Have Rangers* Spent Over £32 Million Since June 2012?

There was a meeting of “influential” Rangers fans on Thursday with the senior officials of Rangers*.

(*More precisely of the company which owns the company which owns the assets and business which make up Rangers Football Club).

I want to mention two points arising from it – the first being one which has been subject of much heated debate ever since the Green takeover, and the second, which will be in the follow up post, a strong candidate for “Joke of the Year” if it had been delivered at the Edinburgh Festival. (Right up there with Tim Vine’s one-liner from a couple of years ago – “Crime in multi-storey car parks? That is wrong on so many levels!”)

Ever since the share issue in December there has been speculation about the amount of money remaining in the coffers of Rangers International Football Club PLC. Talk of imminent insolvency has continued despite the PLC’s efforts to disparage them. Until the PLC accounts appear there will not be a definitive answer and even then that will only reveal an historic snapshot.

Why is this important?

Obviously the amount of money (or access to money) which a business has is vital – money is the lifeblood of any commercial organisation.

Rangers have made a virtue out of what most businesses would treat as a huge negative – the absence of any credit facilities.

This is especially so in a business such as football, where the seasonal nature of the income means that most money comes into the coffers in a short period in the summer by way of prize money for the previous season’s achievements, transfer fees and season ticket income.

Most businesses which operate in a highly seasonal environment have some form of credit arrangement – whether by factoring, overdraft or advance ticket sales (such as the infamous Craig Whyte/Ticketus deal).

Operating without any credit facilities means that the funds available to Rangers will go through a “boom and bust” cycle – so far for RIFC the peaks at which the bank account has been overflowing have been at the point of (a) the season ticket sales before season 2012-2013; (b) the funds realised by the share issue in December 2012; and (c) season tickets sales for the campaign just started.

Analysis of the Rangers financial position by various writers, bloggers and commenters (and of course based on limited information) has suggested that the ongoing losses and expenditure (because of course losses and expenditure are not synonymous) are such a drain on the funds that they could run out before the season ends.

One of the main themes which has been raised related to the share issue.

Rangers announced that £22 million had been raised. There have been regular suggestions (denied by Rangers) that, whilst the share issue may well have raised that amount, the majority of it was not in the form of cash, but in “paper”. Thus, with the reduced liquidity provided by bonds or loan notes, the amount of cash available to meet the bills was alleged to have been some way from what the top line figure raised actually was.

The speculation about this has prompted vigorous rebuttal (although also without the provision of clear evidence) from Rangers and its fans. As RIFC declared to the Stock Exchange that they had raised £22 million in cash, I am happy to accept that, but not everyone has. Suggestions that Rangers could run out of money were seen as malicious speculation by “Rangers haters”. After all, went the response, how could Rangers run out of money – well over 30,000 season tickets sold last year – £22 million raised in the share issue – well over 30,000 season tickets sold this year.

However the last few weeks have seen some mainstream sources too raise questions about the finances of RIFC. Neil Patey, accountancy expert from Ernst and Young, was quoted by the BBC website on August 2 saying:-

“It’s slightly unusual that they are using money raised from the IPO for working capital. Usually, money raised from the IPO is used to fund things like buying over new companies and not working capital.

“Unusually, they are using the money from the IPO to fund their losses until such time as they return to the top flight and are able to tap into that prize money and money from a return to European football.

“If you don’t keep a prudent cost control, you could spend the £22m and run out of money before getting to the top division.”

As Mr Patey was seen during the financial crises for Rangers in 2012 by some as more sympathetic to their situation, his criticism of the position might be more telling for its fans.

Dave King too, former Rangers director, spoke about fears of re-entry into administration. (Strictly of course it would be a first administration for RIFC PLC, or for The Rangers Football Club Ltd, because Rangers Football Club PLC which went into administration last year has now been liquidated.)

Against that background, what happened on Thursday night?

There was a prompt reaction to the meeting by three of the fans’ groups represented at it, and the following joint statement was issued by the Rangers Supporters Association, Assembly and Trust:-

In response to this evening’s fans meeting at Ibrox.

