It’s easy to understand the differing reasons why investing fans; original investors; and other investors with business or commercial links to Rangers International have parted with their cash.
But I find it slightly harder to understand why institutional investors took the gamble to the tune of £17 million. That’s why I was excited to read the explanation from the CEO of Hargreave Hale Ltd – the second biggest investor in Rangers International with 7.6% of the company – but ended up really no further forward in my understanding.
Of course there’s no show without Punch when it comes to Rangers International and I had better add that Charles Green, the company’s CEO, is the biggest shareholder with a 7.79% stake.
However, back to Giles Hargreave who believes he has found the football share in Rangers International that defies the old saying: “The best way to make a small fortune from a football club is to start with a large fortune”.
Giles believes the high likelihood of Rangers moving back up to the top level of Scottish football makes it an undervalued stock that is well worth investing in and he said: “It’s the 12th-best supported club in Europe, and in the UK, Manchester United are a bigger brand, but there aren’t many other brands that are bigger in the UK.
“The club has said it will only stick one-third of its turnover into player wages and with the merchandising potential, if the club does that, it will be significantly profitable and remain so.”
Football club investment can often be risky with financial success linked to on-field success with financial prizes awarded for wining competitions and achieving higher league positions which, in turn, hugely affects marketing potential.
Hargreave thinks the likelihood of Rangers swiftly moving up the league system is high and minimises the risk in this area with promotion looking extremely likely and adds: “The cash-flow, profitability and balance sheets – it ticks all the boxes”. He points to the major advantage that Rangers International is free from debt and Rangers owns its own stadium and training ground and strong fan support suggests revenues – from seat prices at least – won’t drop.
I find the article surprising in many places, not least the statement: “The company is free from debt, having recently emerged from administration”. As even semi-literate clatterers know – the oldco company went straight from administration into liquidation and Rangers International is a brand-new company. It also states: “The newly reformed club launched a share issue on AIM in December”. Well now we know and here was me thinking it was Rangers International 🙂
The article appeared after Scottish League reconstruction was announced and Green decided to fly the coop so I’m unclear how that might affect Mr Hargreave’s opinion especially if a much longer Conference route-march was required to reach the EPL.
But how realistic is it for even the lowly Scottish Premier League – or successor – to restrict players’ wages to one-third of turnover – a very laudable aim of any club management but the expectation of fans and players is an irresistible counter-force IMHO.
I would have expected some mention of the very low ticket prices this season with an estimation how the projected increases, already announced by Rangers International, might affect future sales and revenue in these hard economic times. There is also no real explanation of how ‘merchandising potential’ will be turned into hard cash. It would also have been nice to read an explanation from a savvy investor on how the company assets revaluation, bought for few million but valued at approx £80 million, had impacted on the 3 month accounts presented.
The article also states: ‘Hargreave has previous experience of indirectly investing in a football club as a director of ENIC Group – the firm that bought Tottenham Hotspur Football Club – but he says Rangers is his first direct foray into the sport’.
Actually, I’m surprised the article doesn’t mention Hargreave’s previous experience through ENIC investing in Rangers. Some younger posters might not have heard of sports investment group ENIC which spent £40 million buying 20% of Rangers back in 1997. It’s part of the Bahamas-based private equity Tavistock Group comprising over 200 companies with holdings in energy, resorts, property development, restaurants, manufacturing, sports and other interests.
As well as Rangers. ENIC held stakes in AEK Athens, FC Basel, Slavia Prague, Vicenza and Tottenham Hotspur with its shares hitting a 382.5p peak in early 2000 at the height of the stock market craziness – but by February 2003 the share price plummeted to 25p.
The ENIC 6 monthly results to December 2002 were bleak despite their football club investments doing relatively well in playing terms. The chairman’s report stated: “FC Basel is currently second in the Swiss League and has reached the second group stage of the Champions League.
“Glasgow Rangers is top of the Scottish Premier League and reached the first round of the UEFA Cup, Slavia Prague is top of the Czech domestic league and reached the fourth round of the UEFA Cup, Vicenza Calcio is currently fifth in Serie B in Italy and AEK Athens reached the first group stage of the Champions’ league and is currently third in its domestic league).
“This good performance has not been translated into satisfactory financial results.”
Independent ENIC directors – including Giles Hargreave who served from November 1995 to March 2003 – noted many of the football clubs including Rangers, required extra cash to protect ENIC’s investment but football sector uncertainties made them think it would be inappropriate to further prop-up the clubs using ENIC cash resources.
The ENIC independent directors also decided their shareholders should have the opportunity of a cash exit to allow them to make their own investment decisions regarding the football sector where prospective investment carried a high degree of risk.
Daniel Levy, Tottenham Hotspur chairman joined with Charlie Lewis, the son of the Bahamas-based financier Joe Lewis, to control ENIC – biggest shareholder in Tottenham – and take it private which was achieved in April 2003.
The relationship between ENIC and Rangers goes back to 1996 when ENIC invested £40 million for a 20% stake of Rangers. However, disagreements with Murray over transfer spending led to ENIC’s Howard Stanton resigning from the club’s board of directors in May 1999.
By October 2000 ENIC’s £40 million Ibrox investment had been written down to £15 million or less and because ENIC didn’t have a controlling interest in Rangers, in contrast with most of the other football clubs, ENIC had to go along with Rangers’ free-spending autonomy in the transfer market.
Murray stated of them at the time: “They might not agree with the way we’ve done it, but I’ve been at Rangers 12 years and we’ve won 11 championships and 20 trophies. Also, our turnover’s reached £51 million from £6 million. So I must be doing something right.”
ENIC then announced plans to sell their Rangers stake in February 2001 but failed to find a buyer and in August 2004 the 20% ENIC stake was bought-out for £8.7m by Murray International Holdings Limited which saw the departure of ENIC Director and Tottenham chair Daniel Levy from the Rangers Board.
Interestingly, if the expected £50 million Rangers share flotation went above the 75p per share used for the ENIC buy-out calculation then a further payment would be made.
ENIC were also promised a further payment of up to £5.625m next time Rangers qualified for the Champions League or were invited to join the English Premiership. I think the MSM missed the original story and a stushie broke-out a year later with the then Rangers chief executive Martin Bain having to clarify that David Murray’s holding company, Murray International Holdings Limited, acquired ENIC’s shares and they had an obligation to make additional payments. He added: “The vast majority of any top-up payment is contingent on the club joining the English Premiership.”
So, in a sense, we have turned full circle. I must admit to being disappointed that Mr Hargreave didn’t deal in some depth with his earlier experience of Rangers from an ENIC perspective as I think it would have been helpful in many ways.
But one thing that is crystal clear is that large investors, or a group of them, without a controlling interest in a company can face major difficulties in protecting their investment if the company board decide to take certain decisions. ENIC basically lost over £30 million on its Rangers investment and further large sums on other football clubs which proved how easy it can be to turn a large fortune into a little one by investing in football teams.
I was also disappointed that Mr Hargreave made no comment on the difficulty in determining any dominant investor ‘grouping’ which may exist because of the number of offshore investors and trusts involved with mystery investors.
As always no one should make the mistake of thinking I am offering any advice on investment or shares and if you require this then seek a suitably qualified professional. However, the one piece of advice I would offer is additionally to do your own research because, at the end of the day, it’s your hard-earned cash that’s being invested.
Posted by Ecojon