Has Green Got The Right AIM For Rangers? Footballing Share Issues – Guest Post by Ecojon

 

As TV money flooded into the EPL in the 1990s football club owners flocked to the Alternative Investment Market (AIM) which developed a ‘Midas aka Cash Convertor Touch’ by allowing owners to generate cash from the newly increased value of their club and within a few years 27 teams were listed.

Some owners might have been driven by personal greed but to be fair most of the cash income went on buying players and paying over-inflated wages. But that had the effect of diverting dividends from shareholders and this had a knock-on effect of depressing club share values. This fall in value was heightened by the global stock market plunge which plunged shares lower.

At this stage it is worth giving a FINANCIAL HEALTH WARNING!

Anyone buying shares should always remember that what goes up can come down and sometimes end up with NIL value. Football clubs also had a specific problem in that tens of thousands of shareholders only held one or a handful of shares bought as gifts for soccer mad relatives, friends or workmates. This created quite significant administrative problems and costs on top of the already high expenses to satisfy the regulatory framework of the investment industry.

A further difficulty soon emerged in that these pesky football club shareholders seemed to believe that as a part-owner of their club – through their shareholding – they had a right to interfere in the decision making processes of their wealthier betters on the club board who, of course, had often made a killing when a club was initially floated.

These factors combined to see a rush out of the share turnstiles for football clubs and today of the original 27 clubs only two are left – Celtic and Arsenal as far as I can establish.

Tottenham Hotspur, the first club to float on the Stock Exchange, was the latest to delist from the second tier Alternative Investment Market (AIM) in January this year leaving only Celtic. The recent success of Spurs in Europe and increased income at home and abroad coupled with a decision to increase stadium capacity and build a more powerful team were the main drivers in returning to a private limited company status.

Celtic is still has three classes of shares listed on AIM and one class which isn’t listed. I really wonder if Celtic will continue to buck what seems to be an inescapable trend especially as the owner of Glasgow Rangers is pinning his hopes on AIM providing salvation for his club?

Arsenal has a ‘Small Capital PLUS Market’ listing – as had Rangers until their recent problems – with some talk that Arsenal might move up to AIM. The Small Capital market has recently been undergoing severe structural problems that are way outwith the scope of this blog to explain.

Rangers also had a Plus Market Listing but this was suspended when they failed to file audited accounts at the end of 2011 although they attempted to submit unaudited accounts in January this year but these were rejected.

Another bombshell landed when the Plus Stock Exchange announced an investigation into the failure to disclose Craig Whyte’s seven-year disqualification from acting as a director of Vital UK Limited in 2000 when he was appointed to the board of Rangers FC on May 6, 2011′. A fine £50,000 fine was levied for the breach and the company was censured for its “deliberate, negligent or reckless attitude” to the PLUS Stock Exchange Rules.

Rangers then countered that they had been considering exit from the Plus Market in any case and Whyte pouted: ‘There is very little, if any, tangible benefit for the club to be a listed company.’  I can only observe that membership seemed to suit Whyte when 85.3% of Rangers shareholding was acquired  by ‘The Rangers FC Group Limited’ a mere eight months previously 🙂

Last week the Plus Market formally announced that Messrs: Ellis, King and Whyte had been removed as directors of ‘The Rangers Football Club P.L.C.’.

BTW if any Rangers fans are feeling sorry for themselves they should read: http://en.wikipedia.org/wiki/Birmingham_City_F.C and they will see that things can always get worse and I won’t rub salt in the wound with any cracks about their Southern ‘Bluenose’ cousins  🙂

Manchester United face interesting financial parallels with Rangers in that they faced high debt levels of £423 million after complex Glazer borrowing to fund the purchase of  the club in 2005. At the time, Glazer followed the football trend by delisting his newly purchased club from London Stock Exchange. The plan was obviously to pay-down his debt from ever-increasing revenues mainly, I suspect, from TV rights.

That seemed a sound financial model to work with but there was a Joker in the pack about to upset the Old Order. As I have posted previously in relation to Scottish Football, there are millionaire investors and billionaire investors when it comes to football. Glazer although extremely wealthy is not in the billionaire class of Abramovich (Chelsea); Sheikh Mansour (Manchester City); Qatar Investment Authority (Paris St Germain).

