Originally written in early March, I have updated this article to reflect the current situation in mid June 2022. All updates in bold & italics

Such is the global response to the appalling events being played out before us in Ukraine, that news and the consequences of that news shift with great speed.

Looking through the world with Everton lenses, two items of great significance have occured in the last 48 hours.

Firstly the announcement from Everton on Wednesday 2 March 2022 regarding the sponsorship arrangements with USM:

Everyone at Everton remains shocked and saddened by the appalling events unfolding in Ukraine.

This tragic situation must end as soon as possible, and any further loss of life must be avoided.

The players, coaching staff and everyone working at Everton is providing full support to our player Vitalii Mykolenko and his family and will continue to do so.

The Club can confirm that it has suspended with immediate effect all commercial sponsorship arrangements with the Russian companies USM, Megafon and Yota.

and late afternoon Thursday 3rd March, an announcement on Interfax (the Russian press agency)

Moscow. March, 3rd. INTERFAX.RU – Farhad Moshiri left the board of directors of the USM group, according to her message.

The decision came into force on March 2.

So let’s examine the consequences of these two separate statements.

Everton’s finances

As most people now understand, Everton have been running a significant loss for a number of years fueled by excessive wage expenditure, poor recruitment, moribund commercial development and below budgeted performance on the pitch. Covid-19 is a mitigating factor for 2019/20 and 2020/21 – I estimate total losses arising from Covid-19 to be approximately £100 million. Bramley-Moore costs are not a factor in the profit and loss statement as those costs have now been capitalised following planning approval.

Losses for 2020/21 & 2021/22 are estimates

*Update 16 June 2022: Losses for 12 months to June 2021, published end of March 2022 amount to £120.9 million, £6.5 milllion grater than my estimate. I have a revised estimate for the current financial year showing an improvement in losses, but still estimated at £78 million

Over this period Farhad Moshiri has contributed a minimum of £450 million, and considering his current expenditure on Bramley-Moore that is expected to rise to £550 million during 2022.

*Update 16th June 2022: Assuming Moshiri’s commitment of a further £242 million of funding in the current financial year his total commitment is now £692 million (excluding the purchase of shares from existing shareholders, Kenwright, Earl, Woods, Grantchester and Abercrombie estimated at £135 million)

As well as Farhad Moshiri’s funding, Everton have had to revert to external debt providers. It is understood that Everton have debt facilities of £100 million with the specialist lender Rights & Media Funding and a further £30 million facility with the club’s bankers, Metro Bank.

In addition to providing working capital to fund the operational losses and capital for the initial phases of Bramley-Moore, Farhad Moshiri provided a very useful source of commercial revenue therough the company he chaired and ran with his business partner Alisher Usmanov. USM’s financial contributions are significant:

In total, USM sponsorship arrangements since January 2017 total an estimated £114 million. This includes the £30 million one off naming rights payment received in January 2020 in respect of the option for naming rights on the Bramley-Moore stadium.

The Everton statement of Wednesday used the word “suspend”. Given the toxicity of Russian related, indeed oligarch related in respect of Usmanov, there is no reasonable expectation that the USM brand or that of associated companies could ever be used again. Additionally there is no prospect of a return for Russia to the global stage. Thus, the USM relationship will never be rekindled. As a result, going forwards, before considering naming rights for Bramley-Moore, that reduces our commercial revenue by a minimum of £20 million a year. It’s possible that to a degree these revenues will be replaced by new sponsors, but the market for such is in an extremely difficult phase at present. It will be very challenging to see any significant replacement of lost income.

Looking forward to 2022/23, the last of the Koeman/Walsh/Allardyce legacy costs will have disappeared, those benefits however will now be counter-balanced by the loss of USM income.

Bramley-Moore Stadium

The suggested funding model for Bramley-Moore is largely accepted as contributions from Farhad Moshiri, the naming rights partner, a contribution from the Liverpool City Region Cimbined Authority and perhaps some third party debt. The total cost of the stadium is estimated at a minimum of £550 million.

To date, Farhad Moshiri has funded the initial preparation works, the infil of the dock – effectively to where we are today. It is estimated that the cost of that contribution (so far) is £100 million. I will return to Farhad Moshiri further in the article.

The Liverpool City Region Combined Authority have agreed to invest up to £45 million to support the “transformational regeneration” of North Liverpool. This is funded by a £15 million grant for work around the stadium and a £30 million loan towards the construction costs.

*Update: 7 March 2022, Liverpool City region Combined Authority issued a statement confirming that Everton have not proceeded with the £30 million loan offered, and that discussions regarding the £15 million grant are ongoing

Based on previous stadium builds, football clubs borrow relatively short term during the construction phase before restructuring the debt post completion at fixed rates over time periods between 10 and 30 years. This is the model used by both Arsenal and Tottenham Hotspur.

Everton have looked to do it somewhat differently, looking to tie in long term loans of up to 30 years during the construction phase. As with Tottenham they have looked to use the private placement market in the US to fund these loans. Everton have used the services of JP Morgan and Mitsubishi Bank to seek investors. To date, these loan facilities have not been secured.

The lenders will look for evidence that the company they lending to have sound management, are solvent, and can provide comfortable cover for their future repayments in addition to providing adequate security in a default situation. Included in this assessment will be the financial strength of the contractor, and the finances of additional contributing partners, naming rights and other long term sponsors for example.

