Wednesday, September 28, 2011

Valencia - On The Road To Recovery?

Despite losing to Sevilla last weekend, Valencia have made a very promising start to this season, most evidently when they led reigning champions Barcelona twice before securing an unexpected draw. On the one hand, this should not be too much of a surprise, as Valencia have finished third in La Liga in each of the past two seasons, though admittedly they were a hefty 25 points behind Pep Guardiola’s superlative team last year. On the other hand, this represents a hugely impressive achievement for Los Che after all the upheaval they have faced both on and off the pitch.

In order to reduce their large debts, they have been forced to sell many of their best players, losing four members of Spain’s victorious 2010 World Cup squad in the last two summers. Last year the heart of the team was ripped out when the departures of David Villa to Barcelona, David Silva to Manchester City and Carlos Marchena raised over €70 million, while this year it was the turn of skilful midfielder Juan Mata, who moved to Chelsea for €27 million.

Nevertheless, club president Manuel Llorente has defiantly proclaimed, “You can always sell star players and remain competitive”, which has proved to be the case at Valencia. The team has been rejuvenated with the addition of young talents like Sergio Canales, on loan from Real Madrid, and Pablo Piatti from Almeria, while they have managed to retain the promising Pablo Hernández and Éver Banega. They have also astutely strengthened the defence by acquiring Adil Rami from French champions Lille and Spanish U-21 international Víctor Ruiz from Napoli.

"Ever "Ready" Banega"

The highly rated, young manager Unai Emery has played a pivotal role in the team’s ability to reinvent itself every season. After guiding unheralded Almeria to a first ever promotion and then eighth place in La Liga, he was recruited by Valencia in 2008. Regarded as a master tactician, Emery has worked minor miracles with the resources available and is now in his fourth season, which might not sound much, but only two other Valencia coaches have lasted as long. He has even been spoken of as a possible successor to Vicente del Bosque, when the Spain coach steps down.

Valencia’s fans are infamously among the most demanding in Spain, having become accustomed to a lot of success over the years, both domestically (6 La Liga titles, 7 Copa del Rey trophies) and internationally (1 Cup Winners’ Cup, 1 UEFA Cup and 2 Fairs Cups). It’s not all ancient history either, as Valencia enjoyed four glorious years between 2000 and 2004 when they reached the Champions League final two years in a row under Argentine Héctor Cúper, first losing 3-0 to Real Madrid in 2000, then being defeated on penalties after a 1-1 draw with Bayern Munich in 2001, before Rafa Benítez guided them to two La Liga titles and a UEFA Cup victory against Marseille.

However, that’s when the problems started with Benítez resigning after arguments over control of new signings, when the manager famously complained, “I was hoping for a sofa and they bought me a lamp.” Former manager Claudio Ranieri proved the old adage that you should never go back, as his return lasted less than a season. Although his replacement Quique Sánchez Flores guided Valencia to third and fourth places, his reign was characterised by constant infighting with Sporting Director Armadeo Carboni, which ended with both men leaving the club within few months of each other in 2007.

"Roberto Soldado - the fighting spirit of a soldier"

At the time that Flores was fired, Valencia were just four points off the top of the table, but his replacement, Ronald Koeman from PSV Eindhoven, was a disastrous choice. Not only did he fall out with three of the club’s most popular players (captain David Albelda, goalkeeper Santiago Cañizares and veteran midfielder Miguel Angulo), but the team was perilously close to the relegation zone when he was dismissed, before finally reaching safety in 2008.

Whatever happened on the pitch was nothing to the financial challenges facing Valencia as they encountered a series of incompetent presidents that took the club to the brink of extinction. First up was the rotund figure of Juan Soler, who became president in 2004 with a grand plan, “We’re going to be the envy of Spain.”

However, his delusions of grandeur were built on shaky foundations, almost literally, as the ambitious project to sell the old Mestalla stadium and replace it with the state-of-the-art, revenue generating Nou Mestalla collapsed, as the Spanish property bubble burst at exactly the wrong time.

"Pablo Piatti - one of the young guns"

That might have been outside Soler’s control, but the vast sums splashed out on mediocre players (e.g. Manuel Fernandes, bought for €18 million, sold for €2 million, and Nikola Žigić, bought for €14 million, sold for €7 million) and the constant changes in management (costing over €30 million in severance payments) were certainly down to him. His attempts to “live the dream” resulted in no major trophies, exacerbated by failure to qualify for the Champions League, and massive debts.

Soler briefly brought in Juan Villalonga, the charismatic former chief executive of telecoms giant Telefónica, as a consultant, but he only lasted a couple of weeks before exiting stage left with a large fee for his “expert advice.”

Step forward, Vicente Soriano, the club’s former vice-president, promising €500 million of new investment from a company called Dalport Investments that would clear the club’s debts and enable them to build the new stadium. It sounded too good to be true – and it was. The mysterious backers, whose company logo was revealed to be copied from a children’s colouring book (yes, really), failed to deliver and Valencia faced a serious liquidity problem.

"Silva and Villa - old friends"

Construction work at the new stadium ceased, as bills from the builders were not settled, while the players were not paid for two months. As Emery said, “We have reached rock bottom.” They only managed to get through this with the help of a €50 million loan from a group of local businesses, called Fomento Urbano de Castellon.

The club’s main creditor, the local bank Bancaja, had seen enough and took a seat on the board, imposing a policy of austerity on Valencia and inviting Manuel Llorente to be the new president. He then made a very smart move by launching a share issue that raised €18.5 million from around 26,000 supporters, which demonstrated the strength of feeling for the football club. This “emotional blackmail” helped persuade the regional government to guarantee a €74 million loan from Bancaja that enabled the Valencia Fundació to take a 72.5% stake in the club, which provided much-needed stability.

It was a close run thing, as Llorente admitted, “We have saved a very difficult and worrying situation. Without the intervention of the regional government, we would have defaulted on our payments or been relegated to the Segunda B (third tier of Spanish football).”

However, Valencia are by no means out of the woods yet, as they still carry a vast amount of debt. Soler’s excesses increased this from around €100 million when he took over to a crippling €550 million in 2009. Although this was reduced to €471 million in June 2010, it is still extremely high, only surpassed in Spain by Real Madrid €660 million and Barcelona €549 million, and those two clubs benefit from much higher revenue and greater borrowing capacity. In fact, Valencia’s annual revenue of €102 million means that their debt cover is only 0.22, which is the weakest in La Liga.

The other particularly worrying aspect for Valencia is that a large amount of this debt is from bank loans with €249 million owed to Banaja – and most of that (€229 million) is short-term, so payable within a year. Apart from the standard trade creditors, accruals and provisions, Valencia also owe a large amount (€58 million) to other football clubs for transfer fees, while €31 million of the loan from local businesses remains.

