Everton faces serious ‘going concern’ issues if relegated from Premier League

Relegation-threatened Everton FC faces serious issues as a going concern if the club loses its Premier League status this season, after reporting its fifth consecutive pre-tax loss.

The Blues, hovering perilously above the relegation berths, issued accounts for the 2021/22 season which revealed a loss of £44.7m, representing a £76m (63%) reduction on the loss of £121.3m for 2020/21, despite the impact of a significant fall in broadcast income.

The reduced loss was mainly due to the sale of Brazil forward Richarlison to Tottenham Hotspur for £60m last summer.

However, this takes the club’s cumulative losses over the past five years to more than £430m.

Last week the Premier League referred the club to an independent commission over an alleged breach of financial fair play rules, which it said it will vigorously defend.

Turnover for the reporting period was £181m, down from £193.1m the previous year, despite the suspension of all commercial sponsorship arrangements with Russian companies owned by financial backer Alisher Usmanov, who was sanctioned by EU and UK authorities following Russia’s invasion of Ukraine on February 24, 2022.

The club said: “Despite the substantial financial impact of several unexpected and unprecedented factors in recent seasons, the club remains in a secure financial position thanks to the continued support and commitment of our majority shareholder (Farhad Moshiri). In the post year end period, the majority shareholder has provided a further £70m of financial support to the club.”

The £70m injection is towards the construction of Everton’s new Bramley-Moore Dock stadium, and other operational cashflow requirements.

But club auditor, Crowe UK, said: “Should the club be relegated, it will require additional financial support from its majority shareholder, who themselves are reliant on support from their majority shareholder, who have indicated they are supportive of the group, but the support is not legally or contractually binding.

“These matters indicate that a material uncertainty exists that may cast significant doubt on the group’s ability to continue as a going concern.”

Notes to the accounts say that, in a relegation scenario, the club would review its costs base, trading strategy and defer other planned discretionary expenditure in the short term to offset any likely reductions in revenue.

The club said it has been able to secure longer term funding facilities, but these are reliant on it remaining in the Premier League.

Providers have indicated they remain supportive, but there are no contractual commitments in place that would guarantee a waiver of the amounts payable in full or in part following relegation.

The club said it is in advanced negotiations for additional long term funding which it is confident will conclude favourably, but it admits, again, there is no contractual commitment to this funding.

It revealed heads of terms have been agreed for the next stage of funding for the £500m stadium development which are expected to reach a conclusion in the next couple of months. But these are not legally binding and cannot be guaranteed.

And while majority shareholder, Farhad Moshiri, has provided a letter of support confirming the intention to provide ongoing financial support for the next year, this does not represent a legally binding commitment.

The notes say: “Collectively, the above conditions indicate the existence of a material uncertainty that may cast significant doubt about the group’s ability to continue as a going concern.”

Key points in the 2021/2022 accounts include:

  • The generation of £67.7m of profit on player trading transactions, a five-fold increase of £54.5m from the prior year player trading profit of £13.2m.
  • Total commercial revenue from sponsorship, advertising and merchandising and other commercial activities growing by £3.8m to £50.4m.
  • Broadcast revenue falling from £146.4m in 2020/21 to £115.1 in 2022. The previous year’s broadcast numbers were inflated due to the COVID-impacted 2019/20 campaign being completed within its financial reporting period.
  • Broadcast revenue was also impacted by the fall in the club’s Premier League finishing position – 10th in 2020/21 to 16th in 2021/22 – and by two fewer games being selected for live television broadcast.
  • Gate receipts returning to more typical figures in 2021/22 with all games played in front of supporters, unlike the previous year due to COVID-19 restrictions.
  • The impact of COVID-19 remaining significant, with the pandemic contributing to combined crystallised losses of more than £90m, with significant substantial uncrystallised losses also incurred.
  • Operating expenses – pre-player and management trading and exceptional items – across the club decreased by five per cent from £215.1m to £204.9m despite an increase in other operating costs to £36.2m from £25.4m. This is primarily due to significant costs incurred relating to implementing COVID-secure measures across club sites along with the safe re-introduction of fans to the stadium.
  • The club’s net debt position increased to £141.7m as a result of investment in the playing squad and significant investment in the Everton Stadium project.
  • The breaking of ground at the Everton Stadium at the very start of the 2021/22 accounting period incurred significant capital costs – £207m – relating to the infilling of Bramley-Moore Dock, enabling works, and above-ground construction commencing on all four sides of the stadium.

Everton said: “Despite the substantial financial impact of several unexpected and unprecedented factors in recent seasons, the club remains in a secure financial position thanks to the continued support and commitment of our majority shareholder.”

Chief executive, Denise Barrett-Baxendale, said: “These accounts illustrate the pragmatism demonstrated in order to navigate the economic turmoil created by the pandemic, a global financial crisis and a war in Ukraine.”

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