Everton finances

A momentous few weeks ahead (on and off the pitch)

The short, medium and long term future of Everton Football Club will be much clearer on and off the pitch in the coming weeks.

European qualification

On the pitch we remain in with a very good shout regarding European football qualification and quite possibly, Champion’s League football next season. Let’s be clear this remains Ancelotti and the club’s priority and for very good reasons. Qualification for the Champion’s League changes all the short term prospects for the club in terms of future revenues, player retention and budgets for the forthcoming summer transfer window.

It would create some headaches for sure, with possible Financial Fair Play penalties sanctions but it would help solve many more problems than it would cause. Automatic group qualification in the Champions League would guarantee prize monies of around  £25-30 million in revenue. A successful group stage adds to the funds on offer, with wins paying  €2.7 million per game and  €0.9m for a draw. Qualification for the round of 16 guarantees a further €9.5 million for example.

Europa League, either through league position or the winning of the FA Cup, pays less but nevertheless qualification guarantees €2.92 million with €0.57million for a win, €0.19 million. Add in the “pool money” and the coefficient payment (albeit Everton’s European coefficient is very low – 95th in Europe, equal with Burnley, Southampton and West Ham United). Our last Europa League although very disappointing on the pitch generated  €14 million of revenue. Already this season Tottenham and Arsenal have generated more than €10 million at the end of their Europa League group stages.

Bramley-Moore Stadium

The saga of Everton’s drawn out planning application nears a critical juncture. It is believed that the planning application will be heard before the end of February. There is a scheduled planning meeting of Liverpool City Council on Tuesday 23rd February 2021. Whilst there appears to be little prospect of Liverpool City Council denying approval, there is a reasonable assumption that the final approval will be put in the hands of Robert Jenrick, Secretary of State for Housing, Communities and Local Government. The objections raised regarding heritage, the location within the World Heritage site, and the scale of the development make the “calling in” almost inevitable.

What does that mean in terms of further delays? The Government has a target of 3 months to deal with applications and appeals, however recent research by Planning magazine shows two thirds of the schemes that are “called in” actually miss that target. The average length of time for a determination by the Secretary of State is over 6 months.

Such a delay is obviously costly in terms of pushing back the delivery date of the stadium, but also the additional costs of the continued planning process. Additionally, it would mean from an accounting point of view, the capitalisation of stadium expenses to date (likely to be £50 million by June 2021) would fall into the next financial year (2021/22), not this year (2020/21). Whilst this has no impact from a financial fair play or profit and sustainability perspective, presentationally and for those that only read the headline P&L figures, it does not present the club in the best light. Although having no impact on our cash position, being able to reduce our losses by £50 million is obviously desirable.

Pushing a final planning decision back 6 months from the end of February means end of third quarter 2021. Given the land acquisition and financing has to be completed after planning approval is granted, the famed “spade in the ground” may not appear until the very end of this year meaning a likely stadium completion date of late 2024 at earliest. Every 12 month delay will ultimately cost the club a minimum of £25 million in lost revenues, so the requirement for the earliest completion is clear for all to see.

Speculation in the media and calls in the UK Parliament from Dame Margaret Hodge regarding sanctions and the use of the Magnitsky Act in the US, EU and the UK against the oligarchs, Abramovich and Usmanov have reported incorrectly on Usmanov’s association with Everton. As I have always stated Usmanov has no direct or indirect ownership of Everton. It is true however, to say that USM (the holding company with Usmanov as a 49% shareholder (and Moshiri a reported 8% shareholder and Chairman)) are Everton’s most important commercial partners now and particularly so if as is expected, USM or one of their portfolio companies is the preferred naming rights partner for Bramley-Moore. Potentially sanctions applied against Usmanov and his assets may prove problematic in the future. However, we are some way from those potential problems becoming a meaningful concern.

Moshiri’s shareholding in Everton

When Everton published their latest accounts to 30th June 2020 in mid December 2020, it was announced that following the completion of the January transfer window, Farhad Moshiri would provide a further cash injection into Everton (a further £50 million) and convert some of the existing shareholder debt into ordinary shares. The total value of shares would be up to £250 million covering the £50 million received in November 2020, the additional further £50 million due to be received shortly and the conversion of up to £150 million of the existing £350 million of shareholder debt.

The intent is for the process of the share issue to be commenced this month. The continued losses and the impact Covid has had on football club valuations means that the share issue will be at £3,000 per share, valuing Everton (pre-issue) at £105 million. This compares to the original purchase of shares valuing the club at £175 million in February 2016. It is also worth noting that Burnley’s recent leveraged buy out by ALK Capital, valued Burnley at approximately double this pre-issue valuation.

The process for the issue will be as follows: the directors of the company will announce an extraordinary general meeting giving at least 21 days notice.  Given that this is a private placement with existing shareholders unable to exercise their pre-emption rights, the issue of new shares requires a special resolution. However, this is just a formality given Moshiri already owns in excess of 75% of the current shares in issue (the amount required to pass a special resolution). Moshiri’s final shareholding as a percentage will depend upon the amount converted from shareholder loans to ordinary shares.

Director of football

In addition to the stadium and share placement, it is also anticipated that Marcel Brands will conclude negotiations with Everton, thereby continuing his tenure as director of football well beyond the expiry of his existing contract in May. Given the economic challenges facing the club and still some legacy issues surrounding existing player contracts (although thankfully decreasing in scale), the need for him to continue the overhaul of existing squads plus significant improvements in the academy required in terms of scouting, coaching and management, an extension of his contract can only be viewed as a positive.

Everton are facing many challenges, some of their own doing, some caused by the global pandemic. How we deal with those challenges and how the club looks as a result will become much clearer in the coming weeks. It is still my firm opinion that the board and executive need strengthening to meet these challenges and those of the future, but until Moshiri is of the same opinion, we can only wish the current incumbents well in all their endeavours in transforming Everton back to the top table of English and European football.


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