Column “I Give Them Whatever I Have” A look at Everton's profitability and sustainability position with the pending sale to Tottenham Hotspur of Richarlison and the other players who have come off the books in the past financial year Paul The Esk 30/06/2022 12comments | Jump to last Yes, it really is the seventh summer transfer window of Farhad Moshiri's tenure at Everton. Whether he remains to see an eighth is, of course, subject to much speculation as briefings and rumours of takeover prospects circulate in the media.After Moshiri's introduction to Goodison Park against Chelsea in the FA Cup 6th Round in March 2016, amid the euphoria of a Lukaku inspired victory, Moshiri famously said (relating to funding Everton) “I give them whatever I have.â€The question today is whether he has reached the limit of his funding. Of course, some factors could never have been reasonably predicted, Covid, the Russian invasion of Ukraine and the impact on his own finances as a result, plus the withdrawal of Everton's largest financial partner USM would never have featured in any scenario planning.Nevertheless, the appalling management of the club in the 6½ years, certainly from a regulatory point of view, but also possibly from an affordability or desire perspective, must feature strongly in any analysis of where we are financially. Article continues below video content The growth in direct costs relating to player acquisitions and player wages can be seen in these two lines from the accounts: £'000s 31-May-16 31-May-17 31-May-18 30-Jun-19 30-Jun-20 30-Jun-21 *30-Jun-22 Wages 83,985 104,655 145,500 160,000 164,800 182,570 156,000 Amortisation 22,398 37,298 66,933 95,100 99,200 81,243 75,000 Total 106,383 141,953 212,433 255,100 264,000 263,813 231,000 projected figures for 2021-22The business model of the biggest clubsThe largest, most successful Premier League clubs run a different business model to the fourteen competing clubs.Outside the Top 6, revenue streams are viewed as Premier League broadcasting revenues, matchday income and commercial income. Whilst the Premier League broadcasting revenues include a significant amount of revenue generated from overseas broadcasters they are negotiated collectively, not by the clubs themselves. Thus in the main, outside the Top 6, clubs focus on generating revenues domestically (even if many shirt sponsors, particularly gambling companies, operate overseas).The Top 6 have an entirely different model. Yes, they have the same income sources as the other clubs. But the key differentiator is that they have other income sources as well. In a sense, they are multi-franchise operations having Premier League generated revenues, European football generated revenues and international sponsor & commercial arrangements, international geographically, by sector and company.The Top 6 essentially operate a predominantly B2B (business to business) business model — their commercial success comes from wider exposure, but also a greater understanding of who their real customers are (hint, it's not the ordinary fans, it is their corporate attendees and sponsorship partners).Everton, through the funds provided by Moshiri and in the early days player sales, built a cost base which required the business model of the Top 6 — ie, required regular European football and the exposure that brings.As a result of the failure to qualify for European competition, and the below-budget revenues from inferior on-field performance, contributes heavily to Everton's financial difficulties.The next table shows how personnel costs have enormously outstripped increase in revenues: £'000s 31-May-16 31-May-17 31-May-18 30-Jun-19 30-Jun-20 30-Jun-21 *30-Jun-22 Turnover 121,541 171,330 189,200 187,700 185,900 193,143 178,600 Wage/amort 106,383 141,953 212,433 255,100 264,000 263,813 231,000 % of turnover 87.5 82.9 112.3 135.9 142.0 136.6 129.3 projected figures for 2021-22Poor recruitment, resulting player-value writedowns, exceptional costs associated with manager and coaching squad changes all add to the accumulated losses.It is fair to say that Covid has obviously contributed to Everton's losses, with crystalised losses relating to Covid standing at £82.1 million for the two years to 30 June 2021.Equally, it should be recognised that, up to the year ending June 2021, the costs incurred with the new stadium at Bramley-Moore Dock were expensed to the Profit & Loss account.Regardless, the figures do not make good reading. £'000s 31-May-16 31-May-17 31-May-18 30-Jun-19 30-Jun-20 30-Jun-21 30-Jun-22 P&L a/c -24,348 30,660 -13,021 -111,868 -139,800 -120,934 -78,100 projected figures for 2021-22So what does all this mean for profitability and sustainability rules, and our ability