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A tale of conflicts

By Suren Jo :  26/07/2007 :  Comments (9) :
When I look at it very carefully, it looks to me that the only reason Everton want to move to Kirkby is the inflow of ₤50M in investment in the new stadium from Tesco. Everything else with the Kirkby deal, directly or indirectly, is achievable irrespective of Everton staying within the city limit or moving just outside it.

The reason why we are having such a big debate today regarding the ground move is the emotional strain of moving away from Goodison Park and outside the city of Liverpool. I think if we were to move within the city limits, the anxiety level would have been lower, albeit moving away from Goodison Park.

It looks to me that those who make decisions at the city level are not showing us (Evertonians) that they really do care about Everton. Liverpool City and Liverpool FC is a pairing made in heaven and the LCC members are happy with that. The question we need to ask is: Will the city care about two clubs or one big club? I proceed to answer that question next.

First, let us compare our club with Liverpool FC:

Table 1: Approximate figures for key financial statistics

	Everton FC	Liverpool FC
Turnover	₤60M (EFC:Worst)	₤120M (LFC:Better)
Long-term debt	₤30M (EFC:Worst)	₤20M (LFC:Better)
Accumulated Losses	₤40M (EFC:Worst)	None (LFC:Better)
Accumulated Earnings	None (EFC:Worst)	₤6M (LFC:Better)
Short-term debt	₤30M (EFC:Can we pay?)	
Unfortunately, Everton pales in comparison to Liverpool FC. Just to cover its debt and accumulated losses, Everton need around ₤100M. When we know that Everton?s Turnover barely makes for the Operating Expenses, from where is the club going to generate that excess cash to pay its debt and cover its losses?

Sad news: Everton need to control current expenditure on players and so do not expect a foray in the transfer market from Everton. It is clear that LCC members would not mind Everton leaving the city given the urgency of its financial state and Everton?s inability to fund any development even if the City makes the land available to Everton at the expense of taxpayers? money.

If you look at the future, unfortunately, once again, we are overshadowed by Liverpool FC based on what we know. At Liverpool FC, one is guaranteed (i) Champions League Football, (ii) Challenge for the League title, (iii) a good CUP run. One gets to see Fernandes Torres (₤20M), Kuyt (₤10M) ? Top everything with a turnover around ₤125M every year? Liverpool FC already has twice the financial muscle of Everton and will make it three times sooner before we are able to do anything about it.

At Everton, when we need around ₤100M just to clear the debt and cover the losses; I do not see that Everton will have any funds soon to build a stadium within the city limit. Sad truth; but we have to face the facts. We need to be realistic. Whether we like it or not, Everton is in dire need to generate funds to meet both the operating and financing needs.

If we order the needs of Everton as follows:

  1. Operating needs (i.e. paying daily, weekly & monthly expenses);
  2. Financing needs (i.e. paying interest and principal on the debts);
  3. Investment needs (i.e. investing in new players and stadium).
Understand that Everton already owe an awful amount on both needs 1 and 2; so the question of satisfying need 3 does not even shore up at the moment. Everton would stutter if they wer to build their own stadium within the imaginary limits of Liverpool City. It?s too hard for Everton to turn its back on the ₤50M free cash from Tesco in the form of an investment in a new stadium. The stadium is impossible without that help. That?s why I do not see any Plan B.

I will stop here as my heart does not want Everton to move away from tradition but my brain does not see any future for Everton if the club stays put. The only difference between Everton staying in Liverpool City or moving to Kirkby is that Everton will be less poor by ₤50M with thw move to Kirkby; and, Everton?s CEO sees that as too much to resist.

Why do I use the words ?less poor? and not ?richer? in the above sentence? Well, because the Kirkby move does not guarantee that Everton will get the money to get rid of the debt and stars creating some wealth for itself. Hence, the Kirkby move solves only some of Everton?s current problems.

Reader Comments

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Brian
1   Posted 26/07/2007 at 08:20:22

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Very well put mate. There’s some sad and upsetting, but still true, facts in your piece.
We ARE inevitably between a rock and the hard place in that we’re damned if we do and damend if we don’t.
We have to try, as hard as it is, to take the sentiment out of it and forget about the RS because as you’ve rightly pointed out we can’t really honestly compete with them at the moment.
I’ll admit Kirby ISN’T what I want, but it may however be the lesser of two evils.
Rupert Sullivan
2   Posted 26/07/2007 at 11:49:45

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From where do these figures derive? £30m long-term debt, £40 accumulated losses and £30 short term debt? I would also like to know what you mean by accumulated losses.

