Football Shorts – Part IV

The next part of an assessment of the likely financial impact of Covid-19 on the Premier League

Paul The Esk 13/07/2020 23comments  |  Jump to last

Driven by people with an inability to accept the evidence before them, there appears to be a great desire in society to promote a new normal. (Which in itself is surely an oxymoron?) The pretence that we’ve gone back to a post-Covid existence with minimal apparent changes nor damage.

Nowhere moreso is that apparent than in the bubble that is the Premier League. Football is back, Mourinho a shadow of the manager he was, and Pickford picks out “4 foot 6” Bernard in a last-minute attempt at an equaliser. It’s no longer Project Restart, it’s the 2019-20 Premier League season once more.

However, the reality is extremely different. In the first three parts of the Football Shorts series, I built a case, a forecast, of the possible financial impact Covid-19 will have on the Premier League and its constituent members.

In part III, I looked at the cash flow implications for 2019-20 and 2020-21 for those clubs in the Premier League in 2018-19 and still present. I forecast, based on reductions in matchday income, commercial revenues and broadcast revenues with the positive (from a cash flow perspective) impact of reduced transfer activities, cash shortfalls of £266 million for the completed 2019-20 season and over £800 million for the full 2020-21 season.

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Incidentally, Richard Masters, CEO of the Premier League, forecast “losses” of more than £700 million at a recent hearing of the DCMS Select Committee. I suspect his calculations carry the hope of paying spectators returning to grounds at some point in the 2020-21 season. My forecasts do not.

Masters’s reluctance to commit to financial assistance further down the football pyramid spoke volumes, despite the Premier League having claimed before restart that the season had to be re-commenced in order for them to provide financial support to grass roots.

The question is: Who is worse affected by these projections and how do they fund or mitigate the reduction in cash flows?

Change in cash flow v 2018-19 £’000s Season 2019-20 Season 2020-21 Total
Manchester United 35,785 131,000 166,785
Tottenham Hotspur 27,585 150,100 177,685
Arsenal 23,335 109,200 132,535
Liverpool 26,935 121,900 148,835
Manchester City 28,585 92,000 120,585
Chelsea 22,135 52,100 74,235
West Ham United 13,035 25,500 38,535
Newcastle United 12,155 36,080 48,235
Brighton Hove Albion 9,785 1,000 10,785
Southampton 9,435 27,900 37,335
Everton 10,285 5,900 16,185
Leicester City 9,635 17,500 27,135
Crystal Palace 7,935 12,700 20,635
Wolverhampton Wanderers 8,435 2,000 10,435
Watford 7,635 7,600 15,235
Burnley 6,935 14,800 21,800
Bournemouth 6,635 2,800 9,435
Total 266,265 810,080  1,076,315

What is immediately clear is that the “big 6” are most heavily impacted, their aggregate reduction in cash flow representing 80% of the total amount. These figures include an assumption that the overall player trading volume is reduced by 44% (a 25% reduction in numbers of players being transferred and a 25% reduction in player values – using 2018-19 as a base). Overall, the reduction in player trading positively impacts cash flow within the Premier League even if it reduces profitability.

Short-term fixes

With the traditional player trading option (as a means of making good operating losses) much curtailed through the reduction in buyers and the reduced player values, clubs will have to use existing cash resources in the first instance, before looking at debt facilities as a temporary solution.

The debt options open to clubs will be heavily dependent upon their status. Those with the strongest balance sheets, and critically those with the strongest commercial partners, should find debt financing through their usual banking relationships relatively easy.

Those already indebted and with non-blue-chip sponsors and commercial partners will find financing more expensive and significantly reduced in scale. When assessing lending risk, the banks will look at the strength of the major sponsors – a global bank presents more security than an offshore bookmaker, Nike or Adidas more security than a young or developing kit manufacturer etc.

Of the biggest 6 clubs, Tottenham Hotspur have announced a 12-month, £175 million credit facility with the Bank of England, unsecured and with an interest rate of just 0.5%. Thus their immediate cash concerns are solved but the facility effectively just buys the club time to find further financing in the future.

