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Thursday, July 10, 2008

Is Greed Good?

July 2008 will perhaps be seen as a pivotal period in Everton’s recent history; with David Moyes poised to sign an extension to his contract, an urgent need to finance the strengthening of the squad for the forthcoming campaign and an eagerly awaited decision by the Secretary of State, Hazel Blears, on the Tesco planning application, the foreseeable future may indeed by shaped by the outcomes of these decisions.

What inextricably links all these events is money. David Moyes may well have his critics but the undeniable fact is that Everton, under Moyes, has been transformed from perennial relegation fodder to a consistent top six club; simply put, unlike others, Moyes has delivered during his tenure and as such deserves to be rewarded with a lucrative new contract.

Through a series of departures Everton's small squad has been further depleted during 2008 and the manager would be perfectly within his rights to demand £15 to £25M for squad strengthening as he looks once again to compete in the forthcoming season on four fronts.

Is this a reasonable figure for David Moyes to demand and can the Everton board provide such a sum? Disregarding claims to the contrary David Moyes' funding last year was provided through a mortgage secured against the TV money and merit payments due from the EPL for the 2007/08 season. Is there anything to stop a similar facility being arranged and perhaps supplemented through additional disposals that could then be used to secure the services of a top class midfield-holding player and additional squad players?

Finally there are the financial demands on the club if the Government Office North West and Hazel Blears approve the Kirkby project. Despite earlier claims of being the deal of the century, being effectively free and perhaps obtaining a £130M asset for as little as a £35M contribution, it has now been confirmed through DTZ that Everton's contribution will be at least £78M which is to be financed through what some would describe as a highly ambitious mixture of the sale of the clubs remaining assets, a stadium naming rights deal and debt finance. The disposal of Goodison and Bellefield has been forecast to raise £15M and £8M respectively whilst a fifteen year stadium naming rights deal, is expected to provide over £60M after securitization with any shortfall in these figures being made up from borrowing of no more than £10 – 15M.

The reality of Everton's ability to raise this sum is somewhat more sobering. Through a combination of over enthusiasm and declining land values the combined contribution from the disposal of Bellefield and Goodison is likely to be nearer £10M with the funding from the securitizable element of any stadium naming rights deal as little as £20M leaving a borrowing requirement of at least £48M.

Can Everton afford to service this level of debt finance? Certainly they have recently managed to deliver a state of the art training facility through the financial assistance of Robert Whitton's ROM Capital and aAim Group who counts Alex Ferguson as an investor and shareholder. Discounting a lease back agreement a £48M loan over a twenty five year term could cost the club £4.3M per annum; with the ever increasing revenues derived from the modern game it could perhaps be safe to assume that the current board or any future potential purchaser of the club could accommodate such a level of borrowing, however what shouldn't be forgotten is the level of current borrowings made by the incumbent board; Everton already have many loans most notably a 25 year £30M loan secured against Goodison Park and serviced through future season ticket and corporate revenues and have recently, once again, taken out a mortgage with the Scottish private bank Adams & Company on 94 Sandforth Road.

Perhaps the questions that the fans and shareholders should be asking, they're entitled to ask as they're the ones paying, is does a loan of this magnitude represent best value for the future well being of the club?

Could a £48M loan be utilised more efficiently and effectively for the benefit of the fans of Everton Football Club rather than the benefit of Tesco's shareholders? The size of the development in Kirkby is dependent on the presence of the stadium, without the stadium there is no need for the excessive size of the retail element needed to provide the alleged £52M cross subsidy to the stadium. Tesco has recently acquired fifty five acres of publicly owned greenspace in Kirkby for the astonishing figure of £12M and, if granted planning permission, Tesco along with their other retail partners would additionally benefit from a much higher level of footfall, spending and ultimately profit.

