Business Editor Bill Gleeson assesses how the sale of Wayne Rooney to Manchester United has affected Everton’s finances
The proceeds from the sale of Wayne Rooney together with retail entrepreneur Philip Green’s £15m credit facility have substantially improved Everton’s finances.
Just a few days ago, the club was facing the possibility of administration within the next few months as it struggled to meet its debts and looked likely to exceed its agreed £5m overdraft facility with Barclays Bank. Everton owed around £43m to its banks and others just weeks ago. As well as the overdraft with Barclays, the club owes City institutions £30m and another £8m to other football clubs for outstanding transfer fees. Suddenly, however, the club has conjured up £25m of short term finance from the £10m payable immediately by Manchester United and Mr Green’s contribution.
The new money is enough to pay off debts due this season to other clubs and leave up to £12m for the manager to spend when the transfer window re-opens in January. By then, Everton should know if it is to get a further £20m of equity investment from the Fortress Sports Fund, run by Anton Zingarevich, in return for 40% of the club’s equity. If Everton secure that money, they will be able to repay Mr Green and have £5m left over to take David Moyes transfer spending kitty to £17m.
If the Fortress deal fails, Everton could be left owing £40m, even taking account of the Rooney sale proceeds.
However the club could reduce that figure if they choose not to draw down all of the credit facility from Mr Green. That would save £7m. Indeed, the club can’t spend any more on transfers until January, now that the deadline passed at the end of August. If no further spending takes place, it will leave Everton with total debts of around £33m. Given that £30m of this is long term debt, that leaves around £3m in overdraft owing to the bank, which is below the £5m limit.
Crucial to whether this is enough of a margin for Everton to trade through the current season is the performance of Everton’s operating cash flows and any time limits for repaying Mr Green.The operating cashflows depend on how much Everton receive from ticket sales, merchandising and television money compared to what it spends on players’ wages and other costs.
Until recently, this has been running at roughly break even, but television revenues are expected to decline this year for two reasons. The first is that Everton finished poorly at the end of last season and that bad run of four games cost the club £600,000 for every place it slipped in the table. In addition, the latest television deal between BSkyB and the Premier League starts this season, and this is structured so clubs receive the lion’s share of the money towards the end of the deal’s three year duration. To counter that, Everton has severely pruned its squad, with more players leaving than arriving at Goodison Park this close season. As a consequence the wage bill will be much lower.
And it might be possible for Everton to get their hands on the second £10m instalment from Manchester United before it becomes due in little under a year’s time. The club could arrange to borrow more money against it.
James Dow, a director of Warrington-based corporate finance firm Dow Schofield Watts, said: “Everton can discount the second £10m due next August for in excess of £9m from the likes of City investment banks or even their existing bank, given the covenant of Manchester United.
“The position of the club’s finances is much better today than a few weeks ago, but a rosier scenario yet would have been to attract an equity investor during the summer based on the prospect of building a team around Wayne Rooney.
“The sale of Rooney now has not enhanced Everton’s prospects to potential equity investors.”
Mr Dow added he would not be surprised if Fortress lost interest.