Everton FC Annual Report and Accounts 2022-23 – Part I

The cynicism and lack of respect for shareholders, fans and all other interested parties in Everton, including commercial partners, it must be said, shows no limits. Issuing critically sought after reports and accounts late on an Easter Sunday afternoon with no prior briefing demonstrates the utter contempt in which Farhad Moshiri holds all concerned.

The provision of accounts for Everton Football Club Company Limited alone provide an incomplete picture of Everton’s position. The failure to provide accounts for Everton Stadium Development Company Limited at the same time is a complete dereliction of duty. It makes the task of providing a complete picture much more difficult, and is obstructive and unnecessary. One might consider it deliberate.

When one adds that shareholders no longer have the opportunity to question the board of directors at general meetings, the picture becomes complete. For many, the bonds which hold us to our beloved club are being stretched to the absolute limit.

Perhaps the new regulator can seek the necessary powers to force football clubs that have minority investors, to hold shareholder meetings?

Profit and Loss Account
Following an ongoing trend under the Moshiri years, the profit and loss account shows a final loss for the financial year 2022-23 of £89.1 million. The loss for 2021-22 was restated to £38.3 million.

Since 2016, Everton’s losses are

2016-17 – £30.7 million profit
2017-18 – £13.1 million loss
2018-19 – £111.8 million loss
2019-20 – £139.8 million loss
2020-21 – £121.0 million loss
2021-22 – £38.3 million loss
2022-23 – £89.1 million loss

The deterioration in the profit and loss account is largely due to the decrease in turnover, the significant deterioration in player and management trading and an increase in operating costs. At the operating level, losses widened from £24.5 million to £40.9 million.

Turnover
Turnover fell from £181 million to £172.2 million largely influenced by the loss of USM related sponsorship revenues. 

Broadcast income increased marginally by £0.9 million to £116.0 million as a result of an increase in international rights payments offset by a reduction in domestic TV revenues – caused by a lower league position and reduced live TV appearances.

Everton’s decision to maintain price increases in season tickets – Everton sell the maximum number of season tickets permitted by the Premier League – saw an increase in gate receipts from £15.6 million to £17.3 million. Everton’s yield per seat remains significantly lower than most of its Premier League rivals, highlighting the need to move from Goodison Park, even if the cost of doing so is placing enormous strain on Everton’s finances.

Sponsorship income fell for the third successive year from £35.0 million to £19.2 million. The removal of the various USM-related sponsorship arrangements was netted against marginal improvements across the sponsorship portfolio, including Stake.com, BOXT and Socios. The failure to replace any of the USM-related sponsorships reflects the poor condition of the club generally, and the ineffectiveness of the club’s commercial strategies and performance.

Other commercial activities showed a significant improvement of £4.4 million to £19.7 million – driven by increases in the Premier League central sponsorship revenues, increased income from overseas tours to the USA and Australia, plus payments from UEFA relating to player appearances in the 2022 World Cup.

Costs
On the expense side of the profit and loss account, non-exceptional operating costs managed to climb by £5.0 million. Add in exceptional costs of £3.2 million relating to payments to former employees and costs in total rose from ££205.5 million to £213.1 million.

Overall staff costs reduced by £3 million from £162 million to £159 million. Incredibly, given the cost pressures on the club, staff numbers overall increased from 491 to 532. Both marketing and media plus management and administration departments saw increases in staff numbers.

An important measure, particularly in the context of future regulation, is the total wage-to-turnover ratio. This increased from 90% in 2021-22 to 92% in 2022-23, considerably outside of projected future wage cost limits. Even prior to the change in financial regulations, the wage-turnover ratio remains much higher than the levels (70%) considered sustainable in the Premier League.

Directors’ Costs increased significantly from £3.1 million to £5.7 million. Included within this figure is a £2.5 million compensation cost for loss of office. The highest-paid director received £3.246 million compared to the previous year’s £868,000.

Costs relating to the new stadium no longer feature in the profit and loss account as they are now considered a capital cost given the increased certainty of the project being completed. Total construction costs for the year to 30 June 2023 stood at £210.9 million, a small increase on the previous year’s £207 million.

Amortisation, much loved by accounting and non-accounting fans alike, bucked recent trends and increased significantly from £68.3 million to £77.6 million, reflecting player acquisitions in the summer of 2022 and the winter of 2023. McNeil, Onana, Maupay, Gana Gueye and James Garner being the significant additions. Total player acquisition costs were £91.5 million (2021-22 – £55 million). The total value of players (intangible assets) decreased from £148.9 million to £144.5 million.

Yet again, compensation payments to leaving members of the coaching and management staff (Lampard et al) were significant – £7.1 million. The 2021-22 figure relating to Benitez et al’s departure was £10.5 million.

In addition, this year, there was a return of impairment charges to player valuations of £4.8 million (2021-22 – Nil).

Interest costs
Interest costs for the 2021-22 accounts were restated.