In fairness, since the last accounts were published, Llorente announced last October that the debt had come down to €400 million, while it has been reported, though not confirmed, that it is now down to €370 million. Either way, the club will continue to be burdened with considerable debt until they find a buyer for the old Mestalla.

Following the €92 million capital increase, Valencia’s balance sheet actually appears reasonably strong with €55 million of net assets, despite the huge liabilities. However, this is a bit misleading, as much of the club’s capital is tied up, either in fixed assets (€281 million), mainly due to investment in the new stadium, or in the squad (€71 million). Although the players would be worth much more in the real world, estimated at €165 million by the respected Transfermarkt website, this value could only be realised by selling players. In fact, a study by Deloitte last year concluded that the company shares had “no economic value.”

The Mestalla holds 55,000 supporters, but it has seen better days, so in some ways it was understandable that Valencia embarked on their plan to build a new 75,000 capacity stadium, especially as the local authorities gifted them a plot of land less than two miles from the city centre. The problem was that they had not arranged their funding, believing that they would be able to finance the construction by selling their old stadium. Indeed, they were apparently close to a sale for €320 million, before the market tanked, leading the buyer to drop his offer to €240 million, which was rejected, even though it would have wiped out the club’s bank debts.

In hindsight, this was almost certainly a mistake. As Soriano wryly put it, selling land is not easy “in the largest real estate crisis in history.” Work on the new arena, modeled on a Spanish bullring, commenced in August 2007, but was suspended in February 2009. Valencia have already invested €150 million in the development, but still require a similar amount to complete it. So, now the club finds itself in the bizarre situation of owning two stadiums – one they have not managed to sell and one they cannot afford to finish building.

Another major factor behind Valencia’s spiraling debt levels was the cash splurged on new players with net spend of €133 million in the four years up to 2008. Some of the purchases can only be described as a waste of money, such as €25 million for the inconsistent winger Joaquín, recently sold to Malaga for just €4 million, or nearly €40 million on a bunch of Italian misfits (Francesco Tavano, Marco Di Vaio, Stefano Fiore and Bernard Corradi), though in fairness the latter duo from Lazio were to compensate for unpaid transfer fees for Gaizka Mendieta.

However, the days of big spending have long gone and in the last four years Valencia have generated net sales proceeds of €76 million. As vice-president Javier Gomez admitted, “Before, we had a plan that was based purely on selling the land. Now we need to seek alternatives. We need to win back credibility with the financial institutions.”

That was a precursor to the sales of Villa and Silva (and others) in the 2010 summer window, when gross sales of €84 million meant that Valencia topped the European list of selling clubs. The need to sell was reiterated by Llorente, “Our key objective is economic viability and that means we are obliged to take responsible decisions, one of which is to sell our best players.”

Valencia had gambled on living beyond their means in a desperate attempt to keep up with Real Madrid and Barcelona, but it hasn’t quite worked out like that, as can be seen when comparing the activity of Spain’s leading clubs in the last four years. In that period, Madrid’s net spend was an incredible €312 million, while Barcelona’s net outlay was high by any other standards at €165 million, thus increasing the gap between the big two and the chasing pack.

In fairness, other clubs have also not spent a great deal, but nobody has sold like Valencia, who now also face the emerging threat of Qatari funded Malaga, who have spent €85 million (almost all in the last two seasons). Meanwhile, Valencia have had to shop at the cheaper end of the market (relatively speaking) or enter into innovative deals, such as the two-year loan arrangement for Canales, where they pay Real Madrid €1 million a year with an option to buy for €12 million (though Madrid can then buy the player back for €18 million).

The reality is that Valencia have no money to spend on new players, unless they sell first. Even then, a good proportion of any sales proceeds will go towards reducing debts. Little wonder that even former goalkeeping hero Cañizares saw the sale of top talents as inevitable, “Those players should be at big clubs – like Valencia once was.”

Given Valencia’s financial difficulties, you might expect that the profit and loss account would be a disaster zone, but, on the face, of it the bottom line does not look too bad with the club reporting profits before tax in three of the last six years, including a healthy €18 million in 2009/10. However, that does not tell the whole story, as the results have been significantly influenced by profits on player sales and other exceptional items.

If we take last year as an example, Valencia reported EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) of €9 million, though €30 million of non-cash expenses (player amortisation and depreciation) produced an operating loss of €21 million. Net interest payable of €15 million widened the loss to €36 million before €54 million profits on player sales swung this back to a profit before tax of €18 million.

To be fair, this reliance on player sales is far from uncommon in Spain, as shown by a study of La Liga finances by Professor Jose Maria Gay de Liébena from the University of Barcelona, which revealed that only four clubs made operating profits in the 2009/10 season: Real Madrid, Tenerife, Sporting Gijon and Atletico Madrid. The total operating loss for clubs in La Liga of €213 million was reduced to a combined €93 million loss before tax after once-off items of €192 million had been added and net interest of €73 million deducted.

At this point, I should note that not all clubs had published their 2009/10 accounts when the University of Barcelona performed their review, so they included 2008/09 figures for five clubs (Sporting Gijon, Almeria, Athletic Bilbao, Malaga and Mallorca), while nothing was available for Xerez. Even so, the conclusions are unlikely to be much different when more recent results are available.

We can see that Valencia’s 2009/10 profit before tax of €18 million was only surpassed by Real Madrid’s €31 million, but we have to once again note that their profit on player sales of €54 million was more than any other club. This has very much been the order of the day for Valencia in the past few year. In fact, if profit on player sales and other exceptional items were to be excluded, then Valencia would have reported substantial losses in each of the past six years: 2005 €40 million, 2006 €70 million, 2007 €25 million, 2008 €55 million, 2009 €68 million and 2010 €36 million. That would give a combined loss of nearly €300 million in six years.

Apart from player sales, Valencia’s accounts list profits made from land sales, though it is not clear whether these have actually been realised. In particular, 2006 includes €161 million revenue for the “urban exploitation of the Mas de Porxinos development”, while 2008 features €90 million revenue for the sale of “the first plot of the Mestalla stadium.”

Actually, very little detail is provided in the earlier accounts on the split of the exceptional items between player sales and other activities, but that does not really matter for the purpose of this point, which is that Valencia clearly make large losses at an operating level, amounting to €234 million over the last six years. Admittedly, €186 million of that is due to non cash flow expenses like player amortisation, but this reflects the club’s investment in the playing squad, which is a fairly normal activity for a football club. Even excluding these items, total cash losses in this period added up to €48 million.

On the bright side, when Valencia manage to generate more than €100 million revenue in a year, then they are profitable at the cash (EBITDA) level, but the problem is that they still need to find cash to buy new players and to pay hefty interest charges.