Manchester United informed the New York Stock Exchange that they have a £140 million credit facility with their bankers. In addition, the 3rd quarter financial results for 2019-20 showed £90 million of cash.

Arsenal had £135 million in cash (source: Fitch ratings) in March 2020. Of this, £36 million was restricted, held in a debt service reserve account (DSRA), a condition of their stadium financing. However, KSE having refinanced the bonds at one assumes a lower rate, will now also benefit from freeing that cash for general use. In addition to their cash reserves, Arsenal have a £30 million facility with their bankers, arranged prior to the Covid-19 crisis.

Liverpool, on the back of very strong results in 2018-19, entered the year in good financial shape having reduced their debt to FSG in relation to the Main Stand to £79 million. In addition, they had net bank debt of £12 million. In total, the banking facilities available to them amount to £150 million. Based on my cash flow projections, that facility would not be sufficient. The postponement of the Anfield Road extension, to be paid out of existing resources and facilities is a clear indication of the funding squeeze they face.

All four clubs above have addressed their short-term requirements. Perhaps they are adopting a “wait and see” strategy to determine their longer-term capital needs. However, each of the clubs will either have to resort to longer-term debt or a permanent capital injection in the form of equity.

Manchester City and Chelsea are blessed with owners willing and able to fund their business cash flow and capital requirements. In January of this year, Chelsea reported that Abramovich had provided an additional £247 million in the previous financial year. No doubt he will continue that support as required.

Who are the lenders?

As we have seen, the biggest clubs have access to the regular banking market with familiar names such as HSBC, Bank of America and Barclays offering secured lending facilities with fixed or floating charges against the assets and income streams.

As is well known, fees for many players transferred between clubs are typically paid over two or three years. As a result, the selling club does not receive the full value of the transfer at the time of sale. To overcome this, a number of clubs have used banks to factor the future receivables. Everton have used Santander to factor sums due from Manchester United (the Lukaku sale) and Manchester City (the Stones sale). Other clubs, Crystal Palace for example, have used specialist lenders such as the Australian bank Macquarie to similar effect.

Not all clubs are creditworthy enough for traditional banks, nor have bankable outstanding transfer fees from players to provide significant sums to meet cash flow and working capital concerns. Indeed, the rapidly deteriorating economic situation post-Covid makes those banking facilities even harder to come across.

Grey Market

There is, however, a legitimate grey market that clubs can tap into. Often set up in offshore locations guaranteeing anonymity for a number of years, these organisations would lend against future broadcast revenues. Organisations such as Vibrac in the British Virgin Islands became familiar names to those that study such things.

Today, the Premier League forbid clubs to borrow from offshore entities using future broadcast income as security. However, clubs can still use companies such as Rights & Media Funding Limited to arrange finance secured against the assets of the club concerned. These facilities are usually renewed annually. West Ham United have a £75 million facility, and Everton, having previously had a 3-year £60 million rolling credit facility with Chinese bank ICBC, also now use Rights and Media Funding Limited.

Capital Raising

West Ham United carried significant debt prior to the Covid-19 crisis with approximately £45 million outstanding in shareholder loans to Gold and Sullivan, plus a facility for £75 million with Rights and Media Funding. Thus, the prospect of finding additional facilities were somewhat limited.

As a result, West Ham United called on its existing shareholders and on, 1st July, raised £30 million in an issue of new shares. David Sullivan (51.1%) contributed £15.03 million; David Gold (35.1%) £10.53 million; Tripp Smith (10%) £3 million; Terry Brown, the Harris family and Karen Brady (3.8%) £1.14 million. The prospect of relegation and the already high levels of debt were likely to have left the shareholders with no option.

Bournemouth find themselves in an interesting position. Although their cash flow is among the least impacted (due to their very low matchday revenues) the club is heavily indebted to their shareholder, Maxim Demin. Significant expenditure in the transfer market meant a significant £81 million was still outstanding at the end of the last financial year, £32 million of which was to be paid in 2020. Current shareholder debt is £100 million. Maxim Demin, in Premier League terms, is not a hugely wealthy man (pre-Covid net worth: £900 million). Staying in the Premier League will stretch his commitment further; relegation would be an extremely expensive outcome for the club and owner.

