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

The attempted takeover of Everton by 777 Partners looks increasingly doomed.

Financial, regulatory and legal issues are stacking up for the US group and against that backdrop majority shareholder Farhad Moshiri is facing the prospect of having to find an alternative vision for the future of the club.

Should the 777 Partners deal, which is in its eighth month of scrutiny, collapse then the future of a club wracked with uncertainty will be hit with even more instability. From club finances, to alternative parties, to what the latest issues may mean for Everton’s summer, Joe Thomas and Dave Powell attempt to explain the developments and their consequences.

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What is the status of 777 Partners' takeover attempt?

Announced in September and with a target completion date set for the end of 2023, the attempt by 777 Partners to take over Everton remains ongoing. The US group have been providing the money for the club to continue its operations, including their commitments to Laing O’Rourke for the work on the new waterfront stadium. Senior figures, including co-founder Josh Wander, have regularly been present at Blues matches and some have visited the club’s Finch Farm training ground since the deal for Moshiri’s 94.1% was signed. That deal was subject to approval from the Premier League, Football Association and Financial Conduct Authority. The remaining challenge is the Premier League approval, for which 777 Partners must pass the Owners’ and Directors’ Test. They are yet to do so despite chief executive Richard Masters suggesting a resolution was weeks away when he spoke with politicians months ago.

The stumbling block is thought to be the repayment of a near-£160m loan to the US group MSP, one of the four conditions set by the Premier League. As this process has dragged on it has attracted increasing criticism from supporter groups and politicians with Everton trapped by uncertainty over their future. Potential issues over the suitability of 777 Partners as club owners have been prevalent since its deal was announced, but concerns over the group’s wider business exploits and continued struggle to meet the takeover requirements were heightened dramatically by a civil lawsuit filed in New York last week.

Why does it look increasingly likely to collapse?

That lawsuit - said to be one of 16 cases faced by 777 Partners - alleged wrongdoing to the tune of hundreds of millions of dollars. The claims remain accusations, this is early in the proceedings and the case is a civil one, not a criminal one, and one that 777 Partners is yet to comment on. It is one that adds to the complicated backdrop of 777 Partners, however. London-based lenders Leadenhall Capital allege 777 Partners used assets to secure huge loans that were pledged as the security for borrowings from other lenders.

Co-founders Wander and Steven Pasko are ultimately accused of “operating a giant shell game at best, and an outright Ponzi scheme at worst, that takes money in from investors and lenders and shuffles it around to various money-losing alter egos in the enterprise to disguise their true financial condition.” In essence, it is claimed they borrowed money on false pretences, which they then use to buy stakes in, or control of, further businesses such as airlines and football clubs, which they could then use as collateral to borrow even more money. This approach is described in the filings as “a seemingly never-ending cycle of ‘robbing Peter to pay Paul’.”

The lawsuit came just days after 777 Partners’ Australian airline, Bonza, entered voluntary administration - leaving passengers stranded across that country. That reportedly followed a move by one of its own backers, ACAP, to seize planes as it seeks to reduce its exposure to the group. The Leadenhall allegations, combined with questions over the relationship with ACAP, the Bonza development and the continued failure to pass the Premier League tests follow a host of wider issues which increasingly point to 777 Partners struggling to be able to find the funds needed first to complete the takeover and then to support the club in a sustainable fashion. This means greater uncertainty for Moshiri, who recently tasked Deloitte with searching for funding support, and is likely to be forced into actively looking for alternative buyers if he wants to get out of Everton - something he has been trying to do for two years.

What happens if the 777 Partners bid falls through?

If the 777 Partners deal was to collapse - either because Moshiri pulls out, the group does, or the Premier League refuses the bid - then Moshiri is back to square one, albeit with just under £200m of additional debt that will be owed by the club to 777 Partners. It would mean he would need to either pick up the day-to-day running costs of the club - something it is unclear he could or would be willing to do - and find a new buyer. Any new buyer would have to pass the same regulatory hurdles 777 Partners have had to take on.

Are there any other interested parties?

Other groups are thought to be interested Everton, though it is unclear on what basis. 777 Partners were not the first on the scene - Moshiri agreed exclusivity periods with two different US groups before this one. The second of those was with MSP. While that takeover fell through, the group ended up lending Everton a significant amount of money and with that they have some rights that could be exercised should they want to have another go at running the club. Whether MSP really wants to do so is unclear, but they are understood to be examining the possibility as a move that could best protect its own interests.

