Paul argues that last night’s AGM wasn't an objective analysis of how the club is performing and the presentations didn't offer much in terms of future strategy
The degree by which a company wishes to publicise and promote its general meeting is usually a reflection of how the company feels it is performing. Public companies, of course, do not have the luxury of influencing the degree of exposure and interest; private companies are much more able to do so. Additionally, the topics it wishes to discuss reflect the relative strengths and weaknesses of different areas of the company’s activities. Who presents, what they say, and the degree of scrutiny and challenge to what is said reflect a company’s attitude to governance, accountability, and oversight.
With that in mind, last night’s Annual General Meeting was effectively a series of promotional videos by the board members informing shareholders of how well the club, indeed how well they had performed in the most difficult of circumstances. It was not an objective analysis of how the club is performing.
It’s a great shame that the presentations and the promotion of the messages were so insular. Evertonians are generally an educated shareholder and fan base. Collectively, the Evertonian base is more in touch with the reality of local conditions (the conditions in which the club operates) and, to a degree, wider macro conditions than perhaps the club gives us credit for. We all know that football, indeed life itself, is incredibly tough at present and for Everton with its multitude of challenges (despite the financial support of Farhad Moshiri) in particular, these are very challenging times. We recognise we are a club trying to improve, trying to progress on and off the pitch but in the most difficult of circumstances.
Along with the lack of objectivity, neither did the presentations offer much in terms of future strategy.
The question that remains unanswered throughout the year – years even, and it was certainly not answered last night – is: Is the club (company) equipped to meet the challenges of current conditions and meet its more ambitious objectives, success on the pitch, build a new stadium and increase its commercial performance and presence throughout the world? Even more so, is the club equipped to meet the enormous challenges of the future? The football landscape is changing, the pandemic and its economic, behavioural and social impacts will accelerate the changes that are due in football. Football exists on a business model that is rapidly reaching its expiry date.
I have discussed the deflationary impact of the pandemic previously. From my perspective, we are at the beginning of the process, not the end. Football, particularly the Premier League, has flourished on three areas of growth: ever-increasing broadcasting rights payments, ever-increasing commercial and matchday revenues, and ever-increasing player values – allowing player trading profits and inflated asset values on the balance sheet. I will return to this topic.
The meeting itself
As expected, the key areas of interest for Evertonians were Marcel Brands, his future, and player acquisitions and disposals; the stadium – update on the planning process, timetable for work starting, and progress on financing; Sasha Ryazantsev on the club’s finances; followed by a question-and-answer session.
Much of this will be covered elsewhere but in summary:
- Confirmed the summer window as “one of the most difficult and weirdest windows ever”
- Stressed the reduced spending powers across football impacted their ability to move players out. As said frequently here, confirmation of a buyers market, something that will continue and likely deepen
- Six players acquired, nine players sold
- Current squad size: 27 (not including Bolasie and Besic). Ideally 23 or 24 (three goalkeepers, eight defenders, six or seven midfielders and six attackers)
The scale of the number of outgoing players (including loans) in his two-plus seasons here is staggering. 74 player exits in total. This reflects one of the board’s greatest failings in the time Moshiri has been a shareholder. Very poor player acquisitions (apart from last 12 months) and the inability of the academy to produce players either suitable for the first team or attractive targets for other clubs. When one analyses board performance, the question must be asked of the board: Why was this situation allowed to develop? The legacy issues that Brands inherited clearly impact our financial performance and our ability to acquire new talent.
It should also be noted that there is currently no answer as to whether Brands’s contract is extended beyond June 2021. One might have thought the AGM a perfect time to make such an announcement.
The Bramley-Moore Dock stadium
Updated by club Chief Executive Officer, Denise Barrett-Baxendale, and Chief Finance and Commercial Officer, Sasha Ryazantsev, the club reported on continued delays in the planning application, caused by modifications to the design and thus the planning application itself, plus resource issues within the Liverpool City Council planning department. The club expect a determination in “the coming months”.
Denise Barrett-Baxendale reported on continued discussions with potential lenders, but objectively was unable to report on any definitive progress.
Sasha Ryazantsev confirmed that, up to the end of the financial year (June 2020), the club has spent £39 million and anticipates having spent £50 million before the end of the current financial year.
