JAN
23
2014
Mickey Blue Eyes...
Interview With Robert Elstone
Bookmark and Share

 

INTERVIEW WITH ROBERT ELSTONE

By

Mickey Blue Eyes

 

To Finch Farm for an annual interview with CEO Robert Elstone, also attended by newly appointed Head of Strategy Chris Clarke and Head of Communications Alan Myers.

 

Ignore ale-house gossip.

 

Q: Thank you for meeting with me, Robert.  Can we begin, as usual, with finances? When will the annual accounts be issued?

A: They're at the printers and will be published and sent out in the next week to ten days. Shareholders will see a different appearance in them. We have invested a lot of thought and time making them more user-friendly and contemporary. We hope the new look is appreciated. Of course, what really matters is what they say and the numbers are pretty positive. They demonstrate what I think fans already know, that this is a stable Club, well-managed, with debt-levels and costs under control and growth in our revenues.

Q: Our last accounts showed a loss of £9 million.......

A: ......Yes, as reported 2011/12 was a difficult season for us. Not only did gates dip to 33,000 but the TV companies gave us less coverage despite some great performances in the second half of the season. Every live game, home or away, was worth £500,000, and it's more now. Our live TV picks were the lowest they'd been in my memory. But these trends have been reversed. Our matchday income has returned to previous levels and our TV receipts from the Premier League are up.

Q: The last wages ratio was seventy-eight percent. UEFA recommend seventy percent. The last wages bill was up from £58 million to £63 million. Is that upward trend still evident? How long can we maintain a ratio of seventy eight percent?

A: Of course I respect recommended guidelines, but there isn't a one-size-fits-all formula. Every club's infrastructure is different. As result, the cost base varies from club to club. On a straight-forward comparison with other clubs we have to add back our retail and catering turnover. When we do that, our ratio drops to around seventy percent. And at that level, it becomes more manageable. The question is whether we can manage and develop the Club on what is left - the other thirty per cent. It does put us under pressure and of course we'd like to invest more in facilities, our Academy, our community programme and our staff, but we have to, and we do, live within our means. We certainly have to squeeze value out of every pound, probably more so than any other club. Ultimately, however, that pound invariably becomes investment in a player and a push for greater competitiveness.  We work that pound pretty hard too!

Q: That's the root of everything isn't it, the financial model and financial sourcing of each club, and, on a wider scale, the entire game? Don't those limits mean we, Everton, have to sell to survive?

A: We definitely don't have to sell to survive and all recent sales we've made have been sales to re-invest. I said in the past to prosper at the top end of the Premier League you need a generous billionaire and/or a shiny big stadium that you fill every week. Without those, you need to be exceptionally good at developing, coaching and yes, trading talented footballers, buying cheap and selling dear. Buying with payments spread and selling with cash up front. That's just good, sensible business practice. We all know that Goodison generates a quarter of the matchday revenues of the Emirates, we've all probably lost track of the monies ploughed into Chelsea and Manchester City. It's clear therefore what Everton has done to stay challenging for European places, and what it needs to do to maintain that position. But we're absolutely not a selling club. Funds are always re-invested in acquiring new players or extending the contracts of our best players. They're certainly not paying off debt and they're certainly not paying for frivolous or wasteful activities off the field.

Q: The main problem for us and every other club is the amount of debt we carry. The last net debt figure I saw was £46 million with interest payable of £4 million. Does that still apply?

A: Yes. We have remained at that level for about 4 consecutive seasons. As I said, we are certainly not using player sales to pay down debt. You would see a reduction if we were. We work very closely with our lenders who know and understand how we work. Of course, if we could eliminate that interest charge it would be great. It represents the proceeds of four home league games and isn't a million miles off the value of our main sponsor deal with Chang.  But our task is to remain competitive - a position all our lenders would subscribe to from a risk point of view - within manageable levels of debt. It's true also that the new TV deal has helped. Our lenders know we have high value assets on the field but they also know we now have significantly increased TV revenues. As you would expect, that has certainly helped our relationship. I said at the General Meeting in the summer the new TV money has given us options - to invest in players and our Academy, perhaps to spend on facilities and to consider our levels of debt. Those choices are under constant review.

