Dark clouds over Ibrox

I have stated, more than a few times here, that the new outfit at Ibrox has severe structural financial problems.

Now we have the audited RIFC accounts to prove the veracity of that statement.

Moreover, I was referring to the Sevco cash flow situation before the hacks were permitted to deviate from the narrative that all was financially well at Edmiston Drive.

When the hacks were churning out puff pieces I remained ever the contrarian.

RIFC are undoubtedly a loss making business with no credit line from a bank and they can only keep the lights on by eating into dwindling cash reserves.

Their subsidiary Sevco Scotland Limited trading as The Rangers Football Club Limited is burning cash at quite a rate.

I’m not an accountant in fact I can’t even count very well.

Subsequently, I have been speaking, well interrogating, a Chartered Accountant and a corporate lawyer with a professional expertise in British football over the past few days about the RIFC accounts.

Firstly while they both tended to insert qualifications into their caveats each of them stated their utter astonishment at the Ibrox wage structure as revealed in the accounts.

I was assured , again by both of them, that it is a given in any full time professional football club in the UK that the wage bill for the first team bill ,by far, be the biggest chunk of the overall staff costs.

However, at FC Ibrox that is not the case.

The overall wage bill is £17.9Million yet the wage bill for the First Team is ‘only’ £7.8Million.

I was assured that this was, well, atypical.

In fact Mr Football Lawyer was astounded by this.

What IS clear is that the folks currently in charge of the Blue Room have been rewarding themselves handsomely.

For once Mr Chartered Accountant spoke plainly.

He said that the level of corporate remuneration, given the turnover of the club was “…a joke”.

Mr Sports Lawyer wasn’t that surprised and he reminded me that “…in football everyone is overpaid…” he sounded pleased when he said that.

My expert duo all stated that I should save myself a headache looking through profit and loss account and focus of the cash flow.

“Cash is king” is a cliché, because, like most clichés, it is usually true.

I was assured that page 27 is where the action is on these accounts.

Those numbers simply can’t lie they both said.

The “cash used in operations” is, I was told, what it takes (net) to run the operation.

That is money out the door over an above what they bring in and it can’t be dressed up in any way.

The overall figure for running RIFC/Sevco over that 13 month period was £18Million and change.

Some of that were one off costs so Mr Accountant said that for the next twelve months the ‘cash burn’ would be approximately £11 million.

Once more he caveated what he said and this was without major cuts or any player purchases.

Mr Lawyer reminded me that all of the prospective buyers in 2012 had stated that there was a £10 million per annum black hole in the RFC numbers that would have to be found over a three year period.

That was assuming SPL revenues with the old high earning first team squad intact.

Those revenues and costs have fallen pretty much in lock step and the black hole remains not that much different from when Rangers were alive.

Mr Accountant consistently started his sentences with “…based on what these accounts say…”

At one point he asked me “do you believe these numbers?”

I told him if I could answer that I wouldn’t be speaking to him!

He reminded me that Deloittes is one of the top accountancy firms in the world and that their reputation meant everything to them.

He did however express some surprise that the fee they received for the audit was dwarfed by what they had invoiced RIFC for consultancy services.

He said that after the Arthur Andersen scandal with Enron it was generally frowned upon that auditors also carry out consultancy work for the same client.

My Lawyer reminded me of what Bill Miller’s guy John Pritchett had written in Forbes magazine about Rangers (1872-2012).

One thing that had clearly TUPEd over he said was the culture of too many people living on the tab at Ibrox.

That had been pointed out by the American’s numbers guy and these accounts, said Mr Lawyer, fully vindicated that criticism.

Of course in the past few months that there has been a PR war being fought in the media between two sides in a struggle to control the Ibrox Boardroom.

The New Knights want to paint the incumbents in as bad a light as possible and the chaps in charge at the top of the marble staircase have had their own PR people saying the Messrs McColl and Murray should not be taken seriously.

The New Knights and their chums in the Blue Blogosphere have been screaming of-well- Armageddon and have made all sorts of essentially defamatory accusations of skulduggery at Ibrox.

Both sides have made the ‘Sale and leaseback’ accusation against each other and both have denied it.

However, both my guys said that it was a move that made a lot sense to anyone in charge of the loss making Ibrox outfit.

Meanwhile in the Green and White corner the Parkhead chaps have been eagerly anticipating “Admin 2” etc.

According to my guys both tribes will be somewhat disappointed.