to spend?For the current financial year (ending 30 June 2022), the years under scrutiny are 2021-22 (T), the mean (average) of 2020-21 & 2019-20 (T-1 & T-2) and the year 2018-19 (T-3).The maximum permitted losses over this period are £105 million. There are some permitted allowances, including tax, expenditure on women's, youth and community football plus exceptionally losses directly related to Covid. £'000s 30 June 2019 Mean 2020 & 2021 30 June 2022 Total Profit & Loss -111,868 -130,350 -78,200 -320,418 Deductions* 15,000 15,000 15,000 45,000 Covid 81,200 81,200 -194,218 estimates — assuming no further player trading before 30 June 2022Because the accounts do not itemise expenditure on women's, youth and community expenditure, it's impossible to give the figure presented to the Premier League, but the £15 million per year is a reasonable estimate.The accounts show crystalised losses of £81.2 million directly related to Covid. The club however have reported uncrystalised losses of £175 million with the potential to reach £250 million.Using the lower figure, and deducting the excess over and above the crystalised £81.2 million, it is possible to see that the club squeezes in under the £105 million limit for 2021-22. It also explains the lack of transfer activity last summer and the sale of Digne in the January window.Projecting into 2022-23It's likely that any transfer activity this summer window will be after 1 July.Several matters to consider going into 2022-23. Firstly, the 2018-19 financial results drop out of the equation. If Everton's losses for 2022-23 are less than £112 million, then our position improves.What are the factors that will change the P&L account in 2022-23?The release of Sigurdsson, Tosun and Delph (among others) significantly reduces the wage and amortisation costs. A reasonable estimate would be a £30 million saving.The sale of Richarlison or Calvert-Lewin will generate significant profits. Calvert-Lewin has virtually no book value, so if sold his transfer value shows almost entirely as profit. Richarlison has a book value of approximately £14 million, so whatever transfer fee minus his book value shows as profit in the forthcoming financial yearUSM-related revenues not replaced this forthcoming year will reduce turnover. USM's contribution is estimated at £20 million per annum.Player purchases will add to the wage bill and amoritisation costs.Our net profitability and sustainability position improves significantly this coming year. From a calculated position currently of -£194 million (before uncrystalised losses), I estimate that the net position (subject to player sales/purchases above) falls below the £105 million figure (before uncrystalised losses) by a significant amount, perhaps to around £90 million.That gives scope for some transfer activity including player purchases this summer.AffordabilityCan Everton afford to purchase players? Moshiri has continued his commitment to funding losses and the construction costs of the new stadium at Bramley-Moore Dock.Realistically though, given he is looking to dispose of his majority position (either wholly or at least significantly), will he continue that commitment? First and foremost, any further capital injections must go to the construction of the stadium. Secondly, any continued negative cash flow and possible debt reduction would be next to be funded — remember, we had £130 million of external debt as of June 2021.Some funds would be available from player sales, but that will depend on who is sold and at what price.Despite the improvement in our regulatory position, I believe we can only buy as a result of significant sales — either one or both of our prize assets.The takeover?As suggested by the improvement in our regulatory position, an incoming owner would have some limited room to inject capital (over and above what is needed for the new stadium) for player purchases — but that is limited and would likely be subject to Premier League agreement.Alternatively a new investor could take up the role designated previously for USM and fund the club through sponsorship revenue rather than capital injections.The sponsorship revenues could replace the previous USM sponsorship of Finch Farm, training kits, women's and perimeter advertising. It could also include the naming rights of for the new stadium.An adequately funded investor (by 'adequate', I mean having very deep pockets and owning brands to be used for sponsorship) could re-inflate the club and provide significant funding through revenue not capital.ConclusionIf this seems an unusually up-beat assessment of Everton's potential position, remember it is largely predicated on previous poor results falling out of the calculations, it