With yet another “big summer” looming for Everton and claims that Moshiri will fund player acquisitions drawn up by Ancelotti and Brands by perhaps as much as £100 million, knowing what our cash position is, and knowing how we might fund player acquisitions this summer is of interest to all Evertonians.
Predicting cash flow from outside an organisation is a notoriously difficult task. However it is possible to give a range with reasonable accuracy. The accounts providing a starting point and provide information such as opening cash balances and amounts due to be paid and received in the following twelve months. It is also reasonable to predict operating revenues and costs, the main difficulty is in predicting cash flows from transfer activity and any changes to creditor and debtor positions throughout the year.
So what is Everton’s cash position?
The 20219/2020 accounts showed a cash position of £56.4 million as at the 30 June 2020. That sounds pretty healthy and with incoming transfer spend of £67.38 million in the transfer window one might assume that Everton’s finances were relatively healthy in the early days of the pandemic.
However various liabilities were due to be paid in 2020/21 including repayments of loans, £58.7 million and deferred payments to HMRC of £40.16 million. Trade creditors due were £65.4 million and trade debtors £55.6 million. Thus cash movements out of the club of £108.66 million. If we assume 50% of the transfer fees from last summer were paid at the time of the transfer, that adds another £34 million, making a total of £142.66 million.
I have projected cash outflows of £37.5 million from normal operating activities, and it is expected that continued costs relating to Bramley-Moore may be as high as £20 million.
As a result there is close to £200 million of negative cash flow out of the club before finance and investing activities are considered.
It is known from the details surrounding the share placement that Moshiri provided £50 million in November 2020 and an additional £50 million just after the share placement, therefore providing £100 million of new cash.
The remaining negative cash flow will therefore be funded by existing cash reserves (£56.4 million as at 30 June 2020) and new borrowings from Rights and Media Funding. It is believed we have credit facilities of £80 million with this funder. If we used all of this facility (and the new charges added at the beginning of May suggest we are close to that). In addition, 2021/22 season ticket receipts of at least £10 million will be received. This suggests we probably have cash balances of around £45 million. TV broadcasting money will also be received but given they are to meet operating costs and wages I am not including them in any calculations.
However the cash balance of around £45 million cannot just be spent on transfers, the club continues to lose money on day to day operations – my projections suggest around £3 million a month. Additionally, the club has future liabilities to meet including net £23 million on previous transfers, plus the outstanding £34 million (assuming last summer’s transfers were paid over two years).
Thus any war chest for incoming transfers must be met from one of three sources, (i) an increase in borrowings (ii) the sale of players or (iii) further capital injections by Farhad Moshiri.
Let’s look at the possibilities:
(i) an increase in borrowings. Highly unlikely in my opinion given the club will continue to lose money on its day to day operations for the foreseeable future, our wages and operating costs outstripping expected income. The level of external borrowings will also be of concern to potential lenders re Bramley-Moore.
(ii) A sale of players. As in recent years, Brands will continue to be charged with the task of moving expensive players on – a task made difficult by the performance levels of those on offer and their contract demands in a post pandemic environment. Walcott, Bolasie, Besic, Pennington, and King have left/will leave the club as free agents. Whilst the reduction in wages is welcome, the club receives no compensation from their next clubs. It is possible that we receive offers for Bernard, Kenny, Delph, Tosun (although still injured) and Gomes, however being realistic, the fees are not going to be high if indeed their contract terms could be matched elsewhere. In the context of bringing in new players, relying upon the sales of these players seems fraught with risk and minimal return. That leaves us the sale of sellable assets. Of the existing squad Moise Kean seems the most likely early sale (selling him before June 30 would assist Everton’s Profit & Loss account for this financial year). What sort of fee? Perhaps upwards of £40 million? Useful, but again not sufficient to meet Ancelotti’s acquisition plans. So who else? We are now looking at core players, the players ideally we would like to build a team around not dispose to potential opponents in future European competitions. I suppose Richarlison is the most likely candidate. Reluctantly from my perspective, but a fee of £70 million plus, if achievable, would probably represent good value if re-invested in productive players.
(iii) Further funding from Moshiri. There is speculation that Moshiri will provide funding of £100 million for the acquisition of players. I think this has to be treated with caution. Whilst it is true there are an outstanding 33,333 shares priced at £3,000 each which are at his disposal, it is my understanding that this was ear-marked for his contribution to Bramley-Moore, or in the event it is not required a further conversion of existing shareholder debt into equity. Either scenario would not provide additional funding for player purchases. In addition, spending £100 million on say four players would add something in the region of £45 million to our annual costs and therefore losses (assuming £5m a year wages for each player and four year contracts).
It is clear that Ancelotti expects support in the transfer market and to be fair to Moshiri, he has continued to fund transfer activity from his own pocket, especially when we have not been able to dispose of player assets. But each year it gets increasingly more difficult to keep adding costs to a business that currently has limited upside in terms of revenue (especially with not qualifying for Europe). We already are a heavily loss making business and in the absence of a massive increase of revenue we will continue to be so.
For me, the sale of Moise Kean and Richarlison (however reluctantly I type that) are the only viable solutions – gross receipts of over £100 million and a reduction in wages and amortisation costs for the two (I’d estimate at over £20 million a year savings) would give the space and the cash resources for Ancelotti’s acquisitions; Moshiri throwing £100 million into the club without player sales would just produce greater financial problems down the road.
Categories: Everton finances
Paul, you comment about Brands being charged with… Appreciating you list a few who are moving on, simply by nature of contract expires, I just wondered how successful you feel Brands is facing up to said challenge.
Quick question from un initiated.
Often, in set of accounts, one can see an item labelled “capital expenditure”. Are these costs excluded from P&S calculations?
Hi Jakub, the P&S calculations look at the profit and loss account. Thus capital expenditure is not included in those calculations
I am not an Everton supporter (Villa boy) but I find your articles very interesting nevertheless. Villa seem to be in a similar situation to Everton (wealthy owners willing to plough money into the club).
Not sure if P&S will be still pursued and enforced by EPL following Covid, but Villa appear to certainly went over the limit last season (20/21).
Last 3 published accounts up to 19/20 Season:
Season 17/18 18/19 19/20 Rolling 3 years
Allowable Loss 13 13 35 61
Loss Before Tax 36 69 99 204
Total FFP exclusions: 16 60 63 139
Academy 11 9 9 29
Community 2 1 3 6
Tangible Assets Amort 3 4 3 10
Covid costs 48 48
Promotion Costs 46 46
FFP Loss 20 9 36 65
So by the end of 19/20 Villa were already very close to the limit (4 mil over according to this calculation)
Since then, in the summer of 2020, they added another £40mil in Wages and Amortisation costs without any significant outgoings (£5-10m maximum at a push in wages and amortisation costs of the books). Turnover for 20/21 will be slightly higher (£10-15m), but not enough to cover the gap.
Purslow is obviously a shrewd operator (he was one of the main guys behind creating EPL P&S in the first place), so they either know that P&S will not be enforced anymore or they have some rabbit in the hat for 20/21 accounts.