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.


  1. Excellent Article - it just surprises me that so many Everton fans cannot see this. Between Kenwright and Elstone the lies that have been told to Evertonians are ridculous, they have tripped themselevs up all over the place, and yet still supporters think they are good for our club!

    We will end up with the club our supporters deserve.

  2. brilliant as always.

    i think there is a small error in "This meant that they received £17.3 million, compared to Manchester United’s £13.5 million." should be 7.3

  3. @Anonymous (11:07),

    Thanks. Yes, you're absolutely right. Typo now corrected - thanks for bringing it to my attention.

  4. Excellent read Kieron, the next accounts will be even worse hence the need for the medicine we're currently having to take. The need for a fresh approach is paramount; the currents owners claim they don’t understand why nobody wants to buy Everton, I'd hazard a guess that plenty would want to buy but the price is too high and those that do need to be better than a shyster from Singapore living in a one bedroom flat. Given that they were prepared to sell to someone like this only confirms that the sale process must be outsourced to professionals.

  5. Wonderful article. Unbiased and unclouded by the emotion that so often pervades these debates. Kudos!

    I have thought for some time that youth may be our only real hope. I think Moyes knows this too and a policy of scouting and buying of U18 players for little or no money has been in motion for a while. The disappointing thing is that most of this developed talent will need to be sold in order to balance the books.

  6. The whole report is false, there is no one better than Bill Kenwright to sell the club, he is working 24/7 to find a buyer

  7. Excellant analysis, good work

  8. Very true,

    Why cant people realise this is happening to our great club. Very sad. Please leave current board and take your debt with you. 24/7 bullsh!t

  9. The reason for the existence of guaranteed payday loans. These loans were created for people who have bad credit but find themselves in an urgent need for money.

  10. Excellent piece SR,

    You've ticked the box for understanding the finances - What's your CV like regarding finding suitable buyers? I think we all know someone who could do with your help !!

  11. An excellent article and one which I will certainly refer to in my numerous rantings.

    One factual error however - "Only Arsenal have been in the top flight longer than the Blues".

    Everton have actually been in the top flight longer however Arsenal have the longest unbroken spell.

  12. Not an Everton fan, but that's all a bit depressing. They've got a great manager and are (basically) a selling club, but their debt is growing. Oh, football.

  13. @Anonymous (3:42),

    Thanks. Yes, I expressed that poorly, so have now clarified.

  14. Tottenhams's sponsorship deal is actually for a minimum of £12.5m per season, and not £10m per season as you stated, it was actually £15m last season as bonuses kicked in for Champions League related performance, you obviously failed to take into account the fact that Spurs have different sponsors for their League games Aurasma and their Cup games Investec.

  15. one thing that wasn't mentioned in the above article was the possibility of a groundshare with LFC. since we clearly need a new stadium would this be the best option for us? not easy for lots of supporters, on either side, to swallow, and would clearly be more to evertons benefit than liverpools.

  16. @Sumpo (4:10),

    You're right. I decided to only include the main sponsorship deal for the comparison, though I could easily have added in the Investec deal too. I mentioned this in a piece on Tottenham last December:

  17. Blimey, impressive; have you taken this from a dossier on Everton? Have you access to a sale proposal? Are you Keith Harris in disguise? Can you help us? So many questions left unanwered......

  18. excellent read, but yet very worrying also.

    The worst thing about this board is the way they hide away like cancelling the AGM and refusing to put a price on our great club.. Bill true blue ha ha if only

  19. As an Evertonian and long standing season ticket holder this makes very depressing reading

  20. very clear and well laid out. My only comment would be this: since we have now removed 13m+ from the wage bill (Arteta, Yakubu, Yobo, Vaughen, Beckford)how does this figure into everything? Ive read last year we made 80m but spent 85m. Surely with this massive decrease in the wage bill things are looking up? Plus the new deals (albeit small deals) with crabbies, best buy and big cola (from the far east, think the name is correct).

    Does this not give us a silver lining for the future, or a least a glimmer of hope?

