There’s a difference between what a football club is worth, what owners think it is worth and what an incoming investor pays for his or her shares. Take, for example, Manchester United and Sir Jim Ratcliffe. The New York Stock Exchange valued a Manchester United share at approximately $17.50 in mid February 2024. Sir Jim Ratcliffe tendered for and paid a price of $33.00 per share for his 25% holding on 16th February.

Everton Football Club Company Limited, to give it its full title is a private limited company. As a private company its shares are not listed on any stock exchange, although as most Evertonians will know, shares have been traded on what is known as a matched bargain basis for many years. This is a system that matches willing buyers with willing sellers at an agreed price. For many years this was a service offered by the Liverpool stockbrokers, Blankstone Sington Ltd. Today, there is an auction service run by a FCA regulated company Asset Match Limited, a small company with just seven employees as of 31st December 2023.

The last auction for Everton shares concluded on 1st August 2024 when 101 shares were traded at a price of £3,500 a share. The full details of the auction can be viewed here:  Everton – Auction Result.

Projecting that valuation across Everton’s 135,000 issued shares values Everton’s equity at £472.5 million. That’s something close to what was reported to be Moshiri’s desired price in the summer of 2023 when he sought a complete sale of his 94.1% holding. Obviously, Everton’s financial position has deteriorated since then with continued losses and an increase in external debt, but even had the 777 takeover succeeded in the final quarter of 2023, Moshiri was only due to receive £64 million initially, potentially rising to £130 million based on meeting various football and financial performance criteria. The recent, aborted takeover by the Friedkin Group was reported to offer Moshiri a figure of between £25 to £50 million for his 94.1% shareholding.

Comparative values of other Premier League Football Clubs

Forbes, along with other publications, consultancies and specialist advisors regularly publish their opinions on football club valuations. The models used by each differ slightly, as do the models created by academics. Back in 2017, I wrote about Tom Markham’s model that he created in 2013 (details here: Markham multivariate model), plus a variation of my own. Deloitte, the specialist advisors, offer their own so-called, money league on an annual basis.

The last publication by Forbes was published in May 2024. It can be found here. It projects a value on football clubs based on enterprise value (equity and debt due beyond 12 months), and operating income (earnings before interest, taxes, depreciation and amortization, player trading and disposal of player registrations) but excludes the value of any real estate – a topic I will return to. The figures below relate to audited data collected from the 2022/23 season (Everton 2021/22) – Everton dropped out of the 2024 report as its “value” continued to decline.

At least 12 Premier League clubs had valuations greater in 2024 (using 2022/23 data and the Forbes methodology) than the previous year’s calculations for Everton. Everton’s 2023 valuation figure had dropped 21% from 2022. With turnover dropping another 4.5% in 2022/23 and negative operating income more than doubling, it’s safe to assume the Forbes valuation for 2024 would have continued to fall. By comparison, across the 30 most valuable clubs, valuations increased on average by 5.1%.

Valuation/turnover ratios

One of the interesting factors that institutional investors consider when placing a value on a football club is the ratio of valuation to turnover. For the clubs most frequently competing in the Champions League that ratio has grown reflecting a number of factors, including the increasing share of Premier League revenues of the top clubs, but most importantly the premium placed on Champions League participation, not only in terms of Champions League revenues but the enormously enhanced commercial revenues generated by that exposure. As we drop lower down the league the multiple reduces, reflecting the competitive disadvantage of not qualifying for European competition and further down the league, the increased risk of relegation.

The so-called “big 6” have an average value multiple of 6x revenue. The next seven largest clubs (including the 2023 Everton figure) sees the multiple fall to around 3.6x revenue. From an investor perspective this means that the second tier of Premier League clubs have to increase revenue at nearly twice the rate of the top six to see the same real increase in value. Although an increase in value is of little interest to Newcastle United’s owners, their figures demonstrate that valuation increases can lag revenue increases. It is no wonder then that, the largest investors focus attention on the largest clubs, and it is why in investor seminars and presentations to potential purchasers/investors (as an example) bankers and advisors continue to promote the narrative that club valuations will continue to rise. The reality is that valuations for a small number of clubs will continue to rise but as the revenue and competitive gap between the largest clubs and the chasing pack widens we will see (as we have already) a similar impact as with the UK property market where generally prime asset returns massively outstrip other assets and often skews analysis of returns.