Although extremely well run, and this is in no way a criticism of the club, Burnley demonstrated the real lack of robustness of many football clubs. In early April, their Chairman and 49.2% largest shareholder, Mike Garlick, warned that a £50 million reduction in turnover would mean “we as a club will run out of money by August”. This from a club with no debt and only a marginal trade balance in favour of creditors. Given that the season is now almost certain to finish, I project the cash flow impact on Burnley to be significantly less than he might have feared. Burnley, to their credit, can see through this crisis despite not having an extraordinarily wealthy owner (Garlick’s net worth is estimated at £62.5 million) nor being heavily reliant on debt. The sensible manner in which they have been run will reap benefits in the hard times ahead.

In a single article, it is not possible to cover every club – I will return to some of the others in a future article. Let me turn now to Everton.


Despite having the fourth largest benefactor in Premier League football in Moshiri – his £350 million of capital injections place him only behind Abramovich, Mansour, and Brighton’s Tony Bloom – our ineffective transfers, huge wage bill, high operating costs and the sizeable costs of preparations to date for Bramley-Moore Dock Stadium have put Everton’s finances under huge strain.

That strain is not only regulatory in terms of FFP (should we qualify for Europe) and the Premier League Profit and Sustainability rules, but a genuine cash strain. In this article Business as usual? I projected negative cash flow for season 2019-20 of around £62 million (on the assumption the season would be completed). For season 2020-21, I have projected negative cash flow deteriorating by a further £29 million as a result of operating activities (before any adjustments for financing or player trading activities).

With significant capital commitments (£350 million of debt, £150 million shareholder and naming rights contributions) arising from the Bramley-Moore Dock Stadium, should work still begin this financial year, negative cash flow of £90 million cannot be funded by additional debt. It could only be funded by further injections from our majority shareholder.

Thus, for the stadium to be funded, and for the club’s working capital requirements to be met to June 2021, based on my projections, Everton need find £350 million in long-term finance for the stadium, £150 million to underwrite the difference between the cost of the stadium and the likely maximum amount of borrowing, and perhaps £90 million to fund our working capital requirements arising from negative cash flow.

A total approaching £600 million. All of this despite having already received £350 million from the majority shareholder since his arrival 4.5 years ago.

All of the above assumes the cost bases currently seen in the Premier League will continue. I don’t think they can. Clubs are going to have to reduce their cost base in future years. As Everton can bear witness, removing costly players on long-term contracts is difficult in the good times, almost impossible in more difficult times. Thus, many clubs will just to have to allow the contracts to run out over time. Where possible, those clubs under greatest strain will try to offload, perhaps even selling assets they’d prefer not to sell.

The alternative is to recapitalise the whole industry. Allow those clubs with shareholders wealthy enough and willing to, to repair balance sheets and provide working capital until such a time as clubs can operate profitably (by reduced expenditure more so than future increases in income).

All of the above will present many challenges. For Everton, in particular, whether we start building Bramley-Moore Dock Stadium this year or decide to defer it, the need for Moshiri to provide additional funding is self-evident.

No-one could have predicted that a global pandemic could have created the scenario in front of us. Some may say Everton have been typically unlucky to be found in such a vulnerable position at such a time. The fact that we are vulnerable is worthy of scrutiny and accountability; it is not just unfortunate timing. The scale of the difficult circumstances ahead require additional skills and expertise at board level if we are to achieve our ambitions. The cost for the majority shareholder, Farhad Moshiri, is going to continue to be significant.

