SAY HELLO AND WAVE GOODBYE?

  

A review of Everton's 2000-01 Accounts
 by Paul Holmes 

  

 OVERVIEW

  
So another financial year ended for EFC with the heralded announcement that financially things were on the face of it improving.  I have prepared this analysis mindful of several factors.  

Firstly, there is a limit to the time any one of us would be prepared to sacrifice to analyse the profit and loss, and the balance sheet, to come up with conclusions.  Similarly, what are the salient points when trying to unravel what can be quite a complex set of figures. 

It is important to stress that Everton FC is a private limited company; only shareholders not us the customers have any real right to take EFC to task over these figures.  It is just a shame that the accounts were not made available to shareholders significantly prior to the AGM; perhaps then some serious questions could have been asked as opposed to having another audience with Bill holding court and pontificating on the majesty of Kings Dock. 

It is also essential that supporters take credence of the note in the accounts which points out that EFC's ultimate parent company is True Blue Holdings.  Whilst not trained in accountancy, I am well versed to perusing such documents primarily for potential investment purposes and in compiling business plans for my own purposes.  

It should also be noted that I did consult with a friend, a former accountant of Pannel Kerr Forster (he is now a venture capital fund manager) when providing these opinions.  Having assisted in the preparations of Liverpool FC's complex accounts, he was rather used to seeing a different magnitude of figures!!  

He did issue a vote of caution over our lunch-time meeting: Football is like no other business.  It is very easy in normal business circumstances to be subjective as to how a company is being run and make decisions as to the competency of certain directors and the mistakes that are perhaps being made.  

Football, however, is a very emotive subject.  It is fair to say that, in EFC's case, reducing the loss significantly attempting to reduce the wage bill, attempting to inject some common sense and cash (even if it is in the form of loans) makes for a fair interim strategy.  However, if the main improvements are at the sacrifice of selling your most valuable assets, where does that leave the future of the club? 

Much has been made of EFC apparently reducing their loss from 11M in the year 2000 to a more creditable 3M in 2001.  This achievement was underpinned by the following alarming statistic: 

  • In 2000, EFC made a loss on selling players of (915k) and therefore subsequently posted a loss of nearly 11M.  
  • In 2001, the profit on player sales was nearly 11mil. 

When taking these figures into consideration, it becomes apparent that the financial loss would have been significantly higher than the previous year without these player disposals.  In fact, if the loss on player sales had been similar to the year before, EFC would have approached a staggering 13M loss for the year!!!  The overdraft would be correspondingly bigger... or worse, the club would have gone bankrupt.

Similarly, the overall debt of 29M does not take into consideration the transfers of Messrs Jeffers, Ball and Radzinski (which occurred after May 31, 2001).  These three transactions should bring the overall current debt figure down to nearer 20M barring any "devil in the detail" of the bargains entered into.  

And there is one overall convenient and perpetual myth that should be smashed: this is peddled lately by no less a figure than a former glorious centre forward now on the company's payroll.  It is that any financial fault lies with the previous administration.  These figures, after two years of Kenwright's TBH in control, are clearly the direct responsibility of the present regime.  

One important point is that the debt (one year on) has increased from  ~15M to 29M during their time.  How can this have any bearing on the previous regime?  Particularly when the present regime would have had every opportunity to undertake the due diligence with which they appear to approach other matters with such regularity?  Or is it a telling reminder of the spending spree that preceded the failed media deal?

  

 RE-FINANCING REPACKAGING

  

It is difficult at this stage without a full statement from the club on the matter to truly weigh up the benefits of the re-financing package the club has apparently put in place.  The figures suggest a 25M long-term fixed loan to mop up all the outstanding loans and overdraft, with a 5M overdraft.  

If this is fact then this could help improve matters.  However, can you really anticipate EFC operating within the confines of a 5M overdraft facility given that historically over the past 2 years the loss has been gross nearly 1M a month without accounting for the influx of money from potential profit on player sales?  

This will take incredible discipline from the Board.  In order to fulfill the obligations of the loans and not exceed the overdraft, EFC must each year record at least a 3M net profit.  Previously, the Co-Op bank held a fixed a floating charge on all the company's assets to secure the main overdraft.  The new relationship with apparently the Allied Irish Bank will presumably require the same collateral.  

With this security in place for between 15 to 20 years, the club will not be able to use Goodison Park or any of its other assets as collateral for Kings Dock unless a financier is prepared to either re-package the loan again or take a second charge on the assets.  Overall, this refinancing package will have to be looked upon as a temporary solution; without the additional revenue pencilled in from Kings Dock, the estimated 3M in annual repayments have the potential of increasing Everton's debts unless profitability is dramatically improved.

  

 DIRECTORS' SHAREHOLDING

  

The Everton Directors last year held around 12% of the 35,000 outstanding shares in Everton FC Co Ltd:

Sir Philip Carter   721 Shares
Bill Kenwright   556 Shares
Keith Tamlin   119 Shares
Arthur Abercromby    105 Shares
Paul Gregg      0 Shares
John Woods   216 Shares
Lord Grantchester 2,773 Shares

Since Lord Grantchester has now left the Board, the remaining six directors hold less than 5% of the shares.  However, Abercromby, Woods, Gregg, and Kenwright are also shareholders of True Blue Holdings, which has 24,986 shares in Everton FC.  There has been no change in the directors' shareholdings since last year.  