That’s not to say that a shrewd investor with a great strategy and superior executive and management team can’t progress their acquired club both on the field and financially. Both Brighton & Hove Albion and Brentford are examples of this. Indeed arguably, Brentford would attract a greater sale price than Everton in current market conditions. However, I would argue that both clubs are an exception to the norm.

Back to Everton

One issue of note is what impact the new stadium has on the valuation of the football club. Talk of the stadium being worth anything from £750 million to £1 billion are fanciful when looking at the price an investor will pay or realise in the future.  Bramley-Moore may have cost in excess of £800 million and may cost £1 billion to build if started today. That does not mean it is worth a similar figure. A stadium is an utility, it is an asset that allows a business to perform its main function – obviously in the case of Everton, to play football, to house Evertonians and to generate matchday and commercial revenues. That’s its value.

Bramley-Moore, will likely increase net matchday revenues from approximately £20 million to around £55 million. As a result of publicity and greater visibility globally it will increase greater commercial revenues. The degree by which it increases merchandising, food and beverage revenues depends upon the newly negotiated outsourced contracts, but it will clearly increase revenues to the club. Overall, I expect gross turnover to increase by a maximum of £60 million. The debt servicing costs have then to be taken into consideration – a reasonably optimistic assumption might be that Everton agree a senior debt package of £350 million – if priced at 8%, at an annual interest cost of £28 million.  Therefore a net increase of £32 million.

Going back to the revenue multiple argument in terms of valuations, by adding £60 million of gross revenues, it might be arguable that the stadium adds anywhere between £180 to 240 million to the valuation of the club.

Notwithstanding the future value contribution of the new stadium, I have read and heard some quite ridiculous ideas as to how much Everton are worth, and therefore how much Farhad Moshiri would receive. It’s questionable as to whether Everton’s assets are greater in value than its current and future liabilities. The reality is that most reasonable valuation models will place the value of Everton’s equity at close to or below zero. There is a case for arguing that the equity has a negative value to potential investors regardless of what the balance sheet in the audited accounts state. The equity figue in a balance sheet reflects the amount invested as equity by current and former shareholders and is not necessarily reflected in the value of a club (or company). Why is this the case?

In Everton’s case it is a number of familiar causes, the large amount of debt, the costs of servicing the debt, the future capex requirements to complete the stadium and rebuild the squad, and it has to be said, the potential legal issues surrounding ownership and the debt status of the 777 initiated loans. Additionally, as I discussed in my previous article Ungoverned, Ungovernable? or both? how a business is governed is very important as to how a potential purchaser views a potential acquisition. That obviously, has a huge impact on valuations.

Just as a large number of interested parties can drive prices up in an auction, less competition can reduce valuations. If Farhad Moshiri seeks to dispose of Everton for purely financial reasons then perhaps he should consider this point. Just as with a property or when selling a vehicle, the best prepared for sale attract the most interest and therefore the best prices. Maybe Moshiri should consider how he has prepared Everton for sale and how his advisors (Deloitte and others such as Matthew Hammond) present the case? He might also want to consider that if, as seems likely, no serious bidder will appear in the short term, what he can do to improve the governance of the club. Sellers can assists buyers by starting the process of improving governance prior to the sale. By putting himself and his people into the shoes of a potential buyer, he might not only improve the valuation he achieves but speed up the process.

Finally, a lower valuation for Everton Football Club should not necessarily be viewed as a negative. A lower purchase price can make more funds available for future investment – although as mentioned earlier in the article, that capital has to work harder. The key is in attracting the right owners. We don’t need bottom fishers, vultures. We don’t need potentially highly leveraged chancers, poor operators. We need professional experienced sports investors albeit those well versed in corporate recovery plays – an essential skill in returning Everton to a competitive position. The question is, is Moshiri and his advisors looking for such, and can he attract and retain their interest during due diligence? That on the evidence to date seems a huge ask.