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The Price of Investment

By Rupert Sullivan :  19/07/2008 :  Comments (14) :
Having read a great many of the reactions to the letter from MP Peter Kilfoyle that was published on the EFC Website this week, I was interested to note the differences in response based on what appears to be people on the pro-Kirkby side and those on the anti-Kirkby side. The theme seeming to be that those on the pro-side not only did not believe that the letter was negative but also that the points made in the letter were correct.

I do not inted to dissect either the letter or the reaction here, however; rather I would like to point out one aspect of the argument for the pro-side ? the need to improve the club (build a stadium) to seek investment. The implication of this being that no-one would buy / invest in EFC when their first responsibility would be to upgrade the stadium. This is certainly a point which has been mentioned by the club itself.

Now I would disagree fundamentally with this point for several reasons. There are several possible methods of invesment to be considered, including the following three areas:

1) Sponsorship

Investment from a body other than the club itself for an exchange in services ? usually some form of advertising which will run for the duration of a contract. This can therefore be long-term or short-term and probably has a direct financial link to the image of the club at the time ? and potentially on the stadium issue since the stadium will affect the image of the club (but then so would being outside of Liverpool...)

2) Ownwership ? whole or in part

This pertains to someone buying all or part of EFC. Obviously the value of the club would be based on several things ? the level of success, perceived assets (players, existing sponsorships / contracts etc) and actual assets (stadia, buildings etc) ? but also the potential of the club. The image of the club would also have a bearing on this valuation.

There is also the possibility here of Ownership for Prestige ? the fact that someone will want to buy the club just because they love it. This could therefore include the 'Sugar-Daddy' model and may not be affected by the financial valuation of the club at all.

3) Charitable

People simply giving money to the club ? perhaps only a minor form of investment and the factors which influence this can be varied and many.

Of these three streams, both Sponsorship and Ownership have been raised by the club as areas which would be affected by having a new stadium, and I would agree with this. However the club have so far not mentioned the aspect that moving to a new stadium could also have a detrimental impact upon the search for investment:

1) Effect on Sponsorship

Would a business rather invest in a club with the history of Everton, in a socio-economic region which comprise 1 million people and is growing, next to its ancestral home and with the option of building on this potential (money allowing); or a club which is situated on a trading estate next to a supermarket ? a club which has said goodbye to its ancestral home and moved to a smaller socio-economic region?

2) Effect on Ownership

Since any new stadium will incur debt, the value of EFC could be argued to be broadly similar if they are in Kirkby or at Goodison, surely therefore it shouldn't matter where the club is? Once the club moves it will lose some of its potential ? it wouldn't be able to build a new stadium for a start and therefore the opportunity cost of this will need to be incuded in the valuation of the club. Agreed that a new stadium could provide faster and initially better revenue streams, but does the club really want an investor who is only interested in the short term?

I contend that EFC needs to be run as a business and needs to secure its long-term future ? and although this can include investment ? it must come from the club being run for the long-term survival of the club / business. If EFC believe that investment will be improved by a move to a new stadium, and is prepared to move away from the benefits of staying in Liverpool to do so, then I belive that it can only be looking for short-term investors.

I find it very hard to believe that there is no-one willing to invest in a business which has the history and image of Everton Football Club. Yes, I know I am a fan, but this club has one of the longest and proudest records of any football club in the world ? surely if there is no-one willing to invest it is because of the way the club is being run?

I don't know about you, but that is not what I want for EFC.

Reader Comments

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Jay Harris
1   Posted 19/07/2008 at 17:11:05

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Some good points, Rupert.

There is no doubt that with the exception of the playing side the club is being totally mismanaged.

For the chairman to come out and say he does not know what's going on, he?s only the chairman, says it all to me. Add that to growing debts of £60 miilion and £10 miilion a year operating losses and there is no doubt we need change at the top and soon.

As regards potential investors, I am certain that we must have had quite a few approaches based on other takeovers in football.
What has happened remains between "Blue"? Bill and his cat but for there to be a willing buyer there must be a willing seller and until recently BK has stated he does not want to dilute his shareholding. In that case you need either a Father Xmas or a ridiculously high offer to buy him out.