These billionaires, with possibly others to follow, can throw never-ending cash resources at their ‘toys’ and have no need to earn a profit from the ‘investments’ made in their clubs. Of course things can change and I suppose Romanov (Hearts) may be a case in point and there is always the possibility that the bored rich may move onto other distractions – a weekend ranch on the moon perhaps 🙂

But as illustrated by Green’s so far successful consortium and other failed efforts (Rangers) it can sometimes be difficult to establish whether so-called millionaire and billionaire investors actually have any money or not or whether they are borrowing capital to invest and what leverage might have been applied.

The billionaire football investors can ‘buy’ their way to success with the players they sign and wages payable and in the process Glazer is being left by the wayside and Man Utd could suffer a disastrous dip in popularity and income by being forced to field ‘cheaper’ players – as stars age or are attracted away by higher wages elsewhere – with the inevitable consequence of slipping down the EPL with ever-increasing debt burdens.  I actually see the Rangers situation as a microcosm of this.

However, I digress albeit dealing with the single story that has captivated the whole of Scotland – not just football fans – for weeks on end.

Back to Manchester United and the burning question of how it can repay its debt but continue to buy and pay top-level players and compete on a level playing field with billionaire-funded teams. Well Glazer has performed what, at first sight, appears to be a U-turn by his plan to relist and offer an initial $100 million tranche of Man Utd on the New York Stock Exchange by way of an Initial Public Offering (IPO).

The £64 million only represents approximately 5 per cent of Man Utd’s estimated value which protects the Glazer voting rights from those pesky shareholding fans – I mentioned earlier – getting together to try and wrest control of the club from Glazer – the same device of building a shareholding in a club and eventually gaining control was employed by Glazer at Man Utd btw.

It appears no dividends will be paid on these shares and there will be inferior voting rights if any but the gamble is that the actual shares will spark a worldwide interest in football fans anxious to legitimately bore friends and family by revealing they are a shareholder in the iconic team.

It remains to be seen whether the ‘no dividend no vote’ decision will reduce the subscription rate for the shares as the equity investors are essentially handing Glazer their money for free but even so Glazer will probably end of with a healthy wedge to help reduce his debt and free-up the income he uses to service the debt to put towards new players or to retaining some who otherwise could be lured by higher wages elsewhere.

Last year Man Utd pursued a 1bn-dollar (£640m) flotation on the Singapore stock market but it fell through because of the volatile global economy. The reorganisation would have seen the team become a wholly-owned subsidiary of Manchester United Ltd, a newly-formed holding company based in the Cayman Islands.  The mind boggles and I’m a bit unclear to the meaning but do I hear an echo of the Green position that he owns the players outright irrespective of Tupe Regs?

Glazer obviously remained keen to test market-reaction because of proposed changes under the revised Financial Fair Play rules (FFP) coming into play in 2018 when the annual loss allowable against a club is capped at £8.8 million.

However we all know how creative accountants can be so personally I won’t hold my breath in expectation that a level playing field is created.

UEFA has already introduced FFP Mk 1 which allows clubs, over a three year period, to  get deeper into debt if they fund losses through equity but restricts allowable debt if the money is borrowed.

So, let’s return to Rangers and the wish of Charles Green to list it on AIM where it had initially been projected a £30 million flotation would be achieved giving Mr Green a 10 per cent commission of £3 million. One thing that must be remembered by anyone becoming involved in any kind of financial investing is that the industry is absolutely choc-a-bloc with advisory companies who all want paid for their ‘expertise’. Always remember of course that they one thing they can’t guarantee and tend to shy away from mentioning too loudly is that they can’t guarantee that you will get a dividend or make a profit on your shares and MOST IMPORTANTLY they can’t guarantee that you won’t lose the shirt off your back or even football jersey let alone football club 🙂

Another interesting thing about shareholding is the way that shares can be in different classes eg voting or non-voting and, indeed, extra shares can be issued sometimes in their millions which can eventually reduce the value of your shares to fractions of a penny.  You are always recommended to take independent financial legal advice but as someone who has been around a bit I can honestly say that I have never worked out how to guarantee that I am actually getting ‘independent’ financial advice.