  21. By not including Tottenham's shirt deal with Investec, you are actually giving distorted and misleading facts, you are by the very nature of comparison trying to compare clubs sponsorship deals, but for some reason you have decided for you're own reasons to leave out £5m of Tottenham's SHIRT Sponsorship money, that is hardly a fair comparison is it.

    So you are in fact giving the total shirt sponsorship deals of every club, other than Tottenham's, are you an "Arsenal fan" by any chance.

    Apart from the above, I must say you're articles are generally excellent reads, and usually give a very accurate insight into a clubs finances.

  22. Everton are tragic!

  23. @Sumpo,

    Well, I did acknowledge the point in my previous response, so I'm not sure why you're still so agitated.

    I'm also a bit puzzled why you would want to include the performance-related bonuses for the Champions League in a table relating to 2011/12 deals, as I believe that Spurs are competing in the Europa League this season.

  24. @Matt the Toffee,

    Yes, the wage bill will come down, though probably not in the 2010/11 results, as this will be more impacted by the new contracts handed out to players.

  25. And don't Switzerland have a very friendly tax system?

  26. If I accept your financial analysis on a scale of one to twenty ( representing the premier league) where would you put Everton. I ask this because there are good and bad points sandwiched in this article and I can't decide if our boars are cheating liars as the Blue Union would have us believe or simply struggling in a very competitive market in a world recession? Where are between 1 and 20?

  27. I dont really get this. Lots of concentration around the poor state of affairs that Everton are in and that there are losses year on year, but then you show that Everton actually run far lower losses than most other clubs. The key question is this: What is the aim of a football club from a financial perspective ? Football clubs are not like normal businesses. The aim of a football club is not to make profit. This may seem unusual, so i'll explain. If Kenwright and the board were making a profit then the same supporters who are up in arms because we are running close to the breadline would be up in arms that we are making a profit and not investing it back in the team. The only thing that the board can do at the moment is to manage the clubs finances as tightly as possible to the extent that our revenue will allow and that is exactly what is being done. The only way we can get around this is by having investment from a rich footbal fan who isnt trying to make money. I'm not pro the current board, but I am a realist. The board are running close to the breadline, we all know that, what else do we expect them to do ? Drop wages and sell players and make profits year on year? Would we all be happy with that ? I dont understand the surprise element of this article - surely we all knew this ?
    Finally, concentrating on accounting profit / loss doesnt really make a lot of sense with football clubs due to the significance of amortisation and depreciation.

  28. How do Bolton Stoke manage !!!with there wages etc !!

  29. Excellent. One of the best blogs there is!

  30. It was interesting to note that our mysterious 'other operating costs' are similar to Spurs and Villa.
    Seeing as our Chairman doesn't know / won't say what this 25% of revenue represents is there any way to obtain that information from Spurs of Villas accounts?
    Also what percentage of their revenue does this represent? A much smaller % than Everton's I would guess?

  31. @Anonymous (8:23),

    The level of detail provided for Operating Costs in the Tottenham and Aston Villa accounts is the same as for Everton, i.e. hardly anything. Every football club uses pretty much the same format, so there's nothing suspicious here.

    The figures for percentage of revenue are actually included in the chart above, though admittedly they are difficult to read. Everton's other operating expenses are 30% of revenue, compared to 28% for Villa and 23% for Spurs. My view is that they are on the high side, but nothing too out of the ordinary.

  32. Depressingly good article that needs to be read

  33. If we are comparing other operating expenses to Villa & Spurs we need to consider that these teams have in-house retail operations rather than out-sourced.
    To be comparable we would need to add a further £7m to Everton's figures which would make them astronomic rather than just high

  34. Apologies we need to add £10m to other operating costs not £7m (I forgot the £3m profit.

    Even worse

  35. No, back to £7m additional (£3m is income not expenditure)
    Apologies, there's a reason why Swiss Ramble does this blog & not me!)

  36. Many clubs are in a similar position to Everton,most obviously Villa and my team Newcastle. Newcastle are going for option e investing in youth, not a popular short term strategy!