Will Evertonians benefit from a move to Kirkby? Of course they will, they'll have a better view of the pitch than at Goodison and there will be improved food and beverage outlets. For the small overall percentage of corporate guests and fans in lounges their improved surroundings is predicted to significantly increase their number leading to higher revenues for the club. Balanced against these benefits are the genuine reservations of a significant number of fans. This will be the first time that a major club has relocated to an out of town retail park based stadium, normally the preserve of small town clubs, the major city centres with their established in place infrastructures servicing such clubs as Manchester United, Liverpool, Arsenal, Chelsea, Newcastle and Aston Villa. A surprising transport plan requiring patience and tenacity as fans are forced to comply with rigidly policed park and walk, park and ride schemes in conjunction with the clear limitations of a single-track railway system may test fans loyalty past their limits leading ultimately to decreases in ticket sales and revenue.

The real beneficiaries, within Everton, of this proposed move to Kirkby would appear to be the majority shareholders of which one exhibits little desire to discuss the aforementioned problems with anyone, one is completely disinterested in any workings of the club and another who appears to be little more than a nominee of another.

A prospective purchaser of the club could well follow the example of the Glaziers, Hicks and Gillette in financing the purchase through loans serviced by the club, under these circumstances, with the other outstanding loans and the finance for Kirkby, debt service levels of £17M per annum could be expected.

By moving to a new stadium one would normally expect a significant increase in the revenue streams derived from ticket sales and commercial activity such as advertising, corporate activity and merchandise sales. Yet the proposed move to Kirkby is already fraught with restrictions on the ability of the stadium to generate additional income. The Tesco planning application identifies that a limit of 50,041 has already been placed on attendances, the stadium can't be used for concerts and the local council will have free use or compensation on one hundred occasions per annum.

Today we see in Everton a victim of the catastrophic failure to provide adequate finance over a period of many years. A policy of asset utilization ultimately fails when insufficient assets remain and insufficient revenue is available. Beggars' not being choosers it's easy to see why the board may have seen Kirkby as initially attractive despite its shortcomings and potential inconvenience to loyal Everton supporters but now even the most avid fan of a relocation to Kirkby must question the suitability of such a move.

The problems surrounding Kirkby aren't unique, any move or redevelopment would involve financing and logistical problems, it's just that Kirkby appears to offer and perhaps will offer less of a return on investment than is desirable.

A phased redevelopment of Goodison with additional land provided by the council could offer the most cost effective solution to Everton's financial predicament whilst the much heralded Scotland Rd site in an expanded format through cooperation with the council could prove to be beyond the vision and capability of the current board.

Over the park our rivals are also experiencing great difficulty with their proposed stadium on Stanley Park. Whilst preparatory work is underway, until the owners of the club can satisfy the council that they have the required level of finance no stadium construction work will be allowed.

In different ways fans of both clubs are experiencing the downside of big business involvement in their prospective clubs. Everton are merely a pawn in the game being played out by Tesco whilst Liverpool would appear to be little more than an investment opportunity for their owners be that the current or future owners from Dubai.

The third option, which being the most controversial is only whispered by both sides of the divide when in trusted company, is undoubtedly the most logical. There's no downside to a shared facility, the only problem is the ability of the ordinary fan in the street to overcome an illogical objection of sharing with our traditional foes and lets be perfectly honest we all enjoy the opportunity to mock our friends, family and strangers who support the other side.

What if this rivalry could be accommodated through the use of innovative design and technology? What if a single sterile stadium environment could be delivered that through that design and technology enabled fans and there respective teams to play on a translocated Anfield one week and Goodison the next? What if through the use of enormous fan villages, located outside of the stadium, the identity and history of both clubs were preserved and guaranteed in the bars, restaurants, hotels and facilities found within? And what if all of this could be provided through little or no cost to both clubs due to the incredible footfall generated by such a facility, high end corporate debentures and enabling funding? Without doubt not everyone would be convinced but perhaps enough would to enable the fans of our two great footballing sides to reclaim the beautiful game from the big business interests for the benefit of the fans and the city of Liverpool.

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