Mr Accountant stated that he believed that, long term basket case as it is, RIFC/Sevco has just enough cash to see themselves through this season if they don’t up their spending or get hit with any unforeseen major bill.

Essentially if the roof doesn’t fall in then…well…the roof won’t fall in!

The £2.5 million ‘overdraft facility’ they declared in the accounts is crucial to getting them through agreed my two guys.

However, both Mr Accountant and Mr Legal chap thought it rather strange that they did not state the source of this credit.

Usually companies trumpet the identity of the bank that believes in them enough to lend them money should they temporarily need it.

The idea is that the more prestigious the lending institution then the more kudos the company acquires.

Their guess-and it was just that-is that the credit line is probably from a private source (nothing wrong in that) and not from a bank.

Mr Chartered Accountant stated that “without this credit facility-on the numbers presented-the Clumpany would have run out of cash cash about June 2014 and would have missed the auditor requirement of proven liquidity (cash) for 12 months from the date of signing the annual report”.

Ok, ok, all right, he didn’t say ‘Clumpany’-I put that bit in…

With a cash burn that he estimated of about £0.92m per month, accessing all cash sources, including the £2.5m credit line from the mystery lender, the RIFC-Sevco would run out of cash sometime about August 2014- give or take a couple of months either side.

This is especially the case should there be a Season Ticket strike by the fans next Spring.

So this credit line from the unidentified source is a crucial part of the Sevco jigsaw and vital to these accounts.

The question that remains to be answered is this:

Do the people currently in charge of the stadium that John Brown played for see this as a long term venture or a short term project?

These accounts don’t answer that question.

If it is the former then it will a long difficult road requiring tough decisions.

However if it is the latter then a small group of people could make a killing.

The IPO money could have been used for long term planning.

However, it appears to have gone on working capital and is, well, gone.

There remain many unanswered questions about how such a high proportion went as costs in the flotation itself.

Even Craig Mather said that this was “strange”.

Indeed for any business journalist in Scotland with a strong editor there is a treasure trove of stories in that direction.

It is a story that I intend to return to myself.

The bottom line is that FC Ibrox is not a sustainable business long term and it will need massive and painful restructuring at some point if it is not going to be money pit that constantly needs to be bailed out.

In other words Sevco is a corporate clusterfuck.

Cui bono?

In terms of penny shares and executive remuneration this venture looks rather like risk free profit for those in at the start.

The only downside, it would appear, is not being liked by the Ibrox faithful.

However, this is only an issue, probably, to those ordinarily resident in the West of Scotland or the North of Ireland.

Charles Green has a fine residence in Normandy, but I don’t see The People storming the beaches there-a tradition they share with the Rangers First team from World War Two.

That this business appears to be unsustainable in the long term doesn’t seem to be terribly troubling for the people in charge.

Perhaps they have a cunning plan.

Alternatively they may not intend to be around for too long at the top of the marble staircase.

However they do seem to be concerned with the appearance of the big club.

The whole of Planet Fitba knows that they simply pay too much to too many players for the league they are in.

Perhaps downsizing for sustainability was never going to be on their watch.

There have been some redundancies, but nothing that has impacted in the bottom line significantly.

The people in charge of the stadium that caters to The People need full stands and a feel good vibe.

Overall this still looks to me like a short term project with big rewards for people who don’t have any emotional connection or cultural affinity with Ibrox.

After all of this, of course, the Motherwell born billionaire may not be finished with this saga and the auditors acknowledge this possibility.

Both Mr Accountant and Mr Lawyer pointed out that the fact that RIFC are now on their third NOMAD is, well, atypical.

Overall it is difficult or anyone to put a good spin on these accounts.

The Easdale Family are probably the cavalry coming over the hill in this situation.

They are emotionally committed to the Ibrox culture and although they will not return to the crazy spendthrift days of Sir David Murray with competent department heads and a good coach they could run the new club on a break even basis.

However, should they try to spend their way to catch Celtic then they will enter a debt spiral.

For now RIFC/Sevco, on the basis of these figures presented in these accounts, is not in any immediate mortal danger, but without major restructuring  at Ibrox then the outcome is not in doubt only the timescale.

I think an appropriate description  for their current situation would be ‘slow lingering death’.

Thanks to  ‘NoToNewCo’ and Turnbull Hutton et al, FC Ibrox  are now on a long and expensive journey that drains away their cash reserves while their fans make friends along the way.

Have a nice day!

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