The Internet is buzzing tonight. Something big, we hear, is appearing in the Daily Record tomorrow. The wags on Radio Clyde were discussing the dread fate that may await Rangers. Clearly my blog post yesterday has been read in high places!
The suggestion is that the Record is breaking a story that, horror of horrors, Rangers Football Club PLC had mortgaged four years’ worth of season ticket income, in a large corporate version of an Ocean Finance consolidation loan. This was to bring in funds to, perhaps, allow Mr Whyte to pay off the Lloyds Bank debt and provide working capital for the Club. But what happens when the loan is spent and the debt is still there?
Did Leeds United Not Do This?
Keen observers might recall that one of the fateful actions by Leeds United, before it plunged into insolvency, was to mortgage future season ticket and other income. As “The Director” magazine reported in October 2006:-
“To most lenders, the idea of becoming involved in football finance sparks the kind of panic attack suffered by England footballers in penalty shoot-outs. They remember when Leeds United posted a £49.5m loss in 2003 while carrying £78m of debt securitised against future season-ticket revenues. They recall how creditors waved goodbye to enough money to keep the entire gaggle of England WAGs (wives and girlfriends) in Gucci bags and Cristal champagne for life.
The then Leeds chairman, Peter Ridsdale, explained the profligacy that had led to the collapse of his club’s fortunes as “living the dream”, but it was the beginning of a nightmare for other teams seeking to fund their success by mortgaging future revenues.
It is easy for clubs to be caught in a downward spiral. Relegation from the Premiership, for example, as happened to Leeds in 2004, represents a year-on-year drop in income of at least £15m, while the collapse in 2002 of the Football League’s broadcast deal with pay-TV start-up ITV Digital, left lower-division clubs £180m out of pocket. No wonder banks are jittery.
Yet such is the clamour from fans for on-pitch success and shareholders’ desire to tap into Premiership riches, that football boardrooms have tended to chase Ridsdale’s dream by spending money they have not yet received. The difficulty now is that the banks are no longer prepared to fund such speculation.” (Emphases added)
As that reliable source Wikipedia records these events:-
“O’Leary’s Leeds never finished outside of the top five, but following their defeat in the UEFA Champions League 2001 semi-final against Valencia their fortunes began to change. Under chairman Peter Ridsdale, Leeds had taken out large loans against the prospect of the share of the TV rights and sponsorship revenues that come with UEFA Champions League qualification and any subsequent progress in the competition. Leeds signed Robbie Fowler and Seth Johnson for large fees and big wages. However, Leeds narrowly failed to qualify for the Champions League losing out to 4th place to Newcastle United, and as a consequence did not receive enough income to repay the loans.”
Remember this was before the global financial crash too!
However, it seems that Rangers were able to find someone to fund a similar deal for them.
The Secret Sources of Information
What digging has the Daily Record done to find this story (if that is their big splash)?
In the words of the great Alex “Candid” Cameron, I have the solution in an envelope here, which I will now open.
Here is what is hidden in the envelope.
Extracted from the Rangers Tax Case Blog post Reflections on Craig Whyte’s Obsessive Secrecy – 6th June 2011
“… it looks like Rangers are preparing the ground for a credit facility worth about £30-35m . Such a credit line would be secured by a large percentage of Rangers’ season ticket revenues over the next four seasons. … While such an approach would saddle Rangers with a very large debt burden, and would drain much of the blood supply that sustains any football club, such a strategy at least allows Rangers to live and to fight another day. At a club that would likely have gone bankrupt had it not managed to play in the Champions’ League group stages three years in a row, who is to say that they cannot continue this streak? … Unless one of Craig Whyte’s backers antes up cash to make borrowing unnecessary, the club’s viability depends upon many random variables. … if Rangers lose their appeal against the tax bills in their possession, and if Rangers fail to qualify for the Champions’ League in the next two seasons, it is hard to see how the club can operate at its current scale if it has surrendered close to 70% of the revenue from its season ticket sales for the next four years.”
This was prompted by the lodging at Companies House, as identified by diligent and indefatigable posters on RTC of a form MG05s. This is a document which publicly intimates the withdrawal of property from the coverage of a floating charge. Put shortly, Mr Whyte’s company took over the security over Rangers’ assets provided by the floating charge granted to the Bank of Scotland in 1999. This charge allows Mr Whyte’s company to appoint a receiver, thus giving him first crack at the assets to repay the debts due to his company by Rangers. However, it is possible to take property out of the coverage of the charge.
The MG05s revealed that the “Released Assets” were the “Tickets, Season Tickets, Ticket Proceeds, Designated Accounts and Account Proceeds as defined below”.
