Everton finances

Five years of Farhad

Five years ago to the day, news began to filter out that a relatively unknown businessman, Farhad Moshiri, had purchased a 49.9% stake in Everton Football Club, acquiring all of Robert Earl’s holdings and a significant part of Bill Kenwright’s, Jon Woods’ and Arthur Abercrombie’s holdings.

“After an exhaustive search, I believe we have found the perfect partner to take the club forward,” Everton chairman Bill Kenwright said. “I have got to know Farhad well over the last 18 months,” Kenwright added. “His football knowledge, financial wherewithal and true blue spirit have convinced me he is the right man.”

Moshiri, a man of few words as we have come to know simply quoted “Bill Kenwright has taught me what it means to be an Evertonian,…. there has never been a more level playing field in the Premier League than now.”

His first game at Goodison was the FA Cup tie versus Chelsea in March 2016. In a short statement in the programme he made three major forward-looking statements. Firstly he was going to provide money for the club “additional funds for transfers and retaining our key players to ensure we have a strong core to build on in the future”. Secondly, “looking at the best options for the stadium” and thirdly “finally and most importantly Everton is about great football and winning matches

Thus any analysis of what has been achieved five years on must start with an assessment of these points, have they been achieved, have they been achieved in a timely manner and if not what are the remedies moving forwards?

If you strip away the fact that we’re looking at the performance of our football club and all the bias and prejudice that that brings (especially at Everton) we might just see an objective evaluation of his first five years.

Yes, Moshiri has provided huge sums of money, yes we are making progress on the stadium, and yes under Ancelotti and Brands there is evidence of a revival of our footballing fortunes. But if you cast your mind back to February 26th 2016 how many would truly say they would be satisfied if they had the knowledge that we would be where we are now and the rate of progress on all three points?

I’d wager few, and as regular readers of this site and listeners to its podcasts will know, I in particular have been and remain critical of the club’s performance.

Just by being better resourced financially does not necessarily lead to better outcomes.

Finances, the stadium and football

In 2016 football (at Premier League level at least) was booming. New increased broadcasting rights deals – football’s own version of quantitative easing, increasing commercial receipts and opportunities plus fresh waves of capital (including Chinese soft power, wealth and political endorsement). On reflection, the most benign set of economic conditions in which to operate. As a result Manchester City, Manchester United, Tottenham Hotspur, Liverpool and Chelsea in particular continued to grow their revenues and their brands, making strategic investments in assets, stadia and their commercial capabilities.  They did what all good businesses do, increase their competitive advantages in the good times.

But what of Everton?

Profit & Loss (£’000s) 31-May-16 31-May-17 31-May-18 30-Jun-19 30-Jun-20 Aggregate (2017-20) 
Matchday       17,625      14,064    20,159     14,183         11,942          60,348
Broadcast      82,500   130,535  133,800   132,734         97,995        495,064
Commercial/Other      21,416     26,731    35,200      40,747         75,945        178,623
Total income       121,541    171,330  189,159   187,664       185,882        734,035
Wages       83,985   104,655   145,479    159,985       164,758       574,877
Other operating expenses        30,428       39,184   36,829     43,127          33,069        152,209
EBITDA           7,128       27,491      6,851 – 15,448 – 11,945            6,949
Depreciation        1,842        2,495      3,968       6,537            6,939          19,939
EBITA 5,286       24,996      2,883 – 21,985 – 18,884 – 12,990
Amortisation      22,398     37,298    66,933     95,057         99,232      298,520
 EBIT – 17,112 -12,302 -64,050 – 117,042 – 118,116 – 311,510
Exceptional costs     11,335        6,966    33,962     10,233        57,122       108,283
Profit on player sales         7,800      51,945   87,786     20,298         40,455       200,484
Profit before interest & tax –  20,647       32,677 -10,226 – 106,977 – 134,783 – 219,309
Interest income         1,354       1,801      3,094        2,925            3,268          11,088
Interest expense          5,055        3,818      5,938      7,793            8,348          25,897
 Profit before tax – 24,348      30,660 -13,070 -111,845 – 139,863 – 234,118
Tax expense               –          – – 30               6 – 24
 Net profit  – 24,348     30,660 – 13,070 -111,815 -139,869 – 234,094
Net assets – 43,404   123,367     91,968  160,802         70,932

Total losses of £234 million to the end of June 2020. Clearly companies lose money in the early stages of major investment – that is fully understood. Clearly, Covid has impacted the 2020 figures – the accounts show £67.3 million of losses directly related to Covid and of course, there’s £39 million of stadium related costs to capitalised post final planning approval at Bramley-Moore.

