Frosty wind made moan, Earth stood hard as iron, Water like a stone…….With the exceptional uplift in results of recent weeks, it is tempting to believe that the huge difficulties facing Everton may be reducing in severity, a thawing, even green shoots appearing. Coupled with the continued progress of Bramley-Moore and the supposed acquisition of Everton by 777 Partners, then there’s a case at least, presesented by some, for increased optimism.

The reality though is still somewhat different. Whilst clearly Sean Dyche and our playing squad have found sufficient form, levels of performance and results to calm immediate fears of relegation (even with the unjust 10 point penalty imposed by the Premier League Commission, subject to appeal), matters off the pitch have slowed, almost ground to a halt.

On the 15th September, Everton and 777 Partners announced an agreement for 777 Partners to acquire Farhad Moshiri’s 94.1% holding in Everton Football Club. A transaction which requires the approval of the Premier League and the UK’s Financial Conduct Authority. The transaction was “expected to close in the 4th quarter of 2023”. A week before the effective end of the business year and there’s no sign of closure – even the most optimistic of reports suggest mid-January 2024 at the earliest.

Why was Moshiri selling and what state does he leave the club in?

To put it bluntly, the cost of keeping Everton in business (let alone compliant or competitive), the cost of the Bramley-Moore stadium, the changing economic and geo-political environment has proved too much even for a man of Moshiri’s means.

By the end of the last accounting period Moshiri had sunk £750 million into the club, comprising £300 million of equity and £450 million of shareholder loans. Since then Moshiri provided another £50 million earlier in the financial year 2022/23 and a further £20 million alongside MSP’s limited partners funding in May 2023. A total of £820 million by Moshiri.

Yet because of the accumulated losses arising from wild spending (particularly in the early years), the below budget performance on the pitch, Covid (to be fair), moribund commercial performance, much higher than expected stadium costs and a huge increase in interest costs, even this level of investment failed to keep Everton from their increased reliance on external funding.

As a result at the end of 2023 Everton have approximate borrowings of £200 million to Rights and Media Funding (at base rate plus 5% per annum), £140 million to MSP and their limited partners, £20 million to Metro Bank (Everton’s bankers) plus emergency funding of £100 million from 777 Partners – working capital provided monthly to meet the difference between income, operating costs and payments to the main stadium contractor Laing O’Rourke.

That’s £460 million outstanding with commercial rates of interest being charged.

In addition, there’s a further £150 million to be found to complete payments to Laing O’Rouke. Maintaining the payment schedule with Laing O’Rourke is critical. Defaulting on the existing contract is highly punative.

Adding Moshiri’s £500 million of shareholder loans, the outstanding payments to Laing O’Rourke and existing borrowings we have a total in excess of £1.1 billion.

The reality, of course, is that Moshiri’s shareholder loans will never be repaid – they will be written off to zero, possibly assisted by a nil paid for, capital increase and immediate capital reduction by a new owner – the accordian trick, (as per Standard Liege within the 777 portfolio). Nevertheless a new owner will likely have to refinance £600 million of debt/outstanding future liabilities. This excludes trade creditor balances (players we have bought but not yet paid for minus players we have sold but not yet fully received funds for)

The question a new owner has to ask – does the business warrant that level of expenditure (or even a proportion of it if we want to carry debt) before considering future working capital requirements – cash flow and investment in new players and staff.

Realistically new owners face financing of £700 million plus (£600 million in the case of 777 who have already contributed £100 million). This assumes all of Moshiri’s loans are written off to zero and he receives nothing for his equity – i.e. he literally hands over the keys (share certificates in this case) and walks away, more than £900 million poorer as a result of his ownership of Everton

So what are Everton’s options?

(i) 777 Partners – their successful acquisition and future ownership depends on two main points – do they get approval from the Premier League and the Financial Conduct Authority and secondly do they have the funding to meet the requirements stated above?

There’s been huge amounts written about 777 Partners in recent months. Their decision to try and acquire a Premier League football club has brought unprecedented (for them) scrutiny. Scrutiny of their partnership, their portfolio businesses and in particular their sources of capital. In the public domain it is evident that they have relied heavily on their re-insurance companies’ balance sheet plus other re-insurers to acquire and fund their varied strands of business – from airlines, aviation financing, fintech and most recently football clubs. It is also evident that many of these lines of business and their underlying portfolio companies continue to lose money – requiring additional funding from their parent company (777 Partners) and their funding partners.

Their football businesses continue to lose money. Project Echo – the presentation created between 777 Partners and Tifosy Capital and offered to professional investors to potentially raise capital for football acquisitions suggests aggregate annual losses of €180 – 200 million on turnover of €750 million (including Everton) – this after player trading, one of the key “benefits” of the 777 multiclub model. Incidentally, lets not forget that the flat multiclub model preferred by 777 has no serious advocates anywhere else in the multi-club universe.

The nominal football holding company, Nutmeg Acquisitions LLC, based on most recent available figures, does not have the resources to fund existing losses and acquire Everton Football Club. It seems that 777 will have to rely on external sources of funding for such an acquisition – especially given that 777 Re – the Bermuda based re-insurance company (and already provider of over US$ 100 million to Nutmeg) has a stated business plan to divest associated party investments following concerns and potentially further down gradings by an external ratings agency AM Best.

