An assessment of Moshiri’s culpability in Everton’s position and a suggestion as to how he can partially redeem himself

Tuesday 27th February 2024 will mark the 8th anniversary of Farhad Moshiri’s initial purchase of 49.9% of Everton Football Club. It is unlikely to be an anniversary featuring many celebrations. Whilst a brand new stadium moves towards its anticipated completion by December 2024, almost everything else about Everton Football Club lays bare, a hollow, gutted out shell of a once great sporting institution. The dedication, loyalty and unbridled passion of the fan base locally, nationally and internationally aside, and perhaps the determination of the players and coaching staff, very little else appears to have merit, relevance or any connection with the affairs of a modern professional sporting organisation, particularly one with such a lengthy (and from time to time successful) tenure in the world’s richest domestic footballing league.

I want to explore Moshiri’s role not only in where we are now but how he can enable a solution

It has become popular, and with the support of the football club, to deride the Premier League and to represent its appalling management and governance as the root cause of our ills. Let me be clear, I am in no way advocating for the Premier League. In no way am I advocating for how they’ve allowed our beautiful game to be stolen by State enterprises, by filthy money from almost any source, how they have destroyed the competitive fairness and integrity of our great game. How they have clearly worked in the interest of a few monied and favoured clubs to the detriment of everyone else.

Whilst all of the above is true regarding the Premier League, and the disadvantage it places clubs not in the top six, it is not the sole or indeed even the main reason for Everton’s demise. Everton’s decline in the last eight years is down to one man – Farhad Moshiri. On the face of it it seems ridiculous, churlish even, to call out a man who has invested £750 million into Everton Football Club, making him one of the top half dozen financial contributors in the English game. Yet, Everton’s position ultimately has been determined by Moshiri’s decision-making over the last eight years.

It started with his unfathomable loyalty to the now deceased former Chairman, Bill Kenwright, and many of the executive team charged with running our club. Charged with making the strategic decisions to take advantage of Mosihiri’s generosity, and then having created the strategy, to execute it properly. They failed on both counts. Moshiri failed to recognise this and make the necessary changes at any point during his tenure. What changes that did occur were driven by external events and new career opportunities for individuals, not by Moshiri taking a professional approach to executive and board recruitment.

The same could be said for his recruitment strategy (I say that very loosely) on the footballing side. The collection of managerial selections, director of football appointments, player recruitment (often aided and abetted by agents driven by their own self-interest, not that of Everton) could hardly have been worse. Vast sums of money wasted on recruitment not to say the offering of some of the most ludicrous player contracts ever offered in the game. The best of the talent simply have left the club, either due to our financial condition or to maintain each player’s career path. Coupled with a rapidly declining academy in competitive terms and it is easy to see how Everton’s problems have mounted over the last eight years.

The current situation

All of which brings us to where we are today. Struggling massively on and of the pitch. Financially hamstrung and with a barely serviceable Premier League squad. Over-riding all of this, two concurrent black swan events – the proposed 777 takeover, and the two PSR rule cases. Two events which are paralysing the club despite the efforts of Dyche, the players and particularly the supporters to battle against such strong headwinds.

Both major events are not in anyway being assisted by the Premier League – for clarity, I want to be absolutely clear on this. The Premier League’s systems have been tested to the extreme and both the approval process for new owners and particularly the disciplinary processes for dealing with an accusation of a breach of rules are shown to be hopelessly inadequate and a terrible reflection on the governance and leadership of the Premier League. More than that, the whole structure of having a member owned organisation that is simultaneously, promoter, commercial operator, regulator, judge and jury – rule maker, the prosecutor, the jury and judiciary all at the same time shown to be utterly not fit for purpose.

None of which, dissolves Everton’s and particularly Moshiri’s role in our misfortune. It mitigates it certainly, but doesn’t absolve us.

