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