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Reader Comments (23)

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Bill Gall
1 Posted 13/07/2020 at 21:17:25
A question I would like to ask, is there any ruling against another person,say a billionaire, providing a forgivable loan ? as this report gives the supporters who say B.M.D. will never be built more ammunition to their opinions.
This new stadium is the future of Everton football club in retaining manager's, recruiting new players and improving the clubs overall finances, any delay could be devastating.
Eric Myles
2 Posted 14/07/2020 at 00:14:45
£600 million of debt paints a bleak picture but that money would not all be needed at one hit. Say the stadium takes 3 years to build, then the drawdown of the debt facility will happen over that time.

Then for shareholder debt, I'm sure Moshiri and other teams owners are not going to call it in and put their teams out of business. So surely any lenders would take that into account with the right assurances? That reduces our debt significantly and many other clubs also.

We're extremely fortunate that we have Moshiri as our owner now as, with Bill Kenwright and his friend Paul Gregg, we probably wouldn't survive.

Mark Andersson
3 Posted 14/07/2020 at 04:21:37
This report just confirms to me that we live in a crazy mad world.

This pandemic put my small business out of business. I'm now living off government handouts, barely surviving, and that comes to an end in September.

Meanwhile, those shithouse players on vast fortunes can't be arsed putting a professional shift in.

What's the point of a new stadium if we don't have an entertaining and winning team on the field?

Stephen Vincent
4 Posted 14/07/2020 at 06:59:17
In view of the potential consequences of revenue loss due to Covid-19 and the need to fund the new stadium, I wonder if our current board is robust enough?

There is excellent theoretical knowledge, but Denise Barrett-Baxendale (for all her admirable qualities) and Sasha Ryazsantsev have never actually run a business, Brands is purely a football man, and Kenwright is... well, Kenwright!

Perhaps the time has come to appoint someone who has been at the sharp end of a substantial business and who has practical day-to-day experience, to come in and help steer us through these difficult times. Sir Terry Leahy, formerly of Tesco, would perhaps be a good call, as a blue.

Jerome Shields
5 Posted 14/07/2020 at 07:35:11
Stephen #4,

Sir Terry? Definitely not, the whole Tesco edifice came crumbling down after he left. The accounts where found to have inflated revenues. Of course he was long gone and others took the blame.

The Board is not robust enough and has previously been responsible for actions that have resulted in the vulnerable position they now find themselves in, facing the Covid-19 crisis.

Everton need a Board that can draw up a Mission Statement and has the capability to implement policies and plans to achieve its objective. The only current mission is to rip off Moshiri or, more accurately, to continue as before, to rip off the Club.

I am sure that not all Directors have this objective, but they are complicit in being members of a Board that has and is doing so.

Brian Harrison
6 Posted 14/07/2020 at 10:08:30

As always, a well researched and a well written piece, and certainly if your projections are right many clubs will be severely impacted by Covid-19.

I think there are huge questions for our board during the next year or so, and not least how the money needed for the Bramley-Moore Dock stadium will impact on player transfers. Even before Covid-19 I thought that the money needed to build Bramley-Moore Dock would have a real impact on our finances for transfers, but now I can't see how we can both build a stadium and be active in the transfer market.

This is really worrying as this team needs major surgery not just tinkering round the edges, and although nobody could have predicted the pandemic, I could well see Ancelotti walking if we can't provide the funds for the rebuilding that is necessary.

Even if Usmanov plays a more active roll, your figure of needing £600 million is eye-watering numbers, even for 2 wealthy men like Moshiri and Usmanov.

Ian Pilkington
7 Posted 14/07/2020 at 11:01:15

I know you have always been concerned about the impact of FFP on our future prospects. The Manchester City verdict appears to have been a victory over the vested interests of Liverpool, Manchester United, Arsenal and their European counterparts. Will this prove favourable for Everton?

Tony Everan
8 Posted 14/07/2020 at 12:27:11
Thanks Paul another great, detailed report.

It is starting to feel like it’s now or never for our stadium. There may be one or two chinks of light to cling on to. The government may sanction a long term low cost loan for the stadium and its surrounding infrastructure. The have already said they are going to invest and spend their way out of the oncoming recession.

There must be some requests or negotiations going on for a minimal interest loan for what is the regeneration and a long term economic boost to a big chunk of Merseyside.

