The seductive power of pish

A few days ago the Fitba internet was rocked by a really great story .

It was front page stuff.

Breathlessly we were told that Celtic were effectively bankrupt!

The details were impressive.

Apparently a huge amount of debt had been hidden in the small print of the Parkhead club’s annual report.

Subsequently the writing was on the wall for Celtic.

However, there was only one problem with this story.

It was pish.

This is probably an object lesson in why people who can’t read a financial statement shouldn’t be allowed to randomly pick numbers and throw mud.

As with the Rangers financial story I asked qualified people who work in accountancy to tell me what was what.

I ran the piece by several smart cookies in the number crunching world and here is what they told me.

Firstly two of them focussed on the following key statement:

“d. Cross guarantees

Cross guarantees exist between the Company and its subsidiary undertakings. The extent of these at 30 June 2012 was

£ nil (2011: £nil).”

This means that there are no sneaky special purpose entities hiding debt off the main balance sheet.

Celtic’s effective debt- including cash owed to trade creditors AND trade debtors (you cannot discuss one without including the other)… is currently £2.5m.

Once more dear reader that means that Celtic’s REAL DEBT is two and a half million pounds.

The club’s 30th June final year-end accounts are due to be published at the end of this month.

However Celtic are usually a couple of weeks early.

Insiders told me to expect a positive figure apropos indebtedness in these accounts.

The 30th June figure will depend on when the first tranche of the Wanyama money was paid etc.

Since this break even model was fully implemented in 2005 it has suited Celtic, for accounting purposes, to be slightly in debt at the end of the year.

The rest of the stuff in the piece, I was told, was merely a product of the author’s consistent failure to read the footnotes correctly-

“Of the available bank facilities of £33.94m (2011: £34.69m), of which £21.94m is represented by long-term loans and £12m by overdraft,

£22.97m (2011: £23.34m) remains undrawn at the balance sheet date as follows:”

What then follows is a listing of the credit still available (undrawn) not current debt.

It was impressed upon me that the stuff about the effective debt created by the existence of the debt element of the Convertible Cumulative Preference Shares was important to understand.

Moreover this was already accounted for correctly on the Celtic balance sheet.

I was told that the interpretation depended on what question was being asked.

“If you’re asking about basic shareholder equity, you ‘capitalize’ the projected future interest payments and show them as a lump sum debt on the balance sheet. 

Celtic already do this.

However, that is a lump sum that will never be paid/repaid. 

Celtic only pay the dividends on the preference shares when they can afford to and the club can stop payment if they have a bad year and it will not trigger any kind of claim.

So when calculating the effective debt of the club to look at solvency, you wouldn’t include money that does not have to be repaid- like debt element of the preference share dividends and accrued liabilities like pre-payments for season tickets. 

We don’t include these when we look at Celtic’s debt and we didn’t do it when we looked at Rangers’ debt.

In short this entire storm was kicked up by people who didn’t know what they were looking at. “

So until someone can unearth some real evidence then the jury isn’t out on this one.

Basically the Tic doesn’t need tick, but they can get it if they want it.

Sevco, on the other hand, can’t get credit from anyone.

For customers of the Ibrox franchise, their desperation to take the shine off Celtic’s current robust financial health is entirely understandable.

However, what I found striking was the immediate response of Celtic supporters to the possibility that there might be bad financial health at their club and that they might not have been given the full facts.

As for myself if I had found any convincing evidence that there was any basis for this story I would today be doing a reasonable impression of an Australian at Gallipoli.

However, there is no need to dig on this particular financial peninsula.

The Celtic family’s greatest virtue is the almost permanent state of suspicion about everything that happens in the club boardroom.

The Green half of Glasgow has an almost Jeffersonian distrust for those who wield power.

Meanwhile the Honourable Society of Rioters and Window Kickers appear to be highly vulnerable to any Brogue Trader who decides to swoop down on Edmiston Drive.

The reaction of the Celtic tribe across social media to this story is a very powerful example of what Rangers fans should have done several years ago.

However, as we know, they didn’t.

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