-negotiator from time to time strike some decent deals.

Whilst perhaps for the first time in our modern history we had the financial resources, we clearly had no strategy, no joined-up thinking and frankly Koeman and Walsh were left without “checks and balances” resulting in an almost complete waste of resources at an enormous opportunity and financial cost. The lack of balance in the squad and the “must have Sigurdsson at all costs” strategy was ample proof of a truly dysfunctional recruitment policy.

12 months on, with many lessons learned, we are perhaps a little wiser under the footballing directorship of Brands and a soon to be announced Head Coach in Silva.

Resources for a spending spree?

One thing for certain though is that in the absence of an enormous contribution from Moshiri, we will not have the financial resources to match last year’s spree.

The first requirement must be to thin out a bulky squad that has many aged and non-contributing members using valuable resources to no benefit to the club whatsoever.

Robert Elstone, the former CEO, projected a total wage bill of £139 million (up from £94 million) for the 2017/18 season. Conservatively Klaassen, Rooney, Bolaise, Williams, Besic, Schneiderlin, Robles, Martina, Mirallas and Sandro account for near 1/3 of that wage bill (circa £45 million). There are of course, others who could be released but of that list, with the possible exception of Schneiderlin in his best form, who is going to be missed and perhaps more pertinently who is required by Brands and Silva?

Elstone’s figures suggested an operating loss of around £14 million this year (against a profit of £43.6 million in the previous year). Assuming transfer costs and receipts are spread over 2 years and there’s not a massive change in the balance between creditors and debtors the club will have spent anywhere from £50-60 million more than it received (ie a significant negative cash flow).

That negative cash flow was funded by Moshiri’s £45m injection post May 2017, the Santander short term loan against the outstanding cash from the Stones’ and Lukaku sales (£32.5 million) and assuming funds had to be put aside for the exchange of contracts for Bramley Moore (£22 million) the ICBC facility arranged last summer.

Funding sources

Funds for transfer activities this summer can come from a limited number of sources. Player sales are unpredictable in their timing and valuations (I reckon the list above could gross £72 million) but they’re also expensive in that agent’s fees must be accounted for. As an aside I believe the club could do itself a real favour by showing agents’ fees as a separate item in the P&L rather than lumping them in with the unexplained “other operating costs”.

Back on topic, player sales are not in isolation a reliable source of funding

In the past we have made use of debt, but in the lead up to an expensive stadium move, it should be assumed that any debt facilities the club can negotiate for itself would be reserved for the stadium and the obvious working capital requirements in the build phase.

The final and third option is for Mr Moshiri to put more money into the club to fund transfers. As is very well known he has already injected £150 million into the club without security of a repayment schedule.

It’s also certain that he will have to put cash into the club for Bramley Moore. Using the figure quoted by Bill Kenwright at the AGM of a total cost of £500 million, with funding of £280 million via Liverpool City Council, there’s still another £220 million to find.

If transfer funds, his existing investment and the likely contribution required for Bramley Moore are added up, we arrive at an eye-watering figure of perhaps £450 million.

Thus, we might be looking at an issue of shares worth £225 million in the near term with another similar raise in a couple of years after the Council funding is spent on Bramley Moore.

Using these figures this would convert his existing investment of £150 million into shares and provide £75 million of funding for transfers.

There are of course, many variables, and I’m just suggesting one scenario. Based on the above, a valuation of the club at £350 million (£10,000 a share) would see the number of shares rise from 35,000 to 57,500.

It’s possible (even probable) that Kenwright, Woods and Abercrombie would sell their shareholding as per the options agreement giving Moshiri a total of 25,746 (73.56%) before the rights issue.

Further board changes

Their share sale would inevitably lead to further changes and recruitment in the boardroom with only Barrett-Baxendale, Ryazantsev and Harris remaining from an initial six some months earlier. I’d like to nominate Brands please!

skysports-everton-farhad-moshiri-premier-league-owner-goodison-park_3826136

The above being the case Moshiri would then have a maximum of 48,246 shares (83.9%) if no other single shareholder took up their rights to the new shares.

