I’ve touched on this subject – governance – many times. It seems a dry, academic topic to write about whilst addressing an audience made predominantly of football fans, but in an era when club ownership has to come under greater scrutiny, not only from regulators but from fans as well, it’s vital to understand and increase its profile. In doing so, to hopefully ensure most, if not all, football clubs are run properly, and critically at the time of a change of ownership, the appropriate due diligence is done in approving the choice of new owner. Due diligence of new owners being, in my opinion, the final act of good governance of the departing owner. The custodial element of football club ownership must mean that passing a club to the appropriate owner is an essential and necessary act.

Good governance should benefit the selling shareholders, attract the highest quality buyers and provide for a better future for the club being sold.

The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company.

Corporate governance is the system by which companies are directed and controlled.

The value of governance and the corollary of the absence of good governance is critical and should be embedded in the mind of every business owner. What Everton are currently going through in terms of competitiveness, compliance with industry regulation and relative attraction for would-be purchasers are key elements of evidence to the above. A history of poor governance not only destroys value and competitiveness but often leads to poor decision making in choosing a willing new buyer.

As I will demonstrate below, it’s not a coincidence that several potential purchasers of Everton Football Club have walked away at different stages in the acquisition process. Ultimately if one one was looking for a single factor, it is due to the absence of good governance throughout the Moshiri years.

Why is this the case? Is it the choice of potential suitors or is it what they have found once they have accessed the inner workings of our football club?

There’s a litany of Everton’s corporate failings since Moshiri first acquired his initial stake in 2016 – operationally, strategically and financially – even perhaps judicially?

In the early Moshiri days, those recognising early warning signals asked questions such as why hasn’t he changed or added to his board? Why did he retain the “services” of the now deceased Chairman? Why did he only initially buy 49. 9%? Then we got into how he ran football operations, the haphazard recruitment of managers, players, a director of football – new to the role and who was provided no brief regarding recruitment strategy, budgets, academy development, squad portfolio management etc. The use of agents, in particular his close relationship with Joorabachian; three or four individuals separately negotiating transfer deals at the same time and reportedly oblivious as to the actions of others.Players offered multiples of what other clubs were offering in wages and even, on at least one occasion, acting against medical advice.

Then concerns over his complete disregard for the financial performance – losses spiralling due to inflated costs not met by significant rises in income which ultimately led to the breaches of profitability and sustainability rules, and the subsequent points penalty. Expensive, unnecessary, self-harming actions which inflicted damage on the club both on and off the field. A change of auditor. His failure to adequately describe strategy, his weak responses to growing fan pressure for answers to increasing numbers of questions including the headlock debacle.

Even the removal of shareholder rights (albeit entirely permissible within the requirements of the Companies Act) to attend general meetings to question and hold the board of directors to account.

All against a backdrop of building a stadium on a sensitive heritage site, with and it has to be said, various iterations, sometimes driven off course by the potential benefits and complications surrounding a highly speculative Commonwealth Games bid and an even more speculative funding option presented at an AGM (pre the change in the Articles of Association) by then Liverpool Mayor, Joe Anderson – an offer which had not been discussed at Everton board level, at Council cabinet level prior to the evening Anderson high-jacked the meeting. Even then, Moshiri did his absolute best to trump him with his Lukaku voodoo stories.

Bear with me, as there’s a purpose in regaling all these tales, familiar as they are.

Strategically, to put many of the financing eggs in the Usmanov basket was a poor, arrogant, lazy decision. Whilst it was difficult to anticipate with precision the 2022 invasion of Ukraine, from a risk management perspective reliance on a close ally of Putin was foolhardy and carried greater risk than was necessary. The idea that Usmanov, through USM, could provide significant sponsorship income and additionally fund a large element of the stadium build is an extraordinary act of hubris, especially when no significant effort was made to develop additional revenue streams. Revenue streams which would have reduced losses and critically post USM reduced the reliance on third party debt.

Throw in the constant suggestions of a greater involvement by Usmanov than was suggested by Usmanov himself, the club and Moshiri, the lack of transparency and the failure of oversight by a wholly compliant (to the majority shareholder) board and one can readily see a cast iron case for poor governance being built.

The inability to continue receiving funding from Usmanov necessitated a number of key changes, namely, the reliance on third party debt, the sale of leading players and the corresponding cost reductions from a squad declining in value, and dare I say it, competitiveness and future value. The future income and capital anticipated, almost taken for granted to be forthcoming from Usmanov was replaced by (i) an increase in third party (and increasingly expensive) debt and (ii) the continued disposals of our best quality players. If, as Moshiri had first indicated upon his arrival, “money would never be a problem” either he had had a huge change of heart or perhaps he was over-enthusiastic in his claims.

The deteriorating financial position of the club aligned with the potential and significant decline in Moshiri’s own financial position – at least his ability to fund Everton going forwards. This led to speculation prior to the summer of 2022 (within months of the invasion of Ukraine) that the club was for sale, despite the denials and explanation that only investment was being sought.

