City Mayor Joe Anderson is proposing to borrow the cash to loan to Everton to go towards the £500m cost of its new stadium and if the deal will be as profitable for the city as he says, we need full disclosure says Tony McDonough

 

Liverpool Mayor Joe Anderson’s response to sharp criticism of his willingness to loan Everton FC £280m towards the cost of their new stadium was typically combative and bullish.

He said those who suggested the deal put funding for essential council services at risk were “living in cloud cuckoo land”.

The deal, subject to full council approval, would see the council borrow the cash at ultra-low interest rates and then pass on the loan to Everton, with a healthy profit of as much as £7m a year over 25 years coming back to the city.

Bulding a new stadium at Bramley Moore Dock would also boost north docks regeneration projects such as Liverpool Waters and 10 Streets.

Sound investment

On the surface the arrangement appears to be a sound one. Everton, similar to most Premier League clubs, enjoys a strong income stream from the TV rights deals and therefore can be seen as a relatively safe investment.

The Mayor is correct to dismiss concerns of any direct risk to day-to-day council services. The idea that Council Tax payers are funding a football stadium is simply not true.

However, the issue here isn’t viability so much as transparency, a point made to me on Twitter yesterday by Cllr Andrew Makinson, deputy leader of the opposition Liberal Democrats on Liverpool City Council.

Cllr Makinson said when the authority invested some £12m into Liverpool John Lennon Airport it never made public the full terms of the deal on the basis of commercial confidentiality. He fears the Mayor will also refuse to make available for scrutiny the full terms of the deal with Everton for the same reason.

The Lib Dems, led by Cllr Richard Kemp, are also concerned about whether borrowing this much money for the Everton stadium would make it more difficult to borrow to fund other future strategic projects as there are ceilings on how much councils can borrow.

Changing deal

Early last year when the project to build a new stadium at Bramley Moore Dock was first unveiled, the plan was for Everton to take out a loan directly and the council to act as guarantor. Why this has changed is a question that needs to be answered.

I heard a few weeks ago that Everton were pressuring the council to take a more active role in the project and just over a week ago, the club’s chief executive Robert Elstone admitted the original £300m projected cost of the new stadium had risen significantly.

Now the figure being quoted is £500m with the council’s loan contributing around two-thirds of the total cost. This suggests Everton’s efforts to borrow the money itself, even with billionaire shareholder Farhad Moshiri at in the picture, had not been successful, hence the change in the council’s status from guarantor to lender.

Calling the shots

In this scenario it is surely the council that can call the shots. Everton’s current home Goodison Park is less than a decade away from being no longer fit for purpose. The club does not have the option of simply staying put. Everton needs the council more than the council needs the club.

This, one would hope, puts Mayor Anderson, himself a lifelong Everton fan, in a strong position to be able to say to the club: “Yes, we can do this deal but the terms of the agreement must be open to the fullest possible scrutiny.”

Of particular interest will be which of Everton’s lucrative income streams will the council have dibs on?

 

Soaring revenues

Largely thanks to the current £5.1bn Premier League TV rights deal the club’s finances are in good shape. Its latest set of financial results, published just before Christmas, showed annual turnover of £171.3m, almost £50m more than the previous highest recorded figure in 2014/15.

A record post-tax profit of £30.6m follows a £24.3m loss in 2015/16 and the key factor in this rise was the almost £130m payment Everton received from the Premier League. This included a £35m equal share of the domestic TV rights, £39m from the overseas TV rights and a merit payment of £27m for finishing seventh in the league.

Significant outlay on new players pushed up the wage bill by 25% to £104.7m. However, wages as a percentage of turnover fell to 59% from 65% the year before thanks to the increased revenues.

A shareholder loan of £150m, without a repayment date, from Mr Moshiri, who has a 49.9% stake in the club, has allowed Everton to clear its historic debts but one presumes the billionaire will at some point want a return for his investment.

Possible relegation

With the next TV rights deal set to be bigger still the prospects for future revenue streams are bright indeed but – what if the unthinkable happened and Everton were relegated from the Premier League?

Everton has not been out of the top flight since the mid-1950s but it has flirted with the trap door on a number of occasions. Earlier this season Everton were struggling under Ronald Koeman and then David Unsworth and there were fears the Blues would face a relegation battle.

However, the appointment of Sam Allardyce has steadied the ship and the club appears to be in a safer position. But the risk of the future loss of top-flight status must be taken into account and factored in to the deal with the council.

 

Smaller revenues

TV money for clubs in the Championship is a fraction of that paid to clubs in the Premier League. Top earner in the 2016/17 season was Aston Villa. It earned £100,000 for every home match show live on Sky and £10,000 for every away game broadcast. This led to a season total of just £520,000.

Each club in the league also received an equal £2m share of the TV money and they also each received a £4.3m “solidarity payment”, funded by the Premier League, to ensure the gap between the two divisions does not grow too wide.

Critical to the financial health of Premier League clubs who do get relegated is the “parachute payments” which are paid in instalments over three seasons and, under the current formula, could add up to more than £90m. For that period they would not receive the solidarity payment.

Full transparency

Given the drastic fall in income Everton would suffer if they were to be relegated it would be hoped the city council would negotiate a claim on a significant chunk of those parachute payments as part of the loan repayment terms with the club.

Joe Anderson said this week that the city “cannot lose” from the deal. If that is the case then he needs to explain that in as much detail as possible. Hiding those details behind a veil of commercial confidentiality will not be acceptable to many people in the city.