Analysing the Accounts.

The latest set of accounts were always likely to be a chastening set of results and when they were delivered it can have come as little surprise that the club posted record losses of over £140m. This represents not only the biggest losses in Everton’s history, but the 3rd worst in Premier league history. Coming off the back of losses of £110m in the previous season, the club have lost over £250m in the space of 2 years. For a business with a turnover of around £200m it is an extremely worrying sign, and one which can only really be partially explained away by the anarchic nature of the business of football. It’s important within the context of the article- which will try to provide some nuance to the numbers that we do begin from the view that the figures sit somewhere between damaging and alarming for the club

Few can say they are surprising though. The Covid crisis, which began in late March and is still reeking financial destruction on the game as of December is certainly a noteworthy and important factor. The club estimate around half the losses (£69m) were down to Covid. While I haven’t scrutinised the detail (it appears a little high to me) a large chunk will have come from a rebate due to TV companies. A loss of around £70m, pre Covid would have been negative, though it is an improvement on the previous years numbers. However the Covid challenges have turned a very worrying year into a disastrous one. While it seems early to forecast, you sense next years results for all of football are going to be even worse yet, with hits to commercial and gate receipts far exceeding the initial damage from up to June of this year.

Perhaps a more reasonable mitigation, may be that we are till paying the penalty for previous poor recruitment. There is no doubt that recruitment in 2017, particularly the summer window was horrendous. What started with Morgan Schneiderlin would ultimately end with Cenk Tosun & Theo Walcott, with the likes of Sigurdsson sandwiched in between. For the most part these are players who made a contribution there are many more who came in and hardly kicked a ball. This subject has been done to death, and few will defend the activity, but because of the unique nature of football, poor recruitment counts on the balance sheet for years to come. Payments are spread over the entirety of a contract, and wages are due to be paid for the duration too. Most contracts tend to be 4-5 years- so if you make a mistake, it is going to punish you for a long period.

Everton’s mistakes in the transfer window of 2017 happened alongside many other unfortunate events. A complete loss of form saw us plummet down the table and we have yet to secure a top 7 finish since. The PL’s spending also became so out of kilter with European equivalents, that it became almost impossible to offload misfiring talent on PL wages. This is a challenge for sides at the top end of the league, so almost an impossibility for a side like Everton who tend to hover around the middle reaches of the table. So the decisions made in 2017 have undoubtedly cost us. It is not coincidental that the loss making really began after this summer, and trying to turn such a ship around is akin to turning an enormous war ship.

While there is much truth to the above, and a temptation to close the book after that in terms of assessment, it does risk a kind of fatalism creeping it which allows for all the blame to be singled out at the door(s) of Steve Walsh and Ronald Koeman. This is not to re-open that debate, or to try to minimise their role in the difficulties faced, but to perhaps ask have we done enough to reverse the trend since 2017? Ultimately both were removed from post by the summer of 2018 and around 30 months on we do appear to be further in debt and not an awful long way ahead of where we were in that summer. The worst 2 financially performing years have come after Steve Walsh and Ronald Koeman have left the business. A level of investment into the team that saw these record losses recorded would see the club sink to 18th in the table by December of last year. The coach and his staff paid the price, and while I remain broadly supportive of the work Marcel Brands has done, he is probably fortunate not to have had more scrutiny placed upon him in terms of the recruitment and player management. Everton’s wage bill rose slightly again, to 165 million (though in real terms it was closer to a 15m or 10% increase) but on field performance dropped by 10% (from 54 points to 49). Brands may legitimately point to the number of players put on big contracts before he arrived as being almost impossible to offload as a defence, and it is a defence, but it is important that the same mistakes aren’t repeated. There are some concerns that signings such as Fabian Delph and Jonas Lossl have merely compounded the problem.

Alongside Brands there are questions of other board members. While Koeman and Walsh spend money hideously in that time, who was there to act as a check point from within the club? Was the chairman of the club sufficiently robust with what was occurring in that period? Has he, or the different CEO’s in situ during that time also been robust enough to ensure we are getting value for money?

The problem the club faces is a very simplistic one- it spends more than it can afford too given what it makes. However there is also an additional point that can be added to this- which is that the club doesn’t make enough money to be able to fulfil the spending wishes of it’s fans and I suspect owner. That question I do think gets overlooked too often and while there are similarities between the too statements, there are also profound and important questions that arise from each point. One indicates the problem lies primarily with an expenditure problem, the other is that from a revenue generating perspective we are a long way off where we need to be. Undoubtedly wages are too high, but it is perhaps a more apt analysis to say that turnover is too low.