However, how much of the losses, and indeed the expenses can be attributed to poor strategic thinking or poor execution?

Unfortunately a considerable amount both on and off the field in my opinion. Whilst many will point at Moshiri’s capital injections of £450 million over the last five years as evidence of him being a “good” owner, what of the several appalling managerial appointments, what of the ridiculous transfers and contracts offered (especially in the early years under Koeman, Walsh and even Allardyce), what of the several iterations of Bramley-Moore (and subsequent delays) and finally the lack of commercial progress?

I would argue that the poor decision making and execution have cost Moshiri a considerable amount of money, necessitating much higher capital contributions than he might first have expected – capital contributions to cover the losses arising from the decisions and also the opportunity costs of not achieving sufficient on and off the pitch.

A failure to finish higher than seventh (in Koeman’s first year) and just one year of Europa League football is a measly return on £526 million of transfers and £574 million in wages (to June 2020).

Non broadcast income performance, on the face of it, looks to have improved from £21.4 million in 2016 to £75.9 million in 2020. However, the 2020 figure includes a one off £30 million naming rights payment and at least £12 million in sponsorship payments from USM, a company still closely tied to Moshiri’s interests. I acknowledge entirely USM’s financial support of Everton to date and in the future, but objectively, stripping out the USM factor demonstrates the lack of progress in growing income. Progression from £21.4 million to ex-USM £33.9 million is far less impressive, especially against the backdrop of (until 2020) buoyant market conditions.

Of course, there is great excitement and optimism about Bramley-Moore following Liverpool City Council’s historic decision to approve planning permission. To be fair and objective the club have performed extremely well throughout the planning process with considerable skill in handling all the various stakeholders.

However, objective analysis of the stadium might ask why the progress to this point has been so slow? Why was it so closely tied to the failed Commonwealth games bid and the then subsequent re-design? Why did we appear to go down the local authority funding route but that for that to fall aside without explanation, and finally and perhaps most importantly is the stadium compromised in capacity terms? A near 53,000 capacity seems to lack ambition when set against capacity crowds at Goodison, a current 17,000 sized waiting list for season tickets plus a considerable future demand for walk up, general admission tickets for irregular attendees and tourists/day trippers to the city? All of this before taking into account possible progress on the pitch and meeting the intent of regular European football.

My point is this. Why is Moshiri seemingly satisfied with the degree of and rate of progress in the five years since his arrival? Is it consistent with the three forward looking statements made when attending his first game at Goodison? Equally, if he is not satisfied, why has he not made the changes at board and executive level to increase the prospects of achieving the objective he himself set out?

My concern, and indeed my frustration with the “five years of Farhad” is that we’ve not made the progress we ought to have. As a result our footballing performance is only now beginning to progress under the direction of Ancelotti and Brands. The lower league positions, the lack of European football, terrible manager selections, poor transfer decisions and opportunity costs have hurt us financially to the extent we are compromised in the transfer market with financial fair play plus profit and sustainability concerns.

For me, it’s a real mixed bag. Yes I can see under Brands and Ancelotti we will progress; yes, Bramley-Moore is on the horizon (albeit compromised in capacity terms) but in what will be post-Covid, much more difficult operating and economic conditions, do we have the board and executive to not only steer us through these difficult waters but to out-perform our peers? The evidence to date, suggests we do not. Therefore in order to do so Moshiri has to make the changes necessary to improve our prospects of out performing stronger competitors. Stronger in terms of personnel, skills, and experience and stronger financially.

If our competitors remain more skilled and have greater resources, how can we out-perform them? That’s the question for Moshiri, five years in. No one can question his financial commitment but will he demand greater ambition and execution from the people he so handsomely rewards? Will he demand more from them or bring in replacements so that as he said “finally and most importantly Everton is about great football and winning matches“ becomes a reality?

In the next five years the focus has to be on greater ambition on and off the pitch. If Moshiri can’t bring that himself, just as he did with Ancelotti and Brands on the pitch, he needs bring business leaders to the club to achieve that which is consistent with our club motto “only the best is good enough”

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