I have provided detailed analysis of the club’s financial performance here following the publication of the accounts in December. Much of the same data was presented by Sasha Ryazantsev last evening. My personal view, and this is not unusual for companies to do so, was that the figures were presented in the best possible light. A more balanced view would recognise the reliance on USM for commercial and sponsorship income growth: the figures were boosted by a one-off payment of £30 million for a naming rights option in favour of USM; player costs remain stubbornly high; cash-flow measures were used to preserve cash (including a large increase in monies due to HMRC); and, despite Moshiri’s continued financial support, we rely upon Rights and Media Funding (plus Metro Bank) to continue operations. All Premier League clubs are in a similar position of extending credit lines to meet the reduction in income whilst costs remain fairly constant. I would say this, though: It is disappointing, and perhaps reflects the underlying weakness of our current business model, that we revert to using a lender such as Rights and Media Funding rather than mainstream lenders.
I have held the opinion, and continue to do so, that the Everton board needs additional resources and talent. I have argued on numerous occasions that, from a governance perspective, having a board comprising of four executives falls short of best practice. Full accountability and oversight is impossible to achieve if the executive are managing and, most importantly, measuring their own performance. This is not a reflection on individuals – it’s an observation that would be true of any company and would be reasonably asked by almost all shareholders.
Perhaps the board should be compared to those of its peers and rivals. If I look at the composition of most of the boards of the “big six”, I see a range of skills and experiences greater than that of Everton’s. That is an undeniable truth and for me, remains a huge concern.
How, in the most challenging of circumstances (part driven by external forces, part driven by our own actions), can we catch up, let alone overtake competitors with more resources if we cannot match them with our ability to create strategy, execute strategy and plan ahead for a different world in football? That ability to do so is only as good as the relative strength of our board versus that of our peers.
Our peers’ boards have at their disposal individuals who have run or continue to run global businesses. They have independent directors who bring external opinion and experience, yield significant commercial and political power, who make their executives accountable and provide oversight on behalf of shareholders.
I make the comparison not to attack or pour scorn on the efforts of our board. I make the comparison because football is a highly competitive industry where only the very strongest succeed, the rest just exist. Like every Evertonian (and no doubt the board too) I want to see Everton succeed, win trophies, to be genuine leaders and visionaries in the game in every sense (as we once were), to be the embodiment of Nil Satis Nisi Optimum. Despite the Chairman’s ebullient opinion of his board members’ talents (and, to be fair, they are not without talent) we are not strong enough at board and executive level to achieve what we must achieve.
Respectfully, Moshiri must address this.
Reader Comments (33)
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1 Posted 15/01/2021 at 14:49:10
2 Posted 15/01/2021 at 15:31:39
I always look forward to you keeping us fellow Blues, well informed.
3 Posted 15/01/2021 at 15:41:37
4 Posted 15/01/2021 at 15:56:49
But we are in year 5 of Moshiri's ownership, and it is clear that we are not an ordinary business, transparent is not what we do. We operate out of L4, and yet we have the most successful manager in the world at the helm. How come? Cos we don't' need to bother with any of the worthy descriptions in the opening para above, we are a rich guy's plaything, and when we need to find money we find it. And that's the way this is going to go it seems to me.
5 Posted 15/01/2021 at 16:40:01
Evertons historic accounts show that another £multi-million loan was taken out on 26 August 2016 from Rights and Media Funding headed by McMorrow, who had by then qualified as some sort of accountant apparently, having changed its name from JG Funding at the end of 2015.
The only other name on the 2015 loan charge documents is Fiona McPadden, who is also listed as an accountant. She is McMorrow's sister and at the time was working at a BMW dealership in Sligo!
So, we're still borrowing from the ex-dancer are we?
Seems to me he may have given up dancing to enjoy life as a puppet-on-a-string, but what do I know?
6 Posted 15/01/2021 at 16:45:28
Slightly off topic but if I may mention this here rather than start a new thread - it transpires that the Ticket Office may not necessarily know the identity of all minority shareholders ( like me ). You can be an STH and have a customer number etc. but unless you tell them, they don't know whether you are a shareholder.
There are a few small benefits e.g. 5% off your season ticket, 10% off the online store, access to extra tickets ( very difficult in recent seasons ).
The shareholder liaison officer is Paula Fenwick who called me today and was very helpful and updated my file.
7 Posted 15/01/2021 at 17:08:26
These are shelf companies with a accountants office as a registered address. These two nominal Directorsc work at that office in Sligo. The company is probably owned by another Shelf Company in another jurisdiction. It is just a vehicle to move money as easi!y and tax efficient as possible.
I agree with Paul regarding orchestration of the agenda and information provided and the inadequacies at Board level. I don't see this changing any time soon. I think there will be a lag in performance as result.