requires the sale of our major playing assets and it requires the takeover of the club by a significantly well-funded individual or group that not only has the financial means but has the brand purchasing capacity to fund Everton's recruitment programme through sponsorship revenues (as well as buying Moshiri out, funding the new stadium, and paying off debt).Moshiri appears to have given us all he had. Incredibly, it might just be that we can win the lottery twice. However, to save us repeating Viv Nicholson-like mistakes for a second time, any new owner must have complete control, a clear strategy, a commitment to removing those responsible for the appalling position we find ourselves, a brand new board and executive team, trust in the new football operations, proper fan engagement, and a commitment to invest in people as well as the new stadium to bring about success.Anything less, and we will not compete. Follow @theesk Share article: Reader Comments (12) 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 Jay Harris 1 Posted 30/06/2022 at 20:16:55 Paul,Once again, an excellent summing up of our precarious position in simple-to-understand formats.As player purchases are amortized over the period of their contracts, can I ask if those amortizations can be amended (e.g. if Pickford signs a new 5-year dea)l, can there be a recalculation? Neil Tyrrell 2 Posted 30/06/2022 at 20:37:17 Can't claim to fully grasp all of this, but going by the charts and particularly the 21-22 numbers being an improvement over previous years, is it fair to say we're headed in the right direction? If so, hopefully that will give new ownership and board-level management a decent crack at a running start. Jerome Shields 3 Posted 30/06/2022 at 22:34:19 Glad to see that Everton are coming within the Premier League Profit and Sustainability targets. I do think you are expecting Everton to change alot on this takeover, if it materialises. I do thing that it could be a dangerous time for Everton, new owners, new capital available, new finance sources Alot will depend on the ability that is brought to the table and how much the Culture will change. There will be opposing forces involved in the deal and after the deal. It will be interesting to see how that pans out. I find the undue haste, pre announcements and exclusivity of this takeover concerning, because it lends itself to undue influence for those at Everton involved in the deal and a lack of transparency regarding the Takeover parties The Moshiri takeover deal did not have half of the concerns of the present deal and look how it turned out Laurie Hartley 4 Posted 01/07/2022 at 04:42:31 Thanks for another interesting article Paul. A couple of questions and a thought.Q1. Since you penned this it appears Richarlison has been sold in this financial year. Does that fact significantly impact your view of our situation.Q2. Do you feel the Kenyon led Thornton consortium fit the bill of what you think is required in a new owner.Finally, we are still basically skint aren't we? That being the case we have to dig in and get behind Frank Lampard and the players regardless of who they are from the “off†this coming season because we just cannot afford to find ourselves in another relegation struggle next season. David Bromwell 5 Posted 01/07/2022 at 08:26:50 Thanks again Paul, although sadly your reports constantly illustrate the criminal failings of those responsible for the management of our Club.I also often wonder about Everton's very active roll in the Community, which our Chief Executive seems to be lead. Whilst this is honourable and good PR this has to be funded and I am fearful that at some stage we will be left with another big bill. It all illustrates an unholy mess and the current take over stories simply add more concern. I only hope Frank and company are not avid readers of Toffee Web as that would surely have them looking for opportunities elsewhere. Christine Foster 6 Posted 01/07/2022 at 09:23:59 Paul, it's fair to say your excellent analysis is dependent upon sales of Richarlison and the take over by new clients. Whilst one has happened and the latter is a possibility, the flip side of the coin is that the quality and quantity of the squad is diminished. For an overview, few players in our squad are being of any interest to any other Premier League clubs... the impact of poor recruitment is not going away anytime soon. Paul [The Esk] 7 Posted 01/07/2022 at 10:39:59 Jay, yes extending contracts does reduce the amortisation costs on an annual basis.Laurie, these figures assumed the sale of Richarlison at pretty much the price we got for him.Re the Kenyon-fronted bid, too early to say. I do have concerns over Kenyon given he