Q: But how long can we go on carrying a debt of £46 million, and at the same time restore the status of the club to where our fans want it to be? Doesn't it also affect the financing source? We were due in July last to return to the banks for a new deal weren't we?

A: Of course in a perfect world we would want to bring down debt. But this year, 2013/14, our turnover will be significantly higher, perhaps by as much as £25 million, as a result of the TV deal.....and debt levels as a proportion of our income will be much reduced.

Q: ......Is the increased turnover entirely due to the TV deal?

A: Effectively, yes, but not entirely. We have increased revenues and we have new commercial deals which kick in in 2014/15. My over-arching point is that the debt level is flat and is not increasing. Overall, our financial position may not be cosy, and our debt is not insignificant, and we have that burden of £4m of interest every season, but we manage it tightly and well and will continue to do so.

Q: What specific effects will Financial Fair Play have on Everton?

A: The first thing to say is that the Premier League's FFP is less demanding than UEFA's. The latter will bite more. We are confident we can comply with both. The Premier League's rules also pick up player wages. They seek to limit the amount of money from the new TV deal that can go into player wages. Clubs voted for a rule that would help them manage wage costs and slow the rate of wage inflation. The signs are it is making a difference. We're very happy we will comply on all fronts in 2013/14. Of course, the material changes in the wage bill tend to happen in the transfer windows and we will need to keep an eye on the rules particularly in the summer ahead.

Q: So did that enable us to strike a new bank deal last July? I thought the banks had stopped lending?

A: We continue to bank with Barclays. They're happy with us. And yes, the new TV deal has taken a bit of pressure off that relationship. We won't get complacent.   

Q: We briefly touched on turnover, which you say is increasing. What about match day revenues, how are they doing?

A: Looking back, there has been only one real blip, in 2011/12, when our average league gate fell to around 33,000. That hit us hard - around £80,000 per game less than where we should have been. This season, we've seen a solid increase in gates and that, plus a modest increase in ticket prices has seen a satisfying increase in match day receipts.

Q: Sponsorship deals. Where do we stand on that? Isn't the main sponsorship deal due to expire this year?

A: This is the tenth year of our deal with Chang, and we have been working with them for the last year to further improve the relationship and extend what's already the longest such sponsorship in the Premier League.

Q: Some fans are concerned at the level of our shirt sponsorship compared to the rest of the League. We are next to bottom in that competition. Will that change?

A: Our shirt sponsorship deal with Chang is nowhere near the bottom. Our belief is that the current deal is perhaps seventh or eighth in the League. Admittedly, it is some way behind the teams above us but one of our challenges is that commercially we sit very much between the Champions League regulars and the rest of the pack. We need to push closer to the pack above us. Our Kitbag and Nike arrangements are more complicated, and there are two things I would say on this. The first is that the figures in the public domain are not always reliable, and that goes for shirt sponsorship too. Secondly, for almost every club in the League - apart probably from those in the Champions League - the shirt deal is little more than an advance of the retail profit margin. It isn't a true marketing investment from a sports brand. A Club might take and report £1 million upfront and then buy 100,000 shirts to sell in the club shop at £10 more than the sports brand sells to another retailer.  As fans know, we have Kitbag operating our retail business and it pays us a guaranteed profit plus royalties and de-risks us from the expense and pitfalls of running stores and an online facility. We don't carry stock, we don't have shop rent, and we don't have to manage a retail team.  I'm certain our combined deals stack up well despite the fact that it's almost impossible to compare apples with apples when looking around the Premier League.

Q: So are you happy with the Kitbag deal?

A: I am happy it de-risks us in a notoriously difficult business sector. You only have to look at some of the High Street casualties to see what I mean. Of course, taking away risk also lets us plan our future spending with a more certainty. Commercially it is a good deal. Kitbag is also a good partner for us and they have improved our retail offer from when we were doing it ourselves and from our partnership with JJB. Having said that, we know we can't rest on our laurels and we need to ensure they keep delivering a well-presented, easily accessed, online and High Street offering for our fans.

Q: Transfers. Are we still making transfer fees stage payments? Could we exist without it?

A: It was pointed out to me before we signed James McCarthy that some fans were saying we were cheap-skates because we wouldn't pay for it all up front! It's indisputable that it is smart business to get the money for outgoing transfers up front but spread out the payments for incoming transfers. We'll continue to do that. Every business in the world from Amazon to market traders will manage their working capital as efficiently as possible. That is, collect money as quickly as possible and, where commercially possible, pay monies over a longer time-frame.

