As the Friedkin Group proceed through their due diligence process at Everton, apart from what they inherit (which will shape the way they address Everton’s recovery going forwards) they will no doubt pay close attention to analysis of how Everton became the distressed asset they currently are. There’s a view among football supporters generally, and certainly among many Evertonians that it is almost a sacrilege to objectively state or admit to the condition of the club we love. An understandable human reaction, perhaps, to view what is dear to us through (in Everton’s case) blue-tinted glasses.

What is clear, and should be clear is that incoming investors will view the situation objectively, and will formulate their future strategy not only alongside their own resources, ambitions and objectives for the club going forwards, but with an understanding of how and why the club finds itself in its current position.

A top down, somewhat distant view might be that circumstances conspired against Everton, against Moshiri, in that the Covid crisis compounded by the illegal invasion of Ukraine by Russia were the primary causes. That the timing of two black swan events coinciding with the construction of a new stadium meant that the club was destined to struggle regardless of the quality of the management on and off the pitch.

The reality though is so very different. It should have been possible to construct a competitive footballing side, whilst efficiently financing a stadium construction regardless of Covid and Ukraine.

Fundamental issues

The fundamental issue at Everton, certainly under the Moshiri era, was the lack of a business strategy

• How to build a product (i.e. a competitive football team and operations)
• How to invest in research and development (the academy, scouting, coaching, sports sciences and player/management professional development)
• How to build a player asset portfolio, not only comprising of a balanced 1st XI squad, but a competing support squad and evolving junior teams below that. A player portfolio that meets the needs of our footballing operations but also creates a financial contribution
• How to build the customer base locally, nationally & internationally; how to develop the club commercially
• How to recognise that commercial growth is not only driven by what happens in L4 and local physical merchandising but in Everton’s role as a global content provider, an entertainment and engagement platform
• How to maintain and grow an industry leading lobby and influence with peers and regulators

In addition to operational and strategic failings, financial management was (and remains) appalling. All of the primary disciplines of successful businesses were missing. No budgetary control, no coherent player and management investment strategy, a totally haphazard approach to funding the capital requirements of the business – especially with regards to stadium financing, an over reliance on associated party sponsorship (pre the invasion of Ukraine.)

Perhaps most tellingly was the approach to stadium financing – the unnecessary diversion along the local authority funding route, the over-reliance on future capital contributions by USM, the failure to agree a senior debt package during the early construction phase with the option to renegotiate post construction.

In addition to the financing, one has to consider the time taken to agree design and subsequent iterations, the extreme caution displayed pre-planning, the heritage issue, and the unnecessary diversion created by the at best, hopeful Commonwealth games bid. In addition, there is the lost revenue from a later completion date as well as, potentially, opportunity costs along the way. One might argue that this is a list driven by hindsight, but the reality is that all of these issues might have been mitigated by a stronger, more determined and focused management team at executive and board levels.

In retrospect the delays caused by the above pushed construction into the post Covid environment of high construction cost inflation and considerably higher interest rates. A cost which has impacted the club in recent years and one which the club and its new investors will carry for a considerable period of time.

As a result of all the above, we have struggled financially, to the point where administration was a genuine possibility. As will be demonstrated below, our desperate cash flow and distressed lending status, not only destroyed any equity value in the club for Moshiri – despite his financial commitment of over £750 million (aside from the shares he bought from the previous shareholders), made meaningful layer recruitment and retention almost impossible, but drove us into the arms of the most unsuitable of all suitors, 777 Partners.

Thankfully their demise, and the rapid destruction of their portfolio of businesses occurred before they could cobble together a funding package and subsequent approval could be granted by the Premier League.

American businessman and author, Robert Kiyosaki is quoted as saying “The most important word in the world of money is cash flow. The second most important is leverage”.

By any measure, Moshiri has failed on both. Whilst Everton’s cash flow position will improve going into season 25/26, Everton’s reliance on debt, particularly short-term debt and the high costs associated with it will remain a fundamental issue.

