On the 20th December 2018, Everton put forward a proposal (not decision) subject to further consultation and planning approval to design and build Bramley-Moore with an initial capacity of 52,000.
I’ve plenty of reasons to disagree with the proposal but for the purposes of this article I’ll focus on the business case and the impact a smaller capacity has on ticket prices (particularly season tickets) in just ensuring we remain on par as far as match day revenues are concerned after financing costs.
The justification for this decision was cited by Colin Chong (Stadium Development Director) as “it is commercially and financially sustainable”.
The club also offered the potential for the capacity to rise to 62,000 although with the huge caveat “it is not possible to say if and when any capacity expansion to an absolute maximum of 62,000 would take place”.
Therefore, from an analytical perspective, this is no more than a wish, an expression of what is theoretically possible, but for those holding out the hope for a 62,000 capacity, let’s be clear there are no defined plans to do so. As such it does however demonstrate that the site could accommodate 62,000 and that there would be reasonable confidence of a successful planning application at that level.
Thus, if the business case supports a capacity anywhere between the two limits (52,000 and 62,000), then the size of the Bramley-Moore plot and the likely response of planners should no longer be reasons not to achieve a higher capacity.
The business case:
In the simplest of terms any business case for a capital investment looks at:
(i) the increase in demand required to meet the capacity of the new facility (be it a stadium, a form of transportation or a manufacturing facility – the theory is identical)
(ii) the costs of building the facility, including the amount of capital required, the cost of that capital & the ongoing maintenance of the asset once built.
There are of course, many other factors, not least including the macro-economic conditions and the competitive environment the business finds itself in, and how it must respond to maintain or improve its position relative to its peers.
The primary reason for any capital investment is ultimately to generate sufficient revenue to (i) meet the cost of the investment and (ii) generate significant additional revenues for use by the business or shareholders as appropriate.
So enough of the theory, let’s look at some numbers, starting with the cost of the stadium and the capital required to build it:
Costs, capital required and likely costs of that capital
It appears to have become the accepted wisdom that building a stadium at Bramley-Moore will cost north of £500 million. This seems an extra-ordinary figure for a 52,000 seat stadium but there are special circumstances relating to the location. The site and ground preparation costs are known to be expensive, given the nature of the existing dock and the heritage considerations on such a sensitive site. It is thought that the preparation costs are in the region of £120 million leaving £380+ million to build an iconic stadium housing 52,000 fans with the theoretical ability to expand to 62,000. That equates to more than £7,000 a seat which I am told is at the higher end of the scale for building football stadia (especially as preparation costs are stripped out of this figure). I am also told that building with an initial capacity of 60,000 or above places a disproportionate level of additional costs on the additional seats – more on that later, but I think that is a false argument when the benefits of a greater capacity is looked at in its entirety.
Using the £500 million figure, how much is likely to be borrowed and at what cost? Not being party to the discussions it is impossible to give a precise figure but borrowings of at least £300 million should be expected. The cost of those borrowings are again confidential but an estimate of 5.25% should not be considered unreasonable.
The difference between what is borrowed and the final budgeted cost will be met by the shareholders (most likely just Farhad Moshiri), any contribution from naming rights or other commercial partnership, and any contribution from the public purse given the infra-structure and regional development aspects of the stadium and the wider development. Therefore Farhad Moshiri is looking at an additional £200 million investment less any contributions from the sources mentioned.
Bearing in mind one of the primary reasons for building a new stadium is to increase the revenues available to the football team, it’s worth considering the possible repayment costs. There are a range of values depending upon how much is borrowed and at what cost. I’ll be using £300 million at 5.25% as a base case but will show other values also:
Annual repayment costs of £300 million loan at 5.25% over 25 years = £19.9 million. For every £25 million increase (decrease) the annual repayment increase (reduction) is approximately £1.66 million. An increase (decrease) in the agreed (and then usually fixed) interest rate of 1% increases (reduces) the annual payment by around £2.2 million a year.
So, going with the above calculations, I’m assuming capital and interest repayments of £19.9 million a year with the above variations if the quantum and costs are different.
Match day revenues
I constantly hear that match day revenues are not important anymore because of the huge revenues from broadcasting. This is palpable nonsense. Non-broadcasting revenues (including match day revenues) are the key differentiator between the largest clubs, middle ranking clubs and also-rans.
There are multiple factors for such a wide variation in match day revenues from clubs competing in the same league. These include capacity, numbers and types of premium seating, numbers of season tickets, the pricing of season tickets, the pricing policy relating to different age categories (children, young adults, senior citizens etc), the price of walk up tickets and the competitive position of the club and location.
