For as long as I’ve been writing about football finances I’ve tried to show that funds for players can only come from limited sources. Simply, if you want to buy and pay a player the funds have to be generated by the business (gate receipts, commercial income and broadcast income) or be funded by other sources, namely (i) existing cash sitting in the club’s bank account (ii) asset sales (selling existing players) (iii) funds from the shareholder or (iv) borrowings from a bank or other financial institution.
Without the ability to use one or more of these sources, you can’t keep buying players. In addition, with football being a regulated business, there are restrictions placed on what you can do in certain circumstances.
Let’s deal with the restrictions first. UEFA’s Financial Fair Play (as was) and the Premier league’s Profitability and Sustainability rules are only an issue if your club is losing more money than is permitted by either set of regulations. If you are not in European football then it is the Premier League regulations that you must be concerned with. Stay inside the permitted losses and as long as a club has access to sufficient resources from the sources mentioned above there is no restriction to what a club can do. It really is that simple.
Everton’s first problem is that (as I explain here) we are likely to have breached those regulations. I will return to this later in the article.
Financial sources for transfers
As a business (even after stripping out the impact of Covid) Everton have spent considerably more than they have earned
|Loss in £ millions|
|Attributable to Covid*||78.6|
Clearly from the above the business itself cannot support further acquisitions and higher wage costs. Thus we have to turn to additional resources
(i) Existing cash
There are few cash rich football clubs especially in the post pandemic environment. Even the most successful clubs have had to resort to short term borrowings to assist their cash flow issues of (until recently) zero matchday income, reduced merchandising and reduced broadcasting revenues whilst having a largely fixed cost base.
Everton, due to sustained losses in earlier years went into the pandemic in a poor cash position and as I explained here, had no recourse to cash reserves to assist in the transfer market this summer.
(ii) Asset (player) sales
Traditionally the easiest method of creating resources to fund incoming transfers. In the cash rich years of recent times, liquidity has been such that selling players has been a relatively easy option. Selling players produces cash, reduces costs (in terms of wages and amortisation) and can generate trading profits to offset against losses elsewhere in the business.
The ability to sell players depends upon (i) their attractiveness to the market (ii) the availability of purchasers at a fair price and (iii) the willingness of the player to move without financial loss or career regression.
It is arguable that all three factors worked against each of the players Everton were willing to dispose of. Lack of form, lack of career progression since arriving at Everton and injury (for some) reduced the players’ attractiveness. Additionally, as discussed market conditions were in favour of the buyers, not the sellers and for many of Everton’s players offered moves elsewhere, a move would be to their financial detriment given the contractual terms enjoyed at Everton.
In the light of all the other factors, our inability to sell or loan players (especially those most expensive) is a key contributor to our inability to bring players in. Additionally that has the effect of the club having to carry costs of potentially unproductive players for at least another year.
(iii) Shareholder funds
With capital injections totalling £450 million since arriving in February 2016, Moshiri has certainly been extremely committed financially. However, his ability (and perhaps willingness) to continue to fund transfers this window were significantly reduced due to several factors (i) our Profitability and Sustainability position – it was just not possible to keep adding to the costs of the business given our existing costs far outweigh our income.
An additional factor is the funding of the stadium. The purchase of the Bramley-Moore lease cost the club a reported £22 million. In addition, the club has sought significant lending facilities (around £300-350 million) to finance the build. Originally, it was anticipated that this facility would be available at the beginning of the build with naming rights and Moshiri effectively underwriting the difference between the borrowings and the final costs. However, in order to have any hope of meeting the self imposed deadline of opening the stadium in time for the 2024/25 season work had commenced before the lending is in place. That work, the initial ground preparation and dock infill is estimate to cost £100 million. This work is currently funded by Moshiri.
Incidentally, one of the factors delaying the stadium financing has been the continued losses at the club and the “structural” issue of having relatively fixed costs greater than fixed income. The only solution to this would be the disposal of players, but as described, other than those we would not want to lose, the marketability of our players is extremely limited.
Thus, the prospect of Moshiri funding both transfers and a stadium build simultaneously, plus the regulatory issues identified above meant that there was no prospect of shareholder funded acquisitions this window.
(iv) Additional borrowings
In the good times clubs have used lending facilities to fund player acquisitions or to meet higher wage bills as a result of earlier acquisitions. Everton have been no exception to this. However, at this particular time our credit facilities have been used to meet the significant negative cashflow arising from operations in the Covid period.
As a result, and certainly with the added issue of arranging stadium financing, adding to existing credit lines to acquire players was just not possible.
How have we arrived at this point ?