Critically at this stage, as this is below 90% all other shareholders would still retain the right to call a General Meeting (requiring 10% of the shareholding) and Moshiri would not be able to force minority holders to sell against their wishes. I stress that I doubt that is his intent given the very clear re-assurance he provided John Blain (Chair, EFCSA) in the summer of 2016. Subsequent funding (the second traunch in perhaps two years) would see Moshiri go above 90%. However I’m sure there’s an agreement or two to be made to ensure that minority interests are protected.

New ownership almost inevitably means teething problems at best

I said at the beginning if it’s easy it’s probably not worth doing. It seems inevitable that almost every new owner or investor in a football club regardless of their knowledge, intent and intellect have to experience a difficult first couple of years coming to terms with the peculiar business of football.

The very best learn from their mistakes, make the necessary changes in personnel, continue to provide the funding, and if they’ve got good enough people on and off the pitch make a success of it. Failure to continue funding or not attract the right people into the business can have disastrous results (Lerner at Villa, Short at Sunderland for example).

Re-boot!

We’re not in that position, we’ve had an expensive year because of the mistakes of last summer. Moshiri has the resources to fund us now, and the remainder of Bramley Moore. With the acquisition of Brands we have a Director of Football that will reduce the financial burden placed on the club currently. With Silva we will have a modern coach playing attractive football. One would hope he’d provide the coach with players to increase our revenues through higher league placings and regular European competition plus some silverware. That’s for the future though – this summer is about recreating the platform to re-boot the Moshiri revolution.

To fully re-boot we need learn the lessons of last summer, provide the funding to make good the mistakes, ensure the delivery of an iconic Bramley Moore, recruit well on and off the field (hence why Brands is so important) and finally bring about a complete revolution in the boardroom bringing in people who relish the challenge and are equipped for success…..

4 thoughts on “If all of this was easy, it wouldn’t be worth doing

  1. Excellent summary Paul of where we stand and the challenges we face for both the short and long term.

    As you state the follies of last summer – and the almost wanton spending of money on ‘names’ rather than the qualities and attributes required to make the squad more rounded, stronger and competitive – have bitten the club in the backside.

    Reducing the size of the squad and the wage bill might be easier said than done, but done it must be if we are to structure the squad properly in line with the style of football that Marcel Brands and Marco Silva will hope to bring to the fore.

    As John, Rodger and yourself have said many times on the EBM podcasts, there is much to be done off the field of play too and a clear, long-term and all encompassing marketing strategy to take the club global is an absolute necessity.

    We have to increase the revenue streams in all corporate and partnership areas to not only augment the TV money, but reduce any perceived dependence upon it.

    The funding of BMD is crucial to the future of the club, we need to see the designs and plans to be able to ‘sell’ the WOW factor of an (60,000 capacity ?) iconic, state-of-the-art, riverfront stadium.

    So as well as a need for world class product on the field certainly by the time BMD comes on stream, the need for a world class team of businessmen, negotiators and sales personnel to take Brand Everton out and around the globe is right now.

    There can be no more delay… the strategy must be defined, the right, dynamic and hungry-to-succeed and exceed personnel empowered and big targets set. The club must clearly define its intentions and demands throughout the club and get to work now.

    No more second-best, conservative, safety-first thinking, when the going gets tough, the tough need to get going… and that time is NOW !!!!!!

    Liked by 1 person

  2. Excellent as ever Paul, it’s clear that Everton FC lack people with the ability to forward plan , indeed to think with a football business brain.
    We can only hope that the expertise the club lacks is recruited this season, it needs to be, with the driftwood cast firmly adrift.
    Thank you for sharing your comprehensive football and business acumen with us, can only hope the Club are looking close to home.
    #EvertonBusinessMatters

    Liked by 2 people

  3. Good read as always. Totally agree that mistakes were made Koeman and Walsh. There was no plan here they were just thrown together and it was hoped they would magically produce results.

    With Brands / Silva we will finally have a proper Director of Football / Manager duo in place. I think with the aim to work with younger players (Antonee Robinson at left back) behind my own personal band wagon Diego Laxalt from Genoa (the most underated left back in europe who we could get cheap, but if he plays for Uraquay in World cup then it will increase his price). I would add Baines to your list of players to get off the wage bill (sad to say) along with Stek.

    Spot on Brands should be on the Board.

    Like

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