The “Season Tickets” were 23,154 for 11/12, 27,017 for 12/13, 27,014 for 13/14 and 23,154 for 14/15. Effectively Rangers were giving up their rights to this income for the seasons mentioned. The form was signed by Phil Betts, director of Rangers and also heavily involved with Close Finance, and Mr Whyte himself.
There was however a problem. The MG05s had released all the assets, except for the “Released Assets”! In June therefore Rangers went to the Court of Session to “fix” the mistake, with an application for “rectification of the register”. You will find the court order here.
Now, had there been any reaction to RTC’s prescient article?
Yes there was!
Extract from Darrell King interview with Craig Whyte – June 2011
“Contrary to a report elsewhere this week, no form has been signed that would allow season-ticket money to be used as a guarantee against any FUTURE loans; indeed, the form lodged at Companies House by RFCG last month does the opposite: it prevents season-ticket money from being used for that purpose.“ (Lots of emphasis added!)
Nothing about past loans though!
There were other hints about this issue too, although not easy to find.
Extract from the Rangers Independent Board Committee (IBC) statement contained in the Shareholders’ Circular – June 2011
“…the IBC is concerned about a lack of clarity on how future cash requirements would be met, particularly any liability arising from the outstanding HMRC case.
“The IBC is committed to ensure that the transaction and future investment and funding proposals should be transparent to all the shareholders and supporters of the Club.”
The issue was also raised in the court action pursued by the former Chief Executive, Martin Bain, against Rangers Football Club PLC:- June/July 2011
“As a result of concerns about tax liability and liability for wrongful trading (Rangers FC’s) Board of Directors prior to the takeover by Mr Whyte were making arrangements with the defender’s bankers to ring fence the subscriptions from season ticket holders to guard against those sums of money being lost in the event of there being a substantial tax liability. It is understood Mr Whyte has not ring-fenced those monies collected from season ticket holders. What is more it is understood Mr Whyte has arranged for the defender to assign its season ticket income for the next four years to a London based finance company in exchange for cash flow at the present time.”
So, by June/July last year it seemed to be the case that (a) the season ticket income up to and including 2014/2015 had been released from Craig Whyte’s security over Rangers: (b) the IBC was concerned about how Mr Whyte was going to fund running costs; (c) Martin Bain was concerned about this issue too, as it related to the ongoing solvency of the Club; and (d) Rangers had made such a mess of the deed that they had had to spend good money engaging lawyers to fix the mistake.
Who might these London financiers be?
Close Brothers Group is a finance house, closely connected to Primary Asset Finance. One of the main men there is Mr Phil Betts, erstwhile director of Rangers. He resigned suddenly less than two weeks ago.
It is understood that, through Close, substantial sums were borrowed on the strength of the season tickets.
On 9th August 2011 Rangers granted a security in favour of Close Leasing in connection with income from their catering contract with Azure (a company from the Murray stable!). This was recorded in a form MG01s.
Then, on 26th October, a further form MG05s Security was registered in connection with alterations to the floating charge in connection with the Azure contract, ranking this ahead of the floating charge holder. The parties to this deed were Close Leasing, Rangers Football Club PLC, Rangers FC Group Ltd and L:iberty Capital Ltd (being Mr Whyte’s 100% personally owned company based in the British Virgin Islands).
There does not appear, yet, to have been a security registered for the season ticket “mortgage” but as all the parties are on the same side, it might have been decided to leave it unregistered till necessary, as there was no way that Messrs Whyte and Betts, who have a long, productive and successful history together rescuing companies, would fall out.
Now however, Mr Betts is gone from both Club and Group. Hot on the heels of that Sir David Murray re-appears at Murray Park. In the immediate follow up the mainstream press suddenly start to turn on Mr Whyte.
EDIT FOR ACCURACY – 8am 31/1 – Whilst Close is involved with some funding, Ticketus appears to be the company responsible for the “big loan”. More detail when the Daily Record comes online!
Rumours abound that they have run, or are running, out of cash, and that even the transfer of Mr Jelavic won’t bring in enough to fund the ongoing operations.
Have Rangers Run Out of Money?
The short answer is that we do not know. However, if Rangers had not failed at the first Champions League hurdle, or even at the first Europa League hurdle, or if the £9 million offer for Jelavic in the summer had been accepted, then this speculation would undoubtedly be even more groundless than it is clearly is already.
Mr Whyte, as an astute businessman with a proud record, though he won’t name the companies he is proud of, will clearly have a plan to deal with these storms, and with the sudden departure of his “close” colleague.