It’s been a difficult week for Evertonians,
after a season that promised so much; we’ve seen a strong Christmas position in
the top 4 and a great FA Cup opportunity disintegrate into nothing. My wife detests football and can’t understand
why I spend so much time and energy around the beautiful game. Sometimes I have to wonder myself.
Everton Football Club to many outside of
the UK is – ashamedly – relatively unknown.
In my professional career, I meet people from a breadth of different
cultures and nationalities many of whom are sports fans, yet when it comes to
the conversation of my big sporting love, I’ve lost count of the number of
times I have had to explain who and where Everton Football Club are. Yes, really.
And, it never ceases to amaze and disappoint me when Italians,
Spaniards, and Germans (in particular) question me as to what division we play
in.
When I left Liverpool to study at the age
of 18, Everton had just won their 5th and last FA Cup (maybe I should move
back). We had experienced a difficult
decade following one of the club’s most successful periods during my
informative footballing years in the mid-1980’s. As a young boy educated by a Father who had
watched and marveled at the School of Science teams of the halcyon days of the
1960’s, I simply assumed the FA Cup, League titles and European trophy that
were collected by the all conquering teams of the mid-80’s was just the way it
was. Oh boy, what a wake up call my
twenties and thirties have been!
Never a media darling, but one of the top
four English league clubs, a founder member of the Football League in 1888, whose
first league title followed shortly after in 1890/91 when playing at Anfield
(Yes, Anfield. Liverpool FC didn’t exist
until a year later due to a falling out between Everton FC and the greedy
landlord who tried to capitalise on the newly crowned Champions’ prize money by
hiking up the stadium rent). A rich trophy
laden history followed as the club wrote itself into the history books time and
time again, innovating as well as winning, and building one of the largest and
most localised fan bases in the country.
So, where did it all go wrong? Once
known as the Mersey Millionaires and arguably THE biggest and most successful
club in the country during that period, how did a club at the top of the
English game in the mid 80’s see such a meteoric decline in fortunes over the
next twenty years?
There are a number of answers to this
question, especially in terms of what many Evertonians see as the route cause,
but factors have continued to conspire against the club in the last two decades
and despite David Moyes celebrating eleven years at the helm today, many –
myself included – feel that the man dubbed “The Moyesiah” and credited with
keeping Everton in the top division (the longest serving club in the top
division by the way), should step aside.
However, it is the board and not the manager who must be blamed for
Everton’s inability to re-establish themselves as a top club capable of
competing regularly for trophies. At 18
years, this is technically the clubs most barren spell without a trophy. I say “technically” because Everton were
champions in 1939 before the World War I and held the mantle until 1945 when
the league resumed post war. The club
never won another trophy until once again clinching the league title in
1963. Up until 1990, Everton were second
only to bitter rivals Liverpool as the countries’ top team. Only Arsenal and Manchester United have
surpassed The Toffess during the Premiership years. I slightly labour this point because with the
dawn of the cash laden years of football has come a tendency for the media and
football pundits alike to completely rewrite the football history books.
The current board acquired the shares of
Everton Football Club in 1999 for £20 Million and lifelong Evertonian and
Chairman, Bill Kenwright commented “If you are going to run a successful
football club you need two qualities: you need to be realistic and you need a
plan. I'm realistic and I have a plan."
Well Bill, we’re still waiting for the plan and as far as “realism”
goes, I’ll come on to that in a minute.
At the time the board acquired Everton Football Club, there was no debt
and a strong list of fixed assets on the balance sheet.
Today, the club may temporarily be in a
healthier league position but its finances and balance sheet have literally
been torn to shreds. The one time Mersey
Millionaires haven’t got a pot to piss in, and whilst Everton can’t rub two
brass farthings together and add to the smallest squad in the top division,
smaller clubs merrily splash the cash strengthening their healthy sized squads.
That brings me to the point of
realism. This week, ex-Red Stan
Collymore, focused on why Everton – such a big successful historic club – had
not been bought during his evening show on Talk Sport. It was suggested, following information
provided by an “unknown source” at Everton, that board were seeking an amount
close to £125 Million for the club.
The obvious question being “how can the
board realistically believe the club should be valued at £125 Million when
Aston Villa was valued at c. £63 Million, Everton has run up debts to the tune
of £44.2 Million, disposed of assets, and added liabilities to the balance
sheet?”
If we look at the Corporate Finance of it,
the numbers don’t immediately appear to stack up. The latest P&L accounts show that Everton
added -25.9% to the total debt between 2011 and 2012 due to a loss of £9.1
Million. Although total turnover only
reduced by -1.8%, commercial revenue dropped by -34% year-on-year, whereas Gate
Receipts and Broadcasting revenue remained within a -4% 0% range. Intangible assets, specifically an ageing
playing staff, will naturally reduce year-on-year unless new assets (players)
are brought in to offset the annual amortisation. The change between 2011 and 2012 was -23%,
which is quite substantial given there was no major net gain on transfer
fees. So, then, what is it the board
believe warrants a 525% return on their initial investment, thirteen years
on? The only feasible story can be the
new BSkyB money due to be paid to all Premier League clubs for 2013/14. The bottom placed team is reportedly likely to
earn an additional £60 M, more than Champions Manchester City received in prize
money last season. This will, as was
reported on Stan Collymore’s show, “wipe out the debts of all the major premier
league teams”.
So, there is an up side to Everton’s
plight. Well, not quite, because if
every team sees substantial new revenues, they all have the ability to invest
and strengthen their squads, whereas Everton’s board will more likely be
concentrating on solving the “millstone” around the clubs neck, as the board
have allegedly described the Grand Old Lady, Goodison Park.
Again, turning to Corporate Finance. Let us assume that through the new Broadcasting
windfall Everton is able to wipe out the debt and make an operating profit (EBIT)
of say, £15 Million. Valuing a company
is and can be a very complex process and yield a number of different outcomes
depending on the view taken. However, a
very simple back of the fag packet calculation that is sometimes applied is
EBIT multiplied by a factor of 8, or a similar number. Taking an EBIT of £15 Million for 2013 with
no debt (but shrinking assets), this gives a figure of £120 Million. However, a shrewd negotiator would look for a
substantial discount off that value given the lack of fixed assets, and the revenue
problems created by the Grand Old Lady.
Therefore, the board and Kenwright in particular may have arrived at
what they believe is a sensible valuation based upon future cash flows, but
many would view it as “unrealistic”. So,
Bill, if you are the greatest Evertonian out there, convince the board to be
more realistic in their valuation, forgo the greed of a 525% return on
investment, and drop the asking price to a sum that will see a “worthy”
investor take over and start the work of re-establishing EFC as a force. An investor with just a little business nowse
will be able to work wonders on the commercial revenue almost immediately. Nil Satis Nisi Optimum.
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