We are nearly two weeks on from the Bournemouth game. A game in which as we all know, we faced potential relegation which may have brought to reality the existential threat talked of by Farhad Moshiri.
In reality the threats facing the club prior to that momentous day were numerous. Relegation would have triggered many of the individual threats which combined, may have provided a greater threat and carried far more serious consequences than having to play an Ipswich Town or Plymouth Argyle (with great respect to both historic clubs) away on a wet Friday evening.
Yet in the lead up, and subsequent to, not a word from the owner or the hierarchy. Journalistic endeavour and notices on Company House have told the fans more about what is or may be happening than any individual at the club. What state is this club in when fans have to decipher complex legal documents on Companies House rather than be informed by a club official of the status of the club?
So, a review of where we are, and what is likely to happen in the near future.
Premier League Status
Our Premier League status is secure for another year. The on-going investigation, examination and determination of alleged breaches of Premier League financial regulations by an independent commission will, whatever the outcome, not affect our status as one of twenty clubs starting the new Premier League season on the weekend of 12 August 2023 – the glorious 12th, although whether we will be the hunter or hunted subsequent to the commission’s findings remains to be seen.
Everton’s articles of association require a minimum of three board members at all times. Everton’s current board membership is nominally four. Four individuals who have under the 2006 Companies Act a number of legal duties as follows:
A duty to promote the success of the company. A director of a company must act in the way he or she considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to
- the likely consequences of any decision in the long term,
- the interests of the company’s employees,
- the need to foster the company’s business relationships with suppliers, customers and others,
- the impact of the company’s operations on the community and the environment,
- the desirability of the company maintaining a reputation for high standards of business conduct, and
- the need to act fairly as between members of the company
The evidence that directors of Everton have performed the above has been scant for some time, indeed for some directors, Evertonians would question if this was ever thus.
Undeniably, from my perspective at least, Everton’s directors since mid January have failed in their duties as per above. No doubt critical functions such as finance have continued to be performed, but the absence of communication post the end of the season to address the club’s future, its ownership, financing of the stadium and its ability to compete in next year’s Premier League are a dereliction of duty from which there is no recovery. The change of ownership (below) and the introduction of new investors/ finance providers must immediately, if not sooner lead to the removal and replacement of the Chairman, CEO and current non-executive director. For stability purposes in the short term, the continuation of the finance director is probably sensible.
The current board made their position untenable in January, and frankly have more than doubled down on that with their dereliction of duties post season end. Whatever the change of ownership outcome is, this is an issue that needs addressing immediately. New investors reading this should be under no illusions as to the complete unacceptability of their continued tenure.
Transfer spending: At the time of writing the new transfer window opens in 5 days. Given the weaknesses and lack of balance in the current squad, in normal circumstances Evertonians should be anticipating an exciting summer of new arrivals, permanently signed or on loan.
Unfortunately that is not going to happen. The impact of years of accumulated losses, potential non-compliance with profitability and sustainability rules and perhaps most critically of all a lack of cash means that incoming players will depend upon who is sold and what is available in the loan market. Another summer when most likely an early sale (before 30 June 2023) and late purchases and loan transactions. An unenviable set of circumstances under which Kevin Thelwell and Sean Dyche will have to operate – driven by the poor decision making of many years and the chronic financial situation of the club.
The prospect of significant spending to alleviate our squad weaknesses and thereby improve the prospects of not having another fight against relegation remain negligible at best.
Stadium Funding: It has become very apparent in recent months, Moshiri’s need to find urgent, alternative sources of capital to meet his obligations to Laing O’Rourke. His once broad boast of money never being a problem whilst he was here, no longer carries any credence. It’s also become apparent his unwillingness to dispose of the club or sell equity to provide a solution.
His preferred method has been to seek further debt. This in a business that has £450 million of outstanding shareholder loans (not anticipated to be repaid) and likely in excess of £220 million of debt to Rights and Media Funding and Metro Bank.
Based on information provided to Matt Slater of the Athletic, the future funding shortfall is as high as £360 million.
