Here and on EvertonBusinessMatters we have discussed many times the various funding possibilities for the new Bramley Moore Stadium. I thought it useful therefore to update previous articles, based on the most recent information and current situation.
It is widely accepted (and first reported here) that an iconic stadium designed by Dan Meis is likely to cost, as a ballpark figure, in the region of £500 million.
It is clear that Everton will have to look beyond its current resources to fund the stadium. Additional funding can only come from two, possibly three additional sources.
One is borrowing funds, the second is further capital injections from either existing shareholders, new shareholders or Farhad Moshiri exclusively, the third is contributions from sponsors or naming rights partners.
Let’s start with borrowings first. Borrowings are likely to be the largest single contributor to the funding of the new stadium.
City Council or private sector?
When the former CEO, Robert Elstone announced the 2/3rds funding of Everton’s stadium facilitated by the City Council, at the beginning of January 2018‘s AGM, there was an audible gasp from the shareholders present. For some 9 months we had believed that the City Council would provide a guarantee (in return for a substantial fee) which would allow Everton to borrow at advantageous rates from the private sector.
However, as Mayor Anderson was to subsequently confirm, as part of the City’s “invest to earn” scheme it became apparent that the City Council could borrow the money on Everton’s behalf from a central Government source, the Public Works Lending Board. In doing so it would reduce the risk to the City Council (by virtue of a reduced level of borrowing over a shorter time period) whilst increasing the revenues of the City Council for this facility from around £4 million to a minimum of £7 million per annum.
It was proposed that Everton borrow £280 million repayable over 25 years.
This seems like a truly win-win scenario, Everton get a significant proportion of their funding at market rates, and the austerity hit City Council receive in excess of £7 million per year for 25 years to spend on essential services.
In March, Joe Anderson on EvertonBusinessMatters set out a timetable with three key points, funding agreed in the summer, planning application in the latter period of 2018, “spade in the ground” in mid-2019, concluding with a completed stadium for 2022/23 season.
I should make it clear, that Joe Anderson has been the greatest public advocate of the stadium and the proposed funding scheme involving the City Council.
From the information provided (in the public domain) from Joe Anderson, the club would enter a scheme which provided £280 million repayable over 25 years.
When looking at the detail, the club (as with the Prudential loan in years gone by) would be tied into a long-term arrangement with significant penalties for re-structuring or early repayment. The benefit would be providing desperately needed funds for the City and a long-term relationship with the local authority.
Devil in the detail
As always though, the devil is in the detail. Based on the details provided in the March 2017 guarantee heads of terms, the conditions appear quite onerous in terms of the security and security deposit required. It is also possible that additional “covenants” could be applied, either restricting expenditure or putting conditions on future sponsorship arrangements.
It is possible of course, that private sector borrowings (banks or other financial institutions) could carry similar conditions in terms of security and covenants. However, I am certain that there would be greater flexibility in terms of the term of the loan, and the ability to repay early or refinance. Spurs for example, principally have a 5 year loan although that can be re-paid or re-financed at any time without penalty.
The three key points, financially, with regards to the City Council versus private sector lending relate to price, conditions and ultimately scrutiny. It might be that the City Council offer is just too difficult to justify in the current political environment and require too much scrutiny. When looking at other urban regeneration schemes similar to Liverpool it’s often cited that the lack of speed and the degree of scrutiny required pushes developers into the private sector rather than use available public funding.
It just might be that despite the benefits to the Council and therefore the City, political considerations overtake the obvious economic benefits. Unfortunately, partisan politics can get in the way of what should be viewed as a civic improvement project of great significance.
The second form of financing in addition to borrowings, comes in the form of capital investment into the club providing capital to meet the difference between borrowings and the total cost.
Farhad Moshiri, as is now widely known has already invested £150 million into Everton through an unsecured, non-dated loan structure that is now considered by the auditors to be equity. It is unlikely that additional funding of perhaps £200 million to meet the final costs of the stadium would be done in the same manner. I suspect, as spoken about previously, this would be done by way of an issue of shares. The new shares issued in return for cash and the opportunity to fund the stadium would be offered to all shareholders, but in all likelihood, be almost exclusively taken up by Farhad Moshiri.
As a result, alongside his acquisition of Kenwright’s, Woods’ and Abercrombie’s shares he would become very much the majority shareholder, likely to be owning more than 90% of the club. This would be further evidence of his commitment as a long-term investor in the club rather than someone looking to profit from the stadium development.
The third element of funding and one which is looking less and less significant over time is naming rights. Unless there is a benign owner-based sponsor the naming rights market in England looks very weak (Arsenal the exception). It is extremely notable that Spurs have not attracted a naming rights partner for their new stadium despite only being weeks from their opening. The conclusion must be that the terms offered by potential partners were not attractive enough. It is therefore likely that Everton would face similar issues, resulting in borrowings and capital funding by Moshiri as the likely sources of financing the stadium.
The need to maximise income after financing costs
Whatever the source of the borrowings, be it the City Council or financial institutions, they will form a substantial part of the overall funding. The repayments required put significant pressure on the income the stadium can generate. The stadium must make significantly more revenue after financing costs than Goodison Park to make financial sense.
The level of income from the stadium is factored by the capacity, the price of tickets and the number of corporate/premium seats sold. In addition, the number of other income generating events other than football is also important. However, given that the club appears to be conservative on the number of premium seats, and will wish to retain the very competitive pricing policies of recent years, it is critical that the capacity matches the maximum the site can physically accommodate.
I believe we will have full clarity on the financing arrangements before the end of the summer holidays. Let me stress, the issue is not whether the stadium can or will be financed, but a question of who are the financing partners. As said on EvertonBusinessMatters, the answer to who is providing the capital and how much, and the resulting size of the stadium, will give a very clear indication of who we are as a club, our ability to attract capital, and the skills and ambitions of those in charge.