Everton are in a precarious position. While still outside the bottom three,
they remain under serious threat of relegation. And, with a difficult set of fixtures to come
and confidence low, we’re asking what life in the Football League would look like.
“It’s probably the worst time for Everton to be going through this after the series of
cumulative losses,” says Dr Rob Wilson, a football finance expert at Sheffield Hallam University.
“IEvery position you finish in the Premier League, you get around £2.5 million the higher up you go.
But this year, Everton are likely to finish in the bottom quarter which can wipe out up to £25
million from their income. It puts more pressure on their ability to meet financial obligations.”
Chief among those is Everton’s very high wage bill, believed to be the seventh-largest in the
division, totalling £165 million according to 2019-20 accounts, or 89% of revenue.
Cost-cutting has been underway for some time and there is an
expectation this summer that they will be able to recoup
considerable amounts of money in wages from expiring contracts and fees from likely sales.
However, their cost-cutting would have to go much further. Everton
insist some of their players have relegation clauses in their contracts. Others do not.
“Typically, a team like Norwich would probably insert a 50 to
70 per cent wage reduction in case of relegation,” notes Dr Wilson.
“(But)If you don’t have relegation clauses to this extent, it places a huge pressure financially.
Another problem would be the club’s loss of talent. Dominic Calvert-Lewin
and Richarlison both have a long list of admirers and, even without relegation,
keeping them beyond the end of the season would be a struggle. However, logic dictates
that Everton would struggle to realise the value of those assets if they went down.
The working theory is (their price falls) about 50 per cent” says Dr
Wilson. “You’re under more pressure to sell.”
More trouble still, lies in players who earn considerable
wages but who don’t command the same level of interest.
“Well-paid players you can’t move are the nightmare scenarios.” Wilson concludes.
Much of the pre-season discussion about Everton centred on their financial fair play position.
The club posted combined losses of £252 million over the previous two seasons,
considerably above the Premier League’s £105 million threshold for any three-year period.
However, investment in the academy, stadium and the day-to-day running of
their women’s team are exempt from the loss calculations.
After being granted planning permission by Liverpool City Council,
Everton are also able to exclude from their profit/loss calculation the
stadium costs incurred from the date the planning permission was granted.
Up to the end of June last year, that expenditure is believed to be around £40 million.
The Premier League is also allowing for add-backs due to the impact of COVID-19, with
Everton attributing £67m of their overall loss to the pandemic in their last set of accounts.
And Everton have been working to a considerably more stringent budget for some time.
They spent just £1.7 million last summer, while the purchases of Nathan Patterson and Vitalii
Mykolenko in January were almost entirely offset by Lucas Digne’s move to Aston Villa.
In addition to which, James Rodriguez,
comfortably the club’s highest-paid player on more than £200,000 a week, and another
big earner in Brazilian forward Bernard, both departed for the Middle East over the summer.
Yet issues remain – and relegation would
expose the club to the stricter environment of the Football League.
“The financial penalty or loss as a result of relegation probably totals
around £80 million in terms of lost revenue,” Wilson says. “They will go from £120 million
or £130 million in prize money to parachute payments in the first year
around £45 million. It’s £30 million in year two and £15 million in year three.
“EFL profit and sustainability rules, or salary cost protocols as they are known now,
are under review but essentially they allow for cumulative losses of £39 million over a
three-year period. This is where there is intense pressure on player sales.”
Relegation would also represent a serious challenge were it to happen before the stadium
at Bramley Moore Dock is completed. As it stands, despite the imminent reduction of revenue after
the suspension of their USM sponsorships, the club are still confident the stadium will be delivered.
Everton have had positive talks with interested parties for the private investment which will form
a major part of the ground’s funding. The announcement of a resulting deal, though,
may have to wait until Everton’s fate in terms of their Premier League status is known.
Relegation would mean JP Morgan and MUFG could simply not put the same deal to the market and the
club may have to fund the project through equity while they remain outside of the top-flight.
Whether that would be possible, with Moshiri’s fortune impacted and cash flow overall challenged,
would be debatable.
Everton had built a case for relegation into their planning, and accounted for spending one season in
the Championship before returning at the first time of asking, as West Ham United (2011-12) and
Newcastle United (2016-17) have done recently. Both those clubs’ attendances and match-day
revenues were not severely impacted during one season in the second tier.
And even though the potential for USM to snap up a lucrative naming rights deal for the stadium
is on ice, Everton can still be confident others will want to replace the Russian firm.
The Athletic understands that, as a package, naming rights remain a considerable asset
But even with these best-case scenarios, relegation naturally threatens other problems.
Everton will part company with £10 million-a-season shirt-front sponsor
Cazoo this summer and while good progress is being made to secure a replacement,
maybe a more lucrative deal if they remain in the Premier League,
relegation often leads to a dramatic reduction in the value of such inventory.
As an example, another recently relegated Premier League side saw the value of their shirt-front
sponsorship deal decrease from £5 million per season to £850,000 a year in the Championship.
Even if they stay up, finding a replacement for USM’s sponsorship of their Finch Farm training
ground will be tough. That £12 million-a-year would be difficult to replicate regardless,
let alone from a lower level.
It poses another in a long list of difficult questions were the worst to happen.