That’s the other aspect of Valencia’s debt that places them at a competitive disadvantage in La Liga, namely that the amount of interest that they have to pay is much more than other leading clubs. Over the last four years, they have had to pay a total of €54 million interest, compared to €39 million at Barcelona, €37 million at Atletico Madrid and €22 million at Real Madrid.

In terms of revenue, Valencia are in a delicate position. The good news is that their 2009/10 income of €102 million placed them fourth highest in Spain at about the same level as Sevilla and only €23 million behind Atletico Madrid, whose position was influenced by Champions League money. In fact, Valencia are one of only five clubs in La Liga that earn more than €100 million revenue, with the remaining clubs considerably behind them with the next highest being Villarreal €59 million and Athletic Bilbao €56 million. Valencia’s revenue is also good enough to put them in 25th position in Deloitte’s European Money League, ahead of clubs like Benfica, Everton, Werder Bremen and Napoli.

The problem is that the big two in Spain, namely Real Madrid and Barcelona receive around four times as much revenue as Valencia with €439 million and €398 million respectively. In other words, they earn €300 million more a season – every season. Financially, they are not just leading the race in Spain, they’re almost out of sight. As money tends to lead to success in sport, an old quote from the boxing promoter Don King could be paraphrased when assessing the chances of any team other than Madrid or Barcelona winning La Liga, “They have two chances: slim and none. And slim just left town.”

And it’s getting worse, as the revenue gap to the “competition” in Spain is actually growing. In 2007, Valencia’s revenue of €108 million was “only” €182 million less than Barcelona’s €290 million, but the shortfall has now risen to €296 million. In that period, Valencia’s revenue has slightly declined, while Barcelona’s has grown by 37% and Real Madrid’s by 25%.

OK, Atletico Madrid and Sevilla have both made great strides in growing their revenue in percentage terms, but the absolute size of the monetary disparity to the big two has increased even with these clubs. From this perspective, the Spanish league is not a fair fight, but is a foregone conclusion before the season kicks-off, unless one of the big two spectacularly implodes.

Like most other clubs, Valencia’s revenue growth has been largely dependent on television, as can be seen in 2010 when the €19 million increase was almost entirely attributed to this revenue stream with the new domestic deal rising by €11 million and the Europa League distribution €4 million higher. Media is up to 46% of Valencia’s revenue and will account for an even larger proportion when Champions League money is taken into consideration.

Match day income has been essentially flat, staying within a €27-29 million range over the last four years, while commercial income has actually fallen from its peak of €25 million in 2008 to €23 million. It should be noted that other income can have an impact on Valencia’s figures, e.g. €8.5 million in 2008.

Valencia are the third best-supported club in Spain with an average attendance in 2010/11 of 41,300, only behind Barcelona 80,400 and Real Madrid 68,300. In 2009/10 this produced match day revenue of €28 million, which was the 19th highest in Europe, just below Manchester City. That’s not bad at all, but (stop me if you’ve heard this one before) pales into insignificance compared to Real Madrid’s €144 million (5 times as much) and Barcelona’s €98 million (3.5 times as much).

Although Valencia’s efforts to move to a new stadium have been fairly comical, this vast difference does help to explain the rationale for the project. In the meantime, this revenue is dependent on the number of matches played, i.e. progress in the cup competitions, and the pricing strategy. In fact, many season ticket prices were lowered for the 2011/12 season in recognition of the financial hardship being encountered by many supporters, so revenue will fall €1.1 million unless another 2,500 tickets are sold.

Despite the increase in television revenue in 2010, Valencia’s €42 million is a fraction of the €140 million that Real Madrid and Barcelona each receive, though it is the same as Atletico Madrid and a fair bit more than Villarreal and Sevilla (€25 million). Unlike all the other major European leagues which employ a form of collective selling, Spanish clubs uniquely market their broadcast rights on an individual basis, so Real Madrid and Barcelona on their own receive around half of the total TV money in La Liga or 12 times as much as the €12 million given to the last clubs on the list (Malaga, Sporting Gijon, Tenerife and Xerez).

This produces the most uneven playing field in Europe and compares unfavourably to the 1.5 multiple in the Premier League between first and last clubs. Looked at another way, Valencia, who finished third in the Spanish league, received less money than West Ham, the team that finished bottom of the Premier League.

This is why the majority of Spanish clubs have been pushing to move the current revenue distribution model towards a collective structure. Tentative agreement has been reached whereby Madrid and Barcelona’s share would be reduced to 34% (still more than a third), but the plan also assumes that Valencia and Atletico Madrid have their share cut from 6.5% to 5.5% each. As most clubs have contracts in place until 2013 or 2014, the new system will only be introduced in 2015.

"Adil Rami meets El Presidente"

Effectively, Valencia have opted to maintain the status quo by denying other clubs the chance to compete with them, while maintaining the inequality with the two Spanish leviathans. Espanyol director Joan Collet did not disguise his bitterness, “If I was an Atletico or Valencia fan, I would be furious, because by signing this, they have admitted they are fighting for third at best.”

On the face of it, the new deal will reduce Valencia’s TV revenue, but there is optimism that the total deal will grow from the current €600 million to €800-900 million, so they could end up taking a smaller slice of a larger pie. This does not seem completely unfeasible, given that the television revenue in La Liga is currently lower than the Premier League, Serie A and Ligue 1.

The current English deal is worth around €1.3 billion a year, which is more than twice as much as the €0.6 billion received by La Liga, the main reason for the difference being the hefty €575 million that the Premier League receives for foreign rights, around four times as much as their Spanish counterparts. If this area could be addressed, taking the total deal up to €900 million, then Valencia’s share would increase €8 million to €50 million.

Valencia’s television revenue for 2009/10 included €4.7 million for reaching the Europa League quarter-finals, where they were unluckily defeated by Atletico Madrid, which was a sizeable increase on the €0.4 million received for the previous season’s UEFA Cup.

However, the big money in Europe comes from participation in the Champions League, and Valencia earned €24.1 million in 2010/11 for reaching the last 16. Assuming that their other revenue streams remain unchanged, this would increase their total revenue by 20% to around €121 million. When commenting on the club’s debt reduction, president Llorente emphasised “how important it is for us to play in the Champions League”, because the majority of the money used to repay loans “came from earnings in that competition.”

Although there has been a lot of discussion about the huge gap between the big two and the rest of the clubs in Spain in TV revenue, it has seemingly gone unnoticed that it is very much the same story on the commercial front. Valencia’s revenue here of €23 million is perfectly respectable (4th highest in Spain), but is around €100 million less than Real Madrid and Barcelona.

