Everton finances

Everton, reinsurance and Bermuda, how are they connected?

Following Everton, trying to understand the current difficulties of the club financially, let alone trying to rationalise the logic of the current proposed takeover takes you, the reader, and I, the author, on paths rarely trodden by almost all football fans. The uncertainty created by the current owner and board of directors, the apparent choice of new owners by Farhad Moshiri, requires, for anyone with a genuine concern as to the future ownership of our football club, unprecedented scrutiny. 

As a result of the above, I find myself staring at the financial statements of a Bermuda- based reinsurance company and their latest credit ratings issued by a global credit ratings agency.

If I haven’t lost you yet, please stick with it as it has real relevance to the potential future of our club, a club like all football clubs, whose supporters expect our legal owners to act as true custodians of not only a financial asset but also, and more importantly, our community, cultural, identifying entity spanning generations.

All of the financial data below materially impacts the ability of 777 to buy, pay off debt, pay for the stadium and invest in the future of our football club

As most will now know, 777 Partners is a US based, Miami based private equity group with a sprawling enterprise of more than 60 companies with interests as diverse as annuity based insurers, aircraft leasing companies, low cost airlines and increasingly relevant, a portfolio of football clubs combined to form the much “in vogue” multi-club operating model, beloved by private equity and particularly US investors.

The 777 Partners’ website provides limited data on assets under management but confirms that 777 is 100% owned and controlled by its employees. It states the capital they invest is their capital. Reports on the value of their partnership and portfolio vary but figures as high as $10 billion are quoted regularly in the media.

The 777 claim that they invest their own capital is interesting, and most recently they have talked more of “resources” – which arguably can have a different meaning, including debt and other sources of capital.

One of the likely sources of funds for the 777 partnership is a reinsurance business based in Bermuda, 777 Re. 777 Re. is regulated by the Bermuda Monetary Authority and is 98% owned by Brickell Insurance Holdings LLC, with a 75% economic interest in favour of 777 Partners LLC.

Reinsurance businesses provide insurance for insurance businesses – they take on the collective risks of thousands of insurance policies sold by insurance companies to private individuals and commercial, corporate clients. As a result they have large amounts of capital sitting on their balance sheet, usually invested conservatively to provide the cover insurance companies require to meet future liabilities.

777 Re. has (as of 31 December 2022 – the last reporting date) nearly $3bn of assets – a significant increase on the previous year ($2.36 bn). Those assets, invested on behalf of their insurance company clients can be invested in different asset classes – property, shares, bonds, cash etc.

777 Re. can invest in other 777 companies. In the financial year ending 31 December 2021, 777 Re. had investments in parties related to 777 of $555.8 million. By 31 December 2022 this figure had grown to $1,482.5 million, an increase of $926.7 million and representing close to 50% of 777 Re.’s assets. 

Football related investments (to 31 December 2022) include $102.96 million in Nutmeg Acquisition LLC and $9.2 million to Sevillistas Unidos LLC.

This is capital from their client insurance companies invested in or lent to 777 partners and their portfolio businesses.

Reinsurance companies have a complex system of asset and risk management designed to create a balance between growing the portfolio of assets and meeting the potential liabilities of their insurance company clients. As a regulated business, depending upon the jurisdiction, there are additional controls placed on how and where they can invest. 

Credit Ratings

Credit rating agencies exist to monitor and rate the financial strength of financial services companies, including  reinsurance companies. One such company AM Best (the largest global rating agency specialising in insurance companies) covers 777 Re.

On the  8th November 2023, AM Best downgraded the financial strength rating of 777 Re. from A- (Excellent) to B (Good) and what is known as the “long term issuer credit rating” from a- (Excellent) to bb (Fair).

Concurrently AM Best placed these ratings under review “with negative implications”. The downgrade reflects the balance sheet assessment from very strong to weak. Why is that?

This  deterioration results from “the company’s significant exposure to investments in various 777 Partners LLC originated assets”. 

It also reflects, again in AM Best’s words “concerns are heightened by uncertainty regarding the financial condition of 777 Partners LLC as it has not provided audited financial statements for the past two years”.

AM Best continues with “the company has been placed under review with negative implications pending the completion of its plans to improve risk-adjusted capitalisation by divesting the majority of its affiliated holdings”.

So what does this all mean?

It means 777 partners have to (in accordance with their business plan – as stated by AM Best) reverse their use of investing 777 Re’s capital in 777 related businesses. How do they do that? Either by selling those assets to unrelated parties, repaying debt owed to 777 Re., or generating fresh capital from within the partnership or their underlying portfolio companies to buy out the reinsurer’s position.

All at a time when purchasing Everton would be their largest and most capital needy football investment to date. Herein lies the issue for Evertonians, for me in particular. I have often stated it is my belief that 777 partners do not have the capital to buy, recapitalise and invest in Everton – i.e. to pay off existing debts, meet current cashflow deficits, pay the outstanding amounts on the new stadium and invest in the playing squad.

How do 777 partners achieve this against a backdrop of an existing portfolio of loss making football clubs and a business that has to either find fresh sources of capital or sell assets to meet the requirements of their business plan for a business that has invested near $1.5bn but now needs to reduce that exposure by divesting “the majority of its affiliated holdings”. Even reducing related party exposure by half requires $750 million of asset sales or an injection of fresh capital into 777 partners and its portfolio companies

Moshiri makes the claim that 777 are the best future owners of Everton football club. It is impossible to square the investment needs of Everton with the current resources available to 777 partners and their future requirement to divest so much of 777 Re’s assets.

As I said at the top this is not a path often tread by football supporters. But we need to ask the questions and critically so do the regulators. 777 Partners need to provide the answers, and those answers need to be a condition of regulatory approval prior to the acquisition of Everton in my opinion. Without such, self regulation by the Premier League or regulatory approval by the FCA is not worth the paper it is written on.

The danger for Everton is we end up with owners who cannot resource our future requirements whilst meeting the capital needs of their own wider partnership business.

6 replies »

  1. Paul, the more you dig, the deeper the hole gets. Sooner or later you hit bedrock!!!

    The best I can speculate based on all I have read from you and others, is that 777 may well end up convincing the authorities they can buy the club (God forbid, I really hope I am wrong), but beyond that, servicing the needs of the club in the short, mid and long term appears to a pipe dream. Or, as their name suggests, a well considered trip to Las Vegas with a $100 bill and a genius algorithm for coming back with a $1,000,000 🎲 🎲 🎲

  2. I’m very surprised that a re-insurer is able to have such a huge proportion of its assets in a related company particularly given LLC assets appear to be illiquid. I don’t think a UK re-insurer would be allowed to. The liquidity and systemic risks look obvious.

    In addition, the lack of up to date audited accounts for LLC alone must make regulatory approval for the deal very difficult.

    If LLC don’t get approval how will their current debt owed by Everton (which must rank below other debt) be repaid?

  3. This is like an horror story that keeps getting more and more horrific. Hopefully the relevant authorities make the correct and honest decision.

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