Everton takeover: The big issue that must be addressed by whoever succeeds Farhad Moshiri

This week has seen the Everton takeover saga take further twists and turns.

Having for so long been in the driving seat, anointed as the chosen ones by Farhad Moshiri to acquire his 94.1% shareholding in the football club, Miami-based 777 Partners’ chances of taking control now look to be incredibly remote.

Despite having provided some £200m in funding to the club for working capital through unsecured junior debt, 777 have over the course of the last month seen a budget Australian airline they own fall into voluntary administration; been accused of running a fraudulent enterprise in a civil suit filed in a New York court by a firm that had loaned them significant funds; missed payroll for one of the European clubs they own; as well as parting company with the PR firm that had been looking after their image for failing to pay its bills.

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READ: Everton takeover Q&A: 777 Partners bid, Farhad Moshiri, MSP Sports Capital role, administration

Add to this the concerns that already existed over allegations of missed or late payments and a number of live legal cases against them and it now seems unfathomable that 77 will be able to pass muster with the Premier League, who after seven months provided conditional approval last month on the proviso that the group met four strict and very high-bar criteria.

One of those criteria was the repayment of a £158m loan to MSP Sports Capital, the New York-based firm that had provided straight funding to the club after a deal for 25% equity was objected to by an existing lender, Rights and Media Funding Limited, last year. It was a move that paved the way for 777 to enter the fray and make a play to purchase the club from Moshiri.

MSP are now back in focus, with the firm understood to be assessing the viability of acquiring the club in the likelihood of the collapse of the 777 Partners deal, and fathoming out what is the best course of action to protect their investment in the club and the potential to gain further rewards in the future through a potential sale.

It is something that is by no means cut and dried, and MSP would be reluctant owners if it were to come to pass, but it is one potential avenue that can be explored beyond 777 and the concerns from fans over reports where administration is mentioned as a potential outcome.

But whether it is MSP or another party, of which there is understood to be US interest, then there is likely to going to have to be some debt restructuring undertaken, something that was last week reported to have been looked at by Everton through engaging restructuring experts to aid short-term debt issues.

The Blues have a significant debt burden. But unlike the likes of Tottenham Hotspur, who have more than £800m in debt, Everton are cash flow negative, and when a business is cash flow negative it makes serving that debt very difficult indeed. There is no option to pile further debt onto the club to solve issues, so what must happen is a reduction in the debt burden.

If it were to be MSP then they could, for example, convert £158m into equity, or write the loan off as payment for Moshiri for the club. That seems unlikely. In order for a compelling case to be made for MSP to take over then it is likely that Moshiri would need to write off his £450m in shareholder loans to the club, something he won’t be keen to do in a hurry.

But with so much debt, the club is effectively worthless when it comes to a purchase price being placed upon it.

Speaking to the ECHO, football finance expert, University of Liverpool lecturer, and author of ‘The Price of Football’, Kieran Maguire, said: “It’s like if your house is worth £400,000 and your mortgage is £600,000. It’s hard to see why anyone would be willing to pay Moshiri anything for the football club.

“There are going to be a few people that may need to take a haircut here. There are a number of different levers that can be pulled to try and restructure the debt and get it down to a manageable level.

“In the case of someone like Andy Bell or George Downing, who have provided some financing, as Evertonians they are likely to be pretty sympathetic to what’s going on and try and find a solution that is best for the club. For someone like Rights and Media Funding Limited it is more difficult as they have no emotional attachment to any of this.”

MSP had the opportunity to take a controlling stake in the Blues after April 15, the date of maturity for the loan, due to the fact that one of the security arrangements was against Blue Heaven Holdings, the company through which Moshiri owns the club. However, that deal would have still see Moshiri maintain a shareholding, and with so many other factors in play, including the need to reduce debt to a manageable level, it was decided that a brief extension would be granted to 777 Partners to repay the £158m, a condition of the Premier League ahead of any approval.

Full control may be more appealing to MSP in the future, but much of their success would be in an equity raise, where further shares are allotted, with the money used to pay down some of the debt and aid cash flow. In turn, improving cash flow would allow for the club to refinance its existing debt on more favourable terms against the new stadium.

There is no simple solution to Everton’s issues at present, and reports have already started to raise the grim possibility of administration, although that notion has been rejected by the club and is understood to be not under consideration.

With the season almost at an end, there had been some concern over the club’s ability to make ends meet through the summer months. They received a £15m sum via 777 Partners only a fortnight ago for working capital, but sources say that funding is in place through the summer.

The moment the final Premier League table is confirmed the wheels start in motion to get the merit payments to clubs. If Everton remain 15th they will be entitled to £18.7m in central funding for their performance, which arrives in a lump sum, and will be important for cash flow purposes during the summer. There will also be the potential for significant sums to be raised through player sales.

There is no silver bullet for the Blues in this whole situation, however, and the success of any new ownership group, whether that be MSP or another interested party, will be predicated on the ability to reduce debt to manageable levels very quickly.