Again, the situation appears to be getting worse, as no fewer than six La Liga clubs started this season without a shirt sponsor, including Atletico Madrid, Sevilla, Villarreal and indeed Valencia, who in the Barcelona match actually sported their Twitter handle on their shirts. For the last two years, Valencia were sponsored by online gambling company Unibet, who reportedly paid them €6 million a season for the privilege, though some of that was used to pay the wages of certain foreign players. Before that, the relationship with Valencia Experience ended in tears, as the club started legal proceedings for non-payment.

There is better news with the kit supplier deal, as Joma have signed a five-year deal running until 2016, which is reputedly worth €4 million a year. They replaced Kappa, who were paying just under €2 million a year, while the previous long-term relationship with Nike brought in €1.5 million a season.

The revenue theme is repeated in the costs, where Valencia’s 2009/10 wage bill of €73 million was only lower than the big two – but it was significantly lower, with Barcelona spending €235 million (inflated by performance-related bonus payments) and Real Madrid €192 million.

Even so, Los Che have been consistently above UEFA’s recommended maximum wages to turnover limit of 70% in the last few years, even though their wage bill has been essentially flat. This is in stark contrast to many other clubs, who have seen their wage bills surge in the same period.

In fact, after a board meeting last September, Llorente said that the 2010/11 financials would show total operating expenses falling by €18 million from €92 million in 2009/10 to €74 million. Most of this was attributed to a substantial fall in wages, which Llorente quantified as 21% compared to the €74.5 million paid out in 2008/09, implying an amazing €15.6 million decrease to €58.9 million. Although this is a dramatic reduction, it does only bring Valencia to a similar level as Atletico Madrid €62 million and Sevilla €61 million.

The club’s austerity policy has seen it reduce salaries, including the president’s, and cut jobs, including the post of sporting director Fernando Gomez. This is the other (financial) benefit of selling top players, as losing the high salaries of the likes of Villa, Silva and Mata helps reduce the overall wage bill. This helps explain why Valencia were willing to let players like Joaquín and Fernandes leave so cheaply. Indeed, Joaquin was only offered an extension to his contract at €2 million, which was €1 million lower than his previous agreement, while Malaga are apparently paying him €4 million.

The other major player cost is amortisation, which fell slightly last year to €29 million, not much more than it was in 2005. For the non-accountants, I should explain that amortisation is the annual cost of writing-down a player’s purchase price, e.g. Rami was signed for €6 million on a four-year contract, but his transfer is only reflected in the profit and loss account via amortisation, which is booked evenly over the life of his contract, i.e. €1.5 million a year (€6 million divided by four years).

Given the limited activity in the transfer market, you might expect player amortisation to fall further, but this is not necessarily the case, as it depends on how much amortisation remained on the players that departed. In any case, if it does rise, it is unlikely to be by very much.

"Sergio Canales - loan star"

Valencia’s financial future is partly down to their own actions, but is also linked to external factors not under their control. Spanish football is struggling under the burden of debt, which has reached €3.4 billion for the 20 clubs in La Liga. Indeed, no fewer than six clubs in Spain’s top division are currently in administration: Racing Santander, Real Mallorca, Real Zaragoza and all three promoted clubs (Real Betis, Rayo Vallecano and Granada).

Consequently, the beginning of this season was delayed by a players’ strike over unpaid wages. The figures are frightening with 200 players owed a total of €50 million, up from €12 million owed to 100 players the previous year. The Spanish Football League (LFP) is now taking action with a proposal to implement rules designed to curb the clubs’ excessive spending. As its president Jose Luis Astiazaran commented, “We are not immune from the wider economy.”

Valencia’s own strategy was clearly outlined by vice-president Javier Gomez a couple of years ago, “The club is in a very delicate situation. It has to control spending, grow income and sell assets.”

"Pablo Hernandez - can do it at the highest level"

As we have seen, they have certainly taken steps to control spending by slashing the wage bill and other operating expenses, but, as any business will tell you, growing income is far more difficult. In the short-term, the only realistic opportunity is regular qualification for the lucrative Champions League, which, in fairness, Valencia have achieved for the last two seasons.

This raises the spectre of UEFA’s Financial Fair Play rules that force clubs to live within their means if they wish to compete in Europe. This is going to be touch and go for Valencia unless they continue to qualify for Europe, so this becomes a bit of a circular argument. The last reported operating loss was €21 million, but this should largely be eradicated this season by savings that the club announced. However, Valencia then have to find €15 million for interest payments, leading to an annual loss of a similar amount.

This could be covered by Champions League money – or continuing the policy of profitably selling players. Llorente endorsed this view a few months ago, “The sale of players is no longer necessary to balance the budget… because of the money we are getting from the Champions League.” Since that statement, Mata has been sold to Chelsea, but this could equally have been a sporting decision as a financial one.

"David Albelda - loves a tackle"

What will help all clubs is that UEFA’s break-even calculation allows certain costs to be excluded, such as youth academy, depreciation and interest on infrastructure like a stadium, so Valencia should theoretically be fine. However, the allowable losses (acceptable deviations) are only an aggregate €5 million for 3 years if the losses are not covered by an owner, as opposed to €45 million if they are covered. As Valencia do not have a wealthy benefactor, that could potentially be an issue.

Of course, the major concern for Valencia remains the stadium. Earlier this year the club extended the Bancaja mortgage for a year beyond its June 2011 expiration date to give them more time to find a buyer for the Mestalla. This is a calculated gamble, costing €15 million of interest, as it was reported that the bank had been willing to clear the €240 million debt in exchange for the land. Llorente still believes that he can get at least €300 million, though this seems fairly optimistic, given the state of the real estate market.

The bank could still offer the same deal next year, but Valencia would then need to take out a new loan to fund the completion of the Nou Mestalla. Last year Llorente estimated that the club would need a further €126 million (and 22 months of work), but the press has reported that some areas of the new stadium are already damaged beyond repair, so this sum could easily rise to €150-200 million.

"More songs about buildings and fools"

Although Valencia have said that they would be open to a ground share with Levante, this does not seem to be a realistic option, as their neighbours do not have enough money to share the construction costs, which is a pre-requisite for any agreement.

Nevertheless, it may still be the right decision to push ahead, because Valencia could potentially end up with lower debt, albeit still too high for a club of their magnitude, but at least they would have a new stadium that should generate more revenue.

Whatever happens, it would be unrealistic to expect Valencia to do any better than they have in the past couple of seasons, especially after Llorente has adopted a far more level-headed approach to the transfer market than his chaotic predecessors. Finishing third behind Barcelona and Real Madrid is nothing to be ashamed of. In fact, given all of the financial pressures that have forced Valencia to continually sell their best players, it’s a great achievement that is deserving of much praise.