Jason Li
9 Posted 14/07/2020 at 13:01:13
We'll be alright. Moshiri has an accounting background, and well networked with the elites and rich powerful people

Brands is proven, so is Carlo. We could possibly need a couple more top football data scientists from other clubs like Borussia Dortmund and Ajax who do the scouting analytics. Then we can help support Brands and Carlo with new ideas that have worked elsewhere.

Jay Wood

10 Posted 14/07/2020 at 13:43:14
Beyond question, the global pandemic is a huge curve ball for all. It exposes Everton as Paul has carefully laid out in all his articles.

There are still many unknowns to be factored in to those the Esk has already calculated.

If and when a second wave of CV-19 cases and fatalities hit, how might that further impact on already devastated live sport and match attendance?

How can clubs plan for the future against so many unknowns?

Everton's particular vulnerability is that we are now totally dependent on the largesse of Farhad Moshiri continuing to fund the club.

If he should pull the plug - KER-ASH!

Everton needs him more than Moshiri needs Everton.

He's 65 years old. Has a personal wealth of £2.5 billion. He lives in Monaco and could go and do absolutely anything he likes, when he likes.

So why burden yourself with the yoke of Everton?

Vanity? Indulgence? Distraction? The challenge?

If he is thinking of cashing in his stake, our saving grace is to do so now would guarantee severe losses for him.

If you had stock holdings in January-February and sold up then, you are quids in. To sell the same stock now would incur severe losses. That is the case with Moshiri and his Everton holdings.

I hold to the belief that Moshiri and other money men are using Everton as a convenient vehicle to earn some serious monies in the development of the neglected docklands.

As long as that remains the case, it serves Moshiri's interests to front Everton.

And as others have already pointed out, whilst football economics are bad on many levels, now could be a very advantageous time to undertake a stadium build.

Interest rates are exceedingly low. So too are the raw materials for the build. Labour will not be a problem. Government will encourage such projects as BMD to help get the economy going.

How the global financial collapse impacts on our ability to trade players is another matter altogether.

John Zapa
11 Posted 14/07/2020 at 14:29:25
Great Article Paul as usual. There are still many possible unknowns that lie ahead as Jay #10 rightly points out. It maybe be favourable circumstances to build, but the stadium costs will still need to be repaid in the coming years and the business case to pay it back is non existent.
The track record of the club leadership over the last 2 decades or so, has shown very poor decision making, from managers and staff hired, to player recruitment, contracts, commercial deals etc... I do not have much faith that this leadership team will suddenly turn the ship around. I'm more concerned that another poor transfer window performance, with players of similar quality of Iwobi and Kean being signed will mean the end of premiership football. This will set the club back 10 to 15 years.
Derek Thomas
12 Posted 14/07/2020 at 15:43:14
Jason @ 9; I fear 'scouting analytics' is just why we have Gbamin, Kean and Iwobi at a cost of £80mill+ wages, who can't kick a ball (for various reasons) to a blue shirt to save their lives
Robert Tressell
13 Posted 14/07/2020 at 16:29:58
Don't knock scouting analytics - knock misuse and poor scouting analytics.

We need people watching games and players too of course, but analytics are essential.

Jason Li
14 Posted 14/07/2020 at 16:55:05
Derek @9, yeah - me too. Amusingly, we need to analyse the analytics.

However, sales teams, financial controllers, MD's/CEOs all use data to make a judgement. Some will be industry standard, and will tailor to their own organisation too.

It can't harm us to bring in a few analysts from other clubs who are successful in recruitment to give us some fresh ideas. Would be cheaper than another Delph, Walcott, Tosan, Gibson, Bernard, Snieds, Sandro, Klassen, Van De Meyde disaster... and on and on and on and on.

For example medical stats can be anything, not just for the medical in the transfer window, but on how they run when scouts watch the game - not just acceleration, but length of sprints average in metres in a game, average running speed over a game not just yards covered... and so on.