Previously stated as £10.4 million in 2021-22, the newly issued accounts show a revised figure of £4.15 million. The reduction of interest costs of £6.25 million arises from the capitalisation of interest costs relating to the new stadium. This has the impact of restating losses for 2021-22.

Following the restatement and capitalisation of interest costs, interest costs on external debt rose from £4.15 million to £7.86 million. I will cover the funding requirements separately.

Player Trading
The sale of Anthony Gordon, Nathan Broadhead and Ellis Simms saw player trading profits of £47.5 million – a significant reduction in the previous year’s profits of £67.7 million.

Cashflow – the life blood of every business
Any observer of a company’s financial performance and health will always point to the company’s cash flow statement. Whilst the P&L grabs the headlines, the most telling information is in the cash flow statements. A business lives or dies by its ability to generate cash.

Cash can be generated from day-to-day operating activities, from investing activities (player trading, shareholder equity injections) and from financing activities (borrowings).

Operations
In 2022-23, normal operating activities before movements in working capital saw negative cash flow of £42.3 million – a large increase on the previous 2020-21 figure of £22 million. After the change in balances of creditors and debtors, the negative cash flow from operations deteriorated further from the previous year to £56.5 million (2021-22 £34.3 million)

Investing
Cash from investing activities saw a greatly improved inflow of £72.3 million (2021-22 – £25.2 million) from player disposals – this is selling players to raise cash. A reduction in player acquisitions saw a cash outflow of £58.7 million in 2022-23 (£86 million in 2021-22).

The new stadium and other fixed assets saw cash outflows of £194.35 million, slightly less than the 2021-22 figure of £210.5 million. As a result, investing activities saw a total cash outflow of £199.7 million – a reduction from £271.4 million in 2021-22.

Financing
Financing contributed a net £234.6 million (2021-22 – £277.75 million).

Included in these figures are repayment of existing borrowings of £22.5 million; new external loans of £191.2 million; and shareholder loans (from Moshiri) of £69.7 million.

As a result of the above, cash in the bank fell by a further £21.6 million to £10.8 million as at 30 June 2023.

Borrowings
Shareholder loans totalled £450.75 million. The loan is to be repaid at a date mutually agreeable to Bluesky Capital and Everton Football Club. The loan is interest-free.

Aside from shareholder loans, as at 30 June 2023, Everton have a £150 million 5-year facility with Rights & Media Funding, a further £52.66 million 3-year facility, and an additional 34-month €28 million loan with the same lender. The above loans are secured by a fixed and floating charge on the assets of the club. These loans attract interest at 5% above the current base rate.

In addition, there is the remaining CLBILS facility with the club’s bankers Metro Bank which stood at £11.25 million (£26.25 million on 30 June 2022). In total, external debt stood at £341.4 million (2021-22 – £174.1 million) an increase in borrowings of £167.3 million.

Share capital and reserves
At the time of the accounts, 135,000 of ordinary shares, a share premium account of £324.9 million, a negative profit and loss reserve (accumulated losses) of £550.5 million, and £447.25 million shareholder loan from Bluesky Capital, a company controlled by Farhad Moshiri. As a result, shareholder funds stood at £227.73 million (2021-22 – £241.2 million).

Post balance sheet events
Since 30 June 2023, Everton entered agreements to acquire Beto and Chermiti on permanent transfers, Harrison on loan from Leeds United, Danjuma from Villarreal, and Ashley Young as a free agent. Iwobi, Gray and Cannon have been sold with temporary loans for Holgate and Maupay. The net impact of these plus other transactions (including contingent transactions) is £9.15 million.

In addition to the £450.25 million interest-free loan, Bluesky Capital provided a further £22.5 million interest bearing loan.

On 15 September 2023, Farhad Moshiri announced an agreement with 777 Partners to sell his entire 94.1% shareholding. This agreement was and remains subject to regulatory approval. Approval from the Premier League has not yet been granted although the conditions required for such approval are now known – details here.

Summary
The club continues to be caught in a perfect storm of underperformance on and off the pitch, combined with the complete indifference of the current owner. His misjudgements over the years have resulted in successive breaches of the Premier League’s Profitability and Sustainability Rules (PSR), a huge reduction in our ability to remain competitive, and enormous concerns over our ability to stay in business.

I will cover in detail in Part II, our funding requirements, including the stadium development company, MSP’s funding, and in particular the auditor's concerns regarding the future of the business ('going concern') in the event of relegation this season. In addition, further comments on the stadium, MSP’s position and future funding requirements. I will also cover its relevance to PSR.

The great Moshiri experiment, of throwing money at managers and players in the most irresponsible manner; of not having systems nor personnel in place to monitor, correctly advise and act, has reached the stage where the risk profile of the business has reached untenable levels.

His misjudgements are colossal. His total reliance on external short-term funding, his choice of potential new owner – both highly damaging and existentially threatening.

It should be stressed that the above report and accounts do not take into account the borrowings from 777 Partners, received during their approval seeking process this season, nor the MSP loans to Everton Stadium Development Company Limited.

Part II to follow...

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