There’s been some discussion as to Everton’s current debt position in recent times, particularly if as seems increasingly probable, the proposed acquisition of Moshiri’s 94.1% stake in Everton by777 partners fails to conclude.
Let’s start with the figures in the last set of audited accounts, dated to June 30th, 2022.
The accounts showed the following:
Shareholder loans:
As at 30 June 2022, Everton Football Club Company Limited owed BlueSky Capital Limited (an Isle of Man company owned and controlled by Farhad Moshiri), £380.751 million.
This is an interest free loan, repayable at a mutually agreed date between BlueSky and Everton Football Club.
In the following financial year (to June 30th, 2023) BlueSky Capital provided an additional loan of £70 million.
Therefore, to the date the accounts were signed (28th February 2023) Everton owed BlueSky Capital £450.751 million.
3rd party debt
In addition to shareholder loans, as was made clear in the Premier League Independent Commission, Everton have also relied upon commercial loans or facilities provided by two sources.
One is a loan from the club’s bankers Metro bank – originally £30 million, this Covid related, government backed facility is reducing by £3.75 million a year. Therefore a balance of £22.5million is expected in the accounts to June 30th 2023.
Additionally, and initially for working capital purposes but since expanded to include stadium financing, Rights and Media Funding – a specialist football lending operation provided Everton with a rolling 5 year credit facility of £150 million to 30 June 2022. This facility has increased subsequently and now stands at £225 million. The financing is expensive with an interest rate of base rate plus 5% charged on the outstanding balance. The current base rate is 5.25%, giving an interest charge of 10.25% on sums outstanding.
Everton’s cash flow/777 Partners
Everton’s cash flow is complicated by a number of factors, the reduced financial support from the club’s major shareholder, the proposed takeover by 777 Partners, the continued building of the stadium of Bramley Moore, continued negative cashflow from operations, interest payments and of course, trade creditor payments – a feature of Everton’s player trading last summer was the delay to or extended payment terms on incoming players.
The failure to accept a long term secured, fixed rate, senior debt funding package pre-Covid, pre the Russian invasion of Ukraine and pre the proposed takeover by 777 Partners may prove to be Farhad Moshiri’s greatest single error. As a result the stadium, on top of Everton’s losses is funded by short term, not fit for purpose loans.
In a takeover situation, especially when the target company (Everton) is vulnerable and dependent upon third party support to continue as a going concern, it is not uncommon for the would-be acquiring company (in this case 777 partners) to provide financial support until such a time as the takeover is completed, in order to acquire a going concern .
Yet 777 partners have funded Everton way beyond their and anyone else’s expectation. We are 21 weeks into a process thought to last 8 to 12 weeks. Given the difficulties 777 have in funding other parts of their diverse empire, funding Everton to the tune of £160-190 million to date with no certainty of outcome seems an extraordinary act of largesse. Of course, there’s a reason for this funding. At the Everton level, maintaining payments to Laing O’Rourke is critical. The penalties for non payment render an already difficult position impossible. At the partnership level, acquiring Everton is critical to 777’s perceived status as a multi-club operator. Critically, it is also vital to the future funding plans of their multi-club operation. Collectively, the 777 football clubs are loss making and require continued shareholder support.”Shareholder support”is said loosely – in reality the support comes from third parties, connected and closely related re-insurers for example. A practice which has caught the attention of regulators, credit rating agencies, the IMF and close observors of the re-insurance market and its relationship with parent private equity groups. Thus, for 777, fund raising from other investors is vital. 777 have (unsuccessfully) attempted to raise additional funds – perversely, the acquisition of a loss making, capital hungry Everton would make a capital raise for their entire football operation more likely.
MSP Sports Capital
In addition, we have MSP Sports Capital who have provided £140 million of loans to the Everton Stadium Development Company Limited. Originally, the intention was for MSP to provide a loan and ultimately (i) convert to equity and (ii) provide senior board members at group level. This plan was rejected, in part through Rights and Media Funding objections to the future equity stake on offer. However the loan was granted. MSP have the security over the stadium development company, the ultimate owners of the stadium and the original 200 year lease provided by Peel (owners of Liverpool Waters).
Total gross debt and its consequences
So, in total, including shareholder loans, but before trade creditors (outstanding transfer payments) Everton have £1 billion of debt. Does this matter? Afterall, we are perhaps only another £100 million away from completing Bramley-Moore and are destined to move in in August 2025 immediately raising match day income from less than £20 million to an estimated £55 million (source Deloitte) per annum. Plus, of course, future increases in sponsorship and commercial income. All predicated on remaining in the Premier League for many years to come.