  

 PROFIT AND LOSS

  

This is probably the most important and revealing section of the accounts:

Turnover: 32,852,568  
Cost of sales:   (37,846,033)  
Gross profit/loss:   (4,993,465)
Other income:      214,978
Other operating costs:   8,012,225 
Operating loss: (12,790,712)

COMMENT: EFC therefore lost 12,790,712 before taking into consideration the profit/loss on the disposal of player registrations.  It is only when taking the player sales of 10,741,596 into account that the loss is dramatically reduced.  When adding the figure 2,049,116 as the loss before interest and taxation, adding the interest paid out of 1,603,702, do we arrive at a figure of 3,652,818 as the loss for the year. 

The previous year the loss was 11,169,099; however, during that year, there was a loss on player registration of 991,428.  In broad terms, had EFC not raised significant sums of cash through the disposal of player registrations (ie, selling their best players) then the loss incurred would have risen significantly last financial year to approach nearly 13M.

  

 BALANCE SHEET

  

There are several pointers here that are of interest.  Firstly the balance sheet has reduced in value from 7,378,241 in the year 2000, to 3,725,423 in the year 2001.  This is despite taking advantage of various accountancy rules to inflate the intangible assets from a 2000 value of 13,311,994 to a 2001 value of 25,112,687. 

Debtors  7,586,212
Cash in hand 34,990 
Creditors amount falling due within one year: 29 502 716 
Net current liabilities: 17 916 627 
Creditors:   11,737,226 
Provision and liabilities for charges:   2 453 978 
Net assets:    3,725,423 

COMMENT: The massive increase in creditors is due to the extra loans taken out in 2001; However, had there not been a favourable adjustment in the intangible assets then it could be suggested that EFC would have a negative worth in the region of (9M).

  

 TURNOVER

  

Match receipts and other income from football related activities 28,608,877 

Commercial income 4,243,691 

Combined figure 32,852,568 

This shows significant improvement as the 2000 figure was a combined 28,140,859, but this probably reflects increased TV money and little more. 

Merchandising showed some improvement 2,504,914 from the year previous of 2,007,323 however this does not compare favourably with clubs such as Liverpool whose merchandising values dwarf this quite considerably.

COMMENT: One significant operating cost inclusion highlighted for the previous year is the figure of 513,042.  This figure relates to the fee EFC paid towards the legal and professional costs in relation to Peter Johnson's sale of his equity to True Blue Holdings.  Why EFC paid the bill for TBH to acquire the stock as a matter for discussion has passed by the other shareholders.  Given that it relates to the year's previous accounts, the board are only answerable to their conscience for this disappointing decision.  Why upon purchasing the equity TBH could not pay their own fees will always remain a mystery.  

Similarly the related professional costs for this audit increased from 16,500 in 2000 to 20,000 in year 2001.  More significant was the cost of other services from the auditor rising from 5,000 in the year 2000 to a massive 185,612 in the year 2001.  Could this indicate that EFC have paid perhaps an extra 185,000 in consideration of the auditors to prepare a business plan or other financial work to support the Kings Dock?  How much of a bill is currently being run up for professional consultancy fees is anyone's guess but is likely to dwarf this figure.  

One other interesting point (albeit small) to note here is the increase of motor vehicle costs from 29,373 in year 2000 to 92,083 in 2001.  Given that the salaried staff numbers decreased, this seems curious.  Perhaps a few new vehicles have been provided for staff at the company's expense?  Such a sharp increase seems to be poor decision given the parlous state of the current finances of the club. 

  

 DEBT

  

The debt was highlighted in the accounts as 29,502,716 made up of the following main parts:

Overdraft      18,540,547
Bank loans   2,116,666
Other loans   6,523,117
Creditors    1,109,581

COMMENT:  It should be noted that none of the loans referred to were active in 2000; all were commenced in 2001.  Once again, the purpose of these is a matter for the shareholders of the company to ascertain but it is interesting to note that, because of this increase in borrowing and despite the positive player sales, the debt increased massively in the club.  The club are anticipating 8,500,000 to come in from player sales over the period since the accounts closed for the year.

  

 WAGE BILL

  

EFC employ the following FULL TIME personnel:

2001 2000
Playing training and management 63 66
Youth academy 23 15
Football in the community   9   7
Management and administration  62 56
Catering and sales 57 53

TOTAL: 

205 197

This has seen an increase from 197 with the youth academy increasing from 15 and the management/admin increasing from 56 to 62.  The combined wage bill increased from 22,336,946 to 26,333,900.

COMMENT: Surely, if the club are to keep within the confines of their new financing package, they must seek to reduce the wage bill dramatically, perhaps to between 50-60% of the overall turnover (it is currently nearly 75%).  How they achieve this without gambling with the club's premiership status, whilst selling some players, and replacing them with fresh talent is a very difficult problem.  Insoluble? Only time will tell. 

More than the Kings Dock issue, the finance problems have needed to be addressed since the day TBH took control of the club.  It is also perhaps encouraging to see at last the issue of the playing staff and the day-to-day running of the football club put firmly to the top of the agenda.  

A good cup run would go a long way to helping pay off the first year's debt installment, along with a special set of shirts emblazoned "Everton FA Cup Millennium Stadium 2002" .

Paul Holmes

  
Last updated: 01 December 2008

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