8 Posted 15/01/2021 at 17:22:06
They appear to receive their funding via a couple of IOM companies linked back to a BVI company called Mousehole Limited.
Currently cash rich but with net assets of £23.5K.
As you say a shell company, but the funding is far from transparent. Theyve funded other clubs, like West Ham, as well as some Foreign Leagues.
They need to be regulated in UK by FSA. So thats ok then.
9 Posted 15/01/2021 at 17:58:15
Chelsea has a football club board of five members comprising a chairman Bruce Buck, a chief executive Guy Laurence, a director of football operations David Barnard and two directors Marina Granovskaia and Eugene Tenenbaum. The last two named are associates of Roman Abramovich. It is not immediately apparent who if anyone provides independent scrutiny.
Manchester City has a board of nine members. Four of them have Abu Dhabi connections, the chairman Khaldoon Al Mubarak, Simon Pearce, Mohamed Al Mazrouei and Abdulla Khouri. The other five are Martin Edelman, John McBeath, Alberto Galassi, Egon Durban and Ruigang Li. Most certainly this is a board from a range of sectors including law, commerce, accountancy, media, travel and sport. The split of responsibilities within the board is not clear but presumably those who hold board roles elsewhere provide non-executive independent challenge. Ill make no comment on the omission of females on the board.
Manchester Uniteds Board has ten members. Five are from the Glazer family including Darcie Glazer Kassewitz. The others are Ed Woodward as Executive Vice Chairman, a chief financial officer Cliff Baty and three independent directors Robert Leitão from Rothschild, Manu Sawhney who is CEO of the Singapore Sports Hub and John Hooks who is CEO of Pacific Global. So independent scrutiny and challenge presumably comes from the last three named.
Our neighbours have a board of six under J. Henry. Chairman is T. Werner, CEO is B.Hogan and directors are M. Gordon, M. Egan, A. Hughes and K.Dalglish. The last named is listed as a non-executive and presumably provides the independent scrutiny?
So a board of four is comparatively light in terms of numbers but not massively so in relation to Chelsea and Liverpool. Obviously forming a fully effective board is about far more than the number of directors. Stuffing the room with bodies including ex-players or ex-managers is not necessarily an answer.
We have had larger boards, some much less effective than the present one. Two years ago we had half a dozen including Keith Tamlin and Keith Harris. I doubt that board was any more effective than the present one. Making the right appointments and having a board which works effectively as a team is much more important than the number on it.
I do agree though with Pauls general thrust that having effective, independent challenge can make a beneficial contribution to board governance.
10 Posted 15/01/2021 at 18:10:11
from a point of downright depression after Paul's summary I am now totally buoyant after your post.
The fact that we have a Riverdance expert on pay is fantastic. I can imagine the Finch Farm warm ups will move to another level- not saying up or down.
These are the type of non-executive directors Paul has been crying out for!
I can just see them all entering the boardroom dressed in green giving it hoolah
As regards to the delectable Fiona working a s a valeter? at Sligo BMW, well think of the money we can save on Company cars - does she know anyone doing a deal on lawnmowers by any chance?
11 Posted 15/01/2021 at 19:22:26
Great post as always and seems to raise more questions than answers, my questions are very simple:
1) How do we pay for the new stadium?
2) How close are we to transgressing Financial Fair Play?
3) Answering question 2 will highlight the problem of quality player acquisitions, with very few players (apart from Kean) bringing in much money to offset our FFP position.
4) It's apparent that Usmanov, through his company USM, is pouring money into the club; will that be something that will be scrutinised by the FFP committee for any future investment by Usmanov?
12 Posted 15/01/2021 at 21:27:03
Thank you for the information.
It seems that the company in the BVI is also providing a service, as you say, not transparent, to individuals or groups of individuals who want to invest or provide funds for football Clubs. I suppose the football authorities are happy to let the money flow in.
The BVI company and related companies might even be providing finance, and peer-to-peer loan arrangements. They are also providing company structures to facilitate the legal presentation of funds.
Most of the property development projects in Britain and Ireland are funded by wealthy individuals providing peer-to-peer loans.
The Isle of Man companies are transparent now. Cameron cajoled the IOM government to give up its offshore status. Though shell company services are provided, there are a lot of empty office blocks which once housed banks and financial services companies in Douglas and a lot of pissed off hoteliers who have seen their business drop 50% as a result.
If Moshiri is going to go to these lengths, he is only going to play lip-service to small shareholders via a formated AGM that Paul the Esk has described.
