Rangers: More Money Madness

Rangers: More Money Madness

By on Oct 8, 2013 in Finance, Latest, Scottish Football | 0 comments

The news that Rangers International Football Club plc (RIFC) lost, on average, £1.1m-per-month in its first financial accounting period, wasn’t “news” to everyone. A number of bloggers alleged to be “Rangers-haters” said “the figures don’t add up” as soon as the new Rangers set-up started playing last July. To others, this was confirmed by RIFC’s “interim” accounts in March. The declaration of £7m losses in their first seven months introduced “burn rate of £1m-per-month” into Glasgow’s football lexicon. Operating losses of £14.36m in 13 months are a “burn rate” of £1.1m per month, And Rangers’ Chief Executive Craig Mather wasn’t surprised either, declaring in the accounts’ “business review” that matters were “wholly consistent with the five-year business plan… set out to investors ahead of the Initial Public Offering (IPO) in December.” It is unknown, however, whether it was “set out to investors” that their investment would be spent within ten months and that financial experts would be predicting a need to “go back” to them for more investment to keep the club going beyond another year.

The biggest news story from the accounts, was hardly news either, as executive remuneration was also set out to investors… in December. Former Chief Executive Charles Green, the IPO share prospectus noted, had “an annual salary of £360,000 (plus benefits and expenses)” and was “entitled to a non-contractual bonus of 100% gross salary if the Club wins promotion from the SFL or otherwise transfers to another football league” (such as the English Premier League which Manchester United supposedly wanted Rangers in). And Green received the bonus despite Rangers only winning “promotion from” “the SFL’s” third division (only a special distortion of the truth – even for this saga – could interpret placement in the new SPFL One as either “promotion from the SFL” or a transfer “to another football league”).

Finance Director Brian Stockbridge’s inexplicable 100% bonus was payable upon “transfer…to another division within a league,” which wasn’t in Green’s published remuneration package. Still, RIFC corrected that “oversight”, although arguments rage over who authorised that. Manager Ally McCoist’s total remuneration was not set out in December, possibly because of a lack of available noughts. Investors were merely told he was paid according to “his experience and payment received by people similarly employed in the football industry.” But the £750,000 salary transferred from pre-liquidation Rangers as a legislation-protected entitlement was widely-reported.

McCoist’s willingness to take a pay cut now is surely as much about PR as finance – his salary is more “commensurate” with his clear PR value to the RIFC regime than his unclear football management skills. Reports “emerged” some weeks back that McCoist’s previous pay cut was temporary, as he negotiated the money back within a deal which included his salary remaining unspecified in the prospectus. More mainstream reports suggest another pay restoration if McCoist takes Rangers to the top-flight, an all-but-foregone conclusion with this squad on their wages. But regardless of his salary, he will always have considerable share options to keep him warm – as will other executives. He won’t go short of a pie any time soon.

The excessive boardroom, and dug-out, remunerations were shocking. But they should not have been a shock. Rangers fans have expressed wonder at the number of “qualified accountants” among other clubs’ fans. One qualified accountant without the inverted commas, lifelong Rangers fan Arnold Black, noted on the Rangers Standard website, that accounts only “reveal… what is required by… financial regulations.” Even without detailed expertise, though, RIFC’s finances are clearly troubling if it’s lost £14.36m in its first thirteen months, with £11m in the bank and no bank credit facilities (just “access to an unsecured facility of £2.5m” from a wholly unspecified source which some experts consider fundamental to RIFC’s accounts being prepared on a “going concern” basis, on current “burn rates”). And all this despite an average home gate of 39,335.

The plain figures have been spun in all directions. Since last July, Green made great play of defining “no bank credit facilities” as the altogether better-sounding “no bank debt.” He also suggested that “some clever financial analyst” should “examine the balance sheets of (Rangers and Celtic) and tell me which one is the strongest.” It should be remembered that Green told crack financial journalist Richard Keys (er…) on Talksport Radio last October, that Rangers were “fantastically strong” financially “without the IPO,” because “in our current financial year, we’ll have had two seasons’ season-ticket money.” So Rangers would “have another pile of cash in the bank at year-end.” He was not challenged on that nonsense…although, of course, he himself DID have a “pile of cash… at year-end.” But one Rangers fan commented that “no bank debt” made them the “richest club in British football.” This appeared beneath an article by pro-Rangers blogger Bill McMurdo which said the accounts “clearly do not show the Armageddon the naysayers were predicting.”

Other fans believe that Rangers not running out of money until NEXT autumn, at current “burn rates”, is some sort of achievement. That date came from Neil Patey of accountants Ernst and Young – the mainstream Scottish media’s (MSM’s) “go-to” football finance expert. But, on STV’s Scotland Tonight, he couldn’t mask his concerns. When presenter John McKay noted that “the board say the club is financially secure, there’s money in the bank, there’s no debt or borrowings,” Patey agreed. “They’re all accurate statements.” But the look in his eyes and the tone in his voice told you his next word would be “but…” And when Patey said “it will be difficult to get back to the Premiership” he didn’t mean Rangers would struggle with this squad – it’s a Scottish Premiership squad… that’s part of the problem – but that at current “burn rates” they would run out of money before they got there.

