Everton takeover: Manchester City legal action could hold key for new owners

The legal case that Manchester City have launched against the Premier League could be impactful when it comes to interested parties in taking over at Everton.

After the long-doomed takeover bid from 777 Partners was finally landed a knockout blow with the passing of the May 31 deadline imposed by Everton owner Farhad Moshiri, the British-Iranian billionaire has now pivoted to open up talks with other interested parties.

Everton fans Andy Bell and George Downing, already creditors of the football club, are seen as frontrunners to secure a deal, with the bid backed via the family office of multi-billionaire Michael Dell, the world’s 10th richest man.

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Other interested parties have also emerged, including a bid fronted by London lawyer and tech investor Vatch Manoukian, and a consortium of investors from the US, Saudi Arabia, and Australia, as well as John Textor, Dan Friedkin, and another interested party from the US fronted by a former MLS player.

With the important summer window opening later this week, and with much to sort out financially in terms of dealing with the debt burden and ensuring the club is compliant with profit and sustainability regulations, interest is expected to develop quickly, although Moshiri is understood to still be holding out for a fee for the club, as per his initial deal with 777, however, it is anticipated that his shareholder loans to the club of some £450m will be written off.

Whoever comes in will be operating in challenging financial circumstances, with the major part of any deal being the reduction of the debt burden on the club, which has major creditors such as Rights and Media Funding, MSP Sports Capital, Metro Bank, and Bell and Downing. Ensuring the completion of the stadium build at Bramley Moore Dock is also of paramount importance.

At present the Premier League is dealing with something of a civil war, with champions Manchester City launching legal action against the adoption of tighter regulation back in February around associated party transactions (APT), rules designed to curb how much ownership groups can lean on associated parties when conducting commercial deals, with fair market value for each deal assessed on an individual basis.

Manchester City, who have heavy links through their Abu Dhabi ownership with the Middle East and major brands such as Etihad, have argued that the rule changes, voted through by the 14 majority needed, was a “tyranny of the majority” and believe that the tightened measures are in contravention of competition law.

Should City, who were charged with 115 alleged breaches of financial regulations over a decade-long period last year, a charge they deny and that they will challenge at an independent commission in November, be successful in their legal challenge against APT rules then it could be impactful for a number of reasons for would-be owners.

Largely, North American investors like to have regulation in place. The closed nature of the US sporting ecosystem of the major leagues, where salary caps and a lack of promotion and relegation exists, allows for greater cost certainty.

Valuations of US sporting assets across the NBA, NFL, MLB, NHL, MLS, and NWSL have skyrocketed in recent years, and while European football, particularly Premier League assets, have grown substantially, they are seen as under monetised to many US investors.

The Premier League needs the competition to be attractive to foreign investors. The ‘local businessperson done good’ is no longer as prevalent as they were at the top level, with the likes of Jack Walker at Blackburn Rovers now from another time in the game.

It requires investment from wealthy people, often with some local knowledge and grasp of fandom, but also from family offices, private equity, investment funds as well as sovereign wealth funds, as has happened at Newcastle United.

The forthcoming introduction of new financial controls akin to UEFA’s squad cost ratio, as well as the added backstop of a salary cap, moves the Premier League closer to an Americanised model, reducing some of the risk and providing another layer of certainty around cost.

For those currently interested in Everton, added financial controls will be seen as a good thing moving forward, but the problem that anyone coming in will have is how to raise revenues to allow the club to turn the corner to position itself to be able to spend to a greater degree on the first-team product.

Fair market value, which the Premier League assess on a case-by-case basis to determine whether or not deals are being done at inflated prices to circumvent the regulation that exists, is weighted in favour of the biggest teams in the so-called ‘big six’ that have the greatest exposure globally as a brand.

According to analysis from sponsorship industry publication The Sponsor, the fair market value of Everton’s front-of-shirt deal with Stake.com was £13m, with the current deal understood to be between £15m and £20m. That is enough to place them 10th on the Premier League list, but it is some £52.3m behind the team with the highest fair market value, Liverpool.

The thing for Everton is that they have an enormously valuable sponsorship asset to come online soon, with the naming rights for the new 52,888-seater stadium on the banks of the River Mersey, a venue that will be in use 365 days of the year and looks to become a jewel in the crown of the economic regeneration of docklands area, likely to deliver a huge financial boost to the club, who will move into their new home for the start of the 2025/26 season.

The stadium itself already will have far greater revenue-generating potential than Goodison Park has, and it will be something of a game changer for the football club in the years to come. But in terms of an revenue boost, selling the naming rights for the stadium on a long-term basis could solve some financial issues for the club.

But any naming rights deal will come under greater scrutiny by the Premier League, and Everton will be limited on the kind of deal it could strike if done with any associated parties.

Manchester City’s legal challenge against the Premier League has potential ramifications for their direct rivals for title honours who don’t have such simpatico relationships that exist that they can leverage, and that causes them a great deal of concern if it emerges that City can spend far more freely when it comes to agreeing deals with associated parties. But for Everton the situation is different, they are at a point where they need to have as much leverage as they possibly can to drive the value of sponsorship rights north, which means that would-be owners and investors will likely be looking at the City case with intrigue given that the Toffees are about to sell an opportunity they have never been able to do before, and at a time when they have never needed its boost more.