It matters hugely!
Firstly, in the unlikely event that 777 acquired Everton, how would they fund the acquisition, loans and future capex requirement (stadium and players) when, as evidenced elsewhere, even normal day to day operating costs of much smaller clubs seem to cause significant problems in serving in a timely and secure manner. There’s just no evidence to support 777’s assertion they could do such – which is perhaps why the process to date has taken so long. Other factors such as proof of and source of funds will clearly play a big part.
I stress as strongly as I can, 777 Partners are not the solution to our problems, financially, ethically and operationally. In my opinion they are not fit and proper.
Alternative buyers
There are investors interested in Everton, there has been since it became clear more than 12 months ago Moshiri was a seller – despite his denials. However, Moshiri made his choice and deemed 777 partners the most appropriate and suitably qualified purchasers of his stake, albeit at a significant loss to his personal fortune. The issue for potential purchasers has been to attract Moshiri’s attention, he has been wedded to the idea of selling to 777 for many months – regardless of there being no exclusivity.
The issue for would-be purchasers today is different and more complicated. Clearly Everton’s status as a Premier League club is more questionable, particularly in the light of a second potential breach of profitability and sustainability rules. Secondly, there is the issue of how long Everton can remain a “going concern”. For a potential investor is Everton a more attractive proposition post administration? (even with almost guaranteed relegation).
That aside, is the amount of accumulated debt, future losses and continued capex just too much to warrant a purchase?
It’s widely accepted that Moshiri would either write off his shareholder loans and receive a small consideration for his equity, or agree to a long term structured payment that would see a (relatively small) return over the medium to long term, having accepted his equity has no value.
The issue is what would Everton’s creditors accept? Football creditors (possibly around £90 million) are first in line. Then we have the secured creditors – I’m assuming we have no issues with HMRC.
MSP are likely to be the most secure, having the stadium development company as security for their £140 million loan. Selling the completed stadium to Everton’s future buyer or a third party would see a return of their capital and more to pay other creditors.
Metro Bank have a Government backed guarantee.
Rights and Media Funding have security over the club’s bank accounts (fixed charge) and a floating charge over all other assets.
777 Partners have a subordinated (ie lower ranking charge, attached to Rights and Media Funding). They would be paid (in a default situation) after Rights and Media Funding.
Assuming an alternative purchaser (ie not 777) would they be prepared to pay off third part debt (approximately £500 million), pay Moshiri nothing, finish the stadium (£100 million minimum) and provide working capital to fund continued losses and invest in the playing squad ( a minimum of £150 million). That in total is £750 million.
Is Everton worth that given Premier League status is not guaranteed? Even with a completed stadium and a very tight player investment budget, it’s difficult to see an investor (other than someone backed by a State) jumping at such an alternative.
Yet again, as a result of Moshiri’s misjudgement we are backed into a corner. As stated for a long time, I don’t believe 777 will get approval nor have the funding to adequately capitalise and run us.
Equally, Moshiri’s choice of 777 as would-be purchasers has added enormously to our debt burden and day by day makes us a less attractive proposition for potential purchasers. one could hardly create a less favourable set of options in my opinion.
For creditors, there’s a decision to be made once 777 cease to be an option – do you allow the club to go into administration (with the consequences of relegation and punative penalties from LOR) or do you resolve to restructure your debt – longer term, lower coupon, debt/equity swap? (Incidentally 777 remaining an option doesn’t give creditors a free pass by any means).
Whatever the solution is going forwards, Moshiri has caused huge pain to himself, the club, the fans (most importantly), creditors, sponsors and their backers. The longer we wait for a solution or resolution the worse our situation becomes – he needs to accept his responsiibilities and work in the interests of the club, immediately.
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All totally on the money. Or in this case, the lack of money. It’s like one of those slow motion car crash tests . The club is the car and Moshiri is the crash test dummy.
Given administration is a possibility, shouldn’t the 24/25 season ticket payments now flowing into the club be ring fenced into something like an escrow account so they can be paid back in the event of administration?
The very fact that we are now into week 21 of the OADT raises more questions than answers.
Great summary Paul. 👏👏👏
Is There A Silent Saviour In The Shadows?