I noticed recently that Jack Hayward gave his shareholding back to Blackburn for 20 quid ? if only Bill was as blue as he claims.

The pending EGM will have some sort of impact because BK does not like criticism so hopefully that will get him out.
Matt Dee
2   Posted 19/07/2008 at 18:51:28

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Rupert, With so much mail on this site revolving around GP vs DK, full marks to you for writing an article about the possibilities of outside investment. Without picking your article apart, your overall message seems to be about whether EFC is investable as a business, and whether DK will impact on this. I think this cuts straight to the major issues regarding the club?s long term future.

I won?t pretend to be the expert on football economics, but given that three of the Sky four have changed hands in the last few years, as have two of our current Uefa Cup rivals Man City and Villa, it would seem on the surface that the Prem is still the place to invest your cash. Given Everton?s current relative health on the pitch, it looks like we would be the most ripe club in the country for takeover. I realize this is a pretty simplistic overview - perhaps someone can provide more detail to the contrary?

Whilst Kirkby may seem attractive to some fans in the short term, it could be devastating if progress is not sustained on the pitch. Having cut its ties to the fanbase closer to GP, its traditional identity, and the city?s sphere of influence, I don?t see how the club could either maintain it?s existing fanbase, let alone attract new supporters elsewhere, unless CL football is secured regularly, especiall given the local competition. I find the idea that there are thousands of potential new fans along the M62 corridor frankly ridiculous.

I gauge from comments on this site that many fans believe EFC aren?t investible, some even suggest that takeover talk is always club-driven propaganda ? BK?s "looking for investment 24/7" and all that.

I have a friend who worked on an abortive takeover bid a couple of years ago, and from his accounts I don?t believe this is the case. All evidence I have come across suggests that investing in the club under the current regime is not particularly attractive but that a takeover is a real possibility. Presumably only Bill has all the answers, whether he would share them without all the usual bravado is another issue.

Aside - it is strange that BK?s recent expression of his desire to sell EFC seems to have generated little interest in the press. Whether a takeover would be popular amongst the fan base is another question, understandable with Johnson era still all too fresh in the memory. Personally I?d like to see it happen as it looks like the only long-term alternative to Kirkby.

Neil Pearse
3   Posted 19/07/2008 at 21:53:17

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Rupert, I think you are spot on that this issue of new investment is absolutely the most critical one. However, I disagree with your arguments.

On sponsorship, your major point is that Everton would be moving to a smaller socio-economic region, and so would be less attractive. Firstly, as is made obvious by all the objections to DK from LCC et al, Everton is simply moving five miles inside the same basic socio-economic region (Merseyside, if you like). Is a border post going to be put around Knowsley to stop people from outside going in? I am not quite sure why you guys keep carrying on as if Everton were planning to move to Milton Keynes. We aren’t.

In any case, sponsorship is mainly to do with TV these days, so what matters most is the success of the team on the pitch. Location is not very important.

On ownership, you yourself agree that a new stadium will provide faster and better revenue streams. I.e. make the club more valuable. But the real point is that, assuming that a new owner for lots of reasons believes the club needs a new stadium, DK makes the club more attractive because it is such a cost-effective solution. £50M odd additional debt is relative peanuts to someone buying the club - and now they have a shiny new stadium which will generate more revenue.

If Kirkby goes ahead, then I suppose we will see who is right. If it precipitates a new owner after all these years, then it seems that it is what was necessary to make the club a more attractive purchase. If not - then I suppose all along it was Bill simply refusing to sell and then perhaps also bribing keen potential buyers so that they didn’t even whisper to anyone that they were interested in buying us. Or perhaps - and this is more likely than the previous nonsense - that Everton is basically unattractive to new buyers under almost any circumstances. If it is this final case, then we really are screwed.
James Asquith
4   Posted 19/07/2008 at 22:20:49

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£10 per Month... that could be the price of investment.