One of the interesting ways of comparing club’s pricing policies is breaking down the overall match day income into income per spectator per match:
Everton have had an admirable policy of holding prices as low as possible (£17.64 (2017/18) per spectator per match versus Liverpool’s £58.64 (2016/17) for example, arguing that having a full stadium and attracting a younger fan base is a justifiable business decision given the capacity and condition of Goodison Park. It is also a result of the very low level of premium or hospitality seating available at Goodison (less than 4% of capacity) and the maximum number of season tickets sold under Premier league regulations. This is something I largely support, but how realistic is it in a new stadium with debt to be serviced and increased revenue expectations attached ? The policy of not increasing prices, maximising season ticket sales and concessionary bandings mean there has been no increase in overall match day income since before 2010/11. From the public comments made by the club, with the desire to keep tickets affordable it seems unlikely that there will be a significant uplift in the figures of the last decade whilst remaining at Goodison. This will need addressing to make Bramley-Moore, in Colin Chong’s words “commercially and financially sustainable”.
The requirement to increase net revenues from the new stadium.
As expressed above one of the key reasons for building a new stadium is to increase revenues available to the team.
From the above, it is clear that the 52,000 have to generate £38 million (debt costs plus current revenues) just to stand still. Using 19 Premier League games, that equates to revenues of £2,000,000 a game just to stand still.
How is this possible? Well firstly we have to look at the breakdown of types of fans attending a 52,000 capacity. I’d model that it looks something like:
I’m going to suggest as in previous models, premium seats generate £175 per head (ex VAT), Away supporters £25 (ex VAT), and walk up supporters an average of £40 (ex VAT) per head. That leaves season ticket holders who constitute the bulk of the home support.
Based on that assumption, the average revenues required from a season ticket per match is £26.30, which is the equivalent £500 (bar 30p) for the entire season. For the season ticket holder, 20% VAT must be added to these prices, taking the average price of a season ticket to £600.
By way of comparison I estimate the current average season ticket price to be in the region of £270 (inclusive).
Now that is the average price, meaning it includes children, young adults and senior citizens – all of whom currently pay significantly less (from £95 to £299) than the full adult price (from £420 up to £560) . It also only generates enough cash to keep us in the same net position as we currently are at Goodison.
To get to the level Spurs were in 2016/17 (£40 million match day revenues) for example would require the 52,000 to contribute another £1.1 million a game, slightly more than another £21 (ex VAT) per home spectator.
Therefore it is clear that the capacity of 52,000 with a fairly low level (4,000) of premium seats requires a significant increase in the price of season tickets across the board including concessions, and a significant increase in walk up ticket prices in order to generate reasonable cash levels over and above the debt service levels and the current revenues generated by Goodison Park.
In previous articles I have modeled 60,000 as the ideal capacity. I appreciate entirely that that adds to the costs. It has been suggested to me that may be as much as £80 million to the current budget for a 52,000 seater. I also understand entirely that the bulk (if not all) of that cost would come in the form of equity or other funding, not by a significant increase in debt.
However the 60,000 capacity based on much bolder assumptions and expectations of demand would allow for a higher premium capacity, in my models numbering 5,000.
The result would be a much smaller burden placed upon season ticket holders and walk up ticket purchasers. In a 60,000 seat stadium using the same model but with 5,000 premium seats sold each game, 42,000 season ticket holders would see their average season ticket price at £295 +VAT (£354 inclusive) as against £500 + VAT (£600 inclusive) in a 52,000 seat stadium.
That’s a difference of £246 inclusive per season ticket when comparing the 60,000 capacity and the 52,000 proposal.
The argument put to me against a 60,000 capacity is either cost, demand or a combination of the two.
On cost I acknowledge there’s an additional cost, but I’d argue that’s countered by the benefit of much smaller required increase in ticket prices to fund the debt and provide income for the footballing side of the business, and an increased likelihood of capacity attendances leading to future increased revenues over time.
I’d argue that this greater initial affordability increases the likely demand for tickets, a demand which on many occasions I have provided reasonable arguments based on evidence to suggest 60,000 is entirely achievable.
I’ve often talked about risk. To me, the lower capacity proposal is the highest risk option for the club. Why? Because it places a huge pressure on extremely high ticket price increases, thereby reducing demand due to affordability issues. It would be entirely inconsistent with the approach in recent years as demonstrated above.