Aside from that, a second US group are also understood to have been making enquiries behind the scenes in recent weeks and months. Interested parties have been urged to step forward across recent weeks in order to offer an alternative vision for the future of Everton, but none are yet to do so. One theory is that some weighing up a move would only be willing to do so should the club enter administration, meaning much of its debt burden would be removed but a serious human cost.

What role could MSP Sports Capital play?

MSP has a potentially decisive role to play in determining Everton’s future.

It is unlikely that they will be the long-term owners of the football club if they do proceed to try and take a majority stake, more temporary custodians with the goal of cleaning the club up, protecting their own investment, and selling it on some 12 to 18 months later. They aren’t likely to be willing owners either, given that they opted to provide 777 Partners with an extension, albeit relatively brief, to the loan repayment that was due on April 15, which was one of the conditions set out by the Premier League in order for 777 to gain approval.

They have a pre-existing relationship with the club, and they will have had access to the key club data and financial projections when making the initial play for a 25% equity stake last year.

The £158m loaned to the club to meet construction costs for the new stadium build had two security arrangements. The first was one was through a fixed charge against the assets under ownership of the Everton Stadium Development Company Limited, the parent company of the Everton Stadium, with the other being the option to acquire a controlling interest of just over 50% of Blue Heaven Holdings, the company through which Moshiri owns his 94.1% stake in Everton. If this option was exercised in the event of a loan default then it would cede majority control to MSP, should they wish to exercise that.

But it isn’t a simple solution, as there really isn’t one for the Blues right now. There will have to be a debt restructuring of some kind, and that debt issue has only been exacerbated by the addition of nearly £200m of financing that arrived from 777 Partners for working capital requirements. That debt, while still a significant problem, is junior debt, meaning that it is unsecured and behind MSP and other creditors such as Rights and Media Funding Limited and Metro Bank in the queue, with those debts secured against assets.

MSP, who are considering full ownership of the club, are now likely to looking at potential ways that they can restructure that debt, whether through issuing new shares to bring co-investors on board or otherwise. There will be a total reluctance to pile on more debt onto the club given it is cash flow negative and that servicing debt in that position is incredibly difficult.

Is there a precedent for this?

Yes, we’ve seen something similar, although with differences, play out in Italy in recent times. When Elliott Management acquired AC Milan in 2018 they did so reluctantly. A hedge fund management company based in New York, with no previous experience of running a football club, they did not want to be owners of the Italian giants, but did so as it was the best course of action to take to protect their investment.

Billionaire Wall Street veteran Paul Singer’s firm had provided the financing for the purchase of the club by the former owner, Chinese businessman Li Yonghong, who had succeeded Silvio Berlusconi as owner in 2016. Elliott provided €300m of loans. But in 2018, Li Yonhong defaulted on a €32m loan repayment due to Elliott Management, with the Wall Street firm, as part of its security on that debt, opting to acquire the club. Fast forward to late 2022 and AC Milan won their first Scudetto in 11 years, and Elliott sold the club to another American firm, New York-based RedBird Capital Partners, in a deal worth some €1.2bn, marking a significant return on the investment that Elliott initially made into the football club.

Who are MSP Sports Capital?

MSP is a firm that likes to have elements of operational control in their investments, and has a number of sporting assets in their portfolio through investments in the McLaren Formula One racing team, the X Games, and football clubs including FC Augsburg, Estoril, and, indirectly, Brondby.

Prior to the collapse of the initial planned deal with Everton last year, MSP had made filings with the Securities Exchange Commission in the US that showed that they had formed a new company, MSP EFC Investors LLC, and had raised $165.5m (£130.2m) from a pool of 13 investors. Led by billionaire Jahm Najafi, a part owner of the Phoenix Suns NBA team, and former sports agent Jeff Moorad, who served as the inspiration for the main character in the Tom Cruise film ‘Jerry Maguire’, MSP have a strong track record of investment in the US, with links to the Bahrain sovereign wealth fund.

They were linked with a move to acquire Tottenham Hotspur last year, something that was denied by Spurs chief Daniel Levy.

Why didn’t it work out last summer and why might it now?

The New York-based firm first came on the scene at Everton at the beginning of last year as they sought to take a stake in the club via convertible debt. The idea was that 25% equity in the Blues could be taken at some stage after the initial provision of finance, with MSP potentially having two seats on the club's board.

