Everton: A Textbook Example of English Football’s Failed Business Model

“I’ve told the bank ‘don’t kill us this season,’” was the phrase from Bill Kenwright that exposed Everton’s financial direction with alarming simplicity. The club’s latest accounts for the year to May 2011, though ferociously spun, do little to suggest the bank has holstered its weapon. The figures paint a picture not of stability, but of stagnation and escalating risk.

A headline figure of record turnover, £82m, is presented as a sign of health. Yet this increase was almost entirely consumed, and then some, by the club’s wage bill. An operating loss before player trading of £500,000 and a pre-tax loss of £5.4m tell a truer story. Much of the turnover increase came not from commercial ingenuity at Goodison Park, but from Richard Scudamore’s central Premier League television deal, which accounted for £2.7m of the £2.9m rise. This is the reality behind CEO Robert Elstone’s claims of a “stable, well-managed cost base”.

Stability, in this context, is a misleading term. A “stable” operating loss simply means losing as much money as the previous year. “Stable” net debt, which stands at £44.9m, means owing the same amount but with less time to pay it back. The accounts are peppered with such creative interpretations. The financial review highlights that £20m is not due for repayment for more than five years, implying a manageable debt profile. It conveniently omits that £24.9m is due within five years, a figure that has actually increased from £23.8m the year before.

The Family Silver is Gone

Perhaps the most concerning aspect of the accounts is how the club balanced its books even to this extent. The figures were propped up by an £8.4m profit on the sale of the Bellefield training ground. As protesting supporter groups have rightly pointed out, this was the club’s last significant “non-playing” asset. The family silver has now been sold. From here on, balancing the books means selling players.

The club admits as much in the “risks and uncertainties” section of its own report. It states that its overdraft facility beyond next July will be determined by two key factors: its final league position and “player trading activity”. The recent £13.032m received, primarily for Mikel Arteta’s deadline-day transfer to Arsenal, provides a temporary reprieve. But the fact that Everton still recorded a £5.4m loss even after the one-off Bellefield sale suggests that such significant player disposals need to become an annual event just for the club to stand still.

This financial tightrope walk is further complicated by the club’s refinancing. Mainstream lenders like Barclays Bank have been replaced by more obscure entities. One such creditor is the Vibrac Corporation, a company with a British Virgin Islands address, which has lent Everton £14m at an undisclosed interest rate against future broadcast revenues. It is, as the club insists, a “common industry practice”, but that only speaks to the madness of the industry itself.

The Chairman and The Protests

Amid the growing financial concerns, chairman Bill Kenwright has become the public face of the club’s problems and the primary target for supporter groups like The Blue Union (TBU). Kenwright, who owns just 37% of the club’s shares, has launched a comprehensive public relations offensive to counter the protests and shore up his reputation as the club’s saviour and number one fan.

In a September interview with the Daily Mail, he trotted out his greatest hits: “I’m great at selling Everton Football Club (honest to God I am),” and “I take nothing out of this club.” The piece by Martin Samuel was a masterclass in mawkishness, complete with a mention of Kenwright’s 93-year-old mother. Later, he told a Leaders in Football conference that Evertonians would “rather stay with me, for all my drawbacks”.

The Blue Union and other critical supporters remain unconvinced by this charm offensive. At a recent public meeting, long-time board critic Colin Fitzpatrick presented a detailed analysis of Everton’s finances, comparing them unfavourably to similarly sized clubs, most notably Tottenham Hotspur. The comparison is a painful one. In the late 1980s, Everton and Tottenham were both part of English football’s “big five” alongside Liverpool, Arsenal and Manchester United. Tottenham’s recent growth throws Everton’s stagnation into sharp relief. David Conn’s 1997 book The Football Business described Everton’s situation in 1993 with the exact same word: stagnation.

The club’s highly-praised academy, which recently produced Ross Barkley, is often cited as a potential solution. Barkley recently signed a new four-and-a-half-year contract, a move that looks as much about securing a future transfer fee as it does about building a team. But the academy is already so successful that it is difficult to see how this particular asset can be “sweated” any further to solve the fundamental financial shortfall.

The other board members remain largely anonymous. Robert Earl, the American entrepreneur, holds 35% of the shares, while non-executive director Jon Woods holds 27%. Sir Phillip Carter, chairman during the club’s 1980s glory years, retains a minimal holding. For all their visible influence, they might as well not be there.

Ahead of the most recent protests on November 19th, Kenwright again gathered the media to promise funds for January transfers and reveal that “three or four parties” were interested in buying the club, a curiously imprecise number. The division of opinion remains stark. The choice facing Everton seems to be either spending more than they earn to compete, or accepting a future of annual relegation battles with a diminished squad. If that is the only choice for a club of Everton’s stature and support, then English football’s business model has truly failed.