To illustrate the problems it’s worth looking at Millwall who delisted from AIM after working out that listing cost them £100,000 pa of their £600,000 annual loss at the time.  What was more farcical was that the club had 37 billion shares in issue – more than the worldwide multi-billion BP and they had to consolidate the position by a 100,000 shares to 1 issue. Millwall’s finances improved after AIM because they were promoted to the Championship which saw their income jump 60 per cent to £12 million (approx figs) mainly through TV money.

But before the move Millwall tried to clear its debts by offering an £8 million rights issue which saw directors invest several million but only raised a further  £140,000 from 600 other investors – presumably club fans chipping-in an average of just over a couple of hundred quid a head. Another factor in the Millwall decision was that directors believed the true value of the club wasn’t reflected in its former share value of £2.80 and, more especially, that the AIM listing made it difficult to encourage investment.

I look at these figures from 2010 and factor-in that the UK recession is now deeper with no real sign of ending and Rangers profitability, it would appear, will be badly eroded for the next 4/5 years at best.  And I can’t help but wonder who is going to buy £30 million of Rangers shares which I would regard as the minimum requirement to finance the club in the lower divisions and build a financial platform for return to the SPL ( or whatever takes its place) especially as a lot of cash will need to be spent on better quality players and more of them and I have no intention of denigrating the skeleton squad that is now left.

There is also financial ‘chatter’ that few investment institutions are interested in sub £10 million AIM capitalised companies and it may well be that if Green can’t achieve his £30 million target that he could end up in the £10 million danger zone.  However, Mr Greene may well have anticipated the difficulty by offering the founder investors up to £10 million jointly, to double their shareholding in the company. How this would affect share value and dividends won’t be seen unless an AIM listing is achieved in due course or even a Small Cap Listing.

I suspect that an initial casualty at Ibrox will be youth development as it is expensive and provides longer term results and seldom short-term fixes which usually require cash being splashed.  There is also money to be raised by selling Murray Park to a developer willing to gamble on relaxed Planning legislation which is so in vogue under the Tories.  Btw I wouldn’t blame Green if he is forced into such a move by financial expediency because when money is tight it is day-to-day survival which is the only consideration.

However, to stop pontificating and return to shareholding, I have always taken the personal view that purchasing shares is akin to a Ponzi Scheme where the only ones who actually make money are the ‘original’ investors and I am yet to be convinced that an AIM flotation is in the best long-term interests of Rangers and its fan or even a desirable path to follow.

It seems I am not alone with my doubts with Accountants Deloitte stating:

“Since the number of companies on AIM peaked at 1,694 at the end of 2007, we have seen an almost non-stop decline in numbers to 1,150 companies listed as at November 30, 2011, a reduction of approximately one third.

“Over this time, listed companies have departed the market in droves, either voluntarily, if they don’t perceive ongoing value in their listed status, or involuntarily, generally due to their financial circumstances in these difficult economic times.”

What will unfold at Rangers is yet to be seen but it will be interesting and I feel certain the road ahead will contain many surprise sharp turns – I expect it will end up in a car crash for the Green Consortium which probably would create the biggest danger so far to the continued existence of Rangers as a ‘club’.

But I hope that the breakdown services in the shape of wealthy Rangers Knights are sitting in a lay-by with financial engines revving ready to provide life-saving intervention and not the first aid sticking plaster of the Green Consortium and its mystery shareholders. I have always made it clear that I wish Rangers well as I believe they are an essential profit driver for all of Scottish Football.

But more so because I lived through the dark days at Celtic under the days of the ‘biscuit tin’ and allocated turnstiles and the so-called Celtic ‘Men’ who were within hours of extinguishing Celtic. I believe without hesitation that Celtic would have risen again through the absolute commitment of their fanbase and, in a strange way, it is a shared bond with Rangers.  The loss of any Scottish club is something to be mourned by all football supporters and we should all do our best to try and avoid it and prove to the world we can actually run successful football leagues.

I might even begin to believe we could go on to run the country – nah I’m becoming deluded here defo time to sign-off  🙂

 

Posted by Ecojon