Investment in squad & exceptional expenses return Everton FC to losses – Report & Analysis of 2017-18 Accounts

The story of this year’s accounts is one of huge spending with increases way beyond the increases in income funded by player sales, capital injections from Moshiri, the use of debt facilities and some increase in commercial income.

Paul The Esk 18/12/2018 22comments  |  Jump to last

“It’s the most wonderful time of the year”…. Genuinely, I feel Christmas is upon us when the Everton Annual Report & Accounts slip into the inbox – time for mince pies and perhaps a glass of something warming as I review the financial affairs of our beloved club in the year 2017-18 (year ending 31 May 2018).

What are the headlines?

  • Huge increase in costs and player amortisation as the club’s investment in players hit the bottom line in pursuit of the higher reaches of the Premier League & regular European football
  • Wages increase from £104.7m to £145.5m
  • Amortisation increases from £37.3m to £66.9m reflecting the continued enormous investment in players
  • Large increase in one off payments (exceptionals) – arising from management changes, new stadium costs and impairment in player registrations
  • Revenues increase by 10.4% to a “record” £189.2m – largely due to an increase in commercial activities outside of sponsorship, advertising and merchandising, namely participation in the Europa League
  • Record player trading profit of £87.8m following sale of Lukaku, Cleverly, Deulofeu and Barkley
  • The club shows an operating loss of £22.9m
  • Resulting in a net loss of £13.1m
  • Debt goes to £66m with a positive cash position of £9.5m
  • Farhad Moshiri continues to fund losses and cash requirements increasing his loans to the club by £100m in 2017-18, to £250m in total.

The story of this year’s accounts is one of huge spending with increases way beyond the increases in income funded by player sales, capital injections from Moshiri, the use of debt facilities and some increase in commercial income.

Whatever criticism comes the way of the club, in terms of manager and player recruitment, plus delays in the stadium development, there can be no doubting Moshiri’s financial commitment to the club which now stands at £250 million – and this before the stadium is financed with the exception of existing development costs.


Overall revenues increased by fractionally more than 10% to £189 million with gate receipts increasing on the back of more home games, sponsorship increasing by 34% to £20.7 million and other commercial income increasing by 100% to £22.7 million.

The increase in sponsorship and other commercial income appears to reflect the inclusion of Europa League participation monies and rewards rather than signalling a huge increase in commercial activity. It further signifies the importance of regularly qualifying for Europe.

It is clear that we remain heavily dependent upon broadcasting revenues (69% of total), much more so than our competitors and peers in the top 6. By way of comparison broadcasting revenues are 34.5% of Manchester United’s revenue and 40% of Manchester City’s in 2017/18. What is more, it is difficult to see further growth in the current cycle from this source of income, thereby placing a reliance on commercial income growth in the future.

Non-broadcasting income growth must remain a priority for the Board and the commercial department in coming years. We cannot afford to wait for Bramley-Moore to increase revenues.


Costs grew hugely as the great spending fest of summer 2017 hit the club’s accounts.

Wages grew by an enormous amount, up from £104.6 million to £145.5 million in 2017/18 taking us into the top 6 of wage payers above Spurs. It’s worth recalling that in 2015-16 the last year before Moshiri took a shareholding in the club, our wages stood at £84 million. It’s also worth noting that wages have increased as a percentage of turnover, despite the enormous increase in broadcasting revenues from 69% to 77%. We have also moved from 10th to a projected 6th in the wages league.

With the huge investment in players, our amortisation costs have increased equally. Amortisation (which is the cost of registration of players spread over the length of their contracts) increased from a previous record of £37.3 million to £66.9 million. Another sign of the financial commitment and perhaps the folly of the summer 2017 spending spree.

The two other elements of costs are the “Other Operating Costs” which is everything other than wages in operating terms – travel, insurance, maintenance, energy, accommodation, legal, professional fees etc etc and “exceptional” costs which include Bramley-Moore, settlement fees for manager/training team changes and any impairment charges to the value of player registrations.

Other operating costs came in at £36.8 million a reduction of 6.1% on the previous year; however, it must be noted that the continued costs of preparing for Bramley-Moore Dock are excluded from this category this year appearing as an exceptional, having been included in 2016-17.