Thursday, September 15, 2011

Everton - No Blue Skies

Football fans are rarely happy. After all, there are only so many trophies that can be won, so the majority of teams will end the season empty handed. That said, Everton’s fans seem to be particularly despondent these days, so much so that a coalition of supporters’ groups known as the Blue Union initiated a protest march before last week’s home game against Aston Villa.

Their principal complaint is that the club is stagnating under the current ownership, but their objective is rather more sophisticated than the customary “sack the board” knee-jerk reaction to adversity of crowds the world over. Instead, this campaign is more about freeing up Everton’s executives to focus on operational issues, such as growing revenue and cutting costs, while a “fully autonomous group of professional individuals” is brought in to expedite the sale of the club to a buyer who can drive the club forward.

Everton have effectively been on the market for many years, but the chairman Bill Kenwright has so far failed to attract the new investment that the club so badly needs. Therefore, the Blue Union’s suggestion is that the club introduces a similar arrangement to the one that (eventually) worked at neighbours Liverpool, when independent chairman Martin Broughton identified John W. Henry as the Reds’ potential saviour.

"Phil Jagielka prays for investment"

Specifically, they are not seeking Kenwright’s departure, though this would not have come as a complete surprise after details of their extraordinary meeting with the chairman were published. Even if the release of a detailed transcript of a private meeting was ethically dubious, it was to a large extent justified by Kenwright’s admission that the club’s financial situation was every bit as bad as many fans had feared.

Although this was nothing new to seasoned observers of Everton’s finances, the explicit revelation that the bank had forced the club to reduce its overdraft facility and was effectively preventing manager David Moyes from signing new players was still shocking news. Indeed, Kenwright confirmed that the proceeds from the sale of players and the club’s old training ground at Bellefield had gone towards reducing the club’s £45 million debt.

Kenwright is clearly a genuine Everton fan, but at times he seemed completely out of his depth during the discussion. Not only was he vague about the long-standing issue of a new stadium, but he was essentially clueless about the club’s financials. OK, maybe that’s a bit too harsh, but he was clearly confused and really should know a great deal more after so many years as chairman.

"Tim Cahill - up for the fight"

In fairness to Kenwright, in the past he has appreciated the main issue facing Everton, which is how to keep the team challenging at the top end of the Premier League without new investment. However, his strategy, for want of a better word, has seemingly consisted of little more than relying on David Moyes to continue to work minor miracles on a shoestring budget.

With some justification, Kenwright calls Moyes “the most important figure at the club”, describing him as “a manager who will go down as one of our all time greats.” Moyes himself is proud of his achievements, pointing out that in the 10 years he has been at the club, Everton have finished in the top 10 seven times. In fact, they have done rather better than that under his guidance, as his record includes two fifth places and a memorable fourth place in 2004/05, when the team qualified for the Champions League.

However, although Moyes refuted the fans’ charge of stagnation, even he admitted that he was operating under severe financial constraints, “Of course we want to be top of the league and winning cups, but at our club, we have got a level of finances, wages we can pay and stuff that we can do. We try and then get the best team and the best performances we can out of the players we have got.” It is fair to say that Moyes has got the most out of his resources, consistently outperforming teams that have spent more.

"David Moyes - a lot on his mind"

However, these results are slim pickings to a “grand old team” with Everton’s fine tradition. Only Arsenal have a longer unbroken spell in the top flight than the Blues, who have won the old First Division nine times, the FA Cup (when it meant something) five times and the European Cup-Winners Cup once. Four of those trophies came during a memorable period between 1984 and 1987, but the problem is that even though this might seem like yesterday to Everton supporters, it is nearly 25 years ago.

Since the introduction of the Premier League in 1992, Everton have struggled to live up to their glorious past, only winning the FA Cup in 1995. After the death of former owner John Moores, the club began to struggle both on and off the pitch. The Moores family shareholding was bought in 1994 by Peter Johnson, whose tenure was fairly disastrous with the club frequently involved in a fight against relegation.

Five years later, leading theatrical producer Bill Kenwright headed a consortium named True Blue Holdings Limited that bought the club in a deal that valued it at £30 million, though the source of the funds has never been completely clear. A series of ugly boardroom disputes ensued between Kenwright and fellow directors, Paul and Anita Gregg. Both sides tried to win over the Everton fans with ambitious investment plans, Kenwright’s version entitled the Fortress Sports Fund, but neither of these came to fruition. Finally, in 2006 the Greggs sold their shares to the entrepreneur Robert Earl, a friend of Kenwright, but all the infighting took its toll.

While professing to provide Moyes with “every available penny”, the reality is that the level of funds available to the manager has been diminishing. Indeed, the net spend has been negative over the last three seasons, adding up to £20 million sales proceeds. During the meeting with the Blue Union, Kenwright said, “On average, we give him £5.6 million every year. Nine years – that's £45 million.” Leaving aside the appalling arithmetic, that’s palpably incorrect in recent times.

In fairness to Everton’s board, they did break the club’s transfer record three times between 2006 and 2008: first for speedy striker Andrew Johnson £8.6 million, then Nigerian international Yakubu £11.25 million and finally powerful Belgian midfielder Marouane Fellaini £15 million.

However, since then Moyes has had to sell to buy. Everton’s last major splurge came in the summer of 2009 as the £22 million proceeds from Joleon Lescott’s transfer to Manchester City was spent on Diniyar Bilyaletdinov £10 million, Johnny Heitinga £6 million and Sylvain Distin £4 million.

Everton’s chief executive, Robert Elstone, summed up the club’s approach, “We have to be astute in the transfer market and the manager and the chairman have a good record in doing that.” He’s not kidding, when you consider that Moyes managed to secure the services of Tim Cahill, Mikel Arteta, Phil Jagielka, Steven Pienaar and Seamus Coleman for less than £10 million in total.

However, the lack of activity has become really pronounced in the last two years with only Newcastle having a lower net spend than Everton in the Premier League over that period – and that was largely due to the extraordinary £35 million sale of Andy Carroll to Liverpool. No wonder that Elstone drily observed, “It is fair to say we have not got a big transfer war chest. I can’t see us smashing our record transfer fee on a regular basis.” Quite.

In fact, even the three sides just promoted from the Championship have comfortably outspent Everton. Closer to home, it must be especially galling that Liverpool have splashed out well over £100 million on new players in 2011. In stark contrast, Everton have seen the departures of Pienaar, Arteta, Yakubu, Jermaine Beckford and James Vaughan since the turn of the year, with only a couple of loan signings coming the other way: Dutch misfit Royston Drenthe and unheralded Argentine strike Denis Stracqualursi.

Moyes confessed his concerns after yet another frugal transfer window, “It will be really difficult to finish in the top 10. I think we are going to have a big struggle. Look at the spending of Stoke, Sunderland, Fulham and West Bromwich Albion.” The only positive to take was that they did not also lose Jagielka, Fellaini and coveted left-back Leighton Baines.