Patey also repeated a common, glaring error, suggesting that RIFC was going to lose significant money “no matter how you cut the cost base,” as if a new company could “cut” costs. The comparison is pre-liquidation Rangers, which, in accountancy terms, has no relevance. Sat alongside Patey in STV’s studio, Rangers Supporters Assembly secretary Drew Robertson was in condemnatory mood. It was unusual not to see never-knowingly charismatic fan “representative” Chris Graham in that particular STV seat – Graham’s recent criticisms of the board having attracted legal threats from Rangers (the irony of Graham, a prolific labeller of “Rangers-haters”, being labelled “anti-Rangers” himself is delicious).

But Graham could scarcely have been more withering than Robertson “It’s ridiculous”, the Assembly man exclaimed. “We’re clearly living beyond our means.” McCoist’s £825,000, he added “was more associated with the top-flight,” a response which might have intrigued most Scottish top-flight managers. However, Kieron Prior wasn’t unhappy. The former Goldman Sachs investment manager and a holder of 2.5% of RIFC, is regarded as a significant shareholder by the Daily Record newspaper’s Gary Ralston although only they attach that significance to him. Prior’s IQ, Ralston breathlessly informed readers in June, is 220. Aside from the obvious gag about someone so intelligent investing in Rangers (or using the Record as a mouthpiece), this IQ is 60 higher than Albert Einstein. But in his latest Record interview with Ralston, many of Prior’s comments were simply not very intelligent at all.

Ralston brought Prior to his readers’ attention as “an outspoken critic of the gravy train culture at Ibrox.” Prior said he would “look under the bonnet” at Rangers to get to the truth about how the club was being run. Yet last week Prior said “It doesn’t make sense to raid the coffers when it is being looked at by auditors at the end of the year,” despite having just seen accounts which revealed that Rangers executives had done just that. Accusing board critics of being “naïve” Prior added. “Why do that when the club is in League One?” Should they have waited until Rangers returned to the top-flight then? Prior also claimed that Rangers are “naturally six or seven times bigger than it is right now,” which in any quantifiable term is demonstrable nonsense. So it is that we have a man with an IQ of 220, performing the role of useful idiot…

The club’s own positive spin on the figures heavily relied upon key details, where cliché suggests you would normally find “the devil.” Much emphasis was placed on the huge “non-recurring costs,” of multifarious legal wranglings. Unfortunately, there is little likelihood of the company keeping out of court in this financial year. Mainly because the spectre of one Craig Whyte remains. As company auditors Deloitte warned at some length, the “outcome of potential litigation” remains “uncertain.” Intriguingly, Whyte’s central legal gripe is another of the accounts’ devilish “details.”: “On 14 June 2012, Sevco 5088 Limited entered into agreements for no consideration (my emphasis) to legally reassign its beneficial interest… to Sevco Scotland Limited (now The Rangers Football Club Ltd).”

This is plain strange. Charles Green would have saved himself and many others a lot of bother if he’d said all that in the first place. Though why such a valuable transaction would take place “for no consideration” remains unclear. The “non-recurring” Share Offer costs have attracted considerable criticism. Graham suggested in a Rangers Standard article that these are five times higher than “normal IPO costs.” Other bloggers concurred, including one of Graham’s particular “Rangers-haters.” After consulting a chartered accountant and corporate lawyer, Phil Mac Giolla Bhain, the journalist who predicted Rangers’ liquidation earliest and loudest, suggested that “there is a treasure trove of stories in that direction for any business journalist in Scotland with a strong editor.” Given the MSM’s record on such issues, it is probably just as well “it is a story” Mac Giolla Bhain intends to “return to myself.”

Writing on the Business 7 website, Scott McCulloch led with the £594,000 worth of RIFC “non-audit” work by “independent auditors” Deloitte, which “dwarfs the £90,000 charged for auditing (the) accounts.” This included “audit-related assurance services,” which brings a psychiatrist’s couch to mind (“there, there, don’t listen to those nasty people laughing at these accounts”). One assumes that, despite this non-audit work for RIFC, Deloitte could demonstrate their “independence” of them, if required. It would, though, be interesting to see how. Other devilish details include £20.45m of “negative goodwill.” Taken one way, you might think this inevitable. But it’s actually the difference between the price paid for Rangers’ trade and assets and what is now considered their “fair value.” 276 out-of-pocket old company creditors may have a view on that.

Among devilish details not included are “post-balance sheet events.” March’s interim results reported RIFC buying Edmiston House and signing sponsorship deals with Puma and Blackthorn Cider. But these were balance sheet boosts, immediate and long-term. The summer’s post-balance sheet events included the registration of their high-wage close-season signings. Their impact on the accounts’ ability to provide a “true and fair view” of RIFC’s current financial position is something I will leave more expert people to contemplate. So, apart from Rangers executives handsomely remunerated for saying so, few people regard these results as “good.”

And even the board can’t seriously regard these accounts as helpful ahead of the company’s AGM. And Rangers fans’ disquiet is hardly before time. Past predictions of Rangers’ demise were ignored because of the “Celtic-mindedness” of the messengers and the arrogant belief in Rangers immortality, that a “Rangers man” (always a man) and/or a “stupid billionaire” (copyright Phil Mac Giolla Bhain) such as Dave King or Jim McColl would save them. Given such a stark warning from such recent history, such mistakes should not be repeated. The club’s overspending must stop (McCoist’s weekend suggestion that “massive reinvestment” in the team will soon be necessary must be PR unless or until the finances improve). And maybe King will step in this time, now that he’s paid South Africa £44m of the tax he owed them. Because another Ibrox insolvency event could only be the product of the most stupid collective stupidity in the history of collective stupidity. And Rangers people just cannot be that stupid.

Can they?

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