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A poor financial record, but new hope at Everton

I recently saw an amusing video online in which a group of Everton fans were rebuked in jest for being hopeful.  Football fans in general tend to swing between excessive optimism and excessive pessimism, but for many it seems that moaning is in their bloodstream (Spurs fans probably take the trophy).  However, Everton fans have had plenty to moan about on and off the pitch.   Let’s hope that a new era is about to begin for this grand old club.

Everton’s 2023/24 financial results covered a fairly momentous season, when they ended up 15th in the Premier League, though they would finished three places higher if they had not received an 8-point deduction for breaching the Premier League’s Profitability and Sustainability Regulations (PSR).

It was a worrying time for Everton fans, as the club faced a “perfect storm” of issues, including large financial losses, an ever increasing debt burden, a challenging stadium build and the tortuous sale of the club. There were even reports that the club faced a threat of going into administration.

Farhad Moshiri bought just under 50% of the club in February 2016, then increased his stake to 94.1% in January 2022. While the signs looked promising in the early days of his tenure, it’s fair to say that things did not go so well in the latter stages of his ownership.

Dan Friedkin is clearly cut from different cloth, having already demonstrated his willingness to invest a great deal of money into AS Roma. In fact, the American businessman has to date provided more than €700m to the Serie A side.

Everton’s pre-tax loss in 2023/24 reduced by £36m (40%) from £89m to £53m, which the club said represented “a year of financial progress”.  Revenue rose £15m (9%) from £172m to £187m, while profit from player sales was slightly up from £48m to £49m. In addition, operating expenses were cut £23m (8%) from £303m to £280m, though net interest payable climbed from £6m to £9m.

The revenue increase was driven by broadcasting, which rose £13m (11%) from £116m to £129m, though gate receipts also increased by £1.8m (11%) from £17.3m to £19.1m. Commercial was slightly lower, falling £0.4m (1%) from £38.9m to £38.5m.

Scale of losses

Everton’s £53m pre-tax loss was still one of the largest in the Premier League with only four clubs doing worse last season, namely Manchester United £131m, Aston Villa £86m, Bournemouth £66m and Liverpool £57m.

Everton have lost money seven years in a row, adding up to a staggering £566m. The good news is that their deficits have been smaller in the last three years, though the total loss was still a hefty £181m.  That said, this still represents a significant improvement over the preceding 3-year period, when the aggregate loss was more than twice as much at £373m.

To Illustrate the magnitude of Everton’s poor financial performance, their £553m loss in the last six years was the worst in the Premier League, far above Aston Villa £411m and Manchester United £330m, though Chelsea would have been a little higher than the Toffees if their asset sales were excluded.    Even after the improvement in the last three years, their £181m loss in this period was still the fourth highest in England’s top flight, so the message is unequivocal: Everton lost a tremendous amount of money under Moshiri.

One of the reasons why Everton have narrowed their losses in the last three years is a steep improvement in player trading, leading to profits of £164m, which was more than twice as much as the £74m that they made in the preceding 3-year period.

Everton’s figures have been hit by over £122m of exceptional costs in the last nine years, including £10m last season for refinancing of debt facilities and legal fees incurred for defending the club at the PSR hearings.  There was £50m paid out for changes in management, with another charge due to be booked this season after Dyche’s dismissal.  Looking at last season, only two clubs had higher exceptional charges, namely Manchester United £48m (expenses related to the club sale) and Sheffield United £25m (impairment of assets).

In the last six years, Everton reported four of the 20 highest ever operating losses in England, ranging from £144m in 2019/20 to £118m in 2020/21, so their PSR problems should not really have come as a great surprise. 

Due to the lack of growth, Everton’s £187m revenue is now firmly in the bottom half of the Premier League, having been overtaken by the likes of Crystal Palace and Nottingham Forest with £190m apiece.   They were miles below the elite clubs, e.g. around half a billion Pounds less than Manchester City £715m and Manchester United £662m. Perhaps more relevantly, they have also been significantly outpaced by Newcastle United £320m and Aston Villa £276m.   Everton fans will hope that their own change in ownership will be a precursor to similar growth.

