The Ev - how NOT to run a football club

[Beamrider]

I said I’d do a deep dive on the Ev, so here we go. This is going to focus on the investor I will refer to as Moshiri, but who knows where the money really came from.

I’m not going to touch at length on PSR as that has been discussed elsewhere.

The current state of affairs

The clock is ticking on whether they go for administration. They need to do that this week if they want to avoid a 9-point penalty next season (and bear in mind there is an unresolved PSR issue from their last hearing which could yet hit next year as well).

The debt

Per their last accounts (30/6/23) they owed £341.4m to various lenders, of which £154.7m was due before 30/6/24.

According to recent press reports, they now owe £577m (£192m to 777, £225m to Rights and Media Funding and £160m to MSP Capital / Downing / Bell). This latter amount was due for payment last month but has been deferred (and this is probably the £155m due within 12 months in the accounts, plus interest).

On top of that, and rarely mentioned, is £447.3m due to Moshiri (I am using his name as shorthand for whoever really subbed that money). This is not shown in the accounts as debt as it has no fixed repayment date and Everton twisted their auditor’s arms to present it more favourably. It is, nevertheless, debt. And if they had the money, Moshiri would take a repayment.

In addition to this, Moshiri has invested share capital of £300m (of which £250m was paid for by converting some of his debt) and he supposedly paid Kenwright around £200m for his shares. So he’s on the hook for best part of £1bn. And, newsflash, he’ll be lucky to get much, if any, of that back.

At the time of the takeover, Moshiri’s personal wealth was estimated at $1.3bn. So he’s likely out of cash. And he’s unable to borrow cash from his mate, the sanctioned oligarch, Alisher Usmanov. And, going out on a limb here, I reckon no-one else is queuing up to lend him money.

 

[Beamrider]

The administration conundrum

There’s a lot of discussion about this in the press at the moment, and I’m not going to repeat all of that. Administration is a painful process and will leave its scars. The case FOR administration is the risk of bankruptcy if they don’t go there. It is a serious discuss that needs to be had this week, and the Everton board need to be talking about it.

Looking at the board of directors, there are currently 3 directors, including Moshiri. It has been reported that the board has been taking advice from specialist insolvency advisers on options to reduce their debt. There’s a good chance that advice will point towards an administration. The difficulty is that in an administration process, the people likely to benefit most are:

• Football creditors – i.e. clubs owed transfer fees
• The loan creditors who have security over assets (i.e. RMF)
• The loan creditors who have security over Moshiri’s shares (MSP/Downing/Bell)
• The loan creditors who may have security over some other bits (777)
• HMRC

Everyone else, including ordinary suppliers, is going to struggle. And chief among those people is one Farhad Moshiri, owed £447.3m by the club, and likely to see none of that money. So Moshiri may not want to vote for administration. The resolution would only require a majority vote of the directors, but will the other 2 directors have the balls to vote against Moshiri?

A board resolution is not the only way to appoint an administrator. A shareholder resolution to appoint and administrator wouldn’t happen as Moshiri holds all the cards. If a supplier applies to the courts, the club will just pay them to make the application go away, so that’s unlikely too. Which leaves the debt holders:

RMF / MSP – it is reported their debts are secured over the club’s assets / Moshiri’s shares. The only way they lose out is if Everton actually go to the wall, and cease to exist as a professional football club. The reason being that in that situation a multi-million football ground in Liverpool’s docklands is worth very little, unless you can re-purpose it for gigs and events. It is too big to wash its face for any other purpose. Realistically, Everton will not go to the wall. Worst case for them is a fire sale by an administrator and the club is revived by an owner who will run them as a responsible mid/lower table club (e.g. a Bournemouth / Brighton style operation) rather than believing against all available evidence that world domination is just a few years away.

777 – reportedly they have some level of security, but not much. They’re likely to lose out big-time in an administration and I don’t see this particular turkey voting for Christmas. And they’ve got other problems, allegedly.

The case for administration

Everton’s debt is unsustainable. Administration would enable them to reduce it and re-surface as a viable business. They should absolutely do it, and the only reasons they wouldn’t are to do with the politics of the group’s I’ve mentioned above. I honestly have no idea if they will, I’m leaning towards not, only because I think Moshiri has his fingers in his ears and is shouting “La la la la” at the top of his voice, as he seems to have been doing for ages.

 

[Beamrider]

How did we get here?