But that deal was objected to by Rights and Media Funding Limited due to a concern over the dilution of RMF’s own security and a view that the value of the equity and amount of operational control that would be ceded was not reflected in the potential value of the deal.

The two parties would still need to thrash out some differences if an MSP deal came to pass given the likely need for debt restructuring, although RMF, like MSP, will be minded to follow the path of what is best to protect their own investment into the football club.

Who are Andy Bell and George Downing and what role could they play?

Andy Bell and George Downing are both wealthy Everton supporters who were frontrunners for board positions in the first MSP deal after forming part of that effort. Bell is the founder and former chief executive of the investment giant AJ Bell, while Downing is the founder of Downing, a business that started in construction and has since expanded into property management and other areas. The firm’s website states that, to date, Downing is currently involved in developing student accommodation schemes to the value of around £1bn. Both could emerge as significant players should MSP's interests be resurrected.

What happens if no-one steps forward?

It has for some time appeared that Moshiri either cannot or will not, fund Everton any longer. Either way, the outcome is the same. He wants someone to come in and take the club off his hands, but with such a debt burden it seems unthinkable that anybody serious will want to pay him a princely sum to take on such debt, and he may well find he has to write off the huge debt owed to him via £450m worth of shareholder loans.

If nobody comes forward then administration would be a possibility, although it is not something that is currently being explored. What that would mean would be that an administrator would be appointed to manage the club’s day-to-day business and try to pay down its debt obligations. The role of an administrator is to do whatever is necessary to stop the liquidation of the business, which means selling off assets, which includes both playing assets and physical assets and agreeing to debt repayment at a lower level with creditors, with preferential creditors to be paid first. Some creditors will have security in place on assets, such as RMF with Bramley-Moore Dock, to protect themselves.

But there is a real human cost to administration beyond a potential nine-point deduction and the sale of some key players. Local suppliers who provide the club with services, whether it be for matchday food or tradesmen employed third party, would be hit hard and face not having their invoices paid by the club, while there would also be the potential for staff cuts across the club.

Administration is never a preferable outcome. It is important to point out that Everton have no missed payroll obligations, nor missed payments required for the stadium build to continue, nor have them been landed with issues from HMRC or subject to any kind of petition. There is a considerable amount of road to travel, and options that can be explored, before such things come to the fore.

What would administration mean on the pitch?

Administration carries an automatic nine point deduction in the Premier League. If a club was to enter administration before the final game of the season on May 19 then that deduction would apply to this campaign. With two games to play, Everton are 11 points clear of trouble. Should the club enter administration after the final day of the campaign then the deduction would apply to next season.

How do Everton look in the short term?

The Blues received a further payment from 777 Partners at the start of the month. What is significant is that it takes the club closer to the opening of the summer transfer window on June 14, at which point Everton have the opportunity to bring in substantial funds, if needed, through player sales. The club also has access to other funds, including from the sale of season tickets, and is thought to have the money to see the season through. As well as the opportunity to sell players, as the summer continues the Blues will receive the merit payments from this season’s league finish and their first tranche of TV money for the upcoming campaign, meaning the threat of administration is not believed to be imminent.

What does this mean for Sean Dyche and the summer?

For manager Sean Dyche, the uncertainty over Everton’s ownership simply adds to the difficulties faced by trying to prepare for next season. After a campaign of points deductions and off-the-pitch instability, he is once again in the position of having to draw up a plan for a season ahead of which he will likely lose key players and have limited funds to replace them.

While the club’s financial outlook will have some bearing on this, the most pressing issue is perhaps efforts to comply with league spending rules. Everton are understood to be close to the profit and sustainability threshold they have breached for the past two seasons and may need to sell a player in the opening weeks of the window in order to strengthen the club’s position ahead of the June 30 deadline.

Ahead of the final home game of the season, Kevin Thelwell wrote on Friday: “It is also important that I am completely candid with you. The reality is, given the regulations in place and the club’s current financial position, we have to trade well. Working within such tight financial parameters makes the job extremely difficult. Whilst we want to ensure the team is as competitive as possible, we cannot lose sight of our central objective to protect the long-term stability of the club. That does mean players will be sold, and also that every tool at our disposal will be used to secure new additions to the squad, including utilisation of the loan market.”