Although Everton’s financial problems may not have attracted the media coverage of some other clubs, the fact is that their business model is bust. Essentially, their strategy has been to run the club at a loss every year in a gamble to achieve success and to fund this by steadily increasing their debt, but now the banks have stopped extending them credit.

It is not too difficult to see why they have made this decision, as Everton’s profit and loss account looks simply awful. Even with healthy turnover of £79 million, they reported a loss of £3 million. In fact, they have only managed to record a profit once in the last eight years – and that was only due to Wayne Rooney’s big money transfer to Manchester United in 2004/05.

Since “Wazza” was sacrificed, the club has suffered £30 million of cumulative losses: 2006 £11 million, 2007 – £9 million, 2008 – zero, 2009 – £7 million, 2010 – £3 million. Over half of that has been due to interest payments, which have risen to £4.5 million in 2010. However, the fundamental problem is that cost growth is significantly outpacing revenue growth. The trend is clear with EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation) declining from £12 million in 2005 to just £1 million in 2010.

Once non-cash items like player amortisation and depreciation are included, we can observe the deterioration in operating profits, which were at break-even in 2005, but are now showing a hefty loss of £18 million in 2010. In that period, revenue has grown by £19 million (32%) from £60 million to £79 million, while total expenses have shot up by £37 million (61%) from the same level of £60 million to £97 million. The situation is actually even worse than that, as revenue has hardly grown in the last two years, while the cost growth shows no sign of slowing down.

On the face of it, last season’s £3 million loss does not look too bad, but this would have been much worse without the benefit of £19 million profit on player sales, almost entirely due to Lescott’s departure. Without that once-off boost, the 2010 loss would have been a truly depressing £22 million.

Player sales have had a disproportionate impact on the club’s results for many years, contributing £59 million profit since 2005. In other words, the losses would have been even higher if the club had not been selling players. The impact was most obvious in 2005 when Rooney’s sale resulted in a net profit of £23m, but you can also see its importance the following year when the club reported an overall loss of £11 million, as there was no profit from player sales.

As operating losses have increased since then, the importance of player sales becomes even more evident. The key point is that if Everton do not repeat player sales at the same level as 2010, namely around £20 million, then it is extremely doubtful that they will break-even in future. This is unlikely to be music to the ears of Everton fans, but it’s a harsh reality.

Given the above, it might seem a little bizarre that chief executive Robert Elstone said that this was “a healthy set of accounts”, but in comparison with some other clubs, you can sort of see what he means. Everton are by no means the only football club that struggles to balance its books and their loss of £3 million in 2009/10 actually made them one of the better financial performers in the Premier League.

In fact, just four clubs were profitable that season (Arsenal £56 million, Wolverhampton Wanderers £9 million, WBA £0.5 million and Birmingham City £0.1 million), while only one club (Blackburn Rovers) made a smaller loss than Everton. Half of the Premier League made losses over £15 million, while the losses at the clubs that finished in the top three places in 2010/11 were stratospheric: Manchester City £121 million, Manchester United £80 million and Chelsea £70 million. However, the difference between those clubs and Everton is that their owners have largely covered these losses.

Everton’s revenue of £79 million places them in a slightly strange position. On the one hand, this is the eighth highest in England and only one position behind Aston Villa, who enjoy the 20th largest revenue in Europe, according to the Deloitte Money League.

On the other hand, the problem is that their revenue lags way behind other major clubs. It’s significantly behind the so-called “Sky Four” (Manchester United £286 million, Arsenal £224 million, Chelsea £201 million and Liverpool £185 million), who benefited from Champions League riches in 2009/10, but it’s also a fair bit below Everton’s natural challengers (Manchester City £125 million, Tottenham £120 million and Aston Villa £90 million) with the gap expected to grow still wider when the 2010/11 results are published.

This disparity is important, as money tends to equate to success in football. For example, in 2009/10 the seven clubs that finished ahead of Everton in the Premier League were exactly the same as those above them in the Money League. Arguably, Everton could be described as being the “best of the rest”, though their revenue was only £3 million higher than Fulham’s.

The other major issue with Everton’s revenue is that it is not really growing. Elstone recently boasted, “We have signed record sponsorship deals and hugely increased our income”, but the reality is that any growth is almost entirely due to broadcasting revenue. This has risen from £28 million in 2007 to £50 million in 2010, but this has little to do with the club, being almost entirely due to the distributions from the collective sale of Premier League TV rights.

Those revenue streams under the club’s control have essentially remained flat for the last three seasons with commercial income growing slightly from £9 million to £10 million and gate receipts actually falling from £20 million to £19 million. This means that Everton, like many of the clubs in the Premier League, have become very reliant on television money, which now represents 63% of their total income.

In 2010 Everton’s TV revenue of £50 million largely consisted of £43 million from the Premier League plus £4.2 million for reaching the last 32 in the Europa League. The Premier League distribution has risen every time a new three-year deal is signed, as can be seen by the substantial increase in 2008, and there will be a similar £7 million increase in 2011 to just under £50 million, mainly due to the substantial increase in overseas rights.

Given its importance to Everton’s revenue, it is worth understanding how the Premier League allocation works. Each club gets an equal share of 50% of the domestic rights (£13.8 million) and 100% of the overseas rights (£17.9 million). However, facility fees (25% of domestic rights) depend on how many times each club is broadcast live, which hurts Everton, as they were only shown 13 times, a lot less than other clubs. This meant that they received £7.3 million, compared to Manchester United’s £13.5 million. Finally, merit payments (25% of domestic rights) are worth £757,000 per place in the table, leading to £10.6 million for Everton’s seventh position.

Of course, Everton’s 2010/11 TV money will be adversely impacted by the lack of European competition, though it’s only Champions League teams that receive the big bucks, e.g. last season the four English entrants boosted their coffers by an average of £35 million. Although the money was not so high 20 years ago, the ban on English clubs following the Heysel tragedy has undoubtedly cost Everton dearly. In fact, in his own slightly chaotic fashion, Kenwright pinpointed this issue in his chat with the supporters, “You can see the problem in football. United, Arsenal, Chelsea, they get double our TV money, placement money plus Champions League.”

Of course, that’s not Everton’s only problem, as can easily be seen by looking at their mach day revenue of £20 million, which is about one-fifth of Manchester United and Arsenal. Fair enough, their stadiums are considerably larger than Goodison Park, whose capacity is only 40,600. However, Anfield is not that much larger and Liverpool still earn more than twice as much as Everton. Even more striking is that Spurs generate nearly double Everton’s gate receipts, though their ground is actually smaller.

