The truth is that nothing in life that’s worth achieving is achieved easily. It’s difficult from wherever you start.
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.
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!
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 95% all other shareholders would still retain the right to call a General Meeting (requiring 5% 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).
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…..
Categories: Everton finances