Rugger Guy analyses RIFC 2017 acccounts

Last night the accounts of Rangers International Football Club (RIFC) were released and they can be viewed here.


As promised, here is Rugger Guy’s take on them:


Rangers International accounts 30 June 2017

Phil, as per your request I will try and prepare a review of the accounts of RIFC for the current year. Unsurprisingly, there is a lot of devil in the detail of the accounts, contained in the 60 page report. The headline numbers of £29m turnover and loss before tax of £6.8m together with additional funding of £5.9m has been reported, but I will uncover some of the important issues that have not been highlighted by the press.

The accounts were issued at about 8pm last night and ordinarily when accounts are issued late on a Friday night then you anticipate that good news is not forthcoming. On this occasion, this is a serious understatement. These accounts contain more questions than answers and I wonder if the timing allows certain matters to be avoided. The auditors signed off the accounts on the 26th October. These were published 8 days later, post the sacking of Pedro Caixinha and post the meeting regarding health and safety meeting regarding the football stadium. Neither of these issues are referenced in the accounts. As the accounts contain an emphasis matter regarding going concern, the exclusion of any other possible costs are helpful in quantifying the financial assistance that is required.

In my report, I will deal with the following points

 Auditors report and going concern

Sports Direct

Directors’ loans and funding.

Commentary on the published accounts.

Player investments and liabilities.

Post balance sheet events.



Auditors report and going concern.

In Groundhog Day fashion, the accounts have received an emphasis of matter statement regarding going concern. The auditors Campbell Dallas have for emphasis this year quantified the amounts needed over the next 12 months of £7.2m, in their statement. £4m is required up until June 2018, with monies being required now, and a further £3.2m after June 2018. It is important to remember that it is the directors that are responsible for the strategic report and report of directors. Campbell Dallas correctly state that their opinion on the financial information does not cover this information and they do not express any form of assurance conclusion thereon.

On the issue of going concern, the directors make assumptions regarding revenues and expenditure. I think it is important that the readers are aware of these and I will pass some comments thereon, these are highlighted in bold form.


Going concern 

The Board has undertaken a recent and thorough review of the Group’s forecasts and the associated risks. These forecasts extend for a period beyond one year from the date of approval of these financial statements. The extent of this review reflected the current economic environment, the Club’s current and projected trading and position in Scottish football.

The forecasts make key assumptions, based on information available to the Board, around:

Football performance, the forecast assumes the Club will challenge for the European places in the Ladbrokes SPFL Premiership in 2017/18 and participate in European competition in the season thereafter; this is critical given the investment in players that will be discussed later.

Season ticket sales, the timing and amount of which are consistent with the Club’s historic experience. The forecasts include an uplift in season ticket prices to reflect annual inflationary increases and forecast improved football performance; the season ticket uplift has gone from £255 to £314, an increase of 23% and season ticket sales were 43253. I think that there is little scope to increase the amount of ticket sales, I am not sure how much of further increases that the supporters will accommodate.

 Match day income, which is projected to grow as a result of improving footballing performance and success; Failure in performance will see this fall.

 Sponsorship, commercial and other non-match day income reflecting customer confidence returning and increased hospitality demand; l The inclusion of cash flows as a result of the new retail agreement with SDI Retail Services Limited;  Discussed later but not sure or convinced about how much this will provide.

Maintaining the current overhead cost base of the Club; Cost increase in the year excluding staff costs was 28%, so a big challenge I suspect.

Payroll costs reflecting the current squad size and composition in perspective to its assumptions around league performance. The forecast cash flows assumes future transfer payables will be met by future transfer receivables; No further net investment in players, which may not be well received by paying supporters and not sure that this will be publicised.

 The capital expenditure necessary to maintain and improve the stadium and general Ibrox vicinity; No quantification of this amount other than a commitment  to spend £800k highlighted in post balance sheet events.

 The Group’s ability to secure further debt or equity finance from its current investors or through public share issue to allow the Group to continue to meet its liabilities as they fall due. Critical but takeover panel looms a big shadow over this.

The Board recognises that achievement of the forecast is critically dependent on the football performance for the rest of the current season and next season, including the participation in European football competition. Consequently, sensitivities have been applied to the forecast based on a variety of football performance factors. This is a woolly statement indeed, you can drive a horse and cart through this. Remember that the financing requirement is on a minimum basis.

At the time of preparation, the forecasts identified that the Group would require a minimum of £4.0m additional funding by the end of season 2017/18 in order to meet its liabilities as they fall due. The first tranche of funding is required in November 2017.

Further funding amounting to £3.2m is forecast to be required during the 2018/19 season. However, the final amount is dependent on future football performance and European football participation amongst other factors.

The Board have discussed the Club’s forecast cash shortfall and have reached an agreement with New Oasis Asset Limited whereby they will provide additional loan facilities as necessary to meet the above requirements. I will deal with new oasis under directors’ loans section.

