What do Evertonians want from the purchaser of our football club from Farhad Moshiri?

I think that’s a reasonable question upon which to base the relative merits of potential bidders. Many in the media, not all, of course, take the latest press release or briefing from Moshiri or perhaps the company engaged to generate buyer interest, Deloitte and publish the information the interested parties want us to hear. It often involves buzz words such as equity, multi-billionaire, high net worth, international investors and even unspecified associations with the Saudi Royal families. It seldom, if at all, includes scrutiny (again with notable exceptions – 777 being the obvious and exemplary case)

What we want, and what we need is much more complex though. All Evertonians want the club to return to the forefront of the English and even the European game, but most recognise (i) the position we are in and (ii) the yawning gap between the very largest, now most successful clubs and ourselves.

From my perspective (and I can only speak for myself) I am fiercely competitive and want Everton to win every single game and thus every single tournament or competition we enter. Logically, I know this is impossible – it’s always been impossible even in the most unbalanced of leagues and competitions. Nevertheless it still doesn’t reduce the crushing levels of disappointment when we lose a game, when it becomes apparent we won’t win the Premier League, when we won’t qualify for Europe and when we get knocked out of the domestic cup competitions.

However, there is a path back, first of all to respectability, then to competitiveness, then to winning and finally back to being global leaders not also-rans. There a huge number of component parts to achieving that. Just having an Evertonian in charge doesn’t achieve that (Kenwright, a past example), just having a multi-billionaire owner (Moshiri, a present example) or being owned by Saudis (just as a possible future example – Newcastle?) isn’t a guarantee of success.

The future model for success

What we are competing against is a number of clubs whose thinking about the game, about their business, how to generate revenue, where those revenues are generated from and the use of the balance sheet as a means of creating value for investors, attracting suitable partners and in the case of State owned entities, achieving geo-political objectives is way beyond just having a new wealthy owner.

Everton, as a football club, struggles to execute the football business strategies of the 1990’s and early 2000’s, let alone even consider the ambitions of the most powerful clubs at national, European and global levels and the strategies not just of the 2020’s but those of the second quarter of the 21st century and beyond.

In football, not a business known for generating profits per se, the balance sheet is hugely important. The massive inflows of income into the game have inflated asset values beyond recognition – in a sense covering up all the poor business practices of many owners.

However, successful and industry dominant businesses, raise capital from investors, borrow appropriately and invest those resources in assets that generate revenues – cash, the one item that keeps all businesses alive. They invest in assets to grow their balance sheet whilst looking to (i) increase income and (ii) maximise income sources – including critically diversification.

Diversification is essential to succeed in football going forwards and I don’t just mean the traditional matchday, sponsor/commercial income, Premier League revenues mix – that is the 1990’s model I referred to earlier. Matchday and sponsor/commercial income will always be important and owners will always seek to maximise those opportunities. However with regards to broadcast income, the future model is to see the Premier League as just one of a number of revenue streams. UEFA revenues and as we will see in the future, FIFA club competition revenues will be critical to future success. Add in the as yet untapped digital revenues streams and football becomes an event business, a media business and a digital revenue generator as well as a professional sporting entity.

Successful businesses also invest in human capital, at board level, executive level and throughout their organisation. In football recruitment and the development of young talent player and management-wise is critical, given that whatever the business strategies are and no matter how good the C-suite is, objectives can only be achieved by success on the pitch. Investment in academies, not just locally but internationally will form a significant part going forwards. Equally professional development of managers, coaches and scouts has to be part of recruitment and retention policies.

Back to Everton

So that’s a brief summary of the scene, and the likely competitive environment Everton and its new owners will find itself in. However the more immediate requirements will be the first items on any new owner’s agenda, namely:

Recapitalising the business

Funding the stadium

Sorting legacy issues from previous owners

Investing in the football team, stabilising our Premier League status

As I have published previously – debt is a huge issue. It is anticipated that Moshiri’s shareholder loans will be capitalised or written off (albeit with potential tax implications), but that leaves £580 million of third party, interest bearing debt. Most of that debt is secured (Rights and Media Funding plus MSP). The 777 loans are secured but are much more junior. It is highly unlikely that any new owner would repay each of the debts in their entirety – it is most likely that a senior debt package secured against the stadium of perhaps £350 million would repay most of the Rights & Media/MSP debt. This debt would (i) have a much longer maturity and (ii) be significantly less expensive.