Q: In 2012, we were eighteenth out of twenty for net player purchase. The last four seasons have seen a negative transfer spend. Does that comply with your analysis?

A: Again, there are numerous factors to take into account. Firstly, it is wrong to take any one year in isolation. But I agree over that period we are undoubtedly toward the lower end of the table of net transfer spend. Of course, plenty of teams above us have fared much worse than us on the pitch. Secondly, we should remember our wage bill has varied between seventh and ninth in the Premier League and always in the top half. We have acquired a good strong squad, and to retain them we have had to pay the going rate, all of it, I repeat, within our means. Would we like to have been a bigger net spender on players? Of course we would. But the combined spend on transfers and wages comprises a significant proportion of our income. The ultimate test is whether it works on the field, and in our case the results speak for themselves.

Q: Season tickets and half season tickets. What are the current figures?

A: Season tickets are 23,300 and half season tickets at about 1,400 have taken the total to 24,700. Whilst we're very pleased with that we'll be targeting for a further increase for 2014/15. I want to target around 26,000, which will be the highest number for some years. We are close to finalising ticket prices for 2014......

Q: ......Increases?......

A: In some areas, yes. In other areas they will be frozen. The key consideration is always "Value for money and affordability." We make sure we protect our future and have fantastic deals for young Evertonians. Under-11s can come to every single league game for £95....a fiver a game.....Evertonians still at secondary school can watch every game for around £8. This is exceptional value.

Q: Visitor numbers have been low for about a year now. Has that had a drastic affect?

A: There has been a decline in visiting fans over a period of time and the Premier League has an ongoing programme to increase away numbers. We of course take our full allocation in pretty much every away game. There was a time when you could automatically ink into the budget 3,000 visiting Newcastle or Sunderland fans for example, but that's no longer the case.  Our view is every empty seat is a lost opportunity.  

Q: Other operating costs. How are they looking this time around? For the record, can you once again respond to the accusation from some quarters that some directors are siphoning money out of the club via operating costs?

A: If it's still a commonly held view then the latter point is wearing very thin.  At the General Meeting in the summer I gave a detailed breakdown of other operating costs. They are all normal business expenses and are heavily scrutinised. To answer the first part, there has been no increase in other operating costs. Indeed, if you factor in inflation of about 2-3% we have perhaps managed a decrease. This shows how closely we examine every penny we spend at this football club. For the umpteenth time, there is no money paid to directors, no cosy third party deals.

Q: Possible shares issue. Has the club's policy position changed on this?

A: We don't feel there is the potential to raise worthwhile amounts. There have been a number of groups formed to try to generate money from the fan base. We have always given them our support and blessing. Unfortunately none of them have resulted in funds raised or pledged. That is the reality of where we are.

Q: New Stadium. On a scale of one to ten, one being the least likely, what would you say is the current likelihood?

A: It's a two or a three, but maybe that's me being cautious. I think it's important to manage expectations. If it was easy, we'd be on with it. There are a couple of options, one of which we are dedicating a lot of time to, to see if it is feasible and if a funding solution is starting to take shape. And, whilst there are still some challenges, we wouldn't be making the time commitment if we didn't think it was worth pursuing.

Q: Are you willing to identify the location?

A: Unfortunately not. I'm not able to for legal reasons. More importantly, we also need to get more under our belt before we say anything.

Q: Were you happy with the conduct of last summer's General Meeting?

A: Yes I was. Communication is something I have always prided myself on. It was an opportunity to explain to shareholders the finances of the Club and how we manage them, and also to break down some misconceptions. The Chairman resolved to reinstate the Annual General Meeting and we have already commenced the process to amend the Articles of Association.

Q: Everton in the Community. Are there any future events we should take note of?

A: There's always something on the go. The team goes from strength to strength. There's no limit on its growth and development. Our strategy is to keep increasing our presence across the city and Merseyside without constraint. And the numbers of full, part time and volunteering staff involved is phenomenal. Everton in the Community allows us to make a statement to the city and region about what our Club stands for. It took time to build momentum but it is well and truly on a roll. I know it is something most clubs around the country and other charities look to as a scheme to emulate. All Evertonians should be immensely proud of the difference our community work has made to people in Liverpool over the last decade.