Moshiri’s role

It is Moshiri’s decision-making that has led us to the alleged breaches of profitability and sustainability rules. It was the club’s defence strategy driven by Moshiri (there is no board) and his advisors (sic) that failed to adequately defend or even mitigate against the commission’s decision and sanctions. Time will tell whether a new approach driven by Laurence Rabinowitz KC will significantly change matters in the appeal, and one would imagine, in the second case. Regardless, the impact of the current ten point penalty and the resulting uncertainty has materially affected Everton’s season – regardless of the result of the appeal. Additionally and subsequently, the second charge and its outcome will play a part in how the players and manager see out the rest of the season, irrespective of the outcome.

All of the uncertainty arises ultimately from the behaviour of Everton Football club under the direction and ownership of Farhad Moshiri – during the period to which the charges relate, and the club’s response to it.

The ownership issue

The second cause of Everton’s current paralysis is the issue of future ownership. I am not going to repeat all of the reasons for 777 Partners LLC to be deemed unsuitable owners – they are covered extensively in the media and in my case, here – Everton & 777 Partners.

From my, and most reasonable observers perspective there is no case for their suitability.

However the choice of 777 Partners LLC as prospective owners is down to one man – Farhad Moshiri. It is his decision, and his decision alone to sell his 94.1% stake in Everton to 777 Partners. It is his choice, his judgement that 777 Partners are the best option for Everton Football Club despite the overwhelming evidence against such a choice. Remember he said “(777 Partners) are the best partners to take our great Club forward, with all the benefits of their multi-club investment model”. It was his choice to put forward an organisation that has failed to satisfy the Premier League as to their suitability despite five months of due diligence as part of the director and owners test.

As a result of his choice, Everton have reached a state of complete paralysis. Already heavily indebted, already with a heavily weakened squad, Everton had no option but to sit out the January transfer window, and much worse than that, rely upon funding from 777 Partners to remain a going concern. All whilst waiting for 777 Partners to provide the evidence which supports their acquisition of Everton. Failure to provide the evidence, means no approval – the Premier League doesn’t reject it just doesn’t give approval.

Because of Everton’s dire financial circumstances, 777 Partners agreed to fund the club’s cashflow requirements during the period between mid September and approval. That is now 5 months and counting and has grown to a debt of approximately £190 million, an amount which increases the financial insecurity surrounding Everton and has applied huge pressure to 777 Partner, themselves reliant upon the support of third party debt providers. In the extremely unlikely event of 777 approval it would also have implications for Everton moving forwards.

What happens when Moshiri or 777 accept they will not be approved?

Many have written that we must accept 777 Partners due to the threat of administration in the event of their removal as ownership candidates. Whilst the threat of administration is real, there are alternatives. Those alternatives require action by Farhad Moshiri.

They require him to give serious consideration to alternative bidders, and it requires him to do so immediately. There are alternatives out there, although none of the alternatives are solutions without considerable pain for Moshiri and other creditors (including 777 Partners). However for Moshiri, as an alternative to administration, these alternatives are more attractive.

Administration would occur when Everon no longer had the financial support of its shareholders, lenders and/or Laing O’Rourke – or indeed if the directors reasonably believed the club could not continue as a going concern. The directors (including Moshiri) have a legal responsibility for such.

In the event of administration, an administrator would be appointed and be paid (from the club’s resources) to best satisfy the club’s creditors. To satisfy the club’s creditors they would seek to sell the business as a going concern to the highest bidder (who would have to go through the Premier League DAOT). The successful bidder would seek to negotiate with the creditors as to who is paid and to what extent they are paid.

Everton have preferred and secured creditors. To my knowledge, we have no debt to HMRC so I have not included them in the following.

Secured creditors – these are creditors whose debt is secured against assets of the club. They include MSP Sports Capital who have security over the Everton Stadium Development Holding Company (which owns the stadium and lease on Bramley Moore). MSP’s debt is £140 million.

Rights and Media Funding have provided Everton with a revolving credit facility now believed to be £225 million. This is secured by a fixed charge against Everton’s bank accounts (meaning security over all of Everton’s income) and a floating charge over all other assets of the club – including players, Goodison Park and other properties.

