If there’s been one constant in Farhad Moshiri’s chaotic, ruinous tenure at Everton since February 2016 it is that parties who have pursued an interest in Everton have inevitably and ultimately put their own needs before that of the club they own, have lent to or indeed serve.
The incredible power vacuum that has existed from the shareholder, to the boardroom and the hapless executive teams, including those in charge of football operations has become a case study of how financial resources alone can not achieve success, a case study of in the absence of leadership, a common cause, other interested parties are allowed to act as parasites, to the extent that eventually they kill their generous host. So it is at Everton.
A lesser form of this behaviour was witnessed in the decades before Moshiri’s arrival, however there were never enough resources on offer to attract sufficient parasites to destroy the club, instead, a form of lower level, not hugely competitive, symbiosis was established which partially enriched a small number but kept the host, Everton, stumbling along, missing the bigger opportunities on offer, but achieving just about enough to maintain an (unsatisfactory) position at the high table.
Contrast
In contrast, Everton’s former peers and the nouveau riche fuelled by oil and State generated money, brought glamour, purpose, leadership, a disrespect for the former old boys’ club of football and a cynicism which has resulted in the game we have today. A game largely disliked by many of its followers, yet seemingly more popular than ever before – the Scudamore paradox?
In all successful entities, be it in commerce, research, academia or professional sport, there is usually a defining mantra that runs through the organisation from top to bottom. Within that is of course, the desire for personal development, but ultimately the common cause is the driver for a collective success. The unity, the single purpose, vision and leadership, the single goal and strategy to succeed, to be the best, to break new ground, to defeat the greatest of competition is what brings the ultimate prize to such organisations.
Everton, specifically
To turn to the specifics regarding Everton. It’s almost impossible to believe that a six nil drubbing at Chelsea, a performance so bereft of character, purpose, objective let alone fight, determination and guts is not at the top of every Evertonians list of concerns about our beloved club. Yet, frankly that is the case.
The news from yesterday, in a sense the anti-news (i.e. news of no progress at all) that 777 Partners and their various advocates seem to specialise in – the art of kicking the battered can down an increasingly rough road bears witness to Everton’s position and that of the disconnected, absent, obtuse owner Farhad Moshiri.
Everton, are no longer a single united entity. They are a loose pack of possible allies if I am being generous, more realistically a group forced into a marriage of convenience, none liking or trusting the other, but none with the means or desire to end the charade, the sham marriage that their relationships have become.
The role of creditors, backers
Wearing a creditors hat, I could easily persuade myself, Evertonians and the football world more generally, that I or my organisation is a positive contributor, a backer, an enabler for Moshiri and Everton to build a stadium, stay in the Premier League, and perhaps return to former glories. That would be so if alongside the cash, there was a unity of purpose, an alignment of interests. But there isn’t. The creditors are like big pharma – provide something that keeps the patient alive but not well enough that they cannot stop buying the medication that big pharma so expensively sells to them (or their health provider). So it is with Everton’s debt providers.
I posted on X that since August 2011, despite the £750 million provided by Moshiri post 2016, there’s only been a narrow window of 27 months when Everton haven’t had to rely on the financial support of a sub-prime, private, back street lenders. The only “respectable” institution to offer financial support in that time was Santander at reasonable rates. ICBC had their own, politically motivated objectives of moving into football, scuppered by a change in policy from the Chinese President, Xi Jinping.
However, today, that policy, the policy adopted by choice by Moshiri despite the high running costs of such debt, can only be seen for what it is – there’s no strategic intent to help Everton, no desire to work with other parties, just a maintenance of their investment return and at worst the return of their capital in a default position. Rights and Media Funding will attempt to manage their exposure to Everton (certainly not increase beyond current levels) whilst receiving a 5% return above the UK bank rate. A lending that has grown facility but been in place now since September 2019.
Similarly MSP Sports Capital. A year ago MSP Sports Capital saw an opportunity in Everton – an opportunity to raise money from investors (limited partners) lend capital for the continued stadium build, secured against the stadium but with the option to convert and become a significant minority investor. As a default position, ultimately they had, and still have the option to acquire control of Everton Football Club. The funding met an immediate and pressing need – Everton were significantly behind the repayment schedule agreed with Laing O’Rourke. It attracted two prominent and respected businessmen in Andy Bell and George Downing. Both would probably have taken board positions had MSP’s loan been converted into a 25% equity stake.
However that proved not to be the case and MSP’s loan continued albeit with a mid April deadline for repayment. The loan is secured by (i) the entirety of the stadium development company and (ii) the option to take 50% plus 1 share of Everton’s issued shares. That deadline has passed and it appears that Blythe Capital (the security agents) have not yet exercised their option. The option continues to exist – it has not expired.
It has to be recognised that MSP Sports Capital have to maintain the interest of their clients, first and foremost – the people who invest and trust MSP to generate investment returns on their behalf. MSP Sports Capital’s interest in Everton per se, is entirely secondary and will always be over-ridden by the interests of their clients. Similarly Bell and Downing, life long Evertonians, and as they would see it, benefactors to the club by virtue of their financial support, they have to maintain the interests of themselves, their families and beneficiaries.
