To complete the analysis of Everton Football Club Company Limited Report and Accounts for 2021/22, there is now sufficient activity within Everton Stadium Development Limited to warrant its own analysis. This article also includes details of how the stadium has been funded and how it may be funded in the future.
Everton Stadium Development Limited (ESDL) is a wholly owned subsidiary of Everton Football Club Company Limited (the Group). The sole purpose of the company is to “act as a development vehicle for future group activities in relation to the new stadium project”.
The current directors of the company are W Kenwright, D Barrett-Baxendale and Grant Ingles.
Whilst the balance sheet is probably of more interest, in the first instance, let’s look at the results. Obviously at this stage of the development, the company generates no income, therefore all expenses drop straight to the bottom line.
The company incurred operating expenses of £926k and accumulated interest charges on its debt of £20.74 million, giving an annual loss of £21.67 million for the year ending 30 June 2022.
The interest charges of £20.74 million relates entirely to the interest and facility fees incurred on borrowings by the parent company, Everton Football Club Company Limited in relation to the development of the new stadium.
It is worth noting that the interest charge for 2021/22 was not something that the company incurred in the previous period 2020/21 despite having an outstanding debt of £56.2 million as at 30 June 2021.
The creation of losses through the charging of interest creates deferred tax assets, which allow in the future, deductions against future profits (assuming there will be sufficient taxable profit). This may benefit existing and future shareholders in the company.
A company’s balance sheet displays the company’s total assets and how the assets are financed, either through debt or equity. In the case of ESDL the assets are the value of the stadium development at the end of the year, debtors and cash in the bank.
The value of the stadium is calculated by the cost of the development at the end of the year. In 2020/21 that was £20.3 million and had increased to £168.4 million by 30 June 2022. Until the stadium is completed this asset will not attract any depreciation.
The current assets are debtors £54.5 million and cash £56,400. Included in debtors is advanced payments of £52.75 million to the main contractor Laing O’Rourke.
ESDL’s creditors (i.e. people they owe money to) include trade creditors, amounts owed to the parent company, VAT, PAYE and accruals. In total that amounts to £283 million of which £280.9 million is owed to Everton Football Club Company Limited.
The funding of the stadium
To the date of the accounts and indeed to the date of this article, ESDL funding has been provided wholly by the parent company, Everton Football Club Company Limited (the Group). The Group has provided funding through the support of the majority shareholder, Farhad Moshiri and it’s own credit facilities (predominantly Rights and Media Funding). Farhad Moshiri’s shareholder loans (provided by BlueSky Capital) are non interest bearing. Rights and Media Funding charge “market rates”.
To the date of the accounts (30 June 2022) the amount borrowed (including interest) stood at £280.9 million (30 June 2021 £56.2 million). This amount will have increased further through the period to present day.
Since the start of the accounting period (30 June 2021) to the signing of the accounts (27 February 2023) Farhad Moshiri provided Everton Football Club Company with an additional £300 million of funding.
So, how about future funding?
The auditor and director reports carry the same dire warning of the impact of relegation and the need for more funding from the majority shareholder in the event of relegation. I covered the material uncertainty in detail in Part II. However, regardless of relegation, an estimated £300 million of funding is still to be found for the stadium development.
Both sets of accounts (and much media speculation) point to the prospect of third party investment in the near future for both the stadium and potentially the parent company regardless of our league status at the end of May. They, of course, point to there being no certainty as to the outcome of such. They point to Moshiri’s continued support albeit with no contractual or legal obligation to do so in the event of no new funding.
There has been much speculation as to investors such as MSP or 777 becoming equity holders in the group. This to me seems an unlikely way of funding the stadium.
Since the turn of the decade, two banks JP Morgan and Mitsubishi bank have been seeking investors for Everton’s stadium project via the private placement market (in a similar manner as to how Tottenham Hotspur funded their stadium). However, partially because of market conditions but also concerns as to the management capabilities of Everton Football Club this route to funding has remained stubbornly closed to Everton.