You can see why any potential buyer maybe sitting silently in the shadows waiting for the optimum moment to step forward. In the case of our red neighbours – it was just a few days (apparently), from being forced into administration before FSG formally pounced, acquiring an asset that is now estimated to be worth 12 times what they paid for it at over £3.5bn.
Whilst I don’t see EFC in that category at all, there must be some business comparisons to be drawn.
This must be a tightrope to navigate. You have to step forward and declare whilst looking for that prime moment when all looks lost and the cost is at its lowest point. Waiting for Administration brings a whole new group of investors forward – looking to pick over the spoils with minimum outlay and may well scupper the business for years to come whilst they fight over it and the disgrace of a further points deduction for doing so.
So I would hope that any potential saviour is playing the FSG game. Waiting for a positive rejection of 777 from the PL and not risking waiting too long for administration and a bun fight with plenty of other takers. Or making Moshiri an offer that would challenge 777 if they were to be granted permission. Like you Paul, EVEN if they somehow managed to find the purchase monies, BMD must be at risk of being sold on and any potential regeneration of EFC would be decades away and I really don’t see 777 in it for the very long game. I’m sure this is why 777 are trying to shoehorn themselves into the position of being the inevitable new owners of EFC. If that happens, EFC becomes the prime asset in a multi club group that allows them to carry on their escapades across several business ventures.
What a sorry state of affairs, brought about by BK and a billionaire who purchased EFC, cleared £55m of club debt and offered us so much promise. We now find ourselves with £1bn of debt (albeit we don’t know how Moshiri might actually be looking to recoup those original £450m of interest free loans), and the very real and existential threat of administration or 777.
I believe 777 actually remains the worst of those options and I take full account of what administration, relegation and a subsequent further points deduction might bring – and that says something about 777 and their absolute lack of credibility.
Are we truly left down to 🤞- I think we are.
Regards
Keith
I wonder IF the Premier League appeal and second breach concludes with most of our points returned and IF we are then a distance away from relegation then it might encourage Moshiri to TRIGGER administration? This would mean we can absorb nine points and survive, but would it provide a clean slate for a new buyer to buy the club at a cheap price and pay Moshiri more?
Excellent summary Paul – thanks for all the great work you do.
Perhaps with the (additional?) points deduction, forced relegation and inevitable adminstration is what is needed for the rebirth of our great club.
In any event the outcome of the hearing is likely to be a trigger for the next episode of this sad series.
Any thoughts as to whether MSP might be part of the solution as a possible consortium member that holds all the cards on the stadium….?
Thanks Rod, I think it is extremely unlikely that MSP will have further participation in the club or the stadium beyond their current loan. Assuming the loan is repaid within the agreed timeframe, MSP will cease to hoave an interest in Everton
Good stuff Paul. As Steve Jones more or less says above, perhaps the best result is to get most of our points back from the appeals board /2nd IC and then see 777 rejected by the PL, perhaps suffering a further 9 points after administration but surviving thanks to a rapid late bid from a more benevolent third party?
It’s been said before but we could be deducted anywhere between 0-29 points this season and not know the position for certain until a week after the season’s conclusion. This is irrespective of on pitch performance and the progress made by Dyche, his coaching staff, and the players. As a match going fan, how on earth are we meant to enjoy another second of watching Everton in the remaining fixtures?
Additionally, it’s negligent of the PL to take so much time to decide on 777 as unfit and improper owners. If the PL haven’t had satisfactory answers to their questions by now, why don’t they bring the process to a close and make a decision? The delay pushes the club closer to administration and once again proves that the PL is incapable as a regulator.
Fundamentally pretty poor and negative post as per usual and offers no solutions what so ever you leave us completely hanging in the dog and of a new solution or proposal you’re hoping someone comes in and cleans up the mess well it’s not going to happen I’m not sure why you’re so against a 777 and I think They may have personally wronged you at some point hence your disregard for them completely I hope this is all done and dusted soon and we can continue to build our great club with new ownership
I recon best bet is administration, with a few folks waiting in the wings: Given the potential adjustments in an administration scenario for Everton, let’s provide some “guestimated” numbers for the capital required by a new investor. These estimates take into account possible reductions in debt obligations, the need for operational funding, and investments in the stadium and squad. It’s important to note that these figures are highly speculative and depend on numerous factors, including negotiations with creditors, asset valuations, and the strategic decisions of the administrators and new investors.