We are extremely concerned to learn that there is only £10m left in club funds after the IPO and season ticket monies have gone into the club and will be seeking more detailed answers from the club’s Board. We will seek to convene a follow-up meeting as soon as possible.

We welcome the news that Craig Mather will convene a Board meeting within seven days to consider the future of Charles Green.

If the Board reflect mood of the room at this evening’s fans meeting then Mr Green will be stripped of his consultancy role, the overwhelming majority of fans representatives clearly agreed with Craig Mather’s description of his behaviour as “morally and ethically reprehensible”. His utterances regarding Ally McCoist and Walter Smith were horrifying.

We are glad that Mr Mather has committed to talking to Jim McColl and his colleagues. The issues facing the club are very clear and urgent – with goodwill they can be resolved without resort to an EGM.

Let’s look at a few figures therefore. (The Stock Market statement on the interim accounts can be read in full here.)

Income (All figures in millions of pounds sterling)

Gate Receipts + Hospitality for 7 months to 31/12/12 (interim accounts)  6.4

Share Capital Issued to 31/12/12 (interim accounts to include IPO)            30.8

Estimated Income from Gate Receipts and Hospitality from 1/1/13            1.0

Estimated Season Ticket Income Received for Season 2013-2014                6.0

Total                                                                                                                            42.2

Less balance of funds remaining                                                                           10.0

Net Spending from June 2012 to July 2013                                                        32.2

Indeed, reading from the very comprehensive summary of the meeting which can be read in full here, it was stated by Mr Stockbridge that the £10 million figure INCLUDED £1.5 million from Sports Direct! On that basis the spend is in fact over £33.5 million.

I appreciate that these figures are very “rough and ready” and there are some elements of capital expenditure (including the £5.5 million purchase price) and non-recurring costs, such as those of the IPO, but, nonetheless it is a large amount of money, especially where there the PLC needs to go from now through till the end of the coming season, with only the limited income from ongoing games and without the safety net of a credit facility.

Can it possibly be correct that, in just over a year, over £32 million has been spent?

Well that would still be a significant reduction from what costs were running at when Craig Whyte took over!

However it remains a vast sum and would mean one of two things, based of course on the statements by Mr Stockbridge being accurate and the figures reported in the accounts being correct (as I am sure they are.)

1                     Money is still being spent as if it is going out of fashion and it could run out before the end of the season, and if so, leading to administration and a further “insolvency event”.

2                     The “Rangers haters” were actually correct and not all of the IPO proceeds were in the form of cash and so, bizarrely, this is a good thing for RIFC as there are other assets still available to it and the “cash crunch” is far less likely than if only £10 million is left.

If the first applies then there are various possibilities, all with differing degrees of likelihood, which include the following:

• Rangers is being run just now solely with the intention of getting the PLC to the point where the “tied in” shareholders can sell their shares which were acquired by most of them for 1p per share.
• Rangers is being run just now in a profligate manner to ensure that customers are willing to stump up for season tickets, with the intention of administration with resultant debt write off and “rescue” by “real Rangers men”.
• Rangers will plug its funding gap (if there is one) by agreeing a credit facility with banks or other financial institutions. (A cynical friend of mine suggested, entirely incorrectly, I am sure, that the reason for there being no “external” debt was that the Directors knew insolvency was coming and being seen to borrow money which they knew could not be re-paid could be very problematic for them.)
• Rangers will undertake a further issue of shares to the public and the financial world. As the shares are presently at less than half peak value, and at 60% of the IPO price, I suspect that financial institutions might be more reluctant to invest than before, although that would open up the share sale, perhaps exclusively, to fans, both as individuals and as directors of businesses.
• Rangers will take further action to cut costs or increase income.
• Rangers will have finely tuned its figures to enable it to remain solvent without any of the above situations arising.

I have no doubts that the real answer is a combination of the last two possibilities as it would clearly be, at best, “inappropriate” to run a business intending the first two, and there has been no suggestion of options 3 or 4.

Mr Stockbridge is an astute businessman and a fine fellow to be Finance Director, so I am sure that, at the re-convened meeting with the supporters’ groups he will be able to reassure them that the financial future for Rangers is bright!

Posted by Paul McConville