An analysis of Everton’s cash flow in the eight and a half years Moshiri has had ownership of Everton tells its own story. The figures below are to 30 June 2023 – they do not include the additional debt and liabilities created from 777 Partners’ financial support during their failed takeover bid. Nor does it include the continued expenditure on Bramley-Moore in the 2023/24 financial year.

The whole summary of our cash flow statements is too large to appear as a table, but if you click on Everton Cash flow statements 2016-2023 link there’s a pdf of the period 2016-23.

The key points (I can’t use the word “highlights) are as follows:

Whilst it has to be acknowledged that the brand new stadium at Bramley-Moore is a considerable asset on the Everton balance sheet, and will address some of the revenue issues at Everton in future years, it is clear that the issues facing any new owners, and the Friedkin Group in particular are:

• Repair of the balance sheet, a significant reduction in debt via equity investment
• A long term, sustainable stadium related finance package, secured against the stadium and its future revenues
• Re-investment in the Everton 1st XI and squad through a combination of player sales and cash injections
• Investment in football management personnel across every aspect of football operations (as mentioned earlier)
• A new board with strong corporate recovery, business growth, financial discipline, excellent strategic thinking and good corporate governance skills.
• A complete change in corporate culture and therefore inevitably, the executive and senior management personnel and roles
• Specifically, the appropriate team to handle the transition from Goodison Park to Bramley-Moore
• A complete communications re-work with fans, the press, media, social media, footballing and other relevant authorities nationally and internationally

Cost of the above:

It’s not known exactly what price the Friedkin Group will pay for Moshiri’s 94.1% equity stake in Everton. It is thought that the price will be between £25 and 50 million.

Given 777/A-Cap’s working capital injections from September 2023 through to May 2024 estimated at £200 million, the subsequent £200 million (estimated) repayment of MSP’s loan plus working capital to meet Laing O’Rourke’s latest payment obligations, the £200 million plus €28 million revolving credit facility with Rights and Media Funding, Everton’s external debt (including the Friedkin Group) but excluding Moshiri’s £450 million outstanding shareholder loan (likely to be written off) is well in excess of £600 million.

Add to that current and future capex requirements including the fitting out costs for Bramley-Moore, the investment in the playing squad, plus the investment in new executive teams and systems, then an entry cost (including the external debt) of well in excess of £800 million is entirely feasible for the Friedkin Group. It should be noted that there are potential but not unresolvable due diligence issues around the status of the 777/A-Cap debt given their own particular solvency, legal and ownership status which may impact the final settlement figure with those creditors and their representatives.

Nevertheless, the total acquisition cost of Everton is considerable and perhaps puts into context the likely sale of previously key players such as DCL, Onana and perhaps Branthwaite. £150 million or so in sales, whilst requiring a considerable amount of that to be reinvested in the playing squad becomes understandable from a new owner’s perspective and would also satisfy most of any future lingering PSR concerns. In addition, of course, the trading of less core, junior players in Godfrey and Dobbin, and the release of Gomes allows for the purchase of players such as Ndiaye and Ireogbunan.

Ultimately, the acquisition cost, transfers and operational changes will be met by a combination of equity and debt. The consensus seems to be that the stadium can carry £350 million of senior debt without too severely impacting the primary reason for a new stadium, increased revenues. That requires a likely additional £450 million of equity investment perhaps subsidised partially from the likely player sales mentioned above.

Our future

Regardless of the precise figure required, Evertonians alike would all agree that finance aside what is required is the professional management of our club going forwards – on the field and off. The fundamental issues identified and addressed at the top of the article are in critical and urgent need of resolution. For that to happen there has to be significant change in personnel, a significant change in culture, the introduction of achievable strategies and objectives and an ownership that cares as much as we do not only about the future of our club but how we go about achieving our future ambitions.

With a clear run now to the beginning of our last season at Goodison Park, this has to be our unified, collective purpose. Not only so that we can enjoy Goodison for one more season, but that we can lay the foundations for footballing success at Bramley-Moore.