Everton’s wage bill is impressive, at £165m yet they will likely sit in 7th place in the PL, but a long way off the 5 (and increasingly now 6) teams above them. While we are awaiting many other sides 2020 accounts, it is likely in absolute terms Everton will be as near to the team in 20th than the side in 5th. As a percentage figure they will likely have an advantage over the side in 20th at about the same level as the side in 4/5th have over ourselves. Even spending well beyond our means, we are a long way from having the sort of budget to allow us to compete to win trophies regularly. Moshiri’s enormous financial contribution to the club has closed the gap somewhat, but at the same time raised expectations to a level that is still not realistic to where the numbers dictate we should be.

Seeking a solution that cuts the wage bill fairly dramatically in order to have a more viable organisation also has concrete conclusions. While there are undoubtedly some easy wins (losing Bolasie, Besic & Tosun) would probably save the club between 12m-15m and potentially also moving on Sigurdsson, Bernard, Delph could perhaps save the club between 15m-20m it is still not wholly resolving the difficulties. Would the team be able to survive with losing all of the above? Is it possible to move all of them on in 1 hit? Again they are hypothetical questions, but the upside could be £30m off the wage bill and the club at least sit beneath the 70% mark for wages to turnover. I doubt anybody is under any illusions though that with just losing the above, this squad would have enough to make a sustained push for European, and hopefully champions league football. It is why revenue generation becomes every bit as important as saving on the expenditure.

Even if we count 1 off payment from USM (which will likely not be repeated in such a manner) the club sits well below the top 6 clubs. It is closest to Arsenal who have £111m of revenue and Manchester United sit on £279m at the top of the tree around 370% higher. If you exclude the 1 off payment for an option on ground naming rights Everton would have commercial revenues of £46m, around 40% of Arsenal and 20% of Manchester United. If you look at commercial revenues outside of the USM group I make the commercial income around 30m. It is around a 50% increase since Moshiri has arrived (which in fairness is not bad in and of itself) when the in th top 6 the highest figure (outside of Spurs with a new Stadium) was Liverpool with a 63% increase and Manchester United/Arsenal have only grown 4% in that same period. So it’s not horrendous, but you can’t help but feel there were opportunities to grow much more aggressively for the club, giving the low base we started from.

This has to be central to the plan moving forward. The relationship with USM is welcomed, but shouldn’t be used to paper over cracks, but be seen as an additional bonus on top of other positive commercial relationships we have built. What concerns me is that much of the commentary around the growth from the club is congratulatory and seems indicative of an organisation that have not grasped what the key objective is they need to have and are simply not working to targets that will give the football side of the business maximum opportunity to flourish. Indeed, I am unclear as to who’s responsibility revenue generation even is, looking from the outside. Logically you would assume it would be the CEO who would need to drive this, yet it is very rarely mentioned in any correspondence you get from her. Tottenham do give some grounds for optimism. Like ourselves they have moved into a new Stadium and have driven revenues up 175% in the last 5 years (indeed in the last 4 years). These are the sorts of targets that Everton should be setting themselves. Even if we discount the £30m 1 off deal from USM and work to a commercial deal of £46m p/a , an increase in line with Tottenhams would give us commercial revenues of £126m (around £80m higher). Such a figure would not only make the current wage spend sustainable, but likely give some room in the system for slack and further spending. On current trends, it would also see Everton overtake Arsenal in 6th place, even if Arsenal continue to grow at the 4% they did previously. So both symbolically and practically it would hold enormous significance if we could breach such a gap.

It does need clarity of purpose and honesty from all at the club though. Such a target would be stringent, but there is a direct case of another club, who moved to a new ground growing from a similar value (£59m) to £162m. So if it can work for Tottenham, there is no reason why it cannot for Everton. To do this in 4 years, it would require growth of around 29% per year, to do it in 5 would be around the 22% mark. These are the targets Everton should be trying to work to if they are realistic about trying to compete at the to end of the league. Just as there is for Marcel Brands on the football side, there are legitimate questions to be asked about the CEO and chairman as to whether they are able to deliver, or hold to account those who can deliver to such numbers.

Unfortunately, until some progress is made it is likely that similar conversations will be had each year. European qualification will certainly help in terms of driving revenue growth and there is little doubt it is a challenging situation for those at the club. Indeed, the following years results will also be negative, and across football will be very damaging. We are fortunate to have an owner who will continue to invest in the club and ensure it has the liquidity it needs to keep pushing forward. However there also has to come a point whereby some short-medium term targets are drawn up as to how we begin to challenge those above us and if people feel they are unable to deliver to them it becomes imperative to find people at the top of the organisation all the way down who can. It will not be something that can be reversed overnight, but as fans we should all hope to see more urgent and clear steps in the right direction as we move forward.