Moshiri’s £830 million commitment to Everton

Throughout the summer, takeover rumours have continued at Everton, including most recently by the Financial Times confirming, as has been said on this site and podcasts, on-going talks with the US real estate investor Maciek Kaminski. Poor player and management recruitment, under-achievement on the pitch, the absence of European football, Covid, the invasion of Ukraine and now soaring borrowing costs make the last six and a half years extremely expensive for Farhad Moshiri.

So before looking at the potential takeover/investment options available to Kaminski and any other potential investors, how much it might cost and what would be on offer, it is worth examining the scale of Moshiri’s commitment to Everton. Whatever opinions may be held about the manner in which he has run the club, how he communicates and the uncertainties about his future ownership, his financial commitment is beyond question.

A breakdown of Moshiri’s financial commitment to Everton

The above table shows the timings and amounts invested by Farhad Moshiri in three separate categories:

• The amount he paid existing shareholders for their shares (priced at £5,000 a share)
• The aggregate outstanding shareholder loans provided by Moshiri through the Isle of Man Company, Blue Sky Capital
• The conversion of shareholder loans to equity by the issue of new shares priced at £3,000 per share

The table also shows the commitment made by Farhad Moshiri at the time of publication of the last accounts (29th October 2021) but not yet drawn down

In  summary, his acquisition and loan commitments are as follows:

• • Acquisition of shares from shareholders (Kenwright, Earl, Woods and Abercrombie) £135 million
  • Issue of shareholder loans & equity, in total £550 million (£250m & £300m respectively),
  • Further commitment, not drawn at the time of the last accounts £145 million
  • Total funding and commitment £830 million

It should be noted, his commitment may have grown beyond the £145 million committed but not drawn down as at 29th October 2021.

So what has Moshiri got for his money to date? He owns 94.1% of Everton Football Club, and he has a minimum of £250 million outstanding in shareholder loans, although with him bearing the ongoing cost of the stadium that is likely to be at or near £395 million this financial year (2022/23). Whilst the club’s finances are starting to improve as various player contracts and transfer costs from previous years fall off the books the club is still forecast to make a loss this year of around £70 million and further losses in 2023/24. 

Bramley-Moore Dock Funding

Whilst the stadium build continues visually at an impressive rate, the stadium is not, as yet, completely funded.

Ground preparation works were widely quoted as costing £100 million and with Moshiri underwriting a further £145 million of funding it’s a reasonable assumption that up to £250 million of the estimated £550 million is covered. This still leaves a potential funding gap of up to £300 million.

The intention was for funding to be provided by two sources over and beyond Moshiri’s contributions, namely debt and a capital contribution from the naming rights option holder USM.

Through no fault of the club’s, the USM relationship is over. The appointment of Elevate to seek a new naming rights partner as well as the commercial opportunities arising from Bramley-Moore is discussed in detail in this article, published earlier this week. It is unlikely that the types of terms offered by USM will be matched given current market conditions. It is also less than certain (in fact unlikely) that a naming rights partner would capitalise future naming rights payments, providing capital upfront.

From the heady pre-Covid days of easy credit when Tottenham Hotspur financed their stadium at an average interest rate of 2.9% for maturities of between 10 and 30 years, market conditions for corporate lending are now very different. Indeed, the inability to secure long term finance in the most benign of market conditions is perhaps one of the greatest failings of Farhad Moshiri and his Board. 

Even if Everton were deemed to be sufficiently strong and credit worthy enough to warrant long term debt financing on the stadium, in current market conditions the cost of borrowing  is prohibitively expensive. 

BBB rated commercial debt yields in the US (the primary market for such) now stand at above 6% – double that of Tottenham’s. Benchmark non-investment grade bond yields, often referred to as junk, stand above 10%.

£300 million of debt three years ago would cost around £9 million a year to service. Even if available, that figure today would be in excess of £18 million if typically rated BBB, and for non-investment grade in excess of £30 million per annum – figures which would totally wipe out the revenue increases of a brand new stadium. 

Thus as funding options, whilst naming rights will provide long term income, they’re unlikely to provide a significant capital contribution, and frankly, the debt market is closed to Everton due to market conditions, expense and the state of Everton’s balance sheet and ongoing profit and loss issues.

So what are the options?

Moshiri, should he be so willing and able to do so, can continue to fund the stadium, but he is likely to have to find another £300 million to do so – bringing his overall commitment to Everton to in excess of £1 billion.

Alternatively, he can look to sell completely or find co-investors.

If he was to sell, any new investors would have to commit to completing the stadium costs as well as purchasing Moshiri’s 94.1% in Everton. The issue of existing shareholder loans (potentially as high as £395 million) would be up for negotiation.

How much would an investor pay for Moshiri’s equity? People close to the club and in capital markets suggest Moshiri is looking for a minimum of £400 million for his equity. Where that would leave his shareholder loans is unclear, but it is unlikely in the extreme he would receive that value for his equity and have his shareholder loans repaid. 

Personally, as I have expressed before I find £400 million an absurd price for the equity given the on-going losses and future Capex. A price of £400 million and no debt repayment would see Moshiri nursing losses of up to £430 million based on the information above.

Would he be prepared to take such a loss at this time? That will depend on his circumstances, does he need the funds, or is he prepared to push his commitment towards £1 billion in the absence of other funding options?

Co-investment?

It has been suggested that Moshiri might find a co-investor. Indeed the Guardian newspaper reported that Kaminski’s role would be as a co-investor alongside Moshiri in order to fund the stadium.

However, there are significant challenges to this notion. Any investment into Everton would be at the expense of Moshiri’s current ownership.

For example, even if Kaminski agreed with a £400 million pre-cash injection valuation, a £200 million investment in Everton would see him own half of the club, making Moshiri a minority investor. Kaminski would then control the board and no doubt make significant changes, something that would please most Evertonians, but would that be acceptable to Farhad Moshiri and again, what would Kaminski’s view be on the existing shareholder debt? In order to agree a valuation of £400 million on the club would Kaminski demand debt write-offs from Farhad Moshiri?

Position of weakness

Whichever way one looks at Moshiri’s position, he is in a position of weakness regarding future funding from third parties or new investors. With debt markets closed and naming rights relatively insignificant in terms of capital raising, a partial sale is possible, but the terms offered are not going to be easily accepted.

If he is to invest, Kaminski has the capital to fund the remainder of the stadium financing and the ongoing cash requirements of the business. However I don’t see him carrying the legacy of the current owner with him. If he was to do so, the price of effectively bailing Moshiri out would be extraordinarily high, he would demand control to  manage his investment as he sees appropriate.

Would that be acceptable to Moshiri? Despite his huge financial investment he appears less than fully engaged with the club these days, not appearing at matches and only communicating in response to fan pressure. To sell the club completely, would be a painful, expensive decision, but it would bring closure on what has been a difficult investment for him.

Whichever way it plays out a significant proportion of the £830 million invested and committed is unlikely ever to be recovered. He might point to circumstances beyond his control, and there are mitigating factors in the pandemic and the invasion of Ukraine. Above all else though, it is the manner in which the club has been run, particularly in the earlier days of his tenure that has cost fans so dear in footballing terms and is costing Moshiri financially. Bramley-Moore will be our new home, a catalyst for the club’s and city’s redevelopment, something for all Evertonians to enjoy in the years ahead – but it will also be, despite his enormous financial commitment, for him a folly to his own mismanagement. 

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