A 60,000 seat stadium on the other hand, with a higher capacity premium seating area, greater availability of walk up seating, would continue to make season tickets relatively affordable, at least much more so than the lower capacity proposal.
I will return to the demand argument, and how to generate demand in my next article.
The cost of servicing the debt associated with a new stadium places an increased cost burden on fans just to enable the club to stand still with regards to match day income after costs.
The smaller the capacity and number of premium seat holders the greater the increased cost burden on season ticket and regular ticket purchasers (walk ups).
In this model alone the difference in cost for an average season ticket could be £246 per season ticket holder per season.
There is a compelling argument for demand for 60,000 initial capacity. That argument is strengthened by the additional affordability benefits of a larger capacity.
Sensible capital investments are about recognising the demand for an increase in capacity and ensuring that the income generated more than compensates for the cost of investment, all whilst not increasing the overall risks to the business.
From my perspective, and from the logic of this argument, that’s best achieved at a higher initial capacity not a lower one.
With respect to the club and the major shareholder, the 52,000 capacity proposal is not the correct solution to maximising the benefits of Bramley-Moore, and on the basis of fan affordability the higher risk strategy.
More to follow in coming weeks including demand and rail seating (safe standing).
Thanks for reading
Categories: Everton finances
Lot of time and effort but you are making up numbers to suit your argument. Where do all the new fans come from? Hardly filling Goodison now
Good businesses create demand. We have at least 4 years to build a strategy that fills a 60,000 seat stadium. Read my articles on the case for 60k, all other clubs have seen huge increase in demand at a new stadium. Why would we be any different, especially if we start addressing what is required now.
You have a long article with lots of figures, and that’s good.
What you do miss is the explanation where the spectators for a 60k stadium would come. Currently there are roughly 36k Evertonians at a match (about 3-3.5k away fans), 31k are season ticket holders and allegedly 10k in the waiting list for season tickets. Even if we take that claim at face value we can assume some of the 5k non-season ticket holders at a game are on the waiting list. But even if we assume they are not, we end up with a figure of about 46k Evertonians per match if every season ticket holder gets one plus 5k walk-in fans. In order to fill a 60k stadium, you’d need to find another 14k for every match – including that Monday night game against Burnley. And you already admit ticket prices have to increase which begs the question whether all of those 41k (current + waiting to get a season ticket) would buy one at a significantly higher price.
Goodison Park was the best stadium in England in the 60s. Yet the best season average ever is from season 62-63 with just 51460. Somehow you without any proof claim the club could improve by about 8k on this without any problems. And back then tickets – even taking inflation into account – were much cheaper and going to the match was the only way to see the team play.
And it needs to do just that for your numbers to make any sense. Your whole model requires that every match is sold out. Dan Meis said the last 10k seats are the most expensive so conservatively we can assume another £70 million which, using your figures, would be about an extra £5 million per year to service the debt. Servicing this requires about £250k per match extra income (assuming 20 home games per season). Even at £30 per ticket it would require 8300 spectators just to pay those seats.
I’m pretty sure the club will maximise the number of premium seats even at a 52k stadium. So there wouldn’t be more in a 60k stadium. It makes no sense building more premium seats than what is needed. Premium seats are what will really boost the matchday income after all.
Another boost are non-matchday revenues. Again, I doubt there would be any difference whether the stadium is 52k or 60k. Only thing that matters is how suitable the new stadium is for these events. It can be just as good a place to hold concerts, monster truck races and so on at both capacities. Number of conference rooms would also most likely be the same.
I also doubt that any sponsorship deals would be worth any more regardless of number of seats.
So in reality only those 8k seats which are normal seats would be responsible for servicing the extra cost of building them. And by my calculations it looks difficult to do just that even if we are wildly optimistic and expect that every match is sold out (something not supported by history).
A good point was made by I think Chong that it also makes sense not to build a stadium with exmpty seats in that it increases season ticket sales. If people can expect that they can just walk to the stadium and get a ticket it decreases the likelihood they will purchase a season ticket. This will almost inevitably lead to a drop in attendance since season tickets are sold whether that person attends the match or not (e.g. currently the minimum number of spectators is 31k as that many season tickets have been sold). Obviously this is also marketing 101. Something in short supply is more desirable.