Seriously. 40,000 fans paying £10 a month each could raise nearly £5m a year. That?s enough to raise a loan for over £30m and pay it back in just 10 years (at a realistic 8% interest).

The £30m could be used to purchase part of the club through a rights issue, meaning new money comes into the club instead of the existing directors/shareholders pocketing the cash.

£30m should be at least close to enough to completely redevelop the Bullens Road stand which would:
1. Get rid of the majority of the worst views in the ground.
2. Provide much of the upgrade in corporate facilities which is said to be required.
3. Increase the overall capacity enough to test whether the demand is really there without the possibility of having thousands of empty seats if it isn?t.
4. Reduce the maintenance overheads for the ground as a whole while at the same time, increase turnover. This allows the additional profits to be re-invested in other areas of the ground.

There are many issues which would need to be thrashed out:
- How many shares should we get for £30m? What % of the club would the fans own?
- What do the fans do after the loan is repaid? Stop the £10 DDs and just sit on our shares? Keep investing and repeat the loan + share issue deal? Keep investing and save up until we can finance more shares without the loan and consequent interest?

The answers to the issues would lie in a number of directions. We would need financial advice to value the club as it stands so we can determine what % our money should buy. We would need market research to test the water with fans.

I fully expect many more potential pitfalls to be pointed out by the usual suspects. However, I do believe the above plan is possible. I also think that if we can get the financial numbers right, it will benefit all parties:
- EFC get capital investment which is seemingly not currently available anywhere elsewhere as well as an impressive modern stand to face the new Anfield everybody seems so worried we?ll be in the shadow of;
- the 40,000 members get a democratic say in the running of the club (although I appreciate this could also lead to future strife & splits);
- the matchgoing fan gets better facilities;

And just imagine the brand image and media profile you could generate when something like a third or more of the club is owned by its own fans... you could call it "The People?s Club"...nah, that would never catch on ;)
Rupert Sullivan
5   Posted 19/07/2008 at 22:53:16

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Although I do believe that a new stadium would provide faster and better revenue streams, I believe that this would only be a short term measure - and one which compares favourably only to EFC staying at Goodison without revamping it. I honestly believe that staying in the area would provide a better potential for earnings than would Kirkby in the long run.

Also - not to be picky but if the major part of Sponsorship comes from the TV then surely EFC don’t need to move anyway..? Yes I know - better streams in the short term, more success on the pitch....

You know, my overwhelming regret here is that whatever happens we the fans will never have a chance to prove the benefits of the alternatives - be that staying at GP, moving to Kirkby or going for the Loop and unless EFC suddenly start winning the league and cups every year I think that this issue will divide this entire generation of fans. This will be BK’s legacy - and I suspect that half of the fans (whichever doesn’t matter) will never forgive him for this.

If only this hadn’t been handled so appallingly badly...
Mark Gray
6   Posted 19/07/2008 at 22:46:26

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Bill Kenwright through TBH acquired Everton Football Club for something like £21m and the price paid per share was reported to be in the region of £850 for a 70% stake in the club. The club?s shares currently exchange hands at £1,300 a piece and there are 35,000 shares. Using this logic and without allowing for a discount for buying shares en bloc the club as a going concern with its current level of debt, assets, turnover etc etc would be valued at something like £45m.

If we move to Kirkby we will increase our debt by the amount of money we have to borrow to construct the stadium but the expected increased turnover generated by 10,000 additional spectators should offset the repayments created by this additional borrowing. In addition we will also use the sale of existing assets such as Goodison and Bellefield to help fund the stadium build costs and therefore transfer the existing asset value into the new stadium.

What you are both overlooking and what is a very salient fact here is that the club will not have to resource ALL the money to build the stadium as the club hope to achieve a subsidy from the proposed retail development in Kirkby. The DTZ report identifies that the club would be getting the benefit of a reported £52m enabling money. This then becomes an asset in the form of a new stadium.

The club will then have a tangible asset worth £130m for the cost of just £78m with the £78m being financed through additional debt and the sale of existing assets.