If the figures are correct then perhaps we need similar investment to the one which just wrote off the £80m LFC owed...
Bob Turner
3   Posted 26/07/2007 at 12:10:28

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Not sure I agree with your ?facts?. I take it you?re using the accounts for the year end May 2006 (unless you work ?on the inside? and have seen the internal accounts for the year end May 2007).

I?ll grant you that your figures for short term debt (£26m), long term debt (£28.5m) and accumulated losses (£38.5m) are close. However, you?ve taken them somewhat out of context to claim that Everton ?need around £100m?, as basically you?ve ignored all the company?s assets!

For the short term debt of £26m, we have short term assets (stock, debtors, investments and cash) of £13m.

For the long term debt of £28.5m, we have long term assets (player values, which doesn?t include home grown players, and tangible fixed assets) of £32m.

For the accumulated losses of £38.5m, we have share capital and reserves of £28m.

In fact, the ?shortfall? of the liabilities of the company compared to its assets is £10m, not the £100m you make out.

Another point I?d like to make, not specifically raised by this post, but certainly by a lot of other people, is the amount of ?debt? we will end up with if we move to Kirkby. Figures of around £10m - £30m have been bandied about, but no-one, not even the club knows what the final figure will be unless and until it is completed. The point I want to make is this ? even if we end up with a ?debt? of £30m, we will have an asset ?worth? up to £150m i.e. we will be up to £120m to the good.

(I know that we will not ?own? the freehold to the property, but given the reasonable lifespan of a stadium, the ability to use the stadium as if it?s ?ours? for the next 199 years means, in effect, we ?own? it.)

The amount of ?debt? is therefore not strictly relevant, as the assets gained will offset it. What is more relevant is the company?s ability to meet the payments on this additional debt, along with its current debts, as and when they fall due. As long as the timing of these payments is structured accordingly, for example, matching the 25 year ?mortgage? secured on future ticket sales, a relatively successful Everton shouldn?t have too many problems meeting those payments, until such time in 25 years when the debt is cleared.

I know this argument could then be used to justify a fully Everton financed stadium within the Liverpool city limits i.e. spend £150m, get a £150m asset, but the repayments on borrowing £150m would be crippling (at 6% it would be about £11.5m per annum), and a much bigger gamble than borrowing £30m (£2.3m per annum).

I would point out though that this is all based on the accounts from a year ago, so I have no idea how things have moved since then. I would expect, however, that given a decent season last year, in terms of the league position anyway, that the figures have not materially worsened.
J.harris
4   Posted 26/07/2007 at 12:02:07

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You’re not Bully in disguise are you??
I dont know where you got you’re figures from but they bear no resemblance to the clubs books and do not take into account the Rooney and extra television money from last season (not published yet.
The big difference is in the vision.Liverpool sought a big investor , a world class stadium, world class players, and world class City.
Why do we always think second best to keep Bullshit Billy in power because he’s a True Blue??
We could do a Liverpool if we found a big investor and thought big.Look what we achieved under John Moores and there was little Television or marketing money to attract investors then.
WE must vote no to Kirby until the club is in better hands.
Bob Turner
5   Posted 26/07/2007 at 13:39:07

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J Harris, I don’t know if it’s my figures you’re questioning, or those from the original post, but I can assue you that they come from the official accounts for May 2006.

As regards your comment about John Moores, we achieved that success primarily because of him and his money, and relative to the other clubs against which we were competing, we had a lot of it.

Times have changed, football certainly has, but money still talks, it’s just that we don’t have a lot of it anymore.
Dave Thompson
6   Posted 26/07/2007 at 17:43:29

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Bob Turner,

You say that for £30M we will have an investment worth £150M. In the next paragraph, you say, that you know we won’t own the land.

Given that the valuation of £150M is spurious at best, in that the build cost is £50M and the fitting out "up to" £35M, even adding in the amazing discount of £25M, you can’t get to £150M unless you include the land.

So to revise your figures, we have a stadium worth maybe £100M for a £30M debt.

That’s OK. Could you explain how this debt will be financed, and what impact it would have on the £10M a year Moyes would have for the team, particularly since our CEO said it would be "debt-free" in his first estimate of costs.

How much will average attendance have to increase to meet these projections, and where will they come from?

Finally, given that there are only 1000 car parking spaces planned, where will they all park, given that would cater for a maximum of around 4,000 of the crowd?
Bob Turner
7   Posted 26/07/2007 at 18:14:37

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Dave, I may be mistaken, but I was under the impression that the £150m was made up as below:

Land £50m
Building Costs £75m
Kitting out etc £25m

As you said, we won’t own the land. However, the "opportunity cost" of Everton having to purchase the land in the event that we’re not "given" it is £50m - I read somewhere that this was the value Knowsley felt the land would be worth with planning permission, which I believe it hasn’t got at the moment.