The treatment of the 777 debt is more complex and will to an extent be driven by what occurs in the US regarding 777 and A-Cap and their current civil cases, particularly as defendants to Leadenhall (and others). A-Cap have control but as per the Leadenhall case, there are questions surrounding the precise outcome. Regardless, the expectation would be for a significant write down of the value of the debt and a repayment schedule offered long term with minimal interest costs.

The remaining funding of the stadium (probably now mid 70’s in £millions) and the reinvestment in the playing squad requires non-debt funding,i.e. equity. Additionally, further working capital is required to meet future losses, investment in some of the areas mentioned above and of course, growing a functioning business unit to meet the future challenges identified at the top of the article.

If debt in the new ownership model (long term, secured against the stadium) is £350 million,an incoming owner is likely to have to offer in excess of £400 million in equity funding. That might be reduced pending what appears to be inevitable player sales this window, but again the footballing operations including players need to be strengthened considerably, so the £400 million is a reasonable,minimum figure.

Bell, Downing & MSD

I’ve been asked to provide views on the potential purchase of Everton by two local businessmen Andy Bell and George Downing. Applying the same levels of scrutiny to their businesses and business ethics compared to say 777 Partners (Moshiri’s previous choice) is relatively easy. Both Bell and Downing have exemplary business records,built on integrity, hard work, professionalism and expertise in their chosen fields. They are by any standards, fit and proper. No-one should have any doubt with regards to that. Comparisons with previous Blue owners don’t warrant much attention neither. For every Kenwright there’s a John Moores.

There’s the question of wealth? Neither profess to be multi-billionaires. Their willingness to invest in the club and the degree to which they can clearly depends upon funding from other sources. In the first instance MSD appear to be the chosen funding partners. Previously MSD have provided the types of loans Everton have used from Rights and Media Funding, short term, relatively expensive secured against future receivables. Clearly participation from MSD on a similar basis would not be desirable or appropriate.

MSD’s funding via debt would be more akin to the form of funding Arsenal and Tottenham secured on their stadium. Obviously the interest environment is different from the time Tottenham secured their lending, and Everton’s risk profile is somewhat different to, however MSD’s future participation should be viewed as a positive indicator of their view on Bell and Downing. Everton under Moshiri would never have been considered – the quality of management as much as the quality of assets to secure against is a fundamental part of their risk assessment.

Additional Funding over and above, Bell/Downing (equity) and MSD debt is required (as per above) – I am not at liberty to say the source of that funding, but it will be equity. Equity from credible, established investors – it is the only way this deal can work.

There is another important distinction to the Bell/Downing offering, something that distinguishes it from other bids. It’s not only their Evertonian and personal credentials, but it is their association with the city of Liverpool and the North West. There’s a change of Government coming, and regardless of personal political opinion, regional economic regeneration is going to be very important. Local politicians, obviously more closely aligned to a Labour Government, working in conjunction with successful, local committed businessmen see the wider opportunities for development in and around the docks and Northern Liverpool. In the same way Ratcliffe sees public funding support for regeneration in an and around Old Trafford and the benefits to the club and local/regional economy, exactly the same is true of Everton, Bramley-Moore and the surrounding area. This is a distinction that cannot and should not be overlooked.

Further scrutiny of the proposed purchase from Moshiri will be given when more information enters the public domain – scrutiny to a similar level as applied to other would-be purchasers.

What is important though is that Moshiri gives the Bell, Downing and MSD offer an opportunity to present itself fully. That can only be achieved by entering exclusivity.

From that, and with a successful conclusion, a platform can be created. A platform of stability and a base from which to move the club forwards once more, driven initially by the recapitalisation of the business, driven by the opening of the new Everton Stadium but critically under the right ownership and direction. A direction which will take the club currently failing to execute 20 or 30 year old strategies to a club that executes appropriate strategies in the second quarter of the 21st century whilst cementing its relationship and significance of the city of Liverpool and its future economic prosperity.