    My worry is that some time soon there will be individual rather than collective TV deals. When that happens we might as well all give up and start supoorting local non league, at least it's competitive......

  37. this is the most brilliant - and horrifying - articles about everton i have ever read. i'm literally aghast - i did not know our financials were THIS bad - that we need nearly 500M to turn the club around.
    thanks for the effort, but maybe i was happier in my state of blissful ignorance.

  38. Swiss Rambler,

    I am absolutely staggered by this article. I am staggered that someone who clearly knows his way around a set of accounts and has a wealth of information available to him, spends most of a very long article focussing on the most uninformative areas of finance.

    Don't get me wrong, you clearly have a successful formula that you stick to, evidenced by the repetitive graphs below and you've obviously put the effort in but, in my opinion, you’re spending way too much time analysing areas of the accounts that are meaningless.

    Financial statements are of very limited use when analysing a company's performance, so why spend so much time talking about PBT which includes an abundance of non-cash items: depreciation, amortisation, deferred revenue releases etc etc?

    You discuss EBITDA, debt and net asset quality (which is what you should be focussing on) for three lines out of 15+ pages.

    Furthermore, I've never understood this football-manger-like obsession with 'net spend'. What does it show? It takes no account of money spent on wages, agents' fees signing bonuses etc. Since Bosman, assessing a club's expenditure using that metric is void. A championship team could spend £10m on one striker and have a net spend of £10m but still spend less money than a team signing 10 Bosmans players from Barcelona. Net spend ignores this.

    Your analysis of revenue generated on matchdays has no mention of the demographics driving those numbers. Fantastic that Spurs generate so much money from ticket sales but you don't mention the fact that some of their season tickets are 3x the average Everton season ticket and their fans all live in the Home Counties. Everton can never correct this.

    You saved some of the worst stuff till last though, "The only way Everton can manage to pay [the debt] is by increasing its bank debt." Where did that come from? and how do you think the banks justified lending money to a football club to pay its interest? You'd actually done the correct piece of analysis earlier in your article but then ignored your own words.

    The real answer is that, despite claims of fiscal responsibility from the Everton Directors, they let the manager get carried away over the last few years. The money being spent on wages has been ridiculous. Everton should not be in the business of paying Mikel Arteta £75k p/wk, or nearly £4m per year. This is the real reason for the increase in debt, which has driven a decline in operating EBITDA (ignoring player trading) from £8.1m in FY09 to £900k in FY10.

    You're analysis of potential purchase price and the Lescott debacle is flawed too but I suspect I've run out of space by now. I'll respond to that another time.

    You've created a successful blog, largely by having an understanding of finance beyond that of the average football fan. However, your blog gets read by lots of people now, some of which do understand how to analyse a company's performance. Time to raise the bar.



  39. SR, would you care to explain why my previously submitted comments were removed please? Is it that you only post the compliments?



  40. @Richard,

    Blogger automatically classified your first comment as spam, presumably because of its length. i only ever remove comments if they are abusive and while yours could be described as passive-aggressive, it did not cross that line.

    My basic response is that you have misunderstood the purpose of my blog. It is not intended to act as a broker research report, but something that can be easily understood by the average football fan. If that irritates a few finance gurus, then so be it.

    In your desire to criticise, I must admit that I find some of your points a little confused, not to say contradictory.

    First, it is obvious that I have spent more than "three lines" on EBITDA, debt and asset quality. In particular, your own conclusion that the "real answer" , namely the declining EBITDA, was very clearly mentioned.

    Another one of the primary reasons behind the deteriorating finances that you highlighted, namely the huge increase in wages, was also covered in depth. incidentally, that was part of the PBT analysis that you deride as being "of very limited use."

    You are right that I did not mention the demographics affecting match day income, though that just highlights another challenge for Everton. I would also note that this issue does not prevent Liverpool earning twice as much revenue here.