There are also some issues comparing Everton with some other clubs. Sunderland and Newcastle are the only clubs in their city. We have a team that looks like they will walk the league this year and who were in the Champion’s League final last spring. They also have a huge following around the world, something we can’t expect to create without Manchester City level funding (or even with it). This means they get lots of tourists. From a financial point of view tourists are better because they spend more when they visit the stadium, especially in the club shop. Locals are more likely to have their pre- and post-match drinks somewhere else than the stadium as well.
Comparing to clubs in London is also not very reasonable. London is one of the biggest cities in the world and number of tourists is ridiculous.
For comparison London metropolitan area has 14 million people and they get almost 20 million international visitors per year. Liverpool, on the other hand has 2,2 million people (metro area) and some 900k international visitors.
London currently has 6 PL teams, Liverpool 2. So they have more than twice the population and six times more tourists per team.
Thanks Marco – I appreciate you providing a lengthy explanation of your position, thank you.
I have on several occasions provided an explanation for a demand of 60k – please put 60000 into the search box on this site, the articles will appear.
On the additional cost, I acknowledge that in the article and call upon additional capital to ensure the capacity is met. I do not expect it to be funded by debt.
The club are not hugely confident of an enormous increase in premium seating, and will be cautious in that respect. I fundamentally believe this is the wrong approach, it is premium seating that can maintain a reasonable pricing policy for regular match goers.
I did read your article which was the base for the second part of my comment above. As I said you are comparing with clubs with totally different situations and you are wildly optimistic about attendances.
Also reading that article of yours again does raise some questions on how you came up with the numbers. You assume building the extra seats costs nothing extra and that the borrowed sum is percentage-wise the same no matter the cost of the build. You claim a bigger stadium increases profit while my calculations seem to indicate the opposite.
Club should have a very good idea on how many premium seats they can expect to sell. This should actually be easier than trying to estimate how many normal seats are required.
The real elephant in the room is the assumption that the club could sell a 60k stadium out every game for the next 40 years. There is no proof of this. There are also some very real risks like a possible European Super League and even Brexit (if British economy tanks it will mean people have less to spend). Another point is that really, Everton’s revenues will go above 200 million in the near future. Even if the stadium was sold out at 60k every match it would only increase revenue by a few million. Basically it means nothing but there are very clear risks (not only economical but experience-wise – what if there were just 50k spectators in a 60k stadium?).
If you put ferry links into the Wirral and Wales directly to the Stadium attendances will rise and significantly IMO.
The Club will have a captive audience too, from the moment fans arrive.
Lots of profit can be generated from ancillary services provided by the new ground.
Great article Esk. As ever my thoughts are riddled with doubts about Everton. Our city benefitted with the European Capital of Culture and getting in early with its regeneration. I fear the move from Goodison may be coming at the wrong end of footballs transition.
I’ve never subscribed to Sky (hating Murdoch and fearing I’d become welded to the sofa) but considering a change of Broadband lately and getting quotes that include Sky Sports the prices astound me. We’re a 2 income household and I’m amazed how many people must be financially crippling themselves to have this service. This I believe makes the Premier League revenues a House of Cards waiting to collapse as the gulf in ability splits the fans with the have have nots. Already we see all the Big Boy matches lined up for the Cherry kicks offs – meaning the minnows increasingly pushed to Monday nights, Sat/Sun 12pm to ensure they don’t interrupt prime time. STH will surely only stomach that for so long.
I have also seen a lot of Spurs as I babysit my brother in laws season ticket. I really believe the demographic at Spurs matches is quite different to Everton. It’s no exaggeration that they have 1,000 plus South Koreans each match just to see Son. Plus there’s always going to be a far higher tourist trail because of the London thing. Simple add-ons they can get away with – higher membership fees, £3.50 booking fees for print a home, much more expensive own brand club merchandise. My brother in laws season ticket in their new stadium is £1200 for effectively the Park End when a seat in the old WHL North Upper was about £600. This is so wrong but whilst Spurs have undoubtedly been the second best team over the last 4 seasons people are desperate to be there if they win a big one. Everton as much as it pains me are a long way off that.
I’ve also only ever watch one match from a box. Was a betting company who couldn’t get rid of their tickets for a Mon 28th Dec match. They were ditching it at the end of the season cos it was too expensive and they weren’t doing the business off the back of it to justify the expenditure. £250 a match for a free bar (if you’re loaded you’re probably not tanked alll weekend) and Harvester type bufffet doesn’t wash with top end businessmen week in week out.
Filling 60K I fear would be so rare and 52K on a Monday night vs Huddersfield – even if we were second with Kane & Son up front? Its in my blood and I love the Blues but the last 20+ years of reality makes this old head think differently.