Exceptional Costs

Exceptional costs were significant. Firstly, the continued saga of management changes with both Koeman, his coaching team and Allardyce and his team costing £14.4 million in this financial year.

Additionally, the continued Bramley-Moore Dock preparations cost the club a further £11.4 million in 2017-18. Until such a time as the club receives planning permission, these costs appear in the Profit and Loss account (as with previous years). When planning permission is obtained, these costs can be capitalised, effectively being added back into the P&L and then costed over the life of the stadium. Whilst they impact current profitability, they do not have any effect on Financial Fair Play nor the Premier League’s profitability and sustainability regulations.

The value of player registrations was reduced (impaired) by a figure of £8.2 million.

Profit or loss?

As a result of all of the above, the club swung from an operating profit of £25 million in 2016-17 to an operating loss of £22.9 million in 2017-18, significantly worse than projected at the last Annual General Meeting of shareholders.

When one takes into account interest payments, amortisation, depreciation and player trading profits (at a record of £87.8 million) the club shows a net loss of £13.1 million (2016-17 profit of £30.6 million)

How are these losses funded?

The losses are funded from two sources. Firstly, an additional capital injection of £100 million from Farhad Moshiri through his Isle of Man company BlueSky Capital, and secondly, use of our credit facilities with ICBC and Santander.

£100 million capital injection by Farhad Moshiri

£43 million used of £60 million credit facility offered by Industrial and Commercial Bank of China, secured against Premier League broadcasting revenues

£32.2 million from Santander secured against player trading receivables (remaining Lukaku payments due from Manchester United)

Other areas of note in the accounts:

As always, away from the headline figures, there’s always one or two interesting pieces to pick up in the accounts.

The cost of employing Directors has risen substantially in recent years, rising from £770,000 in 2015-16 to £1.62 million in 2016-17 and now to £2.48 million in 2017-18. The highest paid (but unnamed Director) received £927,000 up from £588,000 in the previous year.

In the context of other large Premier League clubs these costs are not huge, but in the context of commercial performance and delivery of key targets such as Bramley-Moore Dock, accountability and scrutiny of performance must be clearer, and as the costs grow expectation of results and the consequences of non-delivery must be more apparent.

The justification for continued increases in Director remuneration when viewed in the context of the company’s performance must be an area of concern for shareholders and fans alike.

Staff numbers increased from 391 to 427, reflecting a reduction in administration staff but a significant increase on the playing and management/coaching side to 172 from 151. The club also employs an average of 406 temporary staff on match days.

As player trading activities increased in the current inflationary cycle, the amounts owed to and from clubs relating to player transfers increased – trade debtors (amounts owed to Everton) within a year increased from £35.9m to £64.3 and beyond a year from £18.7m to £45.3m. Meanwhile, trade creditors (amounts owed by Everton) increased from £32.5m to £56.2m.

A final financial note in the accounts is the growing (but usually over-looked) contingent liabilities for future transfer fees, signing on fees and loyalty bonuses, now totaling £71 million (2016-17: £50.6 million).


We are, as always with accounts, looking through the rear driving mirror to see where we have been, rather than where we are going. Regardless, the direction of travel is usually clear.

There are often unavoidable truths that can only be altered by a material change in strategy (increase in income or reduction in costs) to become sustainable. Very few businesses can continue to operate under the largesse of their owners, particularly in a regulated environment such as the Premier League and Uefa.

Everton have clearly invested to become more competitive, to increase the chances of success on the pitch, albeit with minimal effect given the recruitment of, and subsequent decisions on Koeman, Walsh and Allardyce. The return on the investment made was shockingly poor and that is reflected in the performance on and off the field.

That performance was thankfully recognised, remedial action engaged, and has resulted in the recruitment of Brands and Silva who both are charged with improving financial and playing performance.

The shortfall in financial performance has been funded by the sale of players, particularly Lukaku, Cleverley, Deulofeu and Barkley, and the continued investment by Moshiri. Moshiri is now the 4th largest benefactor in English football.

What is clear though is that, to become sustainable, we have to improve on the pitch, generating European revenues more consistently and higher than in the past; we have to increase our commercial revenues, more quickly than previously, to (i) meet costs but more importantly, (ii) catch up with those above us.

We cannot rely on future player sales nor on Moshiri to constantly bail us out. The board has to focus on improving revenue generation, instil cost controls and discipline and finally ensure that Bramley-Moore Dock happens as quickly as possible to help grow the business. The delays to Bramley-Moore Dock are hugely costly.