How does this situation actually benefit Everton Football Club? Any new investor will still have to pay for the club in full whilst the valuation of the club, as a going concern, will have increased by at least the £52m subsidy.

The benefit in relation to the increased value of the club is gleaned by its shareholders of which 70% is owned by Messer?s Kenwright, Earl and Woods.

In essence, any new investor will have to put an additional £52m into the pockets of the shareholders should they decide to sell once the stadium is complete.

Is this what Destination Kirkby is all about?

Improving the club?s balance sheet shortly before its sale?
Martin Hughes
7   Posted 20/07/2008 at 09:53:17

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Just a point, if EFC was taken over wouldn't the new owners do the same of Blue Bill now? and mortgage the club to the hilt!

Just a point!!
Simon Skinner
8   Posted 20/07/2008 at 12:48:40

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Martin - you are exactly right. Most of the people on here are wishing for an "investor" don’t want an investor - they want someone to give money to Everton.

An investor is somebody who puts money into a company, speculating that they will receive more money back in the future. This means, inevitably, that the investor will actually take money out of the club over the lifetime of his investment.

The only way such an investment can benefit the club is if the investors initial cash investment causes such an upsurge in the clubs fortunes that, even after the investor takes more money out than he put in, the club is better off.

So, ask yourself this: how will any investor get his money back from money in Everton? For Everton’s position to improve, we clearly have to break into the Champions league. How much money do you think we need to achieve this? £50m? Even then, it’s a huge risk, and theres a very real chance that even if we spent the money we’ll actually go backwards not forwards. There are no certainties in football, after all. So how exactly is the investor going to get his money back?

Man Utd and Liverpool were ripe for a takeover exactly because they had low debt levels. The investor could come in, borrow money and essentially buy the club with largely it’s own money. They then pay dividends from club profits (that’s money straight out of fans pockets and into the owners) to recoup their own investment. Is that what we want at Everton?
Jason Turner
9   Posted 20/07/2008 at 14:52:33

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Dont do it Evertonians!
Keep your great club in the hands of real fans and not some buy in a suit out to make a quick buck with no real regard for the club!

Americans cut off Liverpool’s roots

LIVERPOOL’S American owners have cut another of the club’s roots in the local community by ending a 115-year association with their auditors.

Since Liverpool Football Club and Athletic Grounds Ltd were incorporated in 1893, the books had been overseen by an office in Liverpool which is now part of respected accountancy group PKF.

But PKF were asked to resign, which they did on July 8, and they will be replaced by ’big four’ firm KPMG, who already do the books for Kop Football Ltd, the immediate parent company set up by Tom Hicks and George Gillett to control their ’franchise’.

Chris Stool
10   Posted 21/07/2008 at 12:04:08

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Agree completely with Mark Grey. The DK thing seems to be getting pushed through and the only ones who seem to benefit are the owners of the club who, at least in the short term, will have their share values increased.

Problem is they would have to sell up pretty sharpish as the value would start falling as the proposedl 50 000 every game try and park and ride to the stadium and it all goes FUBAR.
Martin Hughes
11   Posted 21/07/2008 at 15:37:48

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With KPMG now involved does this mean EFC are going to be taken over? Or does it mean administration!
Peter Howard
12   Posted 21/07/2008 at 16:58:47

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Rupert: geographically, how do you define the socio-economic region consisting of 1 million people
Mick Fleming
13   Posted 21/07/2008 at 17:46:22

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I am NO now and always have been NO, I have got my reasons but can’t we just all wait and see what happens and then start arguing amongst ourselves?

If DK is approved it is going to happen regardless.

Vote cast, out of our hands, end of. No more silly debates about if, when, what about and so on. Do you really think we can do anything about it.

Stop winding each other up and lets just wait and see. I bet you will still go no matter were we end up.

Daniel Howard
14   Posted 21/07/2008 at 21:07:16

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Same old stuff. "History and image" won’t mean a jot to as serious investor. We do that a lot of looking back at Everton - the club rested on its laurels for too long and cannot now rely on its "history" when attracting investors who will care about only one thing - the future.

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