hasn't run a Premier League club for 13 years.In summary, we are in a better position, we met the terms of the agreement with the Premier League to make a major sale. We remain loss-making although the trend is at least going in the right direction. We will remain constrained by both regulation and cash as to player purchases. We are obviously going to bring players in, but not high-value players, and we will make use of the loan market once more. Jerome Shields 8 Posted 01/07/2022 at 13:34:22 Christine, there are a lot of things that have to be brought in: players, finance, skills to run the club, and better replacements for those that can be eventually moved out. Also, we seem to be starting from rock-bottom, though in a more stable position in terms of Profit and Sustainability. Kevin Molloy 9 Posted 03/07/2022 at 00:46:30 Monkeypox? Mike Owen 10 Posted 12/07/2022 at 16:29:53 Thanks for that analysis, Paul. It deserves far more than nine or ten comments. Perhaps some people are like me and decided after the stress of last season to try and switch off from Everton for a few weeks; avoid ToffeeWeb, as much as I like and value it.Told myself not to worry about no signings in June. Wait for July, Thelwell and Lampard could have a few lined up for the first week. But it's the 12th now (the season kicks off three weeks on Saturday) and only one signing. I find that very worrying, given the size of our squad. And is our manager on the other side of the Atlantic for the next 10 days? Not ideal, I'd say. Unless we're going to sign half the Minnesota team. Tony Everan 11 Posted 14/07/2022 at 11:40:56 Paul, Thanks again for this article. Any takeover won't be an act of benevolence, and indebtednesses of the club long term is a major worry, that could hamper our progress into the distant future.It's not only the stadium that debt may be raised upon. I was reading about Barcelona now mortgaging their TV rights for the next 25 years. ‘Major sport increasingly is falling under the spell of financial players. Barcelona has been bailed out by selling 10 per cent of its TV rights to private equity group Sixth Street for €207.5m (£175m) for the next 25 years'. I think we will get into our new stadium, but the question has to be - At what cost? Danny O’Neill 12 Posted 15/07/2022 at 10:00:04 Sorry I'm late to this Paul."I give them all I have". That describes me and countless hopeful souls. They get everything I have. Devotion, blind faith, sheer emotion that often questions my age and maturity. The owner can leave that to us. Just own and take ownership. Unfortunately he decided to trust a failed regime to look after his investment and worryingly seems to want to continue with that strategy. It's failed. Change it.I like your point on the difference between B2B and those who must rely on being beholden to a service provider as I would call it. In this case, the Premier League franchise is the service provider that most clubs rely on to negotiate their terms. It limits your negotiating powers and means you sacrifice a cut of the profit. I'm no expert, but that's my basic understanding of the operating model.In terms of match day income, I know it's not the main driver these days, but Everton must fall well short. Tottenham has designed their impressive new stadium to attract and keep supporters in the stadium and spend their money there. The Emirates isn't too dissimilar. The cousins have long targeted the day trippers who spend more time in the club shop buying merchandise than they do in the stadium.We, myself included, despite travelling a long way, still follow our ritual of going to local pubs, the chippy and missing Z-cars (I'm terrible for that). The lady in the Upper Bullens won't serve me if I'm 20 seconds late. Sorry, I can't leave that. We then disperse to said locals so hardly put anything into the club other than our passion and what we've paid for our match ticket.European football, despite many seeing it as a distraction, is a must. Build the Everton brand outside of L4 and the city of Liverpool. We came close under Ancelotti, almost qualifying and having a respected name at the helm. We have a respected name now, but a slightly different flavour, who is on the start of his managerial career. Europe and a trophy has to be a target. It always should be. Everton expects success. Or at the very least, Everton expects to compete for success.Finally, regardless of whether Moshiri sticks or twists; brand new board. That is key to professionalising this club and moving towards competing where we should be. This hasn't worked for decades. Change it.I'll still be there, giving them whatever I have. Always. Forever. 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