These accounts are (IMO) the final year we can get away with recruitment errors, old business practices, and a reliance on a generous benefactor. We need to succeed on the pitch but, most importantly, we need to expand the revenues of the business through fan acquisition, greater Global engagement, commercial and partnership growth.

The company’s finances have been stretched once more, albeit more than adequately supported by the major shareholder. But it must be remembered that in the current financial year (2018-19) the issue of Bramley-Moore Dock funding has to be addressed, and will undoubtedly require further capital funding by Farhad Moshiri.

We are a bigger business than 3 years ago when Moshiri joined us but, in the chase for success, we have allowed our expenditure to grow significantly faster than our income; it’s now time for the Board to deliver alongside the majority shareholder – there’s much to be done.

Much more analysis is to follow on the #EvertonBusinessMatters podcast including an exclusive interview with Sasha Ryazantsev, Everton’s Chief Financial & Commercial Officer and Board member. Published and produced by The Blue Room. Available tomorrow afternoon here at ToffeeWeb, on Paul’s blog and The Blue Room, plus your usual podcast providers iTunes, Spotify and other platforms.

Follow @theesk

Reader Comments (22)

Note: the following content is not moderated or vetted by the site owners at the time of submission. Comments are the responsibility of the poster. Disclaimer

Pete Edwards
1 Posted 18/12/2018 at 16:42:06
I don't agree that the Bramley-Moore Dock Stadium needs to happen as quickly as possible, yes costs will rise but doing things quickly just to stop this could bring costly problems further down the line. It needs to be done and done properly to maximise it's potential.

As for allowing our expenditure to grow significantly faster than our income, I'd imagine a business man as successful as Moshri knew this would be the case and is looking at the long game.

Phillip Warrington
2 Posted 18/12/2018 at 17:47:38
For all the improvements we still have a significant loss, which is not going away next year if all those highly paid players out on loan are returning. I just hope we don't turn into another Leeds and spend huge sums of money chasing glory without ever achieving it.
Liam Reilly
3 Posted 18/12/2018 at 17:56:27
Revenue is £182M but we're spending £45M and £40M on individual Players! We'd better hope Moshiri doesn't get bored and call in his loans.

It's just not sustainable. I can't see too many more transfer windows like the last two; so I suspect we'll be looking for potential buys in the near future.

Tony Abrahams
4 Posted 18/12/2018 at 18:32:56
One in, one out Mr Styles, unless our benefactor has got a very powerful friend?
Derek Knox
5 Posted 18/12/2018 at 19:14:12
Paul the Esk, a well constructed post, with a lot of financial accountability, most of which has gone over mine, and I suspect many other's heads. Thanks.

As the others have mentioned, let's hope he doesn't get fed up, and want his bat and ball back. But, having said that, he has sanctioned a lot of the cock-ups personally, so he can't waggle his finger too much, methinks.

Phil (Kelsall) Roberts
6 Posted 18/12/2018 at 21:07:52
How does this stack up with FFP? Are we going to be banned from Europe because we are an easy target without friends in high places?
Ian Smitham
7 Posted 18/12/2018 at 23:36:08
Paul, thanks for the insight into the accounts. It looks to me like Moshiri and or Bramley-Moore Dock hold the whole pack of cards together.

The previous CEO has been criticised for his micro-management, including costs incurred by the business; to me, it seems that discipline is needed again.

Too many bad judgements being made at the highest level, where the real money is spent, on managers and players.

Please keep us informed around changes as you see them; please continue the excellent Everton Business Matters podcasts... More to the point, let me get you a beer before the shareholders meeting, it was good last year and will be again in 2019.

Thanks for a great article.

Mike Gaynes
8 Posted 19/12/2018 at 02:08:12
Paul, well done, thank you.

Personally I think we need to sell off some of the directors in the January window. Whoever's making the £927,000 goes first.

Jay Harris
9 Posted 19/12/2018 at 02:59:40
Only if it happens to be Blue Bill, Mike.

I suspect it may be our new CEO but any more informed opinions would be welcome.

Thanks to Paul for another enlightening of our financial situation which I do believe puts us in good company as there can't be too many Premier League sides turning a profit regularly.

