Thursday, 10 February 2011

Everton 2009/10 results: a very typical PL club under very typical financial pressure

Everton are a well run club. There has been no unsustainable "living the dream" at Goodison. The club typically sells to buy players, has had the same well respected manager for nine years and has an active and successful youth set-up. Despite all this, the club struggles to compete financially with better resourced teams and has seen its debt rising steadily year after year. TV income has been securitised (borrowed against) and the club also has bank debt.

The fact that a well supported, prudently managed club like Everton, one that has seen moderate success in recent years, can still find itself under financial pressure during this era of huge TV deals speaks volumes for financial issues in top level English football.

2009/10 results – rising costs and flat revenues

Like almost all the Premier League clubs that have reported results for last season, Everton's income is not really growing (the exception is City who have an uncanny ability to do commercial deal with companies owned by Abu Dhabi). Turnover was down 0.7%, caused by an 11.6% fall in matchday income. The club played 26 home games in 2009/10 compared to 23 in 2008/09, but the prior season included the club's successful cup run (and thus receipts from the FA Cup Prize Fund and gate receipts from the semi-final and two away ties).

Media income rose 3.2%, with the sale of Europa League rights offsetting a fall in Premier League money after coming eighth vs. fifth the season before. Premier League media income represents 85% of broadcasting revenue.

The new tie-up with Kitbag meant commercial income grew 6.1% despite weak economic conditions.

On the cost side there was a depressing familiarity to the results with wage costs rising 10.7% and other costs (ex-depreciation and amortisation) rising 12.2%. Of the seven PL clubs that have reported figures for 2009/10, only Spurs have managed to grow income faster than wage costs. The chart below shows how much wage growth (in percentage terms) exceeds revenue growth (in percentage terms). It is clear that Everton are seeing some of the greatest cost pressure relative to income growth.

The cost vs. income squeeze at Everton caused EBITDA ("Earnings before interest, tax, depreciation and amortisation") to fall from a reasonable £9.4m to just under £1m. That's an EBITDA margin of only 1.2%. The club made a profit of £19m on the sale of Joleon Lescott to Manchester City and this caused the pre-tax loss to reduce from £6.9m in 2008/09 to £3.1m.

2009/10 results – cash flows weak, debt rising
To understand the problem Everton has, we have to look at the cash flow. As described above, EBITDA (cash profits) were very low as wages and other costs grew rapidly. Operating cash flow was only £1.4m, but the club had to pay a net £4.5m in interest on its securitised debt, bank debt and overdraft. This meant the club was already cash negative before any investment spending. [Please not in an earlier version of this blog the entries for player sales and purchases were incorrectly labeled.]

Net player capital expenditure was only £3.5m, reflecting the "sell to buy" disciplines imposed on Moyes by the board. Other investment was tiny (£0.3m), but there was still a cash outflow before financing of £6.9m. The club is paying down the securitised debt over 25 years at a rate of £2.8m per annum. With the club not generating any cash, the club is effectively having to add to its bank debt to repay its securitised debt. In total, net debt rose £6.9m over the year to £44.9m.

The future – a buyer and a new ground?
There are really only two routes out of Everton's financial cul de sac, a new owner with deeper pockets than Bill Kenwright and the current board and/or a new, larger stadium.

Each home game only brings in revenues of around £750,000, way below the "big" clubs who earn £2-3m per home fixture. The government rejected Everton's plans to relocate to a 50,000 seater stadium in Kirkby in 2009 (a plan opposed by many Evertonians). There have been talks between the club and Liverpool City Council about alternatives sites within the city, and there has been some talk of a potential groundshare with Liverpool as and when a new ground is built in Stanley Park. Not only is Goodison too small, it lacks the corporate hospitality facilities needed to generate significant matchday income. Income per available seat was only £19 per game in 2009/10 vs. £30 for LFC (2008/09).

Kenwright has been looking for a buyer for the club for some time, and commented in these results that he was working:
"Tirelessly to find that rich and generous benefactor."
Until Everton secure a new and bigger ground or that elusive "rich and generous benefactor" it looks likely that they will struggle financially. That such a well established, prudently run club with the eighth highest attendances in the Premier League is struggling like it is, tells us much about the finances of the modern game.



Anonymous said...

Much thanks for this well-written & precise piece about the current Financial nightmare which my beloved Everton FC is in the midst of.

I wish your piece would eventually open up more the eyes and minds of some of my fellow (and more influential) Evertonians, who chose not to believe that the current business model of the club needs to be changed, and a better long term strategy to be put in place, to prevent a deja vu of Leeds & Portsmouth.

- Dupont Koo

sim said...

Anonymous said...

A first rate analysis and exposition.

As you correctly point out, operating cash flow is insufficient to service the existing debt and this can have only one outcome.

In the absence of a sale and recapitalisation Everton has to make major net sales of players this summer to pay down its debt.

I disagree with you about the stadium. Everton's potential materially to increase the number of bums on seats or the revenue per bum is too limited to provide a meaningful solution at this stage.

Anonymous said...

Interest Payments
I am amazed by the rate of interest we are paying, approx 10%. Is it possible for this to be refinanced at a better rate. 4.5M pa is a lot of interest.

2011 Accounts
With Bellefield sold, 8M will be written off the debt (we are due to repay 11M).
The 3 player loans (Yakubu,Vaughan & Yobo) & the sale of Pienaar will also reduce wages. The club is already moving to reduce costs & service the debt. So better figures are to be expected in relation to cost but what about revenue?

andersred said...

Anonymous @ 13.07

The interest rate is quite high. Although it only appears to be 105 because you are looking at year end debt figures. The debt will be at its lowest in June because of the seasonality of football club cash flow.

These are the numbers given in the accounts: £25.6m of the debt are the securitised loan notes taken out in 2002 at a fixed rate of 7.79%. That can't be changed. Bank loans pay 4.25%. No rate is given for the OD.

Looking at this year, you're right that the Bellefield cash will help the club cover the debt repayment. The players sales and loans you mention will also help.

On the revenue side, the club (in common with all PL clubs) will receive c. £5m extra in TV money from the international rights deal. Obviously no cup runs this year.....


simpson said...

Anonymous said...

I enjoy your blog but disagree with your assessment that Everton are a well run club. The commercial arm is woeful with a return of £8m, Everton have a wide fan base in the North-West and Wales and this is clearly not being tapped into.

The toffees do have an excellent youth set-up though. I know a talented Manchester kid who would rather train with Everton at their set-up at Wilmslow rather than United at the Cliff.

Glazers out (just a matter of time in my opinion).

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Anonymous said...

How are Everton "struggling"? They are a solid, upper-mid-table club who are maybe spending a little bit more money than they should, in pursuit of success. If this continues they may have to do some cost cutting. Which might harm their on-field ambitions.

Well that's football. Running a football club (or any business) is a tricky balancing act. This doesn't mean there is something wrong with the game.

Everton don't quite have the fanbase to be one of the very top clubs anymore than City do. Like City they would need a rich benefactor (but this will soon be outlawed anyway).

But again what exactly is supposed to be the problem here?

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