Non-alignment & 777 particularly
The problem arises when the interests of the club and the interest of the backers do not strictly align. A situation which is developing further as Moshiri desperately seeks to accommodate 777 Partners in their objective of acquiring Everton.
777 Partners have had seven months to meet Moshiri’s requirements, the Premier League’s conditions, and the interests of Everton’s creditors. Yesterday represented the first “hard” deadline, something which 777 have managed to overcome without meeting their obligations.
777 Partners inability to meet the conditions, their requirement for extensions has one principal cause. They don’t have the resources to meet the conditions. That is abundantly clear now, even to their biggest advocates. No one asks for more time if they have the resources required available to them. That is a huge red flag, the biggest red flag of many presented by 777 Partners.
As I have stated on many occasions, delay causes Everton’s position to deteriorate.
Time is not on 777’s side either. The macro environment for private equity firms using reinsurer’s balance sheets as funding vehicles is changing rapidly. As outlined in the Washington Post, the potential mis-alignment of private equity investment strategies with the needs of insurance companies is a problem which has come to the public and investors attention as a result of the public nature and investigatory work surrounding 777’s pursuit of Everton Football Club.
777, a small player in a bigger evolving picture
Just as it took a small bank in the UK ( Northern Rock) to highlight the issues facing the banking industry before the financial crash of 2008, so it might be that inadvertently 777 Partners highlight future problems in the insurance industry. If so, the hugely powerful (in political as well as economic terms) lobby of the private equity industry will seek to smooth out the problem at minimal risk to themselves, but perhaps to present 777 as a rogue case – the over reliance of 777 Re.’s balance sheet (and other reinsurers also) in funding 777 Partners activities being unrepresentative of their industry.
We have already seen in the case of Kenneth King and A-Cap, how swiftly insurers can appear to move to protect their own (and their policyholder) interests in divesting. A problem for the industry as a whole but specifically for 777 Partners.
A problem for 777 Partners – the problem being reduced access to capital, reduced access to lending) is a problem for Everton, given the cost attached to their becoming owners.
The extension required by 777 is a tacit admission of their inability to deliver, 7 months after agreeing with Moshiri.
Our interest as Evertonians
Our interest as Evertonians should be our new owners ability to fund and manage the club going forwards. Not only is 777 Partners ability to fund, now beyond anyone (bar Moshiri’s) doubt, but as documented here, in the Financial Times, New York Times, London Times, Washington Post, the Athletic and particularly Josimar among many others their ability to manage businesses across many sectors is also highly questionable. Buying distressed assets is an established investment strategy. Running those businesses badly thereafter less so. In the vast majority of cases ownership by 777 is characterised by poor performance, operating losses, cash flow problems and bar related parties an inability to raise investment and working capital.
This is why in my opinion, 777 Partners remain totally unsuitable potential purchasers of Everton. The evidence is clear and irrefutable. The prospects for 777 in my opinion worsen going forwards, they do not improve. That is not an environment in which Everton should be placed.
So what happens next?
I have suggested administration is a possibility for some time. Perversely, as we come close to the season end the risk reduces in certain respects. There is an argument that in pure survival terms, paying the bills until the end of May sees us through this season and the prospect of an immediate 9 point penalty. It get’s us to the summer transfer window and allows for the disposal of Everton’s major players. Players that would generate cash and profits, thereby meeting the immediate cash flow concerns and also helping reduce the inevitable PSR issues that Everton will face once more.
However a fire sale of playing assets does nothing for Everton’s perilous competitive position, not does it solve the long term capital restructuring desperately needed, nor does it provide the additional capital for Bramley-Moore.
It would hollow out even further the depleted reserves of Everton Football Club. We are a quarry quarrying its last stones, a coal mine with no further seams of coal.
And all of this assumes, retention of our Premier League place! The consequences of relegation shift the nightmare into even greater areas of pain and suffering. All of the above managed by the custodial expertise and track record of 777 Partners. Please no.
The strategy is clearly just to limp across the line. Complete the season, stay out of administration, remain in the Premier League and see where we go from there. That is the extent of our ambition and for our future, under Moshiri, his choice of potential owner, and our other backers and creditors.
Need for true leadership
The need for true leadership, the need for a survival strategy beyond the grim, immediate future described above is immense, essential and existential. Do 777 Partners provide the solution? No – their presence and our continued tolerance of them exacerbates our problems. Can Moshiri? – not on the evidence of the last 8 years. MSP Capital?, seeming less likely. Other investors, including those who have had an interest , even recently? Possibly – but their game now is to wait for the carcass to appear – the carcass of Everton Football Club created by those not skilled enough to keep us alive, or not interested enough to allow us to flourish.
Everton’s performance on the pitch at Chelsea, the personification of what we have become off the pitch.
Desperate? Yes. Recoverable? Still possible.
It is, for the avoidance of doubt, a really tough ask, and there’s a case for saying it isn’t possible. But the only survival chance going forwards requires new management, new players (in every sense) on and off the pitch. It’s required immediately, kicking the can is no longer an option, there can be no more prevarication – no more putting narrow self-interests ahead of the club, if we want Everton to survive.