Clearly, from a lending perspective a great deal has changed in recent days and weeks.

It was anticipated that lending from this source would be in the order of £300 – 350 million, repayable over different maturities from 10 to 30 years.

Naming rights

In addition to the the above, USM were the preferred and obvious naming rights partner, having secured an option (at the cost of £30 million) for an agreement (at agreed rates) for future naming rights.This was anticipated to be a significant contributor to the costs of the stadium, estimates ranging from £50 to £100 million. It was anticipated that this contribution would be paid up front to cover construction costs.

Clearly, a new naming rights partner now must be sought.

Farhad Moshiri and USM

Despite ceasing to be Chairman and a director of USM, Farhad Moshiri will retain his 8% shareholding. However the value of that shareholding, and thus the impact it has on his overall wealth must be significant.

*Update 16th June 2022: It is believed that Moshiri disposed of half his remaining holding in USM prior to the Russian invasion of Ukraine, providing liquidity and reducing his exposure accordingly.

What was a veritable money tree is no more. USM is domicilied in Russia. The groups assets included huge companies such as Metalloinvest, Megafon, Udokan Copper and Ackermann Cement.

Mettalloinvest for example, is 100% owned by USM. In 2021, it had net income (after costs) of $4.1 billion. It paid a dividend to USM of $3.748 billion (source Metalloinvest data book 2021). That’s cash that flows into the holding company. If distributed completely that would add $300 million to Moshiri’s bank balance. USM is a private company so it’s not possible to say what the distributions are. But remember this is just one of a whole portfolio of companies.

Russia’s invasion of Ukraine stops those distributions and creates a huge reduction in the value of the companies operating in Russia. Take two London listed FTSE-100 companies operating predominantly in Russia, Euraz and Polymetal. Euraz is a similar steel company (slightly larger) to Metalloinvest whilst Polymetal is a gold mining operation. Both have seen the value of their companies fall by close to 90% from earlier highs. Metalloinvest and other portfolio companies in the USM stable, although mainly private would see similar falls in value. Arguably given the nature of the sanctions and the long term impact of Putin’s behaviour these businesses have virtually no value to a western investor. They can’t be sold, they can’t pay dividends. The only value is hope value that one day in the far future some normality returns to Russia with a leader that the West grows to trust. But that is a long way away.

Thus, the invasion of Ukraine must have a significant impact on Moshiri’s overall wealth. How much? It’s difficult to tell. Over the years Moshiri will have build a significant cash pile from dividends and the buying and selling of companies. That cash pile (however much it might be) will still be there. But the USM element of his wealth is as I say, almost written off to zero.

So how is the stadium funded, moving forwards?

To date, it seems that Farhad Moshiri has contributed around £100 million, and up to £15 million has been secured from Liverpool City Region Combined Authority. That leaves up to £430 million still to be secured.

USM are now out of the equation and the long term debt is still to be secured. The club is facing a reduction in anticipated sponsorship and commercial revenues from USM of at least £20 million a year going forwards. Moshiri has seen a significant impact on his overall wealth. The business, Everton football club continues to lose significant sums of money and even on the basis of Premier League survival will continue to do so whilst at Goodison Park and without European football. Moshiri will have to continue to keep funding those losses with cash.

One alternative is player sales, the disposal of Richarlison, Calvert-Lewin and even Pickford to fund losses and reduce costs. This though would be a huge blow to the club, to Frank Lampard and his team, and ultimately us the fans. Nevertheless, it’s an option open to the club if no other option exists.

This is not an encouraging background from which one can easily persuade lenders who even in much better times haven’t yet provided the funding.

So can the stadium be financed?

It literally depends upon Moshiri’s finances. Can he keep providing the cash to fund losses and pay for construction whilst still subject to the headwinds described above?

If the answer is no there are three options. Halt the development (that may have consequences regarding the contractor and the costs to pay), (ii) bring in another investor alongside Moshiri to recapitalise the business, or (iii) sell the club. Options (ii) and (iii) would prove hugely expensive for Moshiri. Having invested in total near to £700 million in buying existing shares from former shareholders, recapitalising the club and paying for the stadium to date, there is little prospect of being able to sell the club for anything approaching his investment to date. Depending upon who one asks, the club is currently worth anything from zero (!) to perhaps £400 million on a very good day.

*Update 16th June 2022: Newspaper reports, not denied by club nor Moshiri suggest the sale process has started, although identity of bidders and the time frame is still unclear. The Telegraph suggest a team led by former Chelsea CEO Peter Kenyon is the best positioned bidder but alternative names are also thought to be interested.

There were lots of questions to be asked about the club’s finances before the invasion of Ukraine. Many more questions now need answering in terms of how the club addresses its profit and loss position as was, how it replaces lost USM income, how Moshiri funds the on-going losses, and importantly how the stadium is going to be funded and the impact of that funding on the club’s ability to compete from a footballing perspective.

It might be that Moshiri’s comment when he first arrived saying that as long as he is associated with the club money won’t be a problem, is accurate.

Unfortunately for everyone, the substance, the truth behind that statement is about to be tested to the extreme. I hope he is able to provide the answers, the answers the fans and other partners of the club need to know.

*Update 16 June 2022: As forecast in the original article the most likely solution to the future funding of Everton football club would be the sale of the club to new owners. That process has started but is obviously still at very early stages