Metro Bank, owed approximately £20 million has a first legal mortgage over all the club’s freehold properties.

777 Partners (currently owed £190 million (or thereabouts) have a subordinated security under the Rights and Media Funding arrangement. This means they are junior to Rights and Media Funding in a default situation

The football creditors rule means that all football related debt (outstanding transfer fees, outstanding wage and bonus payments, agent fees etc) are next in terms of priority.

Then we have the unsecured creditors. This includes suppliers, security, police, and fans (season ticket holders/hospitality purchasers) etc.

Included in unsecured creditors would be Farhad Moshiri. His shareholder loan (£450 million) is an unsecured debt. He might choose not to accept any repayment in a default/administration situation.

A company or individual buying Everton as a going concern would have to do one of two things. Either pay off all creditors or reach an agreement with creditors as to how much and over what period the debts would be paid. That might include the selling of assets to raise the cash to fund the creditors. In Everton’s case this would include the selling of Bramley-Moore (and in doing so, paying off MSP) or the future sale of players in the next transfer window. A new purchaser of the club would also provide fresh capital which may be used to pay off creditors. This fresh capital could be permanent (ie equity) or temporary (new debt) raised against the club or other assets the new owner may own. The new owner would look to significantly reduce Everton’s costs including refinancing debt at much lower rates.

Football-wise it would mean Everton would almost certainly lose their sellable assets in the next window (Branthwaite, Pickford, Onana etc). It would also mean an immediate and automatic nine point penalty (whilst in the Premier League.

A successful administration would not put Everton out of business. We would potentially lose ownership of Bramley-Moore and certainly our best players plus face a much restricted budget going forwards – but we would not be out of business.

If the above was not possible, ie a buyer not found or agreement not reached with creditors, then the worst of all options would occur – liquidation. That would mean the club ceases to exist and all assets are sold to repay creditors. It is the least likely option for one simple reason. Without a top level football club to play in, what value does Bramley-Moore have?

A solution – requiring Moshiri’s co-operation

As much as Moshiri is responsible for the appalling circumstances we find ourselves in, he is also (assuming no one believes administration is the best option) the solution provider. He can solve the paralysis issue we have and provide a solution which does not necessitate administration.

What does he need to do?

In the first instance accept that 777 Partners will not be able or allowed to purchase his shares. Accept that and remove them from the equation.

Secondly, he could convert his remaining shareholder loans into equity. He has done this before of course, converting £200 million of loans into equity. The effect is largely cosmetic, but it would improve the balance sheet marginally and demonstrate further commitment to Everton. It would not solve our cashflow crisis whilst we seek an alternative purchaser.

He could commit to funding the club for a number of months whilst a new purchaser goes through the DAOT process with the Premier League. That might cost him another £75-100 million, but it would see the club to the end of the 2023/24 season and allow us to continue as a going concern.

The new owner can concurrently (i) seek approval from the Premier League (ii) re-negotiate terms with existing creditors whilst providing a brand new financing package – long term, sustainable debt secured against future ticket sales at Bramley-Moore (as well as the physical asset) and (iii) provide working capital over and beyond the amounts required for cash-flow purposes. Included in the package is a functioning board of experienced professionals well versed in corporate recovery, revenue expansion and the running of professional sports organisations.

We are at a defining moment – a true watershed. Moshiri (as he has done for eight years) is the only one who can determine our fate. Do nothing, 777 Partners fail and administration or possible liquidation results.

Take a positive view, commit further funding in the short term and allow the right investor to (i) recover the club and (ii) exploit the asset that is being developed in Bramley-Moore. Moshiri’s reward for this might be a minor retained shareholding (although no future influence) but also the knowledge that his actions allowed the rescue of our club which is doomed to failure without his positive intervention.

He can provide the opportunity for others to deliver the solution. He needs to act now.