The Footballing Strategy

This is taken from paras 15-18 of the first PSR decision (the one that docked them 10 points). It appears to be a summary of Everton’s representations to the commission, and summarises their strategy:

• Moshiri acquired Kenwright’s shares in March 2016, taking him to 49.9% ownership. Practically speaking, this is the beginning of his era. By January 2022, he held more than 90%.
• His aspirations were to “transform the club into one of the top teams in the Premier League, regularly playing in Europe, and he wished to provide the club with a new, state of the art stadium. No other Premier League club had carried out two such projects at the same time”.
• He intended to improve the squad by spending big in the first 3-4 years of ownership. They would be up near the top of the PL and in Europe, generating more revenue. Future spending would be funded by this revenue and making selective player sales.
• Once this was done, he would not need to make much further investment in the club – it would be self-sustaining.
• The stadium, now forecast to cost £760m (our new Main Stand was c £110m) would be funded by third-party debt, but they would get cracking, he would fund it and they would re-finance later.
• The decision estimates Moshiri’s investment a £750m, but I think this excludes the £200m (estimated) that he paid for Kenwright’s shares – so he’s in for just short of £1bn.

And if that strategy sounds familiar, well that’s kind of what FSG did with us, albeit that the stadium project was much smaller, and the spending less reckless.

But that was the plan. Fraught with risk and, dare I say it, hardly rocket science. It’s also broadly what Chelsea have embarked on, on an even grander scale and, to date, with not much more success, despite having a decent squad to begin with.

The key financial (and other) numbers

These are the scores on the doors between the beginning of season 2016-17 through to the end of season 2022-23 (all per Everton’s accounts):

Gross transfer spend (headline fees basis) - £793.8m
Net player spend (headline fees basis) - £328.6m

Gross player spend (cash instalments basis) - £749.5m
Net player spend (cash instalments basis) - £367.4m

Capital expenditure (mostly new stadium) - £460.1m

Increase in debt (including Moshiri debt classed as “equity”) - £1,032.4m

Losses before tax £488.9m – an average of £69.8m per year, or £209.5m per 3 years

Permanent managers – 7 (Koeman, Fat Sam, Marco Silva, Carlo, Rafa, Lampard, Dyche)

Improvement in league position – went from 7th to 17th

Manager turnover

My memory told me they weren’t bad under Carlo. They improved from 18th (when Silva was sacked) to finish 12th in his first season, then they finished 10th the following year. Both finishes were lower than the previous 3 years under Koeman / Fat Sam and Silva. And when Carlo left, the Rafa / Lamps tag team took them to the lower quarter of the table, where they’ve lingered ever since.

And it’s worth bearing mind that every manager sacking costs serious money paying off the outgoing manager and his backroom staff. At least with Carlo they would have received a fee.

I’m not going to go into the detail of how most of that money they spend was wasted. But I’m sure no Everton fan is going to look in the mirror and say “Marcel Brands” five times.

It’s fair to say that the footballing project failed.

 

[Beamrider]

The massive folly of building a new stadium

Think of a stadium as being like an operating licence. If you’re in a regulated business sector, then you need to have a licence to operate. It’s usually a big cost to you, but all it really does is enable you to trade. It doesn’t add proper value to your business.

As stadium is the same. Every team needs somewhere to play. A team without a home can’t operate. A stadium without a team is practically worthless. Hypothetically, if Everton went bust, who’s going to use that stadium? A concert promoter, maybe, but they’re not going to make a big return on the investment unless they have huge acts booked 2-3 times per week. Another football club? Nope. We’ve got Anfield, thanks, and no-one else plays in Liverpool. Egg chasers? Not enough money in it, and it’s a woolly-back game. So the right strategy for a stadium is to make do with what you’ve got, and only expand if you’re going to make your money back quickly.

In which respect, when we announced the Main Stand expansion, Ian Ayre said it had a pay-back period of 5-6 years. This was largely down to the increase in hospitality seats, paying a higher rate than Joe Public in the cheap seats. He also went on record that the Anfield Road stand didn’t make commercial sense, by the way, and I agree with him. Not that I’m disappointed that we did it. It cost less than Darwin Nunez and is a more qualified and lasting success. But on a pure financial basis, I personally wouldn’t have done it, but maybe the LFC team saw something I didn’t.

Public estimates put the Main Stand expansion cost at about £110-115m, suggesting it generates an extra £20m per annum. The Everton PSR decision puts the estimate of the cost of Bramley-Moore at £760m. That’s before any cash Everton can bring in from re-purposing Goodison Park, but I’m not expecting a huge windfall there.