Tony Everan
10 Posted 19/12/2018 at 07:14:12
Paul, thanks for the insight into it all, you help me understand this important stuff, a bit.

One question: Do we have to sell first for next summer's recruitment? Will there be any 'extra' transfer funds as a result of these figures?

Ajay Gopal
11 Posted 19/12/2018 at 08:30:12
We are 6th highest in player wages — above the Spurs! It means we must achieve a minimum 6th place in the league. Silva must target the FA Cup seriously — a cup win would go a long way in rejuvenating this football club.

6th and FA Cup — a tall order, but unless we set stretch targets, we will continue to revel in mid-table mediocrity.

Ajay Gopal
12 Posted 19/12/2018 at 08:31:47
And thanks for the detailed analysis, Paul, much appreciated.
Mark Andersson
13 Posted 19/12/2018 at 09:07:20
A very interesting and sober read, Paul.

The world of football is as crazy as the world its self. Greed, corruption and lack of real passion by overpaid players will eventually bring the whole madness to its knees.

If I were to run my business at those kinds of percentage losses, I would have to file for bankruptcy.

Mal van Schaick
14 Posted 19/12/2018 at 13:51:48
Thanks Paul for a detailed breakdown of the accounts.

Regarding sustainability, I think that as long as the club has good ‘turnover’ and we have revenues from TV money and player sales, coupled with revenues from marketing and commercial projects, the club can be an attractive proposition for investment.

The concept of a new stadium may place more constraints on spending, as was shown by Spurs building their new stadium.

I’m hoping we can strike a balance between every aspect of our trading and revenues, in order to deliver on the new stadium, whilst maintaining our status in the league, but that will be in the hands of Moshri, the board and Liverpool city council.

Pete Edwards
15 Posted 19/12/2018 at 14:27:21
Mike, we want the best people working for the club don't we? Well we have to pay the best to have them. Having people knowing what they are doing and having the right connections etc will only benefit us in the future financially.

£588,000 was I'm guessing Elstones salary which I'd agree is ludicrous for what he did.

Liam Reilly
16 Posted 19/12/2018 at 14:42:47
The director salaries are not the problem and are arguably not even on the large side compared to similar size companies; small change in comparison to some of the footballers on the books. £588,00 for example is less than 2 months of Sandro's salary if reports are to believed.

Major overhaul required on the playing side.

Mark Taylor
17 Posted 19/12/2018 at 15:55:28
If nothing else this data shows the price we are paying for less than stellar transfer dealing in recent years. It catches up with you in the end.

While I agree with Paul that we need to get to a much higher income to justify this expenditure, I can't actually see that happening in the near term, or at least there's a very good chance we won't. Then you do have to fall back on your owners and the numbers involved here appear to me to be far beyond Moshiri's resources. The potential liabilities are pretty horrifying.

So is Usamov already on board, but not in public view?

Jerome Shields
18 Posted 20/12/2018 at 06:40:15
Thank you, Paul, for your insightful analysis.

I agree with your opinion. Everton need to perform better on the pitch.

Brent Stephens
28 Posted 20/12/2018 at 18:18:28
The other factors Saturday, Rob, were probably the cold and the fact it was a televised game against a non top 6 side (as much as it hurts me to say that). A miserable atmosphere, at least for the home crowd.
Alan McGuffog
42 Posted 20/12/2018 at 19:18:52
Sam we have the chance to piss them off by building a truly iconic stadium on the banks of the royal blue Mersey in a rejuvenated north end.
Brent Stephens
44 Posted 20/12/2018 at 19:36:41
Paul "I will be over for 6 months starting in April tripping around UK & Eire and so will get the chance to buy you that ale, Brent".

That would be good! Only a brief meeting last time. Fulham and Palace away in April. If I can't make either of those games due to a late kick-off, you might end up with my ticket again!

Paul Columb
45 Posted 20/12/2018 at 23:46:26
Haha Brent might take you up on it! But will definitely be in touch to grab an ale when in Liverpool. Cheer Pal.

Add Your Comments

In order to post a comment, you need to be logged in as a registered user of the site.

» Log in now

Or Sign up as a ToffeeWeb Member — it's free, takes just a few minutes and will allow you to post your comments on articles and Talking Points submissions across the site.

About these ads

© ToffeeWeb