Welcome to ‘Crisis Clubs’, a series examining the financial states of five European football clubs. Our experts will dig into the numbers, analyse how and why things are so perilous, and plot potential ways out for Everton, Barcelona, Inter Milan, Lyon and Hertha Berlin. Look out for even more insight via The Athletic Football Podcast, too.
Founding members of the English Football League in 1888, Everton were the first club to use Anfield, the first to build a proper football stadium of their own and the first to print a regular programme for home games.
That stadium, Goodison Park, was the first in the country to have two tiers for supporters on all four sides, the first with dugouts and undersoil heating, and has staged more top-flight games than any other. Nine times champions of England, Everton were one of the key players in the creation of the Premier League and this season is their 70th consecutive campaign in English football’s elite division.
But last week, Everton made history of a different kind when they were hit with a 10-point penalty for breaching the Premier League’s financial rules. The decision, subject to appeal, sent the club down to 19th in the table, off the bottom only on goal difference.
The scale of the punishment, which Everton called “wholly disproportionate and unjust”, is unprecedented — only Portsmouth’s nine-point deduction for going into administration in 2009-10 comes anywhere close in the English top flight — and the threat of litigation from other clubs could again take Everton into uncharted territory.
Everton’s 10-point deduction: Why is the sanction so steep and what does it mean for the Premier League?
These are potentially more unwelcome firsts for a club with a history as rich as Everton’s. Yet that is where the wealth ends these days, as owner Farhad Moshiri put them up for sale last year, having sunk £750million ($930m) into Everton in seven very prodigal years.
He has found a buyer, eventually, but his agreement with American private investment firm 777 Partners is subject to regulatory approval. We are now two months into that process, with the uncertainty only adding to the nerves about what is next for this club. The longer it goes on, the more questions are raised about 777’s ability to pull off a rescue.
There is a more fundamental question too, and it should be directed at anyone who cares about the health of the English game: how on earth did a team once labelled “the Bank of England club”, that played football so pure that Goodison was called “the School of Science” and has been proud to call themselves “the People’s Club”, get into such a state?
Because if it can happen to Everton, it can happen to anybody in the game.
How did they get into this mess?
Even their harshest critic would have to admit Everton have not enjoyed the best of luck over the years.
They were the defending champions when the First World War and later the Second World War both stopped competitive sport for several years, causing the break-up of those sides. And their last truly great team, domestic champions in 1985 and 1987, were deprived of the chance to compete in Europe, with all the financial benefits that would have entailed, because English clubs were banned for five years after the Heysel Stadium disaster of 1985, when 39 people died in clashes before kick-off between Liverpool and Juventus fans in that stadium in the Belgian city of Brussels.
Some would argue that having to share a city with English football’s most decorated side, Liverpool, is also a tad unfortunate.
But are Everton uniquely unlucky? Because that is what the club’s hierarchy seem to have asked us to believe.
In her foreword to the financial report for the 2020-21 season, Everton’s then chief executive Denise Barrett-Baxendale set out just how much Covid-19 had cost Everton. “Losses of at least £170million are attributed to Covid-19,” she wrote, “with further market analysis indicating that figure could be as much as £50million higher.”
She added that £103million of the losses in that set of accounts were “associated” with the pandemic, with the justification being the cost of playing matches behind closed doors, the rebate all clubs had to pay the league’s broadcasters for a disrupted service, the impact the crisis had on commercial income and the collapse of the transfer market.
These were valid claims, and every club made them to one extent or another, but Everton’s Covid-19 loss was at least double the going rate, and it was also twice what they actually recorded as “crystallised losses” in their accounts.
During last month’s hearing into whether Everton had breached finance rules, the Premier League argued the club’s cumulative losses for the financial fair play (FFP) cycle ending in 2022 were, at £124.5million — £19.5m over the limit. Despite initially denying any wrongdoing, Everton then accepted they were in breach by a smaller sum of £9.7m but claimed they were entitled to “substantial mitigation”, including their ability to sell players during the pandemic.
But while there is some truth to the idea that the pandemic hit Everton particularly hard, luck does not have much to do with it — and the independent arbitration panel agreed. A dim view was taken of Everton’s attempts to use the impact of Covid-19 on the transfer market as a mitigating factor, and the commission found that “the position that Everton finds itself in is of its own making”.
Central to that has been Moshiri, who bought a 49.9 per cent stake in Everton in February 2016 for £87.5million and now owns 94 per cent.
The Anglo-Iranian businessman was more flush than usual in 2016 as he had just sold his stake in Arsenal to Alisher Usmanov, his former boss turned business partner. Usmanov is a billionaire having built an empire that ranges from precious metals to mobile phones. Moshiri made his fortune running some of these companies for him.
