Rangers’ Administration – Round Up Part 4 – Money

The Rangers Fans Fighting Fund

First of all, praise for the Rangers supporters. In the first few days of the Rangers Fans Fighting Fund over £100,000 has been raised to help the team. Bearing in mind that other smaller clubs in the same position have resorted to buckets and collecting tins, this is an excellent achievement.

The fans have united in the cause of their club, answering criticism from other teams that Rangers fans are less cohesive than their rivals.

However, the very success of the campaign (and we can pass over Mr Custard as a humorous but inconsequential aside) puts into some perspective the battle facing RFC and D&P in their attempts to have the club rescued or bought as a going concern.

D&P stated that they needed to save £1 million per month to get to the end of the season.

Why Do Duff & Phelps want to make it to the end of the Season?

What advantage do they get from reaching the season’s end?

In the going concern context, it can only be that D&P would get to the transfer window and could realise some assets by selling players. There are two problems with this. First of all, the players can’t be forced to go, and an enterprising agent, acting in his client’s interests, might suggest that his client becoming a free agent on liquidation would be financially advantageous as the new team would not need to pay a transfer fee, leading to more cash for the player. Secondly there would figuratively be a big sign on the front door of Ibrox saying “Everything Must Go!” Buyers will know that they have the advantage, and there are few “hot properties” on the club’s books just now.

So players sales in the summer might not generate very much at all, and even if they do, this mostly takes place at the end of August.

What about season tickets? Ticketus is due the sale proceeds of around the first 25,000 season tickets for the coming season. If D&P cannot persuade the Court of Session to allow them to ignore the deal, then 25,000 season tickets would need to be sold before RFC derived a single penny benefit (excluding the admin fees RFC would charge Ticketus for selling the tickets for it).

In any event, no matter how loyal the supporters are, how many season tickets would D&P be able to sell when (a) they cannot guarantee that the team would see out the season and (b) when the fans would realise that the first 25,000 of them to buy would be paying Ticketus and not the team.

The Players’ Wage Cuts

The players agreed a sliding scale of wage reductions, which D&P hailed as having achieved the required £1 million per month saving. Based on the last full accounts produced by RFC, to year ended 30^th June 2010, which can be seen here the-rangers-football-club-plc-Annual-Accounts to 2010, the wage bill for employees, excluding directors, was £23,667,000. Added to this was £2,818,000 in Social Security costs, and £1,358,000 paid to “employee trusts”. (See note 6 on page 20)

One assumes that no more payments are being made to the “trusts” since these are what are behind the “Big Tax Case”.

Therefore the total wage bill for the year comes to just under £26,500,000. Let’s ignore for a minute Mr Whyte’s boast that wages had increased by improving the contracts for certain players – this means that the monthly wage run was about £2,200,000.

As an aside the accounts also show at Note 3 on page 19 that the annual “net operating expenses” ignoring depreciation, come to about £42,000,000. This suggests that the income needed to keep the doors open and the floodlights burning is around £3,500,000 per month.

Is it possible that the staggered and short-term salary reductions of 75%, 50% and 25% have saved RFC £1 million? Yes it is, but it seems on the figures doubtful that D&P will have managed to cut the salary bill by 45%.

Even if they have done so, this only runs for March, April and May, as I understand it, and at that point the original salaries are restored.

Can These Measures Allow Rangers to run as a “Going Concern”?

To create a viable RFC as a going concern, the first goal has to be to stop incurring losses. How, on an ongoing basis, can RFC exist on a payroll at 55% of current levels, and maintain the same level of income, standing the uncertainties it faces?

Even if a 45% reduction in salaries is achieved, this only takes the club to break-even. If D&P intend to rescue the club as a going concern, this needs to be by way of the creditors accepting less than their full entitlements, as part of a Company Voluntary Arrangement.