    On the debt, I'll break it down for you, so that it's hopefully easier to understand. Everton have around £25m of securitised debt via the 25-year loan with Bear Sterns being repaid at £2.8m per annum. As the club does not generate enough cash flow to cover this, it has had to effectively increase its bank debt to repay its securitised debt. And other costs, of course (back to that useless P&L again).

    You're quite correct that net spend on its own is not that useful a metric, which is why I spend so much time looking at other measures, so that a full picture is presented. In the case of Everton, it is obviously relevant to the discussion, as many fans are upset by the lack of spending, so these figures put meat on that particular bone.

    That's another example of me targeting this blog at football fans, as opposed to focusing on the investment banking community.

  41. I'd be interested to hear your thoughts on there being downward pressure on wages in the near future. If Everton are not unusual among their non-Big Four peers and the financials are this dire then you'd think that wages for players not going to one of the big teams would have to start reversing. Is the patience at clubs like Fulham or Sunderland (or West Ham) to keep spending without winning anything endless? That seems to be the fundamental flaw in the system right now.

    Seems to me that a potential solution that you didn't mention is the FA creating some domestic version of FFP that limits clubs with little potential for Europe from spending more than a certain percentage of their turnover on wages and transfers.

    Great stuff as always.

  42. Thank you for another great article.

    However, there are a few aspects that elude my understanding.
    Over the six years covered in the P&L table Everton made a loss of just 7 mln (all numbers rounded).
    The Cash Flow table states a loss of only 1 mln before financing over the same period.
    But then the debt rose by 25 mln in those six years. Where did the money go?

    My befuddlement got even bigger when I realized that the profits from player sales (a staggering 60 mln) does not appear in the Cash Flow calculation. Instead(?) I find 30 mln cost for 'player registrations' (I would also appreciate a clarification on the meaning of that term).
    Furthermore Instead of a cash influx of those 25 mln new debt mentiones above I seem to find a repayment of loans of 10 mln in the period in question!?

    Altogether it just doesn't add up for me, which is surely my fault. I must be comparing apples with pears somewhere. Please enlighten me, if you would.

    That said, I love your articles and would really like to read more about the Bundesliga. Hoffenheim with Mr. Hopp could be just as interesting as Bremen, having overplayed their financial hand for so long, or Hamburg, a club that doesn't seem to make the most of its money.

    But whatever you write about, just don't stop!

    Greetings from Germany

  43. Is that all we get about £4 million per year from Chang Beer! That's awful that, we need to defo be lookin to improve our commercial revenues.

  44. A great article, I just wonder whether a big club will actually go bust soon, Pompy was close! These levels of debt are not sustainable. You just wonder what would happen to Everton if the manager was offered another, dare I say it, better job. I look forward to your next post

  45. Have to comment to agree with Richard I'm afraid. This article is an excellent summary of all the different stats out there concerning Everton, but is not particularly helpful or insightfil in the way those stats are being analysed nor where the emphasis lies. Unfortunately, there are lots of fans who will now pick up on your concentration on the P/L and think we really do need to sell £20m of players each year just to break even which is, I'm afraid, just not true.

  46. @German Anonymous (11:06),

    Thanks. I'd like to take another look at the Bundesliga soon.

    The reconciliation between the cash flow and the P&L starts with operating profit (the blue shaded line in the P&L table), excludes the non-cash items, i.e. amortisation & depreciation and is then also adjusted for movements in working capital.

    Player movements are reported differently in the P&L and cash flow statement. If we take 2010 as an example, the profit on player sales shown in the P&L was £19.0m, while net player registrations were £(3.5)m. The latter comprises two movements: proceeds from player sales £24.5m less purchase of players £28.0m.

    The profit on player sales in the P&L represents the £24.5m proceeds from player sales less the net book value of those players in the accounts, i.e. original purchase cost less amortisation to date.

    The £28.0m cost of purchasing players is not booked 100% in the P&L on purchase, but is amortised over the length of the players' contracts. If those players were signed on 4-year contracts, then the amortisation would be £7m a year.

    It's a little complicated (unless you're an accountant), so I hope that makes sense!

