MAR
19
2013
The Curious Case Of Everton Football Club
19 comments
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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 Toffees 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 nouse will be able to work wonders on the commercial revenue almost immediately.  Nil Satis Nisi Optimum. Alan Newton.

Follow Alan on twitter @AlanRNewton

This article was posted on Alan's Blog on Thursday 14th March 2013

 

Email Bluekipper at mailbag@bluekipper.com

Comments about The Curious Case Of Everton Football Club
 
19
Money between businesses and business people will always be very opaque however lets do some simple maths. Original Debt £42 million Transfers on D/L Day - spent no more than £20 million Gained at least £32.5 million Profit Minimum of £12.5 million New Debt £30 million + TV money and prize money of last year a manager on less wages McCarthy on less that Fellaini = Debt Free??
Andy Billington, Preston, 1:58 PM 3/09/2013
 
18
Where has this idea come from that we weren't in debt when Kenwright took over? Alan Newton, I can see you love the club and want what's best for it, but why do you think Johnson sold Ferguson to Newcastle? It was to make up some of the debts we owed, wasn't it? He certainly said so. When Johnson left, he took the money he had pumped in with him, including a fair amount that he'd already spent, claiming it as a loan. He left us, after Kenwright's company's buy-in, with £18m of debt, as well as with books so unbalanced that we were losing £3m per year. That was 15 years ago. So we could be £63m in debt if Kenwright 'had no plan' as you put it. But we're £42m in debt. That's pretty awful, but it's almost a third less than it could have been - and in that time the team has improved massively. I don't know if you remember the decade 1993-2003. But FA Cup aside, and lovely as that was, it was a one-off even within the season we won it - we were horrible in the league - we were diabolical. We're hundreds of times better, we've at least reduced the money we were haemorrhaging and while I'd like a rich buyer, that alone won't be enough. Alan, like I say, you obviously care, but this article underlines a serious problem at Everton right now: a loss of memory, as well as too little fact about what happened under Johnson. He left us in serious trouble. Not to say Kenwright's dug us out, or that he's done everything I'd have liked, but if you seriously want to look at the problems of Everton FC, start with the guy on the Times rich list who left us £18m in debt and losing £3m per year.
Rory O, Brighton, 11:09 PM 3/04/2013
 
17
Everyone's entitled to their opinion. Don't be so thin skinned. If you dish it out you have to be able to take it without whimpering.
Tony, Stoneycroft, 1:33 PM 23/03/2013
 
16
Interesting article Alan, sorry you have been ripped apart by fans ignorant of financial processes. You can shout about passion and love of the club all day long, but it will not increase the value of the club by a single penny. Keep your heads in the sand if you want, the reality is clubs can only be sold when two accountants from each side have agreed on the figures, they don't talk about how great the fans are.
Neil, Wirral, 12:59 PM 23/03/2013
 
15
Why is it whenever anyone shares their opinion (whether you agree with it or not) they get slaughtered on here. At least this fella has the balls to say what he thinks with a bit of substance. Football is about passion but as Leeds fans will tell you passion and nobody looking at the balance sheets means shit lower league football. Remember we all support the same club and every time we win or lose we go through the emotions! Don't shoot someone because of it!! COYBB!!
Dan, Australia, 10:54 PM 22/03/2013
 
14
These ledger bunnies come and go like a puff of smoke. None of them make any difference or improvement. If they were any good they'd be in football business themselves buying clubs and making a mint and keeping fans happy instead of telling everybody else how it needs to be done. It's all the usual hot air.
Ste Philips, Liherland, 2:41 PM 22/03/2013
 
13
Sorry Alan Newton, you're probably a nice enough guy, but you talk a crock of shite. Football is a passion, you can love it and hate it, but its always there in your heart. You won't find that in P&L ledgers or balance sheets. Don't try to tell any of us that we were better off under Agent Johnson - none of us ever want to go back to those days again. Meanwhile - these Euro friends of yours - must obviously be accountants too, with no knowledge of fooball history, which is what WE have. Was it Ruskin who was talking about accountants when he said they know the price of everything, and the value of nothing.
Yorkie Blue Daz, Blenheim NZ, 10:33 AM 22/03/2013
 
12
Total Bollocks. Alan should shove his blog up his arse!
Angry, of Oxton, 1:58 AM 21/03/2013
 
11
The only two useful things Stan Col ever did was smack Ulrika Jonsson round the chops and waste 8 mill of the shite's money. Why does anyone give a shit what he thinks?
Dave, NZ, 10:45 PM 20/03/2013
 