Looked at another way, each home game at Everton produces less than £750,000, compared to more than £3.5 million at United and Arsenal, despite what Kenwright described as a “magnificent level of support.” Average attendances have indeed held reasonably steady, though they did fall to 36,039 in 2010/11, but it’s the lack of decent corporate facilities that has really hurt Everton’s match day income, which actually fell £3 million in 2010 to £19 million. Even though there were three more home games, the previous season included a fair bit of money for the run to the FA Cup Final.

Although Everton have improved their commercial operations in the last few years, the revenue remains fairly feeble at £10 million. To place that into perspective, this is less than a third of Tottenham’s £32 million. Although the club complained that it was difficult to compete commercially with clubs “regarded as having a greater international profile”, such as Manchester United, Liverpool and Arsenal, Everton are surely at least as attractive a proposition as clubs like Spurs and Villa.

To be fair, the club outsourced its merchandising and catering operations in 2006 and its retail business to Kitbag in 2009, which means that their reported income is around £7 million lower than it would be if these activities were still in-house, but the relatively small sponsorship deals should still be questioned.

Everton have enjoyed a long-term shirt sponsorship deal with Chang Beer, which has been extended no fewer than four times, the latest running until 2014. This increased the annual payment from £2.6 million to £4 million (partly performance-related), but this is still only half as much as Aston Villa’s new £8 million deal with Genting and a lot less than Tottenham’s £10 million deal with Auresma. Of course, Liverpool and Manchester United are in a different commercial league altogether with their deals worth £20 million per annum.

The 10-year Kitbag deal is expected to generate more than £30 million over the duration of the contract. As part of the agreement, Everton switched kit suppliers from Umbro to Le Coq Sportif, the brand worn by the team during one of its most successful season in 1984/85, which should generate a further £3 million. This also led to the refurbishment of the megastore opposite Goodison and the Everton Two store, which boasts the inspired address of “Everton Two, Liverpool One”, as the latter is the name of its shopping complex location.

Like all other football clubs, the main reason for the cost growth is the wage bill, which has surged 76% (£23 million) from £31 million in 2005 to £54 million in 2010. This has caused the crucial wages to turnover ratio to rise during this period from 51% to an uncomfortable 69%, which is only just below UEFA’s recommended upper limit of 70%, though it would come down to “only” 64% if the outsourced operations were included in the club’s turnover.

Elstone commented that this “simply serves to underline our commitment to both signing the best available players and to securing the long-term future of those already at the club.” In 2009/10 Everton effectively replaced one international player (Lescott) with three arrivals (Bilyaletdinov, Distin and Heitinga), so had to cover two new salaries plus the loan cost of Landon Donovan. In addition, there were new contracts for Louis Saha, Tim Howard, Jack Rodwell, Joseph Yobo and Phil Jagielka.

There’s no doubt that it would be difficult for any club to remain competitive without participating in the salary “arms’ race”, a point that Moyes stressed in the summer of 2010, when he warned the directors that Everton risked losing their key players unless they broke the wage structure. This led to more contract extensions for Mikel Arteta, Tim Cahill, Leighton Baines, Seamus Coleman and Victor Anichebe. Arteta’s salary alone was reported to have increased from £45,000 to £75,000 a week.

It is therefore likely that the wage bill for 2010/11 will show a further increase (the Blue Union is estimating £58 million), before falling the following season due to numerous player departures and loans.

In fairness, Everton’s wages of £54 million are nowhere near the highest in the Premier League with five teams having wage bills more than twice that level: Chelsea £173 million, Manchester City £133 million, Manchester United £132 million, Liverpool £114 million and Arsenal £111 million. Other teams challenging for Europa League places also pay a lot more, such as Aston Villa £80 million and Tottenham £67 million. In short, Everton’s wage bill could be described as mid-table, so any league placing higher than this should be considered a bonus.

The other aspect of player costs, namely amortisation, has also been rising – from £10 million in 2007 to £17 million in 2010. When a new players is bought, football clubs do not write-off the cost immediately, but instead book it onto the balance sheet as an intangible asset and write it off over the length of the contract, as the assumption is that the player would have no value after his contract expires, since he could then leave on a “free”.

As an example, John Heitinga was bought for £6 million in 2009 on a 5-year contract, so £1.2 million amortisation is booked to the accounts in each of the next five years. Over time amortisation costs can have a real impact, which is what has happened at Everton. The 2010 charge of £17 million might be low compared to a big spending club like Manchester City (£71 million), but it’s a lot in the context of Everton’s £79 million revenue, though it’s likely to fall following the lack of transfer activity.

Everton’s other operating costs of £24 million are a similar level to Tottenham £27 million and Aston Villa £25 million, but they seem very high in relation to the size of the club. They represent 25% of total costs, only surpassed by Arsenal (due to the Emirates effect) among the leading eight clubs, and 30% of revenue, only below Manchester City, whose ratio will fall following their certain revenue growth.

The massive increase from £12 million in 2007 to £21 million in 2008 is unexplained, though it should be noted that theses costs averaged £17 million in 2005 and 2006. Part of the rise is certainly due to higher expenses at the Finch Farm training facility compared to Bellefield, but the lease here is no higher than £1.5 million. Kenwright did not exactly clear up the ambiguity of what is included here, when the Blue Union put the question to him, “When you say other operating costs what do you mean? I don’t know, I have no idea.”

The chairman was equally vague last year when discussing the club’s debt, “I do not understand why football clubs have such big debts, it is a mystery. Our debt is a big debt and a worrying debt, but it is manageable because of our performance on the field… but it is too much debt that every year is going to be added to.” That part’s certainly true, as the net debt has more than doubled from £20 million in 2005 to £45 million in 2010. It rose £7 million last year alone.

The debt has been rising because the club has been spending money that it does not have on strengthening the team. As Elstone put it, “our pursuit of success has stretched our finances.” The result of this risky strategy is clear to see, as the club is burdened with a 25-year loan from Bear Sterns (now at £25 million), which has the advantage of being long-term, but carries a high interest-rate of 7.79%, leading to annual payments of £2.8 million. The only way that Everton can manage to pay this is by increasing its bank debt, so the club has built up bank loans of £17 million and an overdraft of £5 million.

Although Everton’s debt is by no means excessive compared to other football clubs, the problem is that they appear to have no realistic way of paying it off. That is why the bank has capped the club’s overdraft at £25 million, which has meant that the £8 million received for the sale of Bellefield last December and the proceeds from this year’s player sales have gone directly to the bank.

"Tim Howard - shout, shout, let it all out"

Furthermore, the loans are covered by the securitisation of future revenue (TV money and ticket sales). The accounts also note a potential sting in the tail with up to £12 million of contingent liabilities for transfers, which are payable dependent on future appearances and loyalty bonuses.