  47. @Neal Thurman,

    Yes, soaring wage bills are one of the biggest issues facing all football clubs at the moment, not just Everton.

    The Football League has already implemented a salary cap in the lower divisions and has announced the introduction of a domestic version of FP for the Championship, so it's not beyond the realms of possibility that something similar would take place with the Premier League, though they have shown little appetite to date.

  48. Very useful article indeed. Instead of just thinking of a single rich benefactor/sugar daddy to come in and basically start underwriting Everton's debt (which like you say is the difference between us and some other clubs) what do you think of a rights issue to fans? I think this would be a way of tapping into the resources of the high number of displaced Evertonians, particularly in London and the South East who may not get to many games but have financial resources. I think you'd be surprised how big this diaspora actually is.

  49. SR,

    Thanks for replying. I think it’s a great idea to address your blog to regular football fans rather than bankers. However, I don’t agree that this means you can write fundamentally misleading articles. Before, I go on, I don’t think you’ve done this intentionally and I have a lot of respect for your page but on this occasion your analysis is flawed. Here’s why:

    “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………That would mean cutting the wage bill by nearly 30% to £39 million.”

    I’m sorry but that is nonsense.

    You are talking about Everton cutting their costs in order to make their accounting profit ‘breakeven’. Why in the name of all that is holy would anyone do this? Why have you not pointed out that ‘cash is king’, accounting profit is meaningless and that Everton is a cash positive business (from a normalised operating perspective)? Furthermore, the accounting profit recognised on Lescott was substantially reinvested in the squad anyway, which again gets ignored by concentrating on PBT.

    The real reason we’ve increased our debt is by overspending on wages, and spending the little remaining operating EBITDA on some small signings, re-signings and then some.

    Also, thanks for making the debt ‘easier to understand’. Perhaps how you can explain how you came to the conclusion that we needed to borrow in order to pay £2.8m of interest, yet we didn’t need to borrow in order to pay £54m of wages, £23m of operating expenses or the capital element of our debt repayments (which also gets ignored when you only look at the accounting P&L)?

    There is no chance you can conclude that our debt has increased for this reason. Much better to focus on the large elements of our cash flow, noted above, or just not conclude at all.


    Richard - on behalf of the investment banking community ;-)

  50. @Richard,

    The line about achieving break-even is obviously not "nonsense", as you put it, for the very reason that you yourself give in your next paragraph. I was clearly referring to an accounting profit break-even, which should be evident to anybody.

    While I do agree with you that "cash is king", I would make two further points on top of my previous response.

    First, the technical one, which is that ridiculous terms like "normalised operating" cash flow are the sort of terminology that gives the investment banking community a bad name. Cough, * Lehmans, SocGen, Merril Lynch, UBS *, cough.

    Second, Everton are only cash positive until they: (a) pay the loan interest and, yes, the capital element of the debt repayment; (b) buy any new players, which, after all, is a fairly fundamental part of a football club's business.

    I never said that the club does not need to borrow in order to pay the wages or operating expenses. That is a ridiculous thing to suggest, when in the section on debt, I actually stated, "The debt has been rising because the club has been spending money that it does not have on strengthening the team."

    That was a reference to the fairly lengthy earlier section focusing on the wage bill and operating expenses when discussing the "meaningless" accounting profit, which I did not want to repeat. At the risk of stating the blindingly obvious, these are key elements of both the P&L and the cash flow statement.

    If you don't see that, then I'm not sure that I can help you.

  51. SR, Thanks again for the response. And thanks for the kind offer, but I’m not after your help.

    I’m not sure how the term ‘normalised’ got investment bankers a bad name. I’d say they did that on their own by securitising lending to people without jobs in Texas.

    Since you’ve taken a dislike to ‘normalised’. I’ll explain it a different way. You haven’t mentioned anywhere in your article that, ignoring accounting profit from player sales, amortisation, depreciation, interest and tax, that Everton makes a cash profit.