As a result of reported probes by US law enforcement agencies and regulators (Department of Justice, SEC and others), the spotlight on their funding, the underlying performance of their partnership and its portfolio of businesses, let alone the football specific/sport specific question marks over ability to pay, meet agreed cash injections, performance etc, what might have appeared some months ago to all at 777 Partners to be a routine regulatory process has turned into a major issue. The strengthened fit and proper owners test, the greater scrutiny of souce and quantum of funds, and the Premier League’s perilous regulatory position, political pressure and reputation have made their (777’s) position far less certain. I will state again it is my firm opinion that they will not get the required approvals for the reasons I have stated often. This view is strengthened by the much more difficult fund raising environment for 777 and the continued deterioration in Everton’s finances and therefore attractiveness to investors.

(ii) If not 777 Partners then who?

As is apparent from much that I have written not only recently but for a considerable period of time, Everton’s financial difficulties and future requirements have reduced the number of potential suitors. This has been added to by Moshiri’s seemingly unwillingness to engage directly with potential suitors. Furthermore, the club has been promoted for sale by Deloitte on Moshiri’s behalf. Despite enormous interest from US investors and sovereign wealth funds (for example) in football clubs generally, none appear to have been attracted to Everton with its current problems including specifically its regulatory issues, debt position and future capital requirements.

777 aside, I am aware of (and have discussed with regularly) potential investors who have looked at/keep a watching brief on developments at Everton. However, none have produced or got near to an offer that meets the requirements of both Farhad Moshiri and importantly, that of the main creditors. This was particularly relevant when Moshiri sought a partial sale as against his now preferred option of a full disposal.

Is it now the case that the acquisition cost of Everton, meeting the requirements of existing creditors, the future capex of stadium completion and investment in the football side no longer adds up? Even with a new stadium, increased matchday revenues, sponsorship revenues etc, the burden and the cost of the required capital may just be too much to warrant a purchase? Throw in the still uncertain Premier League tenure (albeit that’s wained a little now) and perhaps Everton are too high a risk on the basis of fully repaying debt and future losses and capex?

(iii) If (i) or (ii) doesn’t occur – what happens then ?

777 Partners have already indicated their unwillingness to continue funding Everton beyond January – so what happens?

There are options (not necessarily supported by and liked by every party) – (a) Everton sell assets in the transfer window (b) Existing creditors extend support (c) existing creditors agree to take some of the pain, debt is restructured and Everton given the opportunity to trade out of difficulties – that means a haircut (see below) (d) administration

The first option (a) is selling players. Would be hated by the fans, the manager and possibly the players themselves. Expensive, counter productive – but the easiest option in the short term. as long as long term consequences are ignored

(b) existing creditors extend their credit facilities – I really cannot see that happening.

(c) There’s an expression in investing circles called “taking a haircut” – that means accepting less than a dollar for a dollar, ie agreeing that that the club owes you less than you lent it, extending the term of the credit and/or possibly forgoing interest in the hope of getting capital back.

(d) Administration – handing the company over to insolvency experts whose sole purpose is to maximise the return to creditors (those owed money). They’d try and keep the company running if that maximises the prospect of a return to creditors. From a footballing perspective – immediate 9 point penalty.

It seems to me – and I am willing to be challenged on any of these points…. In the absence of Moshiri funding us further (not happening); in the case that 777 Partners do not get approval (likely); in the case that creditors do not act uncharacteristically generously ( even with player (asset disposals) (unlikely); the only option in administration.

One might argue that there comes a point (and that might be very soon) that the directors (such as they are but still with legal obligations) have no choice.

What does it mean? 9 points penalty – possible/probable relegation (perhaps dependent on appeal outcome for the 10 point penalty).

The sale of marketable assets – players – Pickford, Branthwaite, Onana, DCL?

The sale of an almost complete but not fully paid for stadium. Everton become tenants, not owners – strip out emotion and that’s not a completely bad idea as long as the club benefits from the increased income above the rental cost).

The point of the 1800 words above is that there is no easy, pain free solution – we are the subjects of years of mismanagement. pre Moshiri, during Moshiri – but critically let’s not be penalised post Moshiri.

The people to take the pain (as with the Premier League Commission – same logic) are not the fans, not the players or the current manager. The people to take the pain are the existing shareholder (Moshiri) and those institutions that supported him with a profit motive – the lenders. Moshiri is guaranteed a monumental loss but we should shed no tears if Rights and Media Funding take a loss, if Metro Bank (guaranteed by the Government) take a loss, if 777 take a loss – their motive was to enable a speculative, cheap acquisition of a distressed asset. Even MSP who are unlikely to lose given their security arrangements had a profit motive.

We, the fans, have to look after our asset, our football club. We can align with investors with similar motives and should do so, but as described above, our interest is our football club, not the shareholders or third parties.

Whatever happens, and I think I’ve covered the options, there’s pain. We, fans have suffered pain for much of Moshiri’s tenure, we are not escaping pain free, every Evertonian already knows that – but neither should the other parties. No parties, such as 777 Partners (no matter how unlikely) who seek to take advantage of the idiotic and poor management of those custodians (owners) before us.

Those responsible – Moshiri, and those who supported him with a profit motive have to take the pain – it was their misjudgment, theirs alone.

As fans, we do our part

What can I give Him, Poor as I am?
If I were a Shepherd, I would bring a lamb;
If I were a Wise Man, I would do my part.