The financial gap between Everton and the gang of clubs regularly playing European football did not seem so unbridgeable back then. In fact, for Everton and their new benefactor, it looked tantalisingly close, perhaps just a few signings and a new stadium away.
Everton had been talking about moving away from Goodison for years, and it is to Moshiri’s credit — and wallet — that the idea is becoming a reality across the city at Bramley-Moore Dock. But it is never just a few signings or sorting out what Moshiri called the “non-existent midfield”, is it?
Between 2017 and 2021, Everton’s net spend on players was £359million, the fifth highest in the league, and their wage bill doubled. This might have worked if, say, half of those signings were hits but the success rate was more like one in four — and we’re being generous.
Poor recruitment was not just limited to the playing staff, either, as high-profile managers were hired, backed in the transfer market and then sacked. Everton had only three different managers between 1998 and 2016, but incumbent Sean Dyche (below) is Moshiri’s seventh permanent manager. Paying off sacked staff is considered an “exceptional item” in club accounts. There has been nothing exceptional about it at Everton.
So, yes, the bottom falling out of the transfer market during the pandemic was a problem for most clubs. But most clubs had not been on a four-year trolley dash, with wonky wheels and too many different drivers, when Covid-19 struck. Everton were not uniquely unlucky in that regard but they may have been uniquely vulnerable.
The same point can be made about the other great slice of misfortune Everton have experienced of late: last year’s outbreak of war in Ukraine.
The link here is Usmanov, as his relationship with Moshiri had brought the club tens of millions of pounds in sponsorship income from companies under his control. This included a deal that involved USM, a sprawling conglomerate of which Usmanov is the largest shareholder, paying Everton £30million for an option on the naming rights of their new stadium, with annual fees of £10m to come from the 2025-26 season.
That looked incredibly clever, right up until the point Vladimir Putin decided to escalate his near-decade-long war with Ukraine in February 2022. Within a fortnight, the European Union, United States and United Kingdom had all sanctioned Usmanov and several other “enablers” of Putin’s regime, and Everton cut their ties with him and his sponsorships.
Moshiri is a British citizen (albeit one who lives mostly in Monaco) but a large part of his wealth is beyond his reach in Russia and neither he nor Usmanov can plug the holes in Everton’s accounts any more.
How bad is it?
Whether it was the pandemic, Putin or the poor players they purchased, there was no doubt Everton were in serious trouble on and off the pitch by the summer of 2021.
Twelve months later, they were approaching crisis point, as rumours swirled that Everton needed to sell at least two of their most marketable assets before their financial year-end or risk breaking the Premier League’s profitability and sustainability rules (PSR) — a soft salary cap no club had previously come close to troubling.
At that point, Everton had lost £373million in three years — £150m more than Chelsea, the league’s next worst performers over the same period.
Under the rules, clubs are permitted to lose up to £105million over a three-year period but spending on community projects, infrastructure, their women’s team and youth development does not count toward the headline total. Allowances have also been made for the loss of matchday income during the pandemic and the broadcasters’ rebate, and the league has also treated the two Covid-affected seasons — 2019-20 and 2020-21 — as one big season, with the financial result for them being an average of the two.
Once all this was taken into account, Everton’s overspending for the period fell from about £150million to a more Richarlison-sized hole, which appeared to have been filled when he transferred to Tottenham Hotspur for £60million on July 1 last year. But even that was not enough — 17 months on, the commission said Everton selling the Brazil forward for a fee that was £20m less than they had initially forecast was a key part of their non-compliance with Premier League rules.
Several clubs, including relegated Burnley, had grumbled about the unfairness of it all and threatened legal action when they went down and Everton stayed up in May 2022. But that threat came to nothing and the following season started with a hint of optimism at Goodison Park, as almost £70million had been spent on seven new players. A start of two defeats and four draws soon nipped that in the bud.
Manager Frank Lampard was replaced mid-season by Dyche and the club’s best prospect, Anthony Gordon, was sold to Newcastle United for £45million in the same month. Then, in the March, the Premier League slightly surprised everyone by hitting the club with a charge for the four-year period to 2022.
While Dyche dragged Everton out of the drop zone, the teams they were fighting against to stay in the top flight tried to remind the league that justice delayed is justice denied. Better to send Everton down in 2022-23 with a points deduction than drag things on into next season, surely?
It was a nice try but the league was in unchartered territory here — clubs handed cheques of at least £100million in broadcast revenue are not meant to lose this much money, so sorting this out inevitably spilled over into this season.