Working Capital: Such is the lack of information, the lack of engagement and accountability from the board to minority shareholders, it’s impossible to put a figure on what Everton’s working capital requirements are. However, it’s not difficult to calculate in the absence of further player disposals the club is in dire need of further capital injections – even if the actual figure cannot be readily predicted.
Partial solutions and what is likely to happen in the future
On 23rd May, an entry appeared on the company records relating to Everton Stadium Development Holding Company, the wholly owned subsidiary of Everton Football Club. It contained details of a charge (security) against the leasehold of the land upon which the stadium sits in favour of Blythe Capital.
Blythe Capital is a company owned by Andrew Bell and his family. Andrew is a successful local businessman who also happens to be a life-long blue. Founder and former CEO of AJ Bell, he maintains an approximate 22% interest in the FTSE 250 company worth at current market price £280 million. Andrew Bell has additional business interests in his portfolio.
The charge confirms that Andrew Bell has provided funding to the stadium development company. It is thought that the funding amounts to £40 million. This is money already received by Everton.
Since the now infamous game against Southampton in mid January, a US investment company MSP have entered the public domain as potential investors in Everton Football Club. As is well documented they have interests in several European clubs plus other sporting enterprises. Despite interest from other US based investors including 777 partners, MSP were granted a period of exclusivity to examine the books and conclude a funding deal centred on the immediate funding requirements for the stadium.
This funding is thought to be in the order of £100 million. It will achieve two objectives – repay the AJ Bell short term loan (and any other possible short term loans including potentially George Downing) and provide funding to meet near term obligations to Laing O’Rourke. The deal will be structured as a debt deal with warrants attached. At £100 million it would suggest a future equity stake of 25%, rising if Everton’s funding requirements increase. Again, from Matt Slater, this may increase beyond £150 million.
Moshiri believes this funding arrangement will allow him to conclude a construction loan through JP Morgan and the Japanese MUFG bank which would complete the stadium financing and allow him to retain a majority position in Everton. I have to say that appears at best, optimistic thinking and falls in line with other optimistic but ultimately unsuccessful prospective funding announcements made by his people. JP Morgan and MUFG have been unsuccessful in raising finance since 2019 – given Everton’s circumstances and no immediate prospect of improvement, why should a relatively small capital injection by MSP change their view?
I have stated on Twitter that Moshiri will cede his majority position, and I maintain that. It is inconceivable that so much debt funding could be placed on Everton whilst still maintaining the economic advantages of a new stadium.
Control of Everton
Significant minority investors will always seek additional powers beyond the power of their shareholding. They will seek board positions to ensure oversight, scrutiny and a degree of control. More importantly they will seek control over reserved matters, specifically relating to finance but also possibly over board composition particularly in the key Chair and CFO roles. No investor coming into a company in Everton’s circumstances would permit the existing management team to continue, nor would they forgo their demand for board positions.
It is thought Andrew Bell and perhaps George Downing (a successful property investor originally from Liverpool) will form part of a new Everton board, post repayment of any short term loans, thereby negating any governance issues of having minority shareholder and creditors as directors of the company.
Although it is impossible to get anyone to confirm on the record, the current Chair and CEO must be removed to allow for cultural change, new strategic planning but most critically corporate and senior personnel restructuring.
Not out of the woods
We are not out of the woods by a long way. The immediate funding requirement for Bramley Moore ought to be met. Board changes should improve governance and corporate performance as well as materially altering the corporate culture (one hopes).
None of the above provides a funding solution for Kevin Thelwell and Sean Dyche. It won’t immediately solve the structural issues regarding the imbalance not only within the squad but that of income and expenditure across the business (although that is improving).
It will, though, provide evidence of change, it should weaken the chaotic influence of Farhad Moshiri and his footballing advisors. It will lead to the removal of the key decision makers of recent and many years. It will most likely lead to a loss of Moshiri’s majority shareholding. It should lead to better decision making, better governance, and please God, a return to more normal relationships between the ever loyal fans and errant, wholly unsuitable directors and our majority owner.
Anything less than the above is just a further kick of a heavily dented can down an extremely rocky road. This is the challenge facing incoming investors and business leaders.