Rangers’ fans should be thanking their pantheon of heroes from the past that Craig Whyte is the owner of their club.As a “keen Rangers fan” Whyte will, no doubt, act with a mixture of emotion and the business acumen that has seen him amass such a fortune for a man just turned forty.
Celtic fans had better get used to the sounds of celebration coming from Ibrox.
Mr.Whyte means business.
It could, of course, have been easily so different for the Ibrox club.
Had Rangers been taken over by someone who just saw the financial opportunities of a distressed company, rich with under-productive assets and a loyal customer base, the club would have been vulnerable.
The following scenario COULD have happened had someone else, an asset stripper, taken over Rangers.
Buying the company for one pound he could have also purchased Rangers’ debt from the bank.
Once in charge, an asset stripper intent on squeezing the most profit from his investment could then try to “securitise” revenue streams.
He might try to borrow money against future season ticket sales, say, for the next four years.
Securitising £40 million of future season book income would allow the club to receive about £30 million in cash now.
An owner like Mr. Whyte, who has Rangers’ best interests at heart, would use that money to either invest in players or to pay any tax bills that crystallise in the future.
Had someone else bought Rangers and securitised future season ticket money, he might feel tempted to just pocket that cash for himself.
That sounds like a scam to most, but it is usually perfectly legal. This hypothetical other owner could have forced Rangers to lend that £30 million in cash to its new parent company.
The parent company would be then free to use that borrowed money as they saw fit, such as paying all of it as a dividend to its own shareholder(s).
If the club was then to become insolvent, an administrator would try to pursue the parent company for the repayment of the loan.
However the parent company would have no cash to repay the loan after paying the dividend. It would then have to file for bankruptcy too.
The loan from Rangers to its parent company simply could not be repaid. In this entirely hypothetical and fictional scenario, the Rangers season ticket money would be in an off shore account supporting a billionaire lifestyle.
Fortunately for Rangers this could not happen with Craig Whyte and the club’s own new parent company. Mr. Whyte’s circular yesterday included a pledge that Rangers’ parent company would only borrow from the club if it was “principally for the Club’s benefit”. The penalty for breaking this pledge is that Rangers’ £18m debt to its parent company would be cleared.
A different owner might have seen an opportunity to pocket £30m cash in return for giving up his right to get £18m repaid.
A different owner, if he was exceptionally greedy, might pocket the £30m cash and then try to argue that the loan to the parent company was “principally for the Club’s benefit” or might have had his legal team insert a loophole in the documents that rendered “the pledge” null and void. He would then also be able to demand the first £18m from the sale of the club’s assets in administration.
Rangers FC and its many supporters can consider themselves very lucky. In their vulnerable state, they were delivered to an owner who is both a shrewd businessman and a “keen Rangers supporter”, Craig Whyte.
It would be churlish to not acknowledge the good fortune of the blue half of Glasgow.
There is now truly light at the end of their dark financial tunnel.