13 Posted 15/01/2021 at 21:31:32
This has Bill Kenwright's stench all over. Let me guess, the Riverdance loan is secured against future ticket sales revenue from a Riverdance revival he'll produce at the London Palladium?
14 Posted 15/01/2021 at 22:11:40
Trust me, theses are not peer to peer loans. Check it out mate, and the scale of some of it is astonishing. It's an industry in offshore jurisdictions.
If you want to make peer to peer loans, you don't need offshore structures.
It's not to say it's all dodgy, it's just not transparent. Some of the deals are with major football structures. Some with entirely legal companies.
Some of the individuals involved were also associated with the Tevez deal part ownership a few years ago.
IOM and BVI structures are both tax-efficient and also can guarantee confidentiality. There is little other reason for doing it. Offshore companies with directors and administration to cover the minimal requirements of local regulations, which can be underpinned by trust structures.
The fact that large parts of London seem to be owned by offshore structures has been widely reported, as I understand it, and seems to be causing the authorities issues, for example. Some of it can conceal money laundering on a massive scale.
The PL/FA will go along with it as long as it's regulated by the FCA.
But it's not transparent, is all I'm saying. This is a company that has offices in London, Ireland and Altrincham with a couple of Directors, and a weak balance sheet may not be a cause of concern at all.
15 Posted 16/01/2021 at 11:40:59
16 Posted 16/01/2021 at 11:42:37
17 Posted 16/01/2021 at 12:10:21
A good window of 4 players coming in could kick a squad on with a good mix of experienced players and some with plenty ahead of them. A striker, more creativity, Olsen coming in on goal, and a first choice replacement for Coleman for me. Perhaps buying a couple for tomorrow too.
18 Posted 16/01/2021 at 14:00:37
Wholesale changes not appropriate nor called for at this time. Summer is the time to shop not mid-lockdown, anyway !
19 Posted 16/01/2021 at 14:14:03
While I think it is a fair claim to say that such opaque structures can facilitate criminal activity including money laundering, they are more likely to be legitimate investment vehicles. As for tax avoidance, again, they may make that theoretically more possible, but I'd suggest that most of the time, it is aimed at simplification not avoidance or evasion. To illustrate, if your fund is aimed at global investors, it makes much more sense for the fund itself to be free of tax as far as possible, in a place like BVI, with the onus on investors declaring any relevant income in their tax domicile. In theory, double taxation treaties prevent paying tax in multiple jurisdictions, but they tend not be be exhaustive and in any case are far from universal in their application.This structure is far cleaner but does not remove the requirement to pay tax in your domicile.
All that said, the company involved here is essentially lending Everton money secured against the club's assets. I presume primarily future revenue streams such as broadcast rights- though it could cover other streams such as transfers- but I believe if the terms of the loan are breached, there are sometimes rights to secure general club assets, to the extent of even overseeing any future sale. Although there are other premier league clubs using this funding/liquidity providing model, it is somewhat depressing to be having to mortgage ourselves and our future revenue. The typical interest rate charged, around 7%, is also not insubstantial and I would suggest might become a problem if those revenue streams cease to grow at past rates, as Paul is suggesting will happen. Unless of course the mystery investor into the fund is in fact Usamov, in which case maybe he is lending to himself
20 Posted 16/01/2021 at 15:17:58
Take your word for it and I am sure there is extensive offshore finance available. . My IOM information was provided by a Hotelier in Douglas, but I now think the Offshore status will be revitalised with Brexit.
I do think that it might be cover for peer to peer lending as well. My Accountant attended a seminar where it was highlighted the concern regarding Property in London and the fact that the Revenue could not establish ownership, due to offshore companies, and whether the money involved was laundered.
7% is the interest rate that I have come across. A interest rate of 8 % for Peer to Peer for Development Project was the figure a Architect told me.
As you say it is not insubstantial.
21 Posted 16/01/2021 at 17:20:26
Although I am neither a financial adviser nor an accountant, to me, the model makes sense, at 7-8% funding costs, provided your forward-looking revenues are growing at at least that rate, ideally higher to account for inflation. So, for the sake of argument, if they increase at say 9-10% per annum on average, one might reasonably claim you are losing nothing in real terms, albeit you maybe are in relative terms.
If the mortgage is being used to buy assets – in our case, that arguably includes players and might also include a stadium – then, if those assets themselves rise in value greater than around 7%, then you really are gaining.