    In 2009 it was £8m+ (more than enough to pay the remaining interest charge) but in 2010 it had declined to less than £1m. This was driven by an increase in wages and other operating costs. The sale of Lescott is irrelevant. The interest on the debt was irrelevant.

    Therefore, Everton does not need to sell players to survive, nor does it need to reduce its cost base to replace the sale of Lescott. Your analysis is misleading.

    The current round of player sales and wage decreases that we’ve seen is obviously as a result of a credit restriction. Much the same as every other business on the planet.

    Seriously, step away from the accounting analytical review and concentrate on the cash. Your blog will be richer for it.



  52. I just need to express that the sheer narcissism Mr Richard is displaying. I'm sure somewhere in "How to be an Asshole for Dummies" is the idea of taking something excellent for free and then throwing it back because its not good enough for them.

    To the Swiss Rambler, i hope to speak on behalf of all the silent majority who love the work you continually do but don't comment on this enough. Please continue with the brilliant analysis and don't let the others bring you down.

  53. Dear Anonymous (7.03 am),

    Well done for coming to SR's defence but surely he's big enough to defend himself? Which, of course, he has done (admirably).

    If you disagree with anything I've posted then feel free to explain your point of view.

    As you will note from our above exchange, despite a difference of opinion, the discussion has been civil. 'Robust dialogue' is the term often used to describe such an encounter. Which is how it should be.

    I look forward to hearing the view of someone who enjoys calling a person he's never met an 'asshole' and narcissistic whilst hiding behind his PC.



  54. Richard does raise a significant point Swiss. Credit is due for a finely crafted piece of work but does this all boil down to the old story of £20mn in the red being down to contract amortization - a figure which is fantasy accounting in the first place?.

    In cash terms does Everton face the need to find an extra £20mn per season to pay the bills and keep the club in business or not?. When the wage bill amounts to £54mn; other expenses amount to a, now infamous, £24mn and interest on loans is in the single-digit territory you'll understand that it is difficult, for the layman, to see where the £20mn shortfall comes from?.

  55. Steve,

    That is precisely the point. Based on last year's accounts, which are now nearly 18 months out of date, excluding the net cash flow from player sales, Everton generated £968k of EBITDA.

    Unfortunately, this wasn't enough to service our debt, which is why we've seen some player sales and wage reductions.

    It's important to note that we got into this position from the previous year's operating EBITDA figure of a relatively healthy £8.1m which even included £1.3m of Kirkby costs (you could argue to strip these out).

    From 2009, wages increased by £5.2m and operating costs increased by £1.3m.

    This was ultimately our 'undoing' so to speak and why you'd have to question the sense in giving Arteta £75k p/wk.


  56. @Steve,


    I did include a commentary (and graphic) on the club's cash flow statement, but appreciate that this is a little technical for the layman, so I'll try to explain.

    If we take 2010 as the latest example, Everton's operating loss was £17.7m. As you say, that included player amortisation and depreciation of £18.7m, which are shown as non cash flow expenses in the profit trend graphic above. In other words, if these items are excluded, then Everton have an operating cash profit of £1m, which is shown as EBITDA (Earnings Before Interest, Taxation, Depreciation and Amortisation).

    So far, so good, but there are still a few issues here.

    Everton's EBITDA has been on a declining trend, partly because of the lack of revenue growth, partly because of the growth in the wage bill, in particular falling from £8m in 2009.

    Although important, EBITDA as a measure cannot be looked at in isolation, as buying footballers is clearly part of the normal business of a football club, so you must also consider this cost somewhere.

    As the great investor (and third richest man in the world) Warren Buffett once cautioned, “References to EBITDA make us shudder. It makes sense only if you think that capital expenditure is funded by the tooth fairy.”

    If we now turn to the club's cash flow statement, we can see what the club's operating cash profit is used for. First, they have to pay net interest of £4.5m, meaning that Everton is cash negative before buying any new players, though admittedly only £3m. They then have a net spend on player registrations of £3.5m, leading to a net cash outflow of £6.5m.