And when the judgement finally came after a five-day hearing last month, it was far, far worse than most people anticipated.
Breaking down 41 pages of written arguments behind Everton’s points deduction
“The excess over the (£105million) threshold is significant,” said the commission. “The consequence is that Everton’s culpability is great. We cannot ignore the fact that the failure to comply with the PSR regime was the result of Everton irresponsibly taking a chance that things would turn out positively.”
Moshiri believed he could flash the cash in his first “three or four years” as owner before Everton would then have “little or no need” to rely on his financial support, but it did not turn out like that. Initially, Everton’s owner tried to convince everyone — perhaps even himself — that he only needed some help to steady the ship and finish building the new stadium that is meant to boost the club’s anaemic matchday revenues and make Everton more attractive to global sponsors. But anyone who really understood the financial pressure he was under knew Moshiri was looking for someone to take on far more of the strain than he was admitting.
The first name to surface as a potential new custodian was the American property developer Maciek Kaminski. His on-off dalliance with the club lasted at least six months but went nowhere meaningful and he was last heard of failing to complete a deal to buy Belgian side Kortrijk.
Attention then switched to two US investment funds, 777 Partners and its rival MSP Sports Capital.
By May this year, the latter appeared to have won, as it had agreed a period of exclusivity with Moshiri to get a deal over the line.
The complicated agreement involved MSP lending Everton up to £150million in convertible debt, in return for a 25 per cent stake in the club. MSP’s commitment would then unlock the remaining £200m or so required to finish the stadium, with that money coming in the form of a construction loan from major banks. But three months later, that deal was off, scuppered by the fact Everton’s main creditor, the Cheshire-based Rights And Media Funding, did not think MSP was bringing enough money to the table.
For those wondering who is actually in charge at the club right now, you are not alone.
Rights And Media, for what it is worth, has two directors, no employees, no website and no contact details. It does, however, have an IOU from Everton worth £200million, which is secured against Goodison Park, their Finch Farm training ground, the club’s revenue streams and its bank account.
With MSP’s plan rejected, Moshiri returned to 777 and, in September, he announced he had agreed to sell all of his shares to the Miami-based firm.
Whether this is good or bad really depends on your assessment of Everton’s options.
Moshiri will receive a lower sum from the mooted takeover if Everton are playing Championship football next season, but what’s the alternative? The fact 777 is already lending the club £20million a month to keep the lights on at Goodison and the cement mixers turning at Bramley-Moore suggests the Bank of Moshiri has shut forever.
What’s the way out?
You might think being snubbed like that would have made MSP pick up its ball and go home, but it actually went ahead with the plan to loan Everton £140million to finish their new stadium. The only difference now is that instead of becoming a 25 per cent stake in the whole club, it is now just a commercial loan secured against the stadium development subsidiary Moshiri set up in 2017.
Why? Because that new stadium is really worth something.
It is not too much of a stretch to suggest that if Moshiri had not already poured £400million of his fortune into the building site on the banks of the Mersey, Everton would be in administration now, because the two-thirds-built stadium is by far the most attractive part of any sales prospectus for the club.
Everton’s financial situation is uncertain – what does this mean for new stadium?
A 53,000-capacity venue, the centrepiece of a £6billion redevelopment of what was, until very recently, a UNESCO World Heritage site, is a prize worth having — particularly if someone else has already paid for more than half of it. When finished, it should be one of the best stadiums in Europe, and it will get a chance to showcase those credentials when it stages games as the UK and Ireland host the 2028 European Championship.
MSP has presumably lent money to Everton to continue building the place, because there is a possibility they may either default on their repayments or have to sell the stadium to fund the club. Either way, MSP is in the box seat.
And 777 wants the club because it knows it could leverage the value in the new stadium to fund not just Everton’s rebuild but the various turnaround projects it has taken on at other clubs — Genoa, Hertha Berlin, Melbourne Victory, Red Star FC in Paris, Sevilla, Standard Liege and Vasco da Gama.
This means the stadium, where the budget for the project has unsurprisingly swollen from £500million to £760m, is not the millstone that some seem to think is dragging Everton down. No, it is the lifejacket keeping them afloat.
Whether 777’s takeover is approved or not, there will be other parties who look at Everton’s debts, ongoing losses and the amount required to make them European contenders once more, and balance that against the potential returns from owning the UK’s best sports venue outside London, and come to the same conclusion as 777 and MSP: there is a business worth backing there.
The tragedy for Everton, however, is they become tenants of the building which was meant to transform their fortunes, not those of a bank, billionaire or investment fund.
(Top images: Getty Images; design: Sam Richardson)