Wide men - number of times they beat a player in a game, number of times ball taken off their feet (Gomes recently), percentage of passes < 10 metres <20 metres > 20 metres in a game, and so on.

Then we can take this data and iron out what we want in a player to do, eg run with the ball and take people on or just run and turn back if a player is facing, to a midfielder who favours short passes or a high percent of longer passes completed.

If we stay the same in how we decide on our recruitment, guess what type of players we'll have in the next 5 years - again.

Bill Gall
15 Posted 14/07/2020 at 17:20:38
Jay # 100
Your comments / I hold to the belief that Moshiri and other money men are using Everton as a convenient vehicle to earn some serious monies in the development of the neglected docklands may be close to the truth, and may explain why he sold his shares in Arsenal, one of Sky's darlings top 6.

Paul good article, but for some of us not familiar with finances can you or any one else explain the Fair Play ruling in relation to Everton..

F.P RULES. Clubs need to balance football related expenditure / Transfers and wages - with television and ticket income, plus revenues raised by their commercial departments.
Money spent on ( Stadiums, ) training facilities, youth development or community is exempt.

After the Man City verdict ( cant believe Klopp complained ) and at 80yrs old it seems the real money people can get around any rules.

Kieran Kinsella
16 Posted 14/07/2020 at 17:34:33
I wonder if the clubs will take the same view as airlines, and banks in 2008, and continue spending with a “top big to fail mantra. I mean the PM said football was critical and he wanted the EPL up and running before the economy opened.
Philip Bunting
17 Posted 14/07/2020 at 18:34:46
Yes it's a lot of money to finance but as 80% of that 600mill is stadium related its money secured and paid back over 25 or 30years if not more, no different to my mortgage but with a much better rate possibly. Plus Mosh underwriting some of it and stadium naming rights another large chunk it's around maybe 300mill over a long period. Not sounding that problematic, so long as we stop wasting money on silly transfers and wages and start to developed a youthful winning mentality in the squad.
Eric Myles
18 Posted 15/07/2020 at 06:52:07
I agree, Philip, I don't think any debt related to Bramley-Moore Dock or Moshiri is unmanageable, it just makes the accounts look bad.

Maybe the board can take a leaf out of West Ham book and have a rights issue? That way, Kenwright could actually make a positive investment in the club he loves and has made a lot of money from. And it would maybe allow a new investment from a friend of Moshiri?

Benn Chambers
19 Posted 15/07/2020 at 11:16:44
Absolutely terrifying.

A further £600M needed after the £350M he's already committed. That's half his official net worth. I can only hope that Usmanov joins him in an official capacity as joint owner or we're fucked.

Let's be honest, No Bramley-Moore Dock Stadium and I think it's practical to assume that assets will be sold to balance the books and repair some of the disgusting and gross mismanagement of Moshiri's money by Koeman, Walsh, Silva and Allardyce.

The only worry now is, are our assets gonna be worth enough to repair said damage, in the current market? Are anyone's??

Laurie Hartley
20 Posted 15/07/2020 at 12:17:25
Benn #19 – in fairness, we can't blame Marco Silva for wasting money – Digne and Richarlison signed on his shift.
Benn Chambers
21 Posted 15/07/2020 at 13:00:47
Laurie #20,

I suppose you're right but so did Iwobi and Delph. Maybe be it's Marcel Brands that needs looking at.

Players he worked with, like Lozano and Bergwijn, have gone for similar or less than he paid for Iwobi. Shambles, that signing!

Laurie Hartley
22 Posted 15/07/2020 at 23:37:17
Benn # 21 – I had (perhaps not surprisingly) forgotten about Delph.
Alan J Thompson
23 Posted 19/07/2020 at 15:15:52
It might just boil down to how long this virus and its effects hang around and how playing matches behind closed doors might affect how much TV companies might be prepared to part with and if they can use it in negotiations.

If an effective vaccine is found before year's end, then it might just boil down to renegotiating loans in a time of low-interest rates. If it is considered that the virus's effects will continue, then lenders might just question clubs' viability.

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