So let’s take a quick look at what Liverpool got for their £110m and compare it with what Everton might get for their £760m.

	Everton​	LFC (MS)​	LFC (AR)​
Capacity (old)	39,414​	45,276​	53,394​
Capacity (new)	52,888​	53,394​	61,276​
Increase	13,474​	8,118​	7,882​
Cost (£m)	760​	115​	80​
Cost per extra seat (£)	56,405​	14,166​	10,150​

So the new Everton stadium is going to cost them 4 times as much per seat as the Main Stand cost us. And more than 5 times as much as the Anfield Road (although the numbers for Anfield Road are a bit sketchy). The Main Stand comparison is the better one as, despite the passage of time and inflation effects, the significant investment in hospitality and back-of-house areas (changing rooms, media etc) make it more comparable with the Bramley Moore build.

It's fair to say that Bramley-Moore is already looking like a bad investment, but we haven’t got to revenues yet. A large part of the business case (assuming they did one) would have been an increase in hospitality revenues. Everton famously don’t have much hospitality capacity at Goodison. They like to think this is part of their People’s Club identity, so presumably that’s going to be ditched now.

Anfield probably sells around 7,000 odd hospitality seats per game (plus whatever the Annie Road will add) – and even then, some of that is hosted off-site with fans being ferried to the ground in time for kick-off. Everton, with their massive global appeal and not in any way “living within spitting distance of the ground” fan-base should be able to sell… well, probably not that much really. Much of their fan base isn’t going to pay top-dollar for hospitality, and the corporate market, having to choose between us and them, it likely to pop for the team with the broader appeal and better entertainment value. If they’re banking on a huge uplift in revenues from hospitality then I think they’re in for a Game of Thrones Season 8 style disappointment.

Oh, and there’s another problem. Per seat revenue on a matchday.

	Everton​	LFC​
Matchday revenue 2022-23 (£m)	17.26​	79.78​
Capacity	39,414​	53,394​
Per seat	438​	1,494​

These figures are from the accounts. The years in question are not outliers, they’re in line with typical seasons. Everton make less than 1/3 per seat what Liverpool do. Now admittedly, this is in part due to the number of fixtures – we have European football and usually a few more cup games (which tend to be priced more cheaply) but the gulf in the revenue generation is huge.

Put all that together, they’re highly unlikely to match LFC’s £20m per season uplift from the Main Stand. And that’s before you bring into account the much higher operating costs that will come from a larger stadium (although they will probably save some cash on maintenance for the first 5-10 years versus the costs of up-keep at Goodison). £20m isn’t going to cover the interest on the debt they’re taken on to build the stadium.

And they won’t be pulling in any of that extra cash for another 12 months. Unless they can persuade someone to match USM’s naming rights deal – good luck with that lads. There’s an impressive, completed stadium in North London that is still waiting for such a deal.

That is why Bramley-Moore is a MASSIVE FOLLY, a huge vanity project gone wrong. It always was, and that should have been obvious from the very outset.

 

[Beamrider]

In summary

A football operation that loses cash year on year
A bottom-half quality squad
Flirting with relegation year on year
A recent history of poor player trading decisions
A new stadium that is saddled with debt
An owner who has run out of money
Prospective new owners who don’t have any money
Impending debt repayment deadlines, no cash to repay them, no on-going profits to service them
Manager talking about having to sell his least shit players in the summer

It's not looking good for them.

 

[bluebell]

Wow... You did a lot of work mate. You should do your own blog/vlogs. I reckon you could make a nice side income

 

[Fabio]

Get branthwaite bought

 

[tomasjj]

Onana for DM?

 

[Beamrider]

Onana for DM?

My Bluenose mate hates him - says he's a proper shithouse.

 

[MomoWASright]

I don’t believe that. Beamy mixing with the unwashed.

 

[tomasjj]

My Bluenose mate hates him - says he's a proper shithouse.

Not a ringing endorsement.

 

[Beamrider]

I don’t believe that. Beamy mixing with the unwashed.

I nearly called him an acquaintance, but that would have been a lie. He's a good mate. We need to cure them, one at a time.

 

[Fabio]

Onana strikes me as a someone who works best when next to another DM

 

[tombrown]

Post 5 was the best.

Then again, I didn't even try 1-4 ...

 

[Beamrider]

Post 5 was the best.

Then again, I didn't even try 1-4 ...