A warning, even a foreboding example of what was to befall us was the much reported, potential purchase by the American investor Kaminski initially backed by John Thornton in the early summer of 2022. A cursory examination of Talon Real Estate, owned by Kaminski pointed to loan defaults and a question as to its ability to continue as a going concern. Even after Thornton dropped out, possibly embarrassed by his own lack of due diligence, Kaminski re-appeared later in the summer. An example, to be repeated, of the quality of potential investors Moshiri found suitable, and indeed those prepared to consider Everton as an investment. Another failure of governance.

Failure of corporate takeovers

The failure to conclude a corporate takeover creates questions not only about the choice of potential purchaser, but the asset that is being sold. Not only do we have a litany of corporate failures in the running of Everton, but that extends to the choice of potential owners. Whilst it is the case (as we will see with Friedkin), badly run businesses can be bought by good operators in a distressed asset or corporate recovery play, often the seller of such a business will seek other poor operators, hoping they will make another misjudgement in acquiring their business.

777 Partners

This, often ignored truism, was never more evident than with the arrival of 777 Partners as potential purchasers. What should have been obvious to Moshiri and his considerable phalanx of professional advisors was that 777 Partners were in no position to acquire Everton Football Club. Yet incredibly we were treated to this diatribe by Moshiri:

However, it is through my lengthy discussions with 777 that I believe they are the best partners to take our great Club forward, with all the benefits of their multi-club investment model. As a result of this agreement, we have an experienced and well-connected investor in football clubs who will help maximise the commercial opportunities, and we have secured the complete financing for our new stadium, which will be the critical element in the future success of Everton. Today is an important next step in the successful development of Everton and I look forward to closely following as our Club goes from strength to strength.

If ever one wanted to cite an example of poor governance and its impact and potential impact, this is a great place (albeit not great for Evertonians) to start.

The nine month period between 15th September 2023 and the end of May 2024 is an incredible period in the history of Everton Football Club. It might, upon reflection, be one of the most incredible periods of any football club. Sadly, as I will explain, its effects, as with so much of Moshiri’s decision making, will impact the club for many years ahead.

It incorporated the assertion that the 777 multi-club model was appropriate for Everton; that 777 Partners would “strengthen (the) EFC balance sheet and guarantee full funding of the new stadium”. It was subject to, of course, approval by the Premier League, the FA and the FCA. Extensive forensic and investigative work by journalists such as Paul Brown, Philippe Auclair, Matt Slater and many others proved Moshiri’s assertion entirely incorrect – we will return to this.

777’s very evident, even from the earliest of days, financial, judicial and governance issues not only made their takeover of Everton impossible, but critically, damaged Everton’s position in finding a new buyer. Whilst Everton stumbled on with a month by month existence, entirely dependent on 777’s ability to fund Everton’s constant working capital needs (to fund negative operating cash flow and ongoing stadium development costs), 777 faced even greater operational, financial and judicial issues. Whilst 777’s funding kept administration at bay for Everton, 777’s own business (or collection of businesses) was heading in only one direction – complete and utter collapse.

777’s problems, their disputes, litigation, their complex relationship with A-Cap have been discussed on these pages and elsewhere. However, perhaps the defining point in their collapse came during action taken by Leadenhall Capital – a UK based investment manager, ultimately 75% controlled by a Japanese insurance giant Mitsui Sumitomo Insurance Company (person with significant control) . Leadenhall provided a considerable secured credit facility to 777 Partners between May 2021 through to September 2024. The claim before the Southern District, New York District Court is put at $609 million. Without entering all the details (the complaint can be read here: Leadenhall Capital Partners LLP v Wander, Pasko, 777 Partners etc) Leadenhall allege “a years-long pattern of fraud perpetrated on the lenders of hundreds of millions of dollars of debt by a group of entities operating under the domination and control of Defendants Josh Wander, Steven Pasko, and Kenneth King.”

The credit facility was secured. In the words of the complaint brought by Leadenhall “the cardinal rule of the entire financing arrangement was that the borrowers were required to own the assets pledged as collateral “free and clear” of any other security interests.”

The relevance to Everton and this case is that the loans Moshiri willingly accepted on Everton’s behalf are assets caught in this dispute. The loans provided ostensibly by 777 Partners, became assets of A-Cap as they collected their security on loans provided to the now failing 777 Partners. As such they are, under Leadenhall’s claim, assets which have been pledged as collateral for their loans .

It should be emphasised that whilst the 777 loans made to Everton now represent a challenge for any would-be purchaser – as was the case with the Friedkin Group – no blame or negative connotation should be placed at Leadenhall’s feet. They are, afterall, trying to secure their position in the interests of their own shareholders. Any suggestion to the contrary regarding Leadenhall is not correct. They, like Everton, seem to be injured parties caught up in 777’s (and associated parties) very questionable behaviour.

However, returning to the governance theme – not only does this reflect appallingly on Moshiri’s judgement (in choosing 777 and entering into the loan agreements) but on 777’s own appalling governance. As mentioned before it is evidence of one poorly governed entity seeking support from another.