10
I seem to remember before BK took over; we had a certain Mr Johnston as chairman. He sold most of the clubs assets, including the ground rights. The financial books were in an incredible mess and we were lumbered with bank loans, which were almost impossible to pay off. It meant that we would always have incredible debts. Our ground is a major problem; you only have to look at Man City. They had a new ground and they got billionaire new owners. They have a similar size fan base, but nothing like the history we enjoy. According to you, they would have been equally unknown outside the UK. However, I feel we play in the richest, most watched league that there is. The EPL is available in just about every country in the world, to say we are unknown outside the UK, is total and utter nonsense and completely distorts our position in football.
JeffB, Banff, 12:50 PM 20/03/2013
 
9
Oh not this same old shit again. No wonder accountants are the most boring bastards in the world.
Tony, Stoneycroft, 12:32 PM 20/03/2013
 
8
Stan Collymore. Oh PLEASE, does anybody believe a word that idiot says?
Paul, Warrington, 11:23 AM 20/03/2013
 
7
The valuation will be whatever the selling and buying parties agree on. That's the way markets work. It gets to be weird reading some of the ridiculous arguments, when you get people saying Kenwright's only in it for the money and then saying he won't sell because it's supposed to be his 'train set' or something! You can't have it both ways! If he was in it for the money only he could sell it for a small profit tomorrow, but who to? The people who bought Leeds three months ago and are now selling up? The people who bought Blackburn and have just sacked yet another manager and have taken the club to the brink of League 1? The people who bought Portsmouth and took them into League 1? The people who bought Rangers and took them into Scottish Division 3? All the other people who have bought and sold the game into bankruptcy? Kenwright is very far from being an ideal chairman and no doubt he's looking for a profit (so is everyone else who buys clubs), but he's very far also from being what some claim. Against the odds Everton are near the top and unrecognisable from the Johnson disaster (incidentally Johnson sold up to get money to bolster his failing business) within touching distance of restoring fortunes. Moyes and Kenwright are exactly the kind of combination the club needs right now. IMHO that will only change when and if we ever get a new ground to help increase revenues, but we lost that immediate opportunity when Kirkby went down. There's no point moaning about lack of money now. Anyone who buys Everton faces at least ten years of hard work building a new ground and a new squad. Who do you think will take on that task? Some hedge fund spiv looking for a quick profit? There are no Evertonian local millionaires rich enough any more, so that possibility is out of the window as well. That's the reality of our situation and all the wishful thinking and ignorance and percentage jugglings won't make one iota of difference.
Spectator, Crosby, 10:56 AM 20/03/2013
 
6
You are referring to valuing the club based on standard private equity due dilligence evaluation based on a market multiple. Football clubs are valued somewhat differently. It is not Bill who values the club it would be the likes of a PWC or BDO that conduct a period of due diligence and offer an impartial assessment. My understanding is that due to the unique nature of football clubs the market multiple is applied to turnover rather than EBITDA and would command somewhere between 1.1 and 1.8 which is where the valuation of 125m comes from. i.e turnover circa 80m and a multiple of 1.5 ish.
Looyah, Qatar, 10:29 AM 20/03/2013
 
5
Wow...Glad you're not my bank manager. The assetts are running around on the pitch you twonk! What was the top and bottom salary when the board took over? What are they now? What was the overall wage bill and percentage of turn-over when the board took over and what is it now? To keep it simple, in order to survive, output exceeds input. This was not the case when the board took over. Simple housekeeping no mystery or conspiracy, we just don't earn enough money and have to pay out far too much to avoid losing the better players, hence we have to sell them now and again. Out of the 90+ pro clubs in the UK, how many turn a profit?
Mike, Lpool, 8:53 AM 20/03/2013
 
4
You can't put my love of the Toffees on any fucking balance sheet.The club is bigger than any of this and will still be ticking and at the top (Arsenal are joint with us for longevity by the way)when all these BU and paper emperors are off supporting some other team who will listen to their shite.
Billy's Boots, Portland St, 8:38 AM 20/03/2013
 
3
"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." That's the biggest pile of purple sweat soaked belly button fluff dog shit I've ever heard. Who are the 'many'? I've never met anyone who has said Moyes should go - only ever angry internet tossers when we lose one game. Moyes is a legend and given that you claim to have actually noticed our decline in the 90s you should also have noticed our resurgence under Moyes. If it wasn't for him we would be in League 1 now, with crap football and awesome homemade pies.
David Robinson, New Zealand, 12:34 AM 20/03/2013
 
2
I'm with Macca on this. Just more rehashed conspiracy theory bollocks filled with made up numbers from big gobbed chancers like Collymore.
Fletch, Aintree, 10:16 PM 19/03/2013
 
1
This guy sounds like the bankers who got the world deep in shit. All accountants terms and bullshit. We've heard all this crap before, percentage this, percentage that, formula here, formula there, do this, do that, I've got the answer and nobody else has. As for the supposed price nobody at the club has confirmed £125 million or even if it is whether it includes debt or not. Anyone who takes Collymore's word for anything is a tosser, he's a total windbag on anti depressants. All me arse if you ask me, just another ale house expert, the world's full of them.
Macca, Huyton, 9:52 PM 19/03/2013
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