Q: What is Everton's role in the free school?

A: We give it our name, which we hope provides some inspiration for pupils and teachers. We serve on the Board of Governors where we provide leadership and guidance. We are really proud of the work it has done in such a short space of time. In a challenging environment, it really is an organisation that can wear 'nil satis nisi optimum' with pride.  

Q: Fans liaison? Do you still conduct Fans Forums at the same rate?

A: Yes, we meet regularly and have a healthy debate. Personally, I'm probably averaging just a little more than every other one and I get a lot from listening to the fans' perspective first hand. I think all our team does.  The Forum has a dual role. Different club staff members take ideas to the Forum to get views on whether or not they'll work. The Forum generates its own ideas that come back to us. It takes a big commitment from the members and I'd like to thank them for the hours and hours they put in to making a contribution to the Club. 

Q: A few weeks ago I saw a TV programme which I thought very moving and important. It was presented by Clarke Carlisle and its subject was depression amongst players. It seemed particularly poignant and relevant bearing in mind the tragic deaths of Gary Speed here and Robert Ence in Germany. To my mind it helped underline how players are in danger of isolation as a social class, and how there can be an air of unreality about the game and its true place in society. After all, only 1% of youngsters actually make it through to professional ranks. Plainly, some have trouble dealing with that, and at full level dealing with public expectations as well as their own. How is Everton helping with the problems this can pose?

A: Within the Academy the well-being of our youngsters is of paramount importance to us. Education, life skills and welfare are key ingredients in helping young players develop on and off the field. And of course each has their own individual character and temperament. We work hard to encourage confidence, maturity and emotional intelligence, and develop the skills to cope with adversity and challenges.   We want it to stand them in good stead whether they succeed as a player or not. And, whilst we do it in a structured way, I can't help thinking the most important thing is the culture within the Club. Leadership is also of absolute importance. At Everton we believe we have evolved over the years a very positive, strong family-based culture. It is crucial to have a manager and senior pros who are willing to take responsibility and act as an example to young players. We have that at Everton. The sense of camaraderie in the squad is exceptional. But we can never be complacent, nor will we be.

Q: These days the Goodison playing surface never ceases to amaze me. I'm from a generation where winter meant ankle deep mud and heading the ball was akin to butting a stone. It must have cost a fortune to get and keep the pitch in its present condition?

A: Yes, it has. I'm glad it gets noticed. But did you notice the bobble from a back pass to Tim Howard in the last match! Investment in a better pitch means we can do more at the end of the season too, more activities involving the fans, more junior games etc.  But it's not the only investment we've made. We've also revamped the whole back-of-house media facilities, work that has come as a result of the new TV deal and as part of its conditions. In the summer we face a hefty bill to upgrade our floodlights too. 

Q: Finally, the European Clubs Association or the ECA, what is our policy toward it?

A: I have to admit to not being too close to it. I can't think of a decision it has made that has really affected us. It perhaps feels like a bit of a talking shop.

Q: If I can allow my paranoia to run loose for a moment I think I smell the rat of a European League. And I am absolutely opposed to that. The Champions League is bad enough.

A: Well, a European League has been mooted for as long as I can remember. But if everybody wanted it the reality is it would be here by now. I think there are too many regulatory difficulties and maybe the big commercial upsides that keep getting talked about are over-rated? I don't think it will happen. I don't get a whiff of it at all.

Q: Thank you, Robert. And, as always, good luck to us all for the rest of the season.

A: You're welcome.

 

 

 

Comments about Interview With Robert Elstone
2
Great interview, great read and honest (from both sides). Lord Roby (1)....nice one......COYB!!
Ciaran, Dublin, 11:04 AM 24/01/2014
1
I emailed Robert over Christmas 2012, 2 days before the Chelsea game, as I needed a Chelsea ticket for a friend who was coming over from Ireland. The game was sold out and it was about 5.30pm. By 7.30pm he had replied saying there would be a ticket waiting the next day. How many clubs can you contact the CEO direct and then get a response like that. The man is a star.
Lord Roby, Two Dogs, 1:05 PM 23/01/2014
New comment about Interview With Robert Elstone
Name:
Location:
Comment:
Verify:
 Please type the string above in the input box below.