It is anticipated that settlement of the Leadenhall case will not be finalised and agreed within twelve months.

Creating issues for would-be purchasers

The issues for the would-be purchaser arising from the above are long and complex. It instantly reduces the value of Everton Football Club – if a buyer could be satisfied, or makes the buyer walk away. In this case, the length and complexity of the ownership and control of Everton’s loans is critical. There is an injunction in place, issued by the Southern District. That allows for the disposal of assets “in the normal course of business” subject to the Court’s knowledge. It does present real difficulty though if a potential buyer seeks a discount on the value of the loan. Something that given the junior ranking of the loan in Everton’s secured debts is a reasonable assumption. It is also something that other potential purchasers have factored into any possible purchase. A problem for the buyer is possibly with whom does one negotiate, and what surety does the potential buyer have that any discount may not be viewed as an unnecessary dispersion of assets which are collateral to another parties’ debt.

Additionally, the issue of potential “Proceeds of Crime” implications have been raised. I am aware that these have been very significant issues for other interested parties who were looking at Everton as a potential purchase. I am equally aware that other parties including one very senior POCA and money laundering compliance expert thinks the potential for future liability for a would-be buyer is extremely limited and in his expert opinion presents very limited risk. Nevertheless, in the context of the overall levels of governance applied to Everton generally and associated parties and transactions, it becomes another potential issue for a would-be buyer.

So where does this leave us, Evertonians and Everton Football Club?

The point of the whole article, and I appreciate it is long, is to demonstrate the difficulties caused by Moshiri’s poor governance of Everton Football Club. Years of poor decision making have added, layer by layer, to the issues a potential buyer has to consider when examining Everton as a potential investment. In simple terms, imagine buying a very expensive, premium brand, super car with a limited service history, non-manufacturer components and an obviously careless owner. You’d have to be a careless buyer, perhaps with more money than sense, or seeking an absolute bargain to rebuild (with commensurate risks) especially when other cars (to continue the analogy) are available in other showrooms. Let’s not forget that there are perhaps five or six other Premier League clubs currently for sale. One might argue none have the upside that Everton has, but none have the downside in every sense.

There’s one final point to consider, and that’s who exactly is governing Everton currently, and who is making the decisions regarding the sale of the club and who the next prospective owner should be?

With respect to the individuals, we don’t have a functioning, fit for purpose board. We have an interim CEO who has excelled in project and construction management throughout his career, but is not appropriately experienced as a CEO (in my opinion). We have a non executive director, John Spellman – a friend and former colleague of Moshiri’s from whom not a single public word has been heard since his appointment in June 2023, and we have our 94.1% shareholder Farhad Moshiri – the principal cause of all our problems in the last eight years – the architect of what we have become.

Moshiri’s involvement at board level raises an important point. A point I raised many months ago but subsequently was raised at the last meeting between the Everton Shareholders’ Association and Moshiri in June 2024. In it the question of potential conflict of interests was raised. The minuted response from the club was as follows:

The Club explained that they had taken action to ensure that the Board is satisfying its obligation to act in the best interest of all shareholders. Mr. Moshiri would recuse himself from Board decisions where a conflict could occur. The Club’s Directors are receiving independent legal advice in respect of discharging all duties owed to the Club including in respect of potential conflicts of interest and who formally confirms that they believe the right decisions are being made.

Source: EFCSA Meeting June 2024

I am not a corporate lawyer, but two observations – the club’s own Articles of Association provide the following that subject to the Companies Act and notice given by a director, a director “shall not be accountable to the company…… or from any such transaction or arrangement or from any interest in ant body corporate and no such arrangement shall be able to be avoided on the grounds of such interest or benefit”.

Secondly, Everton Football Club are a private limited company. Notes accompanying the Act (Companies Act 2006) state “in the case of a private company, it should be possible for conflicts to be authorised by independent directors unless the company’s constitution prevents this.” and “that board authorisation is effective only if the conflicted directors have not participated in the taking of the decision or if the decision would have been valid even without the participation of the conflicted directors: the votes of the conflicted directors in favour of the decision are ignored and the conflicted directors are not counted in the quorum.”

Essentially, Moshiri has free reign, and there lies the problem – the person who has created all our difficulties, the person who has compounded them with successive misjudgements is still the person prospective owners have to gain approval from and agreement with.

As a result – it is difficult to see how we can realistically expect governance matters to improve at Everton in the short term and under Moshiri’s ownership. That, and Moshiri’s role in the transaction, his future choice of potential purchaser, and the understandable reluctance of certain potential buyers given the associated risks and complexities makes our future as uncertain as at any time in the past, even recently.

Valuation, the attractiveness of a new stadium (even if not suitably funded) is not enough to attract appropriate buyers when balanced against the risk of what is inherited. It is difficult to see an immediate solution to Everton’s ownership position.

We are ungoverned, and in the eyes of some investors probably ungovernable in the current circumstances. Moshiri might be best advised to add further independent directors to his board to provide reassurance – not only in terms of current governance but in selection of future purchasers.