Post 5 was all for you @tombrown you lazy arse. 😂

 

[tomasjj]

Onana strikes me as a someone who works best when next to another DM

Two DMs?
That is pure Rafa, or Dyche-ball ofc.

 

[Fabio]

Two DMs?
That is pure Rafa, or Dyche-ball ofc.

Suppose in my mind, onana isn't an outright DM? Mentally i think of him of like an essien; can play DM, but wasting a lot of his energy and strength limiting him to that area of the pitch

 

[tomasjj]

Suppose in my mind, onana isn't an outright DM? Mentally i think of him of like an essien; can play DM, but wasting a lot of his energy and strength limiting him to that area of the pitch

He would be fine in our team then. Plenty of holes for him to spend his energy covering.
Bit like Fabs.

 

[Markeh]

maybe they could sell their trophies to raise some money?

 

[Beamrider]

maybe they could sell their trophies to raise some money?

Or maybe the clock will fetch a few quid.

 

[dee]

The Z-Cars 45 maybe worth a quid or two

 

[keniget]

I felt like a young deer prancing through the meadows in the afternoon sun reading through this thread.

 

[Hyena]

Their football isn't too bad. Take away their 8 point deduction and they are comfortably mid-table

 

[Hyena]

A company in administration can presumably only continue its ongoing construction project if the creditors and the administrators approve. Like you said, Bramley Moore is not going to rake in much when completed, but it may be even worse to not complete it.

I think the only way out is for Liverpool FC to buy their new stadium and use it for Liverpool Ladies, and the Reserves.

 

[StevieM]

A company in administration can presumably only continue its ongoing construction project if the creditors and the administrators approve. Like you said, Bramley Moore is not going to rake in much when completed, but it may be even worse to not complete it.

I think the only way out is for Liverpool FC to buy their new stadium and use it for Liverpool Ladies, and the Reserves.

Or buy their old one for pennies, level it and turn it into a red fan zone for shits snd giggles.

Or a car park.

 

[Beamrider]

A company in administration can presumably only continue its ongoing construction project if the creditors and the administrators approve. Like you said, Bramley Moore is not going to rake in much when completed, but it may be even worse to not complete it.

I think the only way out is for Liverpool FC to buy their new stadium and use it for Liverpool Ladies, and the Reserves.

I think, if they go the admin route, that it will be what is called a "pre-pack" arrangement, where essentially everything is agreed in advance and you just use the formal wrapper of the administration process to agree debt reductions in a tax-neutral manner. In that situation, the companies would only be in the administrator's hands for a day or two. That wouldn't disrupt the construction process much, if at all.
However, one of the Atlantic articles speculates that going into admin would allow Laing O'Rourke to renege on the fixed price contract they had agreed, meaning the cost to complete the stadium would go up. I don't know if that's true or not, but if it were true, it's something else that would go against ad admin process, at least until the stadium is complete.

 

[dee]

This season an 8 point deduction hasn't had the desired (by us) effect due to the three promoted clubs being the weakest I can remember. However, next season's crop (Ipswich, Leicester and Southampton/Leeds) will be a stronger bunch and will hopefully get the job done if they do go into administration over the summer
]

 

[StevieM]

This season an 8 point deduction hasn't had the desired (by us) effect due to the three promoted clubs being the weakest I can remember. However, next season's crop (Ipswich, Leicester and Southampton/Leeds) will be a stronger bunch and will hopefully get the job done if they do go into administration over the summer
]

It’s the hope that kills you.

Everton are like fucking cockroach’s… they’ll survive anything - the horrible wee fuckers.

 

[dee]

One assumes that

It’s the hope that kills you.

Everton are like fucking cockroach’s… they’ll survive anything - the horrible wee fuckers.

I'm going to assume they will be filing another horror show at Xmas/New year time so will get a third consecutive deduction too? Will that still happen if they go into Administration @Beamrider or will that clear the decks?

 

[Beamrider]

One assumes that

I'm going to assume they will be filing another horror show at Xmas/New year time so will get a third consecutive deduction too? Will that still happen if they go into Administration @Beamrider or will that clear the decks?

I don't believe administration would clear the decks. They would still be up before the commission for a PSR breach, but I think there's a good chance the commission would apply a significant reduction to any penalty levied if they had already received a significant points penalty for essentially the same issues (i.e. they get deducted 9 points for going into administration, but the reason for the admin is essentially the same losses they'd be punished for under the PSR rules).
That situation might be different if they went into administration this week - the panel might give less mitigation to a points deduction in 2024-25 if the administration penalty had been imposed in 2023-24.