The fly in the ointment is that as Paul has reported elsewhere, there is a potentially deflationary phase on revenue now due. I don't know if he will be proved right or not, but it is a very plausible theory. In very simple terms- and the actual structure will obviously be different to this- I borrow £100 today from my future revenue stream, but that revenue stream declines to say £90 but I owe £107. That's a big gap.
I then turn to liquidating some assets which, for a football club, usually means players. But, with less money to go around, that player I bought for £100 is now only worth £80, partly because of the deflationary market conditions – other clubs don't have so much money – and maybe because I ended up 'investing' in players like Walcott, Bolasie and Sigurdson rather than a Digne or a Calvert-Lewin. It begins to get closer to 'fire sale' conditions and I'm not surprised these lenders like security beyond just the revenue stream.
It actually amuses me how football clubs treat player assets, writing them down over the course of the contract. That might look wise and conservative but, towards the end of those contracts, sometimes well before, you can't realise much if any cash for their transfer, especially if they are not playing because they are useless. At this point, they quickly turn into big liabilities...
22 Posted 16/01/2021 at 18:23:56
There are always big risks when a big project is put up as the goal to increase revenue, cash flow and profitability in the hope that, down the line, everything will come round. If I was dealing with such a business, I would employ a tight credit control policy.
Inevitablty things will not go right and, if the management is not of the right spec, a slippery slope is predictable. The deflationary phase is a real concern and the relevant questions which are avoided and not answered at the AGM are doing no favours to Everton Football Club. The management have presided over losses, yet they appear oblivious to concerns and ignorant of how to, and the need to address them. Brands has had a remit since he started to address the areas that you have highlighted and it is very much a work on progress, in difficult circumstances, both inherited and against the current background.
Whilst Moshiri can conduct all good financial manoeuvres offshore raising finances, hopefully at the best rate, he needs to get a grip on the actual running of the club if he wants to make financial progress.
Allowing an AGM of that format is not fooling any of us, only himself.
23 Posted 17/01/2021 at 04:07:47
25 Posted 17/01/2021 at 05:41:17
I've an acquaintance who is a pretty well-known actor and he's fed me with plenty of ammo against Blue Bill in his producer capacity. So while old Don Alexander is a bit of a troglodyte whose posts pop up at inopportune times due to his Aussie habitat, when it comes to Kenwright-bashing, I'm not fishing – I'm 100% on the same page as Don.
26 Posted 17/01/2021 at 06:56:29
27 Posted 17/01/2021 at 07:22:36
FFP? City's £50M worth of lawyers ran over that and these next few Covid seasons with losses all over the shop, will back up and reverse over it a few times to make sure,
28 Posted 17/01/2021 at 07:32:29
Your country of domicile may not necessarily be your country of residence.
Although if you earn income in your country of domicile while resident in another country then you may have a tax liability.
Domicile is only applicable for tax purposes when dealing with Inheritance Tax (in UK anyway).
29 Posted 17/01/2021 at 13:59:40
I feel both are most unlikely, his tone was a just a reflection that English is by no means his first language!
30 Posted 17/01/2021 at 15:15:45
The main issue is transparency. BVI companies can guarantee confidentiality, as can appropriate structures in the Isle of Man, Gibraltar and Malta, all created using the BVI model. That is why a large part of London is owned by Isle of Man structures, and why a Russian lady, the wife of an oligarch seemingly, is being pursued currently, to explain the source of the wealth that apparently allowed her to spend multi millions of pounds in a year at Harrod's, or some such shop.
There may well be nothing dodgy about the funding. Nobody knows.
Philip Green was operating in this manner in the recent past, although he may be down to his last few billion by now and on his uppers once he's forced to cough up to pay cash into the struggling pension schemes of his employees.
31 Posted 17/01/2021 at 15:28:19
I think Moshiri will be here for a while as he's no-one to sell to, even with a ridiculous loss. I just don't see Usmanov as part of any future plan.
32 Posted 21/01/2021 at 16:02:54
And, as a bonus, he has an innovative, caring vehicle (Everton Football Club) to use as a shield. What supporters want is a successful Everton FC on the pitch and I get the feeling we will get this as a by-product of his overall strategy.
But, to agree with The Esk, not without external scrutiney of the board... it's too folksy at the moment. What will make the difference, surely, is when Moshiri realises he cannot achive the "big plan" without addressing the issues with Everton FC.
33 Posted 23/01/2021 at 10:45:47
It is likely that Liverpool will be designated a Free Port as Brexit kicks in.
34 Posted 23/01/2021 at 11:11:31
If he makes money we make money.
Every ones a winner
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