So far in this series, I’ve examined the impact of governance, the cost of poor recruitment and the role of the director of football.

Now I’d like to turn the attention to how we have financed the last five years, what Moshiri’s funding has enabled, and the impact of poor decisions on our finances.

Let’s start with Moshiri’s funding:

In the 5 years to June 2021, Farhad Moshiri has contributed a total of £450 million by way of shareholder loans and the issue of shares. This does not include the additional £100 million to fund the current ground preparation works at Bramley-Moore Dock.

Why has he contributed so much?

Several reasons.

He backed a pledge made on TalkSport in November 2016

“We have no restrictions to spend, The manager is totally committed and ruthless; if a player is not up to it he uses another player and eventually he buys one. There are no sentimental issues there. The manager will strengthen the team in the areas he feels necessary. Koeman is Koeman: he does what he wants and I support him.

I think the job of an owner and chairman is simply to hire and fire the manager, the rest is down to him. Once we hire a manager we back him. He has the personality, aura and ability and we trust him. In Everton’s culture the manger is the most important individual”

Farhad Moshiri, TalkSport November 2016

Secondly, he spent a small fortune on manager compensation. The cost of early termination of Martinez, Koeman, Allardyce and Silva, before taking into account their support teams totals more than £32 million.

Two other elements contributed to Everton’s expenses – Bramley-Moore, at more than £40 million, even before ground was broken, and of course, the impact of Covid which I have estimated to be approximately £80 million from March 2020 to present day.

The increased expenditure, some of it planned but a significant element that resulted from poor decision making was compounded by the lack of performance on the pitch. As articulated by Koeman in December 2016, the plan was Europa League qualification by year 2 (achieved) and to be in contention for Champions League in year 3 and thereafter (not achieved). The resulting failure to qualify for Europe massively impacted future revenues against projections. In addition, poorer than projected Premier League placings also reduced the amount of revenue generated. If our average position was say four places below expected over five years there’s an income shortfall of nearly £40 million.

To compound matters, moribund commercial performance, and a refusal to increase match day ticket prices and/or reduce the number of season ticket holders to increase matchday revenues left little scope for making up the income shortfall. Only the support of USM and an innovative naming rights option payment relating to Bramley-Moore saved the club from much more significant losses and cash flow issues.

Losses actual and projected

The enormous increase in expenditure and the lack of corresponding increase in income results in significant losses

Not only were we making significant and increasing losses, but we were seeing negative cash flows, i.e. more cash was going out of the club than was coming in. This was a result of the operating performance, the unexpected costs (above) and the continued investment in playing staff. The negative cash flows were countered by Moshiri’s injections of cash and the use of third party debt providers

In a football club, to be cash flow positive you need to see income greater than expenditure (operations), and/or a positive return from player trading (investing). All the successful clubs operate a business model on that basis. A model that then allows further investment by their owners (through debt or equity) in the belief that the financing will enhance the return from operations (match day, commercial, broadcasting etc being greater than costs) and investing (profitably buying and selling player including player development from the academy).

The amount of funding provided by Moshiri and other lenders is a direct result of over-spending, management changes, continuing the purchase of players in the hope they improved the quality of the squad, and the fact that the sale of players dried up.

Why did the sale of players dry up?

Three reasons in my opinion. (i) despite Moshiri saying that the retention of our best players was a key objective we had sold Stones, Lukaku and Deulofeu within his first two full seasons with us (ii) market conditions from March 2020 changed (iii) those players that were made available had no obvious buyers given market conditions and their existing contracts were beyond the then market conditions.

As a result in the last two seasons, there has been virtually no cash generated from sales – poor from a cash flow perspective and no player trading profits – bad from a profit and sustainability (regulatory) perspective.

Regulatory concerns

As I have discussed on several occasions, most notably here in July 2020, the accumulated losses even after taking into consideration permitted costs and the impact of Covid put Everton in a difficult position regarding the Premier League’s profit and sustainability rules, impacting our ability to strengthen the squad in the summer of 2021 in the absence of significant sales.

This is a situation which will continue in January 2022 and the forthcoming summer.

Bramley-Moore

More than £40 million was spent before planning permission and in what the club now call “phased funding” Moshiri has committed to funding the ground preparation costs of up to £100 million, funding work into the first half of 2022.

Future works will be funded with external debt financed through the private placement market, financed over a maximum of 30 years. Whilst some details are still to be concluded (including potential guarantees) banking sources expect completion early in 2022.

Additional funding will be provided by the naming rights partner under an already agreed agreement.

Further funding requirements

Although the degree of losses experienced in recent years will start to reduce, it’s difficult to see (in the absence of major player sales – problematic in an already depleted squad) an early return to profitability.

Equally cash flow will continue to present the club difficulties requiring continued reliance on debt facilities. The club currently has a three year rolling credit facility with Rights and Media Funding to a maximum value of £100 million and a £30 million overdraft facility with Metro Bank.

The careless abandon with which cash was spent in the early days of Moshiri’s reign combined with extremely poor recruitment decisions on and off the pitch have created a significant cost and liability that Moshiri could never have foreseen when he arrived in February 2016.

Despite his significant financial support the damage is clear to see, an uncompetitive squad, a less than optimum choice of manager and an unproductive academy.

The combination of all factors is a testament to the gross mismanagement of the club, a common feature behind this series. We have not achieved what we set out to achieve despite the financial resources thrown at the club.

With a diminished competitive position as other clubs have strengthened, and financial constraints real and regulatory, the task of competing is made more difficult for the future.

Both the shareholder (despite his financial commitment), the board and the executive must each take responsibility for this situation and ultimately the major shareholder must make changes to his board and executive team for there to be a realistic prospect of recovery of the pitch plus the prospect of gaining competitive advantage over fellow Premier League sides.

It is an obvious conclusion that the lack of investment in the business management of the club (despite all the money flung elsewhere) has led to bad recruitment decisions and a continuance of poor governance. In turn that affects our financial performance and ultimately our ability to compete. It can only be resolved by changes to that management at board and executive level.

“Hire people who are better than you are, then leave them to get on with it. Look for people who will aim for the remarkable, who will not settle for the routine.” – David Ogilvy