Bearing in mind that the Rangers turnover figure in the 2010 accounts does not have the burden of the Ticketus deal attached to it, D&P need to have that turned, at worst, into a debt, rather than a contract RFC has to abide by. In that case RFC’s debt would be, around £20 million for Ticketus, £15 million for HMRC debt arising post takeover, potentially £30-£60 million for the “Big Tax Case to HMRC, a figure, perhaps in excess of £20 million, owed to Rangers FC Group Ltd, together with various smaller debts. All told this could, at best estimate, amount to £75 million, and is likely far more!

Also to be factored in to the figures is that D&P will need paid, and that the legal expenses they are incurring on behalf of RFC will be far in excess of what they were in previous years. Estimates of the administrators’ fees suggest that they may be accruing in excess of £100,000 per week.

It is therefore impossible to see how D&P can (a) realise assets and (b) create an ongoing profit which (c) would allow any meaningful CVA to be proposed. Even ignoring the issue about Group and the floating charge, any proposal could only be for a few pence in the pound.

I know that many Rangers fans have lived in hope that “commercial reality” will apply, and that HMRC would rather get something, no matter how small, than nothing.

HMRC, as its published guidance makes clear, and as I know personally, do not work that way. The “moral hazard” of being late paying tax needs to remain at the front of taxpayers’ minds. There is a serious risk that businesses which delay tax payments, especially in an apparently systematic manner, will be closed down.

Therefore, to rescue the club as a going concern seems impossible. Even if it were, the club would emerge from administration with Mr Whyte’s Group still owning 85% of the shares!

So What is the Problem as Regards the Fighting Fund?

The fans have raised over £100,000 in a few days. Even though the funds are earmarked for running costs, excluding legal costs, D&P fees and payment of old debt, the figures above show that, in reality, that sum is a drop in the bucket.

In addition, the scheme launched with a flurry of publicity, and spread worldwide very quickly. Can it realistically be expected to raise £100,000 each and every week until the situation with the club is resolved? This is particularly so where the future course of RFC, if any, will depend on the outcome of what are likely to be expensive and lengthy court actions.

The Fighting Fund not going to legal fees means, as far as I can see, that D&P will pay them from RFC’s pot, and replenish it with the Fund cash.

As I have said, the Fund is an admirable effort, but whilst allowing the fans to make a contribution, it will not solve even the short-term issues at Ibrox.

If Rangers and Duff & Phelps have to pay for Long Court cases, How Will They Do So?

This is the main issue, I think, in determining how the future, if there is one, of Rangers works out.

D&P are at court to move Ticketus from being a company with rights to huge sums from RFC for the next three years in respect of season tickets, to being a creditor, presumably, as no security has been registered, an unsecured one.

D&P are at court in London over the £3.6 million which was in the Collyer Bristow client account.

D&P will almost certainly have to fight Group/Liberty Capital/Craig Whyte in court if D&P decide (a) that the floating charge is ineffective and (b) if they decide that Group/Liberty Capital/Craig Whyte are not in fact creditors!

It is possible for an administrator, or in a case like this more likely a liquidator, to go to the creditors and ask for funding, where there is a good chance that the investment of funds by the creditors could lead to a more substantial recovery. We therefore have the possibility that D&P could end up being paid by HMRC to pursue the above court cases!

If that is the case, the maxim of “he who pays the piper calls the tune” will undoubtedly apply!

If Not a Going Concern, Then What?  

Short of Bill Gates appearing with £100,000,000 to save Rangers, then it cannot be rescued as a going concern. In that case D&P have a responsibility to the creditors to achieve a better result by administration than by liquidation. The only advantage I can see in that is that the players’ registrations would be maintained and could be sold in the summer to raise funds.

If D&P decide that the “going concern” goal cannot be achieved, then their focus would surely be on selling of the assets of RFC, players, ground, Murray Park etc, to fill up the pot for creditors. The problem here is that, if there are disputes about the validity of securities, then no one, unless a totally reckless gambler, will buy the fixed assets.

Conclusion

All of this therefore brings me back to my post last night – How to Save Rangers from Winding Up?