The club has now raised ticket prices three years in a row: 2022/23 saw the first season increase for seven seasons; while there was also a 10% rise for adults in 2023/24 and a “modest” uplift this season.  This was not great timing, given the cost of living crisis and the poor performances on the pitch, but the club felt that this move was justified, as it said that season ticket prices were among the lowest in the Premier League.

Everton’s 39,042 average attendance was just about in the top ten in the Premier League, but seven clubs regularly attracted crowds above 50,000, led by Manchester United’s 73,354.

Bramley Dock

Much of Everton’s debt has arisen due to the investment in the new 52,888 capacity stadium at Bramley-Moore Dock, which could be a game changer for the club, when it opens at the start of next season.

Revenue will be significantly boosted by the capacity increasing by around 13,000, which includes much more lucrative corporate seating, while the club will hope to secure a good naming rights deal. The board’s failure to agree long-term debt when interest rates were at an historic low has really hurt the club, as Everton’s double digit interest payments have been significantly higher than the 3% that Tottenham are paying on their stadium debt.

Wages: punching below their weight

Everton’s wage bill fell £2m (2%) from £159m to £157m, the club’s lowest for six years. This means that wages have been cut by £26m (14%) from the £183m peakin 2020/21, though they have still almost doubled since Moshiri’s arrival.  The question is why wages did not fall by more last season, given that many players left for free at the end of 2022/23 (Begovic, Davies, Gbamin, Mina and Townsend), while incoming players were apparently on lower salaries.

Following the steady fall, Everton’s £157m wage bill is down to 11th highest in the Premier League, having been overtaken by Nottingham Forest £166m and West Ham £161m.  This is less than half of each of the top five clubs, led by Manchester City £413m, Liverpool £386m and Manchester United £365m, while there is also a big gap to eighth-placed Newcastle United £187m.   Nevertheless, it is still evident that Everton have punched well below their weight in the last few seasons.

Everton’s gross transfer spend last season was their lowest since 2015/16, but the reality is that the club had to slam on the brakes ever since it started to face problems with PSR.  The club spent big in the early years of Moshiri’s tenure, but Everton have greatly reduced their activity in the transfer market, e.g. their £201m gross spend in the last three years was only 15th highest in the top flight, below the likes of Nottingham Forest, Bournemouth and Wolves.    The hope is that the arrival of the Friedkins will herald greater investment in the squad.

Debt

If the Moshiri loan is considered as debt, Everton’s £1.0 bln debt was actually the highest in England, even more than Tottenham £851m (to fund their new stadium) and Manchester United £547m (the lingering effects of the Glazers’ leveraged buyout).   They would have owed even more without the owner converting £200m debt into equity in the last few years.

However, the situation is now very different after the arrival of the Friedkins, as the £451m shareholder loan has been converted into equity, while the previous external borrowings have been repaid, replaced by a 5-year revolving credit facility that the new owners have taken out with JP Morgan Chase.  In addition, they have put together a £350m senior debt package from a consortium of lenders to complete the stadium financing with a 30 year maturity at 7.38%.

However, even after the refinancing, it should be appreciated that Everton will still have to pay a lot of interest, especially after the growth in stadium debt, though it would have been much worse without the involvement of the Friedkins.

A huge amount (£671m) has been invested in infrastructure, mainly the Bramley-Moore Dock stadium, with another £345m going on player purchases (net). Another £140m was used to cover operating losses, while £97m has been paid out in interest.

In order for Everton to be compliant with PSR for this season, they will have to restrict their adjusted PSR loss to £13m, which would imply a loss in the accounts of £38m, after considering £25m of allowable deductions.  In other words, Everton will have to further reduce their loss from the £53m in 2023/24.   They will be helped by the owner’s refinancing, which will restrict the amount of interest charged.

The new stadium has required numerous sacrifices during its development, but it will offer additional revenue generating opportunities that could be transformative to the club’s fortunes.  It will be interesting to see whether this new-found confidence is reflected in this summer’s transfer campaign, as the squad is in need of a major overhaul after a few years of austerity.

 

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