Everton’s total liabilities are actually £95 million, leading to net liabilities of £30 million, so £50 million of value has been lost in just over a decade, as the balance sheet had net assets of £19 million in 1999. Most of the club’s assets have been sold off, which also increases costs for higher rents, while Goodison’s value is declining.

The only substantial assets left are the players themselves with a book value of £45 million, though Elstone points out that accounting conventions mean that players are recorded in the balance sheet way below market value. This is certainly true, especially as nothing has been included for home grown players, and the respected Transfermarkt website lists a value of £120 million. However, the problem is that for the club to access that value, they would have to sell those players.

The cash flow statement underlines the fundamental problems with Everton’s business model, as the cash flow has been negative for the last five years. Take last year, when the club’s revenue was just about at record levels, they sold Lescott for an incredible £22 million, they took out net new loans of £6 million – and yet there was still a net cash outflow of £1 million.

So is there anything that Everton can do? Is there a blueprint for success?

I can see five possibilities: (a) be successful on the pitch; (b) cut costs; (c) build a new stadium; (d) find a wealthy benefactor; (e) focus on youth.

"Marouane Fellaini has a hair-raising experience"

(a) As we have seen, higher places in the Premier League produce higher merit payments, but to make a meaningful difference to the revenue, Everton would have to qualify for the Champions League on a regular basis. Although they have managed that once during Moyes’ tenure, thus proving that it’s not impossible, this objective seems further away than ever today with the traditional “Big Four” being supplemented by Manchester City and Spurs.

Furthermore, fourth place does not guarantee qualification to the lucrative group stages, but only to a qualifying match, where the luck of the draw plays a huge part. Everton would be only too aware of that, as they were (unluckily) eliminated by Villarreal in such a tie in 2005.

(b) All football clubs could cut costs, but this approach would almost certainly condemn Everton to a regular struggle against relegation. To achieve break-even, Everton would have to reduce the cost base by £15 million, assuming that £10 million profit is made on player sales each year.

Assuming that operating expenses are reasonably fixed, that would mean cutting the wage bill by nearly 30% to £39 million. Only three clubs had a lower wage bill that that in the 2009/10 Premier League – and two of those were relegated. If Moyes has been fighting with one arm tied behind his back up to now, this would be tantamount to also binding his legs together.

(c) A new stadium would help address the low match day income, but it appears no closer now than when the search first started 15 years ago. A proposal to build a stadium as part of the King’s Dock regeneration was scrapped in 2003 when the club failed to raise sufficient money, while the government rejected the planning application to build a new 55,000 capacity ground as part of a retail park in Kirkby, on the outskirts of Liverpool.

On the face of it, this was a real blow to the club, as they had been putting all their energies into this scheme with former chief executive Keith Wyness going so far as to describe it as “the deal of the century”, because Tesco were going to pay a proportion of the construction costs, leaving Everton to fund the remainder by selling Goodison Park and Bellefield and charging for naming rights at the new stadium.

However, the rejection might just have been a blessing in disguise, as many fans never warmed to the idea of moving to Kirkby, prompting the formation of the “Keep Everton In Our City” (KEIOC) campaign. In addition, the financials did not seem to add up, as the assumptions behind the funding looked optimistic, while a study performed by Deloitte on behalf of Everton estimated a paltry £6 million extra profit a year and that was based on the club almost filling the 50,000 stadium every match.

"A man of Distin-ction"

The focus appeared to have switched to improving Goodison, especially after the announcement of a £9 million office and retail development, funded by partners, that will free up space inside the stadium for profitable corporate facilities. Elstone admitted that it was unrealistic to expect the club to be inside a new stadium within five years, later adding, “there is a shortage of a viable funding model”, which had always been obvious to most rational analysts.

However, to the surprise of nobody, this viewpoint was contradicted by Kenwright, who recently said, “There are six sites we’re looking at, three of which we’re really keen on: Edge Lane, Speke and another one.” Even with the support of Liverpool Council, who have proposed using the rapid transit Merseyrail line to ease transport access, the only viable way forward for a new stadium would be if a new owner were prepared to fund the construction.

(d) Although Bill Kenwright might be a great bloke, as he admitted himself, he is “a pauper when it comes to other chairmen.” The harsh reality is that the current owners have not put any money into Everton football club, which is in stark contrast to other benevolent owners, e.g. £187 million at Fulham, £115 million at Sunderland, £85 million at Bolton, £52 million at Wigan and £43 million at Stoke.

"Bill Kenwright - True Blue"

In the last annual report, Kenwright stated, “I continue to work tirelessly to find that rich and generous benefactor”, but he has been looking to attract other investors for years without success. He maintains that “no-one can sell the club better than me”, despite all evidence to the contrary, such as the recent admission that Everton allowed one potential investor to conduct due diligence in the belief that he was the head of ICI in the Far East, even though that company was taken over three years ago.

Some have questioned whether Kenwright is actually serious about selling the club, but, in fairness, there are many clubs searching for a benefactor and the tough economic climate has not helped.

Even David Moyes has got involved, suggesting that Everton would be an attractive investment, as they “could be very close to being very good for not an awful lot of outlay. It might not be one of those clubs that needs £300-400 million to turn it around.”

"Seamus Coleman - he's mustard"

He might have a point, but to do the job properly would require investors with very deep pockets. First, they would have to buy out the directors’ shares, which an investment bank estimated would cost £75 million, but they would also have to repay the loans £45 million, fund a new stadium £250 million, buy new players £50 million and inject working capital to cover losses £50 million. That doesn’t leave much change from half a billion.

(e) Probably the most realistic policy would be to focus on developing young players at the technically advanced Finch Farm academy, counting on profitable sales at a later stage. Everton are renowned for having a brilliant youth system that has produced the likes of Rooney, Rodwell and Ross Barkley. As Moyes pointed out, the flip side of not spending money on buying new players is that youngsters will always get an opportunity at Goodison.

Clearly, a selling policy would not prove universally popular with the fans, but it is not necessarily a negative strategy, as plenty of clubs have flourished by adopting such a business model, e.g. Porto, Lyon and Udinese. The other advantage for Everton is that they are quite close to operating this way in any case. At least it would be more under their control, rather than crossing their fingers and hoping for a new owner and/or stadium.

"Ross Barkley - here's to future days"

For many years, Everton under Moyes have been punching above their weight, but even the manager has embraced a new sense of caution, suggesting that it would be “a struggle” for his team to finish in the top half of the table this season. He added, “We have to be careful in what we believe Everton are capable of achieving.”

No matter how much Everton’s passionate following wants the club to return to its former glories, this will be virtually impossible unless there is a dramatic improvement in the financial position. The fans really do deserve better from the board: a clear, coherent strategy would be a step in the right direction.

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