Reduced Debt Obligations:
Assuming creditors agree to significant debt reductions during administration:
Shareholder and Third-Party Debt Reduction: If creditors and the shareholder agree to accept 50% of the owed amounts (a hopeful scenario in administration), this could reduce the debt from £698.251 million to approximately £349.125 million.
Asset Liquidation and Operational Funding:
Asset Sales: Selling players and other assets might generate immediate funds. While hard to estimate without knowing the market and specific assets, let’s conservatively guess this could reduce the need for new capital by £50 million.
Operational Funding Needs: Assuming a streamlined operation and reduced costs, but acknowledging the need to maintain club operations, a new investor might need to allocate around £20-40 million in the short term.
Stadium Project Investment:
Stadium Completion Funding: If the stadium is deemed critical for the club’s future, and assuming some costs can be reduced or covered by asset sales, a new investment of around £50-100 million might still be necessary.
Investment in Squad and Infrastructure:
Squad Rebuilding and Infrastructure: Post-administration, to ensure competitiveness and potentially earn promotion (if relegated), an additional £50-100 million might be allocated over a few seasons.
Total Estimated Capital Requirement in Administration:
Debt Repayment and Restructuring: £349.125 million
Operational Funding: £20-40 million
Stadium Completion: £50-100 million
Squad and Infrastructure Investment: £50-100 million
Total Estimate: £469.125 million to £589.125 million
Considerations:
Revenue Streams: Any new investment strategy should consider potential increases in revenue, such as from the completed stadium, improved commercial deals, and performance-related revenue.
Negotiation with Creditors: Actual capital requirements could vary significantly based on the outcomes of negotiations with creditors.
Market Conditions: External factors, including the football transfer market and economic conditions, will influence the feasibility and impact of these estimates.
This “guestimated” total represents a significant reduction from the potential £998.251 million to £1.048 billion needed outside of administration, reflecting the impact of debt restructuring, asset liquidation, and potentially more favorable terms for new investments. However, it underscores the substantial financial commitment required to stabilize and rebuild the club post-administration.
Given the potential adjustments in an administration scenario for Everton, let’s provide some “guestimated” numbers for the capital required by a new investor. These estimates take into account possible reductions in debt obligations, the need for operational funding, and investments in the stadium and squad. It’s important to note that these figures are highly speculative and depend on numerous factors, including negotiations with creditors, asset valuations, and the strategic decisions of the administrators and new investors.
Reduced Debt Obligations:
Assuming creditors agree to significant debt reductions during administration:
Shareholder and Third-Party Debt Reduction: If creditors and the shareholder agree to accept 50% of the owed amounts (a hopeful scenario in administration), this could reduce the debt from £698.251 million to approximately £349.125 million.
Asset Liquidation and Operational Funding:
Asset Sales: Selling players and other assets might generate immediate funds. While hard to estimate without knowing the market and specific assets, let’s conservatively guess this could reduce the need for new capital by £50 million.
Operational Funding Needs: Assuming a streamlined operation and reduced costs, but acknowledging the need to maintain club operations, a new investor might need to allocate around £20-40 million in the short term.
Stadium Project Investment:
Stadium Completion Funding: If the stadium is deemed critical for the club’s future, and assuming some costs can be reduced or covered by asset sales, a new investment of around £50-100 million might still be necessary.
Investment in Squad and Infrastructure:
Squad Rebuilding and Infrastructure: Post-administration, to ensure competitiveness and potentially earn promotion (if relegated), an additional £50-100 million might be allocated over a few seasons.
Total Estimated Capital Requirement in Administration:
Debt Repayment and Restructuring: £349.125 million
Operational Funding: £20-40 million
Stadium Completion: £50-100 million
Squad and Infrastructure Investment: £50-100 million
Total Estimate: £469.125 million to £589.125 million
Considerations:
Revenue Streams: Any new investment strategy should consider potential increases in revenue, such as from the completed stadium, improved commercial deals, and performance-related revenue.
Negotiation with Creditors: Actual capital requirements could vary significantly based on the outcomes of negotiations with creditors.
Market Conditions: External factors, including the football transfer market and economic conditions, will influence the feasibility and impact of these estimates.
This “guestimated” total represents a significant reduction from the potential £998.251 million to £1.048 billion needed outside of administration, reflecting the impact of debt restructuring, asset liquidation, and potentially more favorable terms for new investments. However, it underscores the substantial financial commitment required to stabilize and rebuild the club post-administration.
Where does Downing and Bells loans sit in your calculations.