Everton's Balance Sheet

Overview

Net Current Assets

How did this happen?

What is to be done?

Overview

Here are summaries of Everton's balance sheets as at 31 May 1996 & 1997.

Firstly see how the top bit adds up to the same as the bottom bit, they "balance", hence balance sheet. (Apologies to those who know all this). The top bit, broadly represents what Everton has got. Goodison, Bellefield, the megastore and other fixed assets; Current assets such as cash and the amount Fiorentina owe Everton for Kanchelskis. Finally, there are the amounts Everton owe others, notably the bank and West Ham for Slaven Bilic.

The bottom bit shows how Everton got all this. 25million has come from issuing shares, 5.6 million is the effect of Goodison and Bellefield being worth a lot more than Everton paid for them whilst 20.4 million has been blown in losses.

Before we get onto the meat of the net current assets a little tour of some of the figures:

Fixed assets

Everton have bought GBP 967,890 worth of freehold property, GBP 525,218 of equipment and GBP 20,204 of Vehicles. I'm only guessing here but the property is either land around Goodison or land for a new stadium whilst the equipment is probably a load of TV stuff for "Goodison TV"

Stocks

Good news! Everton have reduced stocks. Carrying GBP 645k in 1996 (assuming it was all for "commercial activities" and a gross profit of 33%) meant they had over 3 months worth of stock (Marks and Spencer have one month's ). Too much stock means you pay the bank for the cost of it while it is unsold and carry the risk of it not selling and you having to bin it. Stocks have halved-which implies that someone has spotted the problem and done something about it.

Debtors

Debtors have increased by just over GBP 7 million - an amount not a million miles from the amount Kanchelskis was sold to Fiorentina for. This is no coincedence. Fiorentina are, effectively, buying KK on hire purchase - GBP4 million pounds of the purchase price being payable after May 1998.

Creditors

The bank overdraft has fallen because of the rights issue - no surprise there. The trade creditors increase is almost certainly down to unpaid transfer fees. However all this comes under the caption "due within one year". Obviously Slaven is not on hire purchase! No doubt the transfer fee has now been paid and the overdraft is back over GBP10 million. (If Newcastle have paid up for Speed and Wednesday for Hinchcliffe it should by now be down to GBP1.5 million)

Net Current Assets

Look again at what we have got. Remove the fixed assets from the equation, we aren't going to sell Goodison or Bellefield to cover our debts, and it now looks like this:

Everton owe more than they own.

Is this a problem? Well, yes and no. Yes because it restricts Everton's future activities, particularly in the transfer market. The deficit cannot be allowed to grow much bigger. What PJ says is true, there are now only limited funds available for transfer. No, because its not that big a hole. So long as Everton can comfortably service the debt Everton can keep it. Everton are very, very far from the tottering-on-the-brink-of-bankrupcy stereotype of the overspending club.

How did this happen?

Because transfer fees are now staggeringly high and are out of all proportion to the level of income clubs generate. Look what happened when we bought Nick Barmby:

Compare the effect of Adrian Heath. Two sets of figures follow, the actual amounts and amounts adjusted for the 92% increase in prices from 1982 to 1992 ("real terms", "todays prices" or whatever):

What is striking is that, whilst the relations between the figures remain similar, in absolute terms today's figures are a lot more. The effect is even more striking in graphical form

We can imagine PJ laughing indulgently while pulling 1 million out of his wallet to buy Heath. 5, 7 or even 15 million is a different matter. And where do we go for this kind of funding when PJ leaves? The price of footy is going up and pushing itself out of the reach of your average self made man. This is what Alan Sugar has called "the prune juice effect". Money coming in at one end doesn't stabilise football clubs finances but just runs out the other end in higher wages and transfer fees. In fact football clubs' financial positions have become MORE precarious as that little deficit has turned into a big one. It will always be like this. Football is not a business. It is a professional sport and will always have businesses attached to it. However there will always be "football" getting in the way - that desire to spend to get the silverware

What is to be done?

I'm probably not going to make any freinds with this statement but I do believe that Everton are doing the right thing with player transfers. Here Everton are doing more than ok

HK has in shown that he knows the current transfer market is unsustainable. As frustrating as it is we only have to look at Newcastle and 'Boro and Arsenal to see that buying a team doesn't work anymore (it only ever worked with Blackburn and that started the inflation).

Everton have put in a two part strategy

Revamp the Youth System

Buying a lot of flighty "stars"may not be the way to win championships, but Manchester United have shown that a good youth policy is. Everton have placed Colin Harvey, a championship winning coach, in charge of the youth policy. Harvey, in turn, is bringing radical new changes to the way things are done and new players are breaking into the first team because of it. John Oster cost the club GBP1 million, think how much Branch, Cademarteri, Ball and Dunne would have set the club back.

Play it tough in the transfer market

It is a sad fact of life that if you show youself to be pepared to spend you will have to spend. Transfer fees have increased in part simply because the selling clubs know they can "get away with" demanding huge fees. Everton have changed the rules and publically shown that that is no longer the case when you're dealing with Everton.

Grabanelli was the turning point and his behaviour shows how things have changed. Everton had agreed a fee with Middlesboro, Ravanelli came for negotiations and demanded a huge package. Everton did not re-negotiate, did not argue him down, they said "NO". Ravanelli was stunned, he winged to the press (quot;Grabba Slams Toffeesquot: etc. etc.). He and his advisors obviously thought Everton a soft touch, finding out that they weren't was public lesson number one. Grabba quickly dropped his more extreme demands but Everton did not re-open negotiations. Lesson number two - you get one shot with Everton, don't go in high prepared to come down, you have to start negotiations at a reasonable level.

This, naturally enough, meant we didn't get Grabba. I don't think this was any big loss. If you do, think on to the further fights Everton have had. Thomas, Everton bought Thomas and on Evertons's terms.. Myhre, Everton bought Myhre and on Everton's terms. Speed, Newcastle's "final offer" of GBP5.5 million meant Everton did have to compromise on the asking price of GBP6 million - by 100,000!

I think those nervous times at the start off the season are worth it. Everton now get more cash for their sales and pay significantly less for their purchases. An injection of cash has a short term effect Stabalising the balance sheet in the way Everton have done is the best way of ensuring that Everton can act in the transfer market on a long term basis.

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