MSP appear to be the major interested party, and it is thought are close to concluding a deal to assist in the funding of the stadium. It is thought that this support would be in the order of £100 million. Although no details are in the public domain, it is thought that this deal would be a debt deal – debt that attracts interest and is repayable over an agreed period. In addition, MSP would have warrants which would permit them an equity stake at some point in the future – a fairly standard form of funding.
Where would the funding sit?
What is interesting is where the investment would be made. Would it be made in the parent company or directly into ESDL ?
I am going to speculate that the funding would go directly into ESDL – it makes more sense for MSP or any other investment group and secures the investment for the purposes of the stadium development. It also potentially gives future minority ownership of the stadium at a future date (when the warrants are exercised).
In addition, the funder would get board representation – one assumes on the board of ESDL rather than the Group board. In addition to board representation they would, within the funding agreement, have agreed a number of financial controls, reserved matters in other words, whereby they can control expenditure and/or other borrowings.
I believe funding of this nature would then also open up the market JP Morgan and Mitsubishi Bank have been trying to tap. This would allow the up to (estimated) £200 million to be financed through long term loans at fixed rates of interest. Whilst considerably more expensive than when Tottenham achieved their stadium funding (market conditions and a different credit risk profile) all things going well, would provide the funding for the stadium.
On the face of it, investment as described by MSP or others and then the tapping of the private placement market would resolve one of Moshiri’s major problems, how to complete the stadium financing whilst running a loss making football club, whilst being reluctant/unable (perhaps) to fund it himself.
It comes at a cost – a significant rise in financing costs and potential equity dilution of the Group company or (as I hypothersize) the stadium company itself. It doesn’t solve his other problems, an under-performing football team, the potential (still) threat of relegation, the broken relationship with the board among the myriad of leadership issues surrounding him, the board and the existing management team. Those issues need addressing urgently. Eventually providing funding for the stadium, doesn’t diminish the scale of his other problems, not least the need to make urgent changes in the leadership of Everton Football Club.
Categories: Everton finances
I’m not an Evertonian so excuse the intrusion, however I worked in finance for 35 years. Your analysis is comprehensive and excellent, but could I add a few comments –
1. I don’t think anything will happen until Everton’s survival/relegation is known. In the event of the latter administration seems certain, however the 2021/22 accounts show minimal football creditors so arguably a new owner could acquire the club for a reasonable amount, subject to a deal being agreed with Rights & Media who have a charge over the new stadium.
2. No idea what the new stadium could be sold for, however does it have significant alternative use(s) apart from a football ground? Under an administration it might suit all parties for Everton to walk away from it and remain at Goodison.
3. If relegation is avoided and MSP proceed they would only lend if they were able to take second-ranking security over all club assets (including the stadium) and, as you say, take warrants for some of the equity. I’m not sure though that this would attract further investment given this would have only third-ranking security and that over a business that doesn’t look viable even if FFP issues are put to one side.
4. Administration isn’t ideal, however Leeds United and others have been through it and recovered. The club would play in the Championship and would have lost some of its first-team players (and I suspect the new stadium) however you would also lose the present debt burden and most if not all of the owners and management.
Hi Simon, thanks for your comments, you are very welcome. Point 1 – the problem is that Moshiri has a totally unrealistic value of the equity. 2 we cannot stay at Goodison and be competitive in future years. 3. The private placement funding whilst ranking below the senior and junior debt will be longer in term so I think its not particularly an issue. Administration would be disastrous IMO, decimating what little value we have in the squad and we would have a minimum 9 point penalty.
Hello, This is very worrying reading, I don’t pretend to know about the financial implications our club has currently, however I am utterly disgusted at the demise of our beloved football club, surely something has to give, and we will see the last of this disgraceful board before they drag us into oblivion 💙💙
The last sentence says it all. The need for change in the leadership of Everton Football Club.
Meanwhile, us mortals head to Selhurst Park on Saturday.
Paul, thanks so much for your work. Really good analysis