Is Relegation The Key To Rejuvenation For Everton FC

Don’t be silly, I hear you say but I believe there is a strong argument that relegation may not be the end of the world for EFC.

What are the main factors limiting investment in EFC? Recently, there has been much uproar about the perceived inability of the club directors and board to find suitable investment in EFC. Clubs lesser in stature seem to find investment with relative ease, so why not us. As a person who has functioned in a variety of different sized organisations I believe there must be a few simple factors as to why we aren’t sold, they are:

1-       Price; This dictates everything, if a fruit store business is making profit of £100,000 year on year, asides from being a huge and very successful fruit shop, a reasonable offer for the business would perhaps £1m, based on a 10% annual return on your £1m investment. There are many facets to selling a business and I won’t pretend to know them all. However if the owner put a price tag of £20m, it would take nearly 200 years to see a return on your investment. Alternatively, and sorry to labour the point, but if the owner valued the business at £100,000 pounds, asides from being a fool, he would have queues of suitors outside his door courting his hand in agreement.

Now consider a business which is losing money each year, how much should it be valued?  We must be overvalued!

2-       Risks; there are risks in every business deal, including; will the employees all leave when I take over, will the customers leave, what is the market competition likes (see later point), is the business established. All these factors and risks should be considered and managed by any prospective purchaser and they could influence the price being offered. It is up to EFC to show that these risks are not as great as the perception, or that there are well managed strategies in place for handling them. I see the key risks for our club are:

1. Debt –  How much money to I owe before I buy this business and how much do I need to pay back each year to maintain this debt
2. Assets: – Are the assets tangible, can they be realised without impacting the business – typically the core business assets for Everton are its players, income from TV (though not guaranteed) and the stadium.
3. Liabilities – Stadium has got to be seen as a liability – whilst we all love the fortress Goodison, its current state and cost of upkeep make this a liability for any potential investor.

3-       Market Competition: This is another one of the key factors for me, one which is frequently overlooked. The market is already saturated with a number of competitors with significant investment; it’s hard to find that foothold even if significant investment was made. How much more money would it take to improve our position.

Our Competitors current valuations of the investors (in Millions):

Arsenal – Between Kroenke, Usmanov and Moshiri £15,300million

Chelsea – Abramovich £10,300million

Everton– Kenright, Earl and Woods, £277million

Liverpool – Henry £600million

Spurs – Lewis £1,937million

Man United – Glazer £1,640 million

Man City – Mansour  £20,000million

Newcastle – Ashley £1,370million

Even some of the other teams in the league:

QPR – Fernandes, Mittal £12,008million

Aston Villa– Lerner, £600million

Reading – Zingarevich, Madejski £635million

How much would we need an investor to have, and how much money would they need to spend. Never mind that with the UEFA fair play coming in, it will be even harder to buy your way to the top.

So how is relegation potentially the key

So how does this all relate to relegation; in my view, the current Everton majority shareholders (directors/board) will never sell without their price being met. They may lower their valuation slightly but never at a level to encourage the correct investor. On the flip side, if there valuation was changed by external factors, e.g. relegation, then they would need to reassess the bottom line. The big caveats to this would be, more than 2 seasons in the championship could be devastating financially, investors may not be interested in a club below the premier league, some savvy investors may wait for a bigger fall.

So it’s a fine line, we either convince the board to sell in our current position, callously wait for them to die off and their benefactors have no interest in the club, or hope that an investor with the size and scale of Sheik Monsour see the potential in our club.

Comments welcome.