Delloite's list the reasons for a stockmarket flotation (Delloitte & Touche Annual Review of Football Finance; August 1996):
The main purpose (and, in my opinion the only sensible one). A flotation can raise a bucketload of cash for a club. It can also raise that cash without the limits placed on bank loans, without the security needed and without the immediate need to cover interest payments.
There is, of course, a cost. It means giving up:-
The proportion of future profit really is forever. A flotation is a loan you can NEVER repay. The first rule must be to avoid floating for a temporary benefit such as buying players. Buying a squad MAY bring success but in five years time the players will have gone leaving you back where you started in terms of assets but with profits now leaking out. Float only to finance a project that will produce a permanent increase in profits over and above those you have to give away. A new stadium would, possibly, qualify.
Football isn't a business. It is a professional sport which means that it has considerable amount of businesses attached to it to pay for all the frivolity of the game itself. However that frivolity will forever cause conflicts with external investors if it is mixed with the business. Giving up control of the club will change the hierarchy within the club. At present Everton is a sporting organisation with businesses firmly underneath. The experience of floated clubs is of the business firmly superior to the sporting organisation. How many times have you heard that "the club would like to do it, but the PLC says no".
i.e. you can use share options to pay people. This is fair enough and share options can be a very good way of paying senior staff. They are, however, one way amongst many. Share options are not the be all and end all, they're a nice byproduct of rather than valid reason for a float.
That is to say pure vanity
Yer wha?
This is scraping the bottom of the barrel. Can't a company buy in the services of a bunch of accoutants and merchant bankers without carrying on to flog off half the shares?
These reasons for flotation cannot so easily be dismissed. Like it or not PJ is entitled to get his investment back out of Everton. Assuming that we cannot find a consortium of Evertonian's with sufficient funds to put GBP40 million in , and leave it there, how do we give PJ his money without a float?
I have argued elsewhere (What strategy for the future?) that the constituent businesses of Everton should be separated. This will create "pure" businesses where the true business reasons for a float hold good. i.e. Everton can raise outside funds by selling part of "EFC merchandising", "EFC catering" or "EFC TV".
Retaining control by the club of the newly formed businesses could be effected by:
1. Creating shares in the subsidiaries..
2. Giving 35% of these new shares to existing Everton shareholders. (At this point the Everton shareholders still hold 100% of the subsidiary: 35% direct, 65% through the club.)
3. Issue an extra 25% of shares as the subsidiary is floated.
PJ will then have a ready market for 35% of his holding in "the business" whilst the club maintains control over the floated businesses.
With separated out businesses a share issue (not a float) could be considered for the club. A true float would be out of the question as, stripped of much of its business interests, the club would no longer be the business proposition it now is. The opportunity also presents itself of changing the memorandum and articles of association (basically the "constitution" of the club) in order to make it a not-for-profit organisation. This, of course, would kill it as a business proposition.
The club share issue would be to the fans as fans. It would offer no financial gain but greater participation in Everton football club. If dealing costs were kept down (perhaps by a buying and selling service operated by the club) the shares could become an attractive proposition. The money raised can be used as funds for a buy-back of PJ's existing shares.
Coming back the idea of a consortium of Evertonian's who can afford to put money into the club and leave it there, we can see that the wealth they have to find is considerably smaller. The final element would be their purchase of PJ's "rump" holding.
This would leave an Everton in which ordinary Evertonians can take part. It would leave club that controls the PLC rather than the PLC controlling the club. The businesses attached to the club would be free to act as businesses with the conflicts between club and city reconciled (both want money, for very different reasons maybe, but both want the same thing. And PJ will have got his money back. He may not have made as much as he could have, as he would have to have left some value in the club.
PJ has a choice to make. I have shown how he can get his money out (and more) from Everton. He can then either go for broke or forgo SOME of the money he might have made in order to create what would, in effect, be a strong self-financing institution. He may be unpopular now but if he did this statues would be raised to him (probably with him cheering the blues with one hand whilst dropping an RS season ticket into a bin with the other!)
I would believe the oft-quoted GBP100 million price tag on a new stadium if we were talking about a 200,000 seater. Sunderland's new "Stadium of Light" was built for around GBP 500 per seat. That would price a 75,000 seater at around GBP 37,500,000, and I see no reason why that could not be kept to at "New Goodison". Additional cost would have to show additional benefits and, as these benefits will be commercial (we can assume that Sunderland's GBP500 covers playing and spectator facilities) they can be pre-sold to finance them.
Get a mortgage! The simplest and best - if it can be done. Banks are very risk adverse and the more you borrow, either as a proportion of the value of the asset or as a multiple of the earnings (profits) you will use to pay back the loan, the greater the risk of default.
Everton have borrowed considerable sums of money from the bank in the past - the stadium however might be just too much.
Yes, but see above
A source of funds mid-way between the bank loan and the float. Venture capitalists will accept risk, taking their income as a share of profits rather than as interest. Naturally enough they will want to see expected profits in excess of what a bank would take in interest. However a share buy-back can be written into any agreement. The venture capitalists would sell their portion of the company back (either to the company or the shareholders) leaving Everton "free".
Office buildings are not, in general, owned by their occupants, they are leased. They tend to be financed by a pension or insurance company with loads of your and my money to invest. The investing company however does not, usually, act as a property developer: they do not build a building and then run around trying to find a tenant. They will build a building on order for a specific tenant with a lease already in place. The investing company usually plan for two occupations one of, say, 15 years followed by a refurbishment and a second let followed by scrapping the building.
As the lease arrangement is purely a financing measure Everton would not be disrupting anyone business if that lease were turned into hire-purchase, effectively a mortgage but taken out with a specialist building financier.