It is beyond any doubt that the club has been severely restricted in player acquisitions and player disposals this transfer window. To be fair Covid-19 has been a contributor to dampening market conditions. Despite that, other clubs have traded players. It has not just been the “big six” although both Grealish and Lukaku have had an impact in inflating final figures
Everton, for the Moshiri years at least, one of the bigger participants in the market, accounted for 0.5% of all Premier League transfer activity by value (including loan fees). In 2017/18 our transfer activity accounted for 11.2% of all activity.
The factors are numerous and sadly reflect on the current condition of the club plus the legacy of numerous poor recruitment decisions, inadequate financial monitoring, poor governance and leadership plus the indiscipline of our major shareholder.
To make one individual accountable for all the above, to say it must be the Director of Football for example, would fail to take into account the sheer disfunction of the last six summers and periods between.
To get to this position is a result of serious mismanagement across the board.
Firstly, our financial performance. We have done a wholly inadequate job of growing the football club commercially in the most bullish of market conditions. We have failed to put in place financial controls that stopped the club from becoming so imbalanced re costs and income.
Governance: The board has failed to stop the excesses and irrational recruitment decisions (including managers and players) of the owner until such a time as it was no longer possible for him to do so.
Operationally regarding transfers: Matters have improved since 2017/18 when literally the club had three or four senior executives negotiating independently and without knowledge of each others actions regarding transfers. But we still do not have a defined structure and chain of command. Brands role is not clearly defined or communicated. With Benitez as manager, our most recent player acquisitions are clearly his work.
The fact that we failed to improve our position beyond two or three shrewd acquisitions is further evidence of organisational failure or perhaps the wrong individuals in charge. Despite the explanations above we failed our key objectives (i) acquire cover for key positions (right back & now left back following Nkounkou loan out) (ii) Sell marketable assets such as Kean (iii) move on players (permanently or on loan) identified by the manager publicly as not part of his future plans and (iv) significantly reduce costs.
Where has been the leadership that recognises the failure of past structures, that says the difficult things in board rooms or in talks with the owner? That holds individuals accountable including themselves? Where has been the strategic thinking, the modelling that recognised what might happen and put mitigating and improvement strategies in place?
The evidence that such is in place is scarce. Our performance this window is not evidence of some strategic re-calculation in my opinion. It has been forced upon us by necessity, lack of funds, market response to our proposals, potential regulatory steer and the will of future lenders for the stadium.
This is the position we are in. We may get by this season on the back of an experienced coach, well versed in the make do school of management. But that’s not what was expected 5 years ago when the project suggested the potential of Champions League in 3 years. That’s not what was expected when Moshiri, the Board and Dan Meis planned and plotted a half a billion pound stadium on the banks of the Mersey.
The fact is that there is not a single member of the board and executive that can look at what we’ve become and claim progress, let alone adherence to the lofty ambitions of 2016. That’s led to this complete pig’s ear of a transfer window, a transfer window that reflects the management and ownership of the club.
Moshiri has to recognise this and make the management changes necessary at board and executive level. Without radical change at the top of the business, we can not realistically expect success on the pitch. Not only is that soul destroying for the fan base but potentially club destroying for the institution we the fans, invest so much into. If he cannot make these changes then we ought seek new ownership.
Categories: Everton finances
People who have been blowing off for the last few days that our problems are all about Brands should read this piece and think hard. The club has major leadership issues, and the owner must see that.
Hi Paul, a pretty damning but factually true synopsis of where we are at as a club at the moment. As you know, I have been banging on for years about the lack of leadership and no current example of corporate governance in evidence by any of the existing board members.
I’m happy to call out Kenwright, as he has failed spectacularly in the last five years, in almost every aspect of his role, from the appointment of the current CEO (who I can’t recall making any public statement on the club’s finances), to the disastrous recruitment of successive managers, whilst overseeing the purchase and signings of some pretty dire player’s on ludicrous contracts. His recent statement about Everton and it’s board ‘being revered’ in football circles is almost comical, except for the tragic story behind it.
Moshiri sadly, has not displayed the ruthlessness required as owner and supplier of capital to the club, one would expect given his success elsewhere around the globe. Letting Kenwright remain in position after his takeover having replaced him effectively as custodian of the club, has come back to haunt him big time.
However, having had a dialogue with you over the last few years, this is the first time I have heard you recommend we change owners. How realistic do you think that prospect is? I can’t think of many individual’s or corporations willing to take the football club on. Maybe things will be a little different after the completion of BMD, but until then, I think it’s an unlikely prospect.
Great read again, very informative and certainly eye opening.
Reality check, Kenwright must have a contractual agreement to stay on the board otherwise he should’ve gone long ago, benefited hugely from Moshiri share purchases and not a penny spent. Club caught in no mans land with ludicrously
expensive players on laughable wages compared to other EPL clubs. Covid has made the situation dire indeed.
Hopefully the underperforming academy will bring some talent through, otherwise there’s little point in having the facility, that hasn’t been a “centre of excellence” since Rooney.
Excellent article shedding light and heat.