    Clearly, this loss is smaller than the accounting loss, but the point is that they cannot buy any new players unless they sell. This was perfectly illustrated in 2010, as the net player registrations of £3.5m actually consisted of £24.5m proceeds from selling players less £28m cost of purchasing players.

    So, to answer your question, assuming that they sell no players, Everton would have to find at least £22m savings for an accounting break-even and £3m savings for a cash break-even. Of course, this also assumes that the club buys no new players.

    I hope that makes it a little clearer.

  57. "So, to answer your question, assuming that they sell no players, Everton would have to find at least £22m savings for an accounting break-even and £3m savings for a cash break-even. Of course, this also assumes that the club buys no new players."

    I couldn't agree more. Everyone can rest easy now.

    SR, thanks for replying to mine and everyone else's posts. Also, keep up the good work on your excellent blog.



  58. @Richard
    No, you're just being an asshole plain and simple. When you want to give constructive criticism and feedback you should say: "Hey, thanks for your FREE work, i like xxxx but i suggest yyyyy and would consider you to change zzzzz." You do not say "Time to step it up", as if you're someones boss and you're paying him a salary.

    It's not so much you're opinion on how the piece should be written, everyone needs feedback, it's the way you've presented it. I recommend you view this perspective at least.

    As for Everton its extremely simple, they're a small to medium size team who are moderately well run and who are starting to live slightly above their means in the form of wages. The reason they do this is because they know a higher wage bill wins you more matches and they, as all the supporters, want to win more match, done.

  59. No Swiss....that makes it a great deal clearer.

    I can now put my shoes and socks back on as the need for my version of advanced mathematics has now abated :)

    Sincere thanks for the patience and clarification.

  60. The false dichotomy equation peddled once again:

    (Everton) (+) miracle working manager (-) awful board = current mess.

    The assumption is that no-one, other than David Moyes, could have done a better job in the last 10 years. Also, everyone other than David Moyes would automatically have done a worse job.

    Tell me, how much more money, how much additional profile, how much more attractiveness in terms of being bought, would Everton have achieved in the last four years alone had the manager been more ambitious in key games?

    I highlight just four:

    *Chelsea away (Carling Cup semi-final 2008)

    * Fiorentina away (Europa League 2008)

    * Chelsea (FA Cup Final 2009)

    * Sporting Lisbon home (Europa League 2010).

    All four of these pivotal games were surrendered because of the manager's negativity, not because of boardroom constraints.

    * Chelsea were down to 10 men in the Carling Cup tie, Moyes sat back at 1.1. Result - Everton lost 2.1 on the night and the tie was as good as over. Next level chance blown.

    * Fiorentina were not as good a side as Everton - in my opinion the best team potentially in the Europa League that season - but for some reason David Moyes introverted his tactics in Italy and the tie was effectively surrendered that night. The trophy was there for the taking, as Zenit, who beat Rangers, who beat Fiorentina, proved. Next level chance blown.

    * After labouring to a 0.0 draw in the semi final against a Manchester United reserve team, Everton were given a gift from heaven after 26 seconds of the FA Cup Final. Chelsea were reeling. David Moyes sat back. The rest was painful. Next level chance blown.

    * Everton were cruising 2.0 at home to a clearly inferior Lisbon and were threatening to score a tie-killing third. Instead David Moyes sat back. A killer away goal was conceded. The tie was psychologically over. Next level chance blown.

    David Moyes has been a good manager. He has taken Everton to a higher level than had been experienced for quite a while. He could have taken us to the next level, though. Too many assume that the next level is qualifying for the Champions League.

    No, the next level is and has been achievable by Everton. Winning trophies that were there for the taking. Thus raising profile. Thus increasing revenues (every penny counts at Everton). Thus increasing investment attractiveness.

    Everton's board has a lot of questions to answer. At the same time, though, so does David Moyes, who has been supported by that very same board with money we don't have (there's +£30m wrapped-up in Fellaini, Heitinga and Bilyaletdinov).

    The board and David Moyes are as good and bad as each other - in equal measure.