The building costs would be £75m if we were having to pay for it ourselves, without Tesco’s influence on Barr. As it happens, under this deal, we don’t pay for the building costs at all.

So £50m + £75m + £25m = £150m



You mentioned that this was initally meant to be "debt free". I think the acquisition of an asset worth £150m for £30m (or even the £100m you mention) is evidence of this being "debt free". Your definition of "debt" seems to be the same as in the original post, you’re ignoring the assets it’s directly related to.

You ask how much the £30m would be to finance, I believe I answered that above i.e. £2.3m per annum. Of course, this £30m figure is the top end figure being bandied about, and ignores any income we could get from selling Goodison and the naming rights for the new stadium, but I’ll go with this.

I think the whole point of having a new stadium is the opening up of additional revenue streams, without being solely reliant on crowd attendances.

Looking at just the gate money, an extra 2,000 people at £30 a ticket for 20 matches a season (1 home cup match - any more is a bonus!) gives £1.2m a season, without additional income such as programmes, food/drink, parking etc, etc. I have no feel for how much additional money can be made from corporate facilities, advertising/sponsorship, conferences etc, but Everton have the business case to back up their projections of an additional £10m per year.

In order to get the financing (presumably from a bank), the business case would be stringenly examined for plausibility, various sensitivity analyses run to check "what ifs", before the bank would be willing to lend, so it’s not as if Everton’s business case would be spuriosly plucked from the air.

As for parking spaces, I’m just a numbers man, you’d have to ask Everton as to why they’ve got the number they suggest, I don’t think it’s within the remit of this thread.
Dave Thompson
8   Posted 26/07/2007 at 21:25:53

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Bob,

The original structure of the deal, quoted by Wyness last Monday was as follows:

The land is worthless.

Tesco will pay Knowsley £50M for the land, given that it will have a value after development.

Knowsley will pay the £50M to Barr for building the stadium.

To count the cost of the land and the cost of the stadium is therefore to count the same money twice.

What I can’t work out is where the extra crowd - long term - is going to come from. Moving out of the City will reduce our potential crowd, not increase it, and parking spaces are an important factor in this. I live in Crosby, and there is no direct public transport service between here and Kirkby. If I can’t park the car somewhere close, I am faced with a two or three stage journey.

Part of the projection by Everton is based on the wider catchment area in terms of driving time, but there is no provision to park. I find it a huge paradox that we’re considering an out of town location next to a motorway, with hardly any parking, and furthermore, I find it very strange that anyone pro-Kirkby is not questioning it.

Bob Turner
9   Posted 27/07/2007 at 10:10:44

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Dave, I hoped that my explanation of "opportunity cost" was clear, apologies if it wasn’t. What this does it take into account the cost of the next best alternative, in this case, to purchase the land, either at the same site in Knowsley, or elsewhere. I’m not a chartered surveyor, so I can’t say with any certainty what the value of the land would be, but as I said, I remember reading somewhere that Knowsley felt it would be worth £50m developed. The only true way to measure this would be to find out from Liverpool City Council how much they would charge for any of the sites they’ve mentioned, given that Warren Bradley has said he can’t give it away.

Basically, to go elsewhere we will have to (a) buy the land, either freehold or leasehold, (b) build a stadium and (c) kit it out. If you can tell me where we can do that for £30m in Liverpool, I, and the rest of the blue half of Liverpool, will bite your hand off.

No-one knows what effect moving out of the city will have on crowds, everyone who says it will increase or decrease is guessing. As I said, though, in order to get the finance, Everton would need to demonstrate the soundness of their business plan, and the bank manager is going to ask questions if he needs to lend us £30m, surely?

As for transport from Crosby to Kirkby, my memory of the timetable for the Southport and Kirkby lines has faded, but I do recall there being trains running from Crosby to Kirkdale, and then from Kirkdale to Kirkby. Of course, you are assuming that the transport providers won’t alter their timetables and routes to take advantage of the throngs now heading towards Kirkby.

As for parking, I didn’t realise that the only road leading into Kirkby was the M57 - I assume the residents of Kirkby have cars to, and therefore need something to drive on. I don’t know how close to the ground you personally need to park, but I drive from Runcorn to Fazakerley (to see my family) then to a street off Rice Lane in Walton, and walk the remaining 2 miles or so - it keeps you fit!

Or are you in the "can’t be bothered" brigade??

I’ve posted elsewhere that I would rather stay in the City boundaries, but in the absence of an affordable, deliverable alternative within Liverpool, we’ve got Hobson’s choice!

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