    Yet received wisdom is that David Moyes has worked miracles and the board has strangled his ambition.

    Until it is accepted that the truth of Everton's malaise lies somewhere between Devil Kenwright and Saint Moyes, then only half of the real story will be portrayed.

    David Moyes' very creditable league placings over 10 years have been offset by a truly appalling record in the domestic cups.

    I understand that there are greater cash prizes for finishing 5th than for winning the Carling, FA or Europa League trophies.

    But what prize profile?

  61. If anyone is curious, Everton actually post their financial report on their website at he end of the year.

    The numbers in this article match the numbers I pulled back then. The board are nice people, but not businessmen at all.

    And the amount of commercial revenue is dreadful, but it's hard to convince people you're a viable marketing outlet when you're second fiddle in a depressed city.

  62. excellent as always. I am an Aberdeen fan, for my sins in a past life, i would love to see a piece regarding my club, I am sure it would cheer all the Everton fans up.

  63. This is a very detailed and technical article beyond the understanding of lay people but if you are knowlegable of mergers and acquisitions and valuing companies then maybe you can comment with authority. Sadly my knowledge is limited so I won't offer a critique but there are good points here.

    The big problem for Everton is not enough liquidity. They have to keep borrowing but don't have the revenue to make the business viable. They can't even keep up with Villa or Tottenham. I would like to see perhaps more comments on how Villa and Tottenham manage to spend so much, presumably they are bank-rolled as well.

    The peoples club is just that loved in the city, admired by many traditional english fans but unknown beyond these shores except for those who recall 1985 and Rotterdam. Sadly football fans are too emotionally involved to see things clearly and thrash about in the hope that something will come up like a rich benefactor. However, do Evertonians really want to sell their soul to some rich individual? Man City have, the day they took the petro dollars Man City died what's on the pitch now is a bunch of rich footballers, mercenries who play for the riches offered. They have no integrity, this isn't Man City its a doppleganger - City in disguise.

    Back to Everton quite honestly the game is up once Moyes walks and he will its relegation. When even Stoke and QPR can muster more money than Everton you know its bad - the richest club in England in the 1960's - how many times have they broken the transfer record? has been reduced to a shell. Sadly Evertonian dreams died on the tragic night of Heysel in 1985 - rather ironic but not lost on Evertonians.

    Even if some rich benefactor was in the frame he could pick many other clubs across Europe in more advantageous and economically better positions. Sadly Liverpool is a city with real economic problems any business partner or investor will factor that in.

    Finally no mention of the ground share or not any detail - given that Liverpool fans inadvertently helped wreck the dreams of Evertonians it might be a form of coming together to go for a ground share - humility on the part of all sides 'love thy neighbour' show a solidarity in adversity and help one another. It's crazy in the current state of the economy to talk about stadiums - show the world that scousers can put aside petty differences. It would send a positive message out at a time when there is so much doom and gloom in the world.

  64. Swiss Rambler, as I expect you are aware already, Everton have now published their last year's accounts.

    Any chance of a quick update from you on them?

  65. the differance with these owners are its not only bill who is not putting money in what ?? about the others elstone greggs and the rest the grantchesters they seem to be at each others throats so no money goes in .thats the way i see it .. now we are too much in debt and no one can help .

  66. Great article! Thank you! I was sent here by a fellow Evertonian, and I am very glad I have read this.

    Everton have just released their accounts for the season 2012/2013. May I ask if you plan to conduct any analysis of them? There would be very many 'Toffeemen' eager to read your conclusions, and I'd be very happy to recommend any such articles for fellow Evertonians to read.

    Thankyou. An excellent piece of writing.

  67. Excellent! Many Everton fans are aware of the imminent financial problems that the club faces and the less than professional manner in which it is being run and run-down, without any clear strategies of success, either sporting or financial.

    Accounts for the 2012/2013 have recently been published. May I ask if you plan to conduct any analysis into them? There are very many fellow 'Toffeemen' who would also be very interested in the conclusions you might draw from them. Many thanks for your excellent work here.


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