Further to this, New Oasis Asset Limited and certain investors have agreed to extend their existing loan facilities to July 2019.

The Board is satisfied that those parties will continue to provide financial support to the Group and have satisfied themselves as to the validity of the undertakings. Campbell Dallas will have taken these written assurances and validations as critical part of their audit report.

The Board acknowledge that had these assurances not been secured then a material uncertainty would exist which may cast doubt over the Groups ability to continue as a going concern and therefore its ability to realise its assets and discharge its liabilities in the normal course of business. With the appropriate assurances obtained and the continued support of the investors, the Board believe that such uncertainty has been removed.

Further to this, the Board is hopeful that the Club will be in position to proceed with a share issue during 2018 in order to provide further finance for the Group. Takeover panel rulings are critical together with football performance prospects.

The financial support committed more than covers the projected shortfall for this season and beyond.

As such, after making the enquiries referred to above, the Board of Directors believe that there is a reasonable expectation that the Group will at all times have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing this report and the statutory financial statements. 


All in all, my highlighted comments indicate the degree of wariness that should be taken into consideration when looking at the prospects of ensuring the continuance of going concern statement.


Sports Direct.

A new agreement has been reached with Sports Direct International (SDI).This agreement is between SDI and RIFC. Rangers retail limited is being wound up, and the agreement is with RIFC, not the football club. This may appear subtle but in the event that the going concern is not maintained and that an administration event takes place, I suspect that SDI’s commercial agreement is protected. RIFC received a dividend of £620k during the financial year and further payment of £567k in October, however I believe that the termination agreement resulted in a cost of £2.75m to RIFC. I am not an expert in retail arrangements, but always thought that the bulk of profits were made by manufacture of the shirts and then secondly in the wholesale sale of the shirts. I am not sure how good and transformative this will be for RIFC. I would be cautious of expecting too much in this regard.



Directors’ loans and funding.


In the current year, the cash outflow from operations, a good indicator of underlying position, was just less than £6m. This was matched by further loans from directors and investors of some £6m.New Oasis Asset limited (NOAL) will provide all the future funding requirements in order to maintain going concern status. In addition, the directors and other investors who were due to receive repayments of their loans in June 2017 have extended the repayment dates to June 2018 and December 2018.Significantly, the sole provider of funding is NOAL. In the accounts of RIFC to June 2016,           NOAL was referred to as being controlled by Dave King.  However, in the accounts to June 2017, Dave King and his immediate family are “interested” in holdings in NOAL. This change in emphasis may have something to do with the recent Court of Session appearance, but it is becoming more critical that the court rules in favour of Dave King, otherwise it could have grave consequences  for the maintenance of  going concern. Total loans outstanding are c £16m, and NOAL is owed some £7m, the balance owed to directors and other related parties. These loans are still being maintained on an interest-free basis.


Commentary on the Published accounts.


RIFC saw turnover increase from £22.2m to £29.2m an increase of £7m.Season ticket sales were 43,000 and the average revenue per ticket increased by 23% to £314.Average home attendance was just under 49,000 so in the absence of increasing the capacity, RIFC will be dependent on further substantial ticket prices and or European participation to markedly increase their turnover levels. Total operating expenses increased by £8m to £32.9m.Player costs increased by 62% to £10.4m. Other operating charges include match day costs and the chairman’s report highlights that a 27% increase in other operating charges was driven by one additional home game played, together with a preseason foreign trip and repairs to the stadium. This overall increase of £2.5m is not broken down by category. Stadium expenditure of £0.8 is contracted by RIFC and is highlighted in post balance sheet events. As future investment in players will be financed by player sales, I sense that there will continue to be great pressure on the underlying cash flow of the business as revenue growth is challenging and the player investments (to be discussed separately) will see substantial contracted payments to be met. First team wages as a percentage of turnover jumped from 29% to 36%. It looks highly likely that this will grow significantly in the current year. A review of the balance sheet does not highlight anything significant other than a reclassification of debt into a longer time scale and also the investment in intangible assets which has grown by some £7.5m. This is essentially player investment which will be discussed separately. One interesting comment made by Mr King is that the results for the year to 2017  now ensures that RIFC  complies with UEFA fair play. I am not a football expert but I am presuming that the debt is being treated by equity as RIFC, otherwise, I have difficulty in understanding the accuracy of his statement.


Players investments and liabilities.


The accounting treatment of this is important to understand.

“The costs associated with acquiring players’ registrations, or extending their contracts, including agents’ fees, are capitalised and amortised, in equal instalments, over the period of the respective players’ contracts.”  By example, this means that if a  player costs  £2m and his agents fees are £0.4m  and the contract is for 3 years then essentially the cost reflected in the income statement is £0.8 per annum (£2.4m /3years).In addition, the wages will be charged in the normal way by a weekly charge to the income statement. At the beginning of the year, RIFC   value of assets was £3.7m. During the year £10.3m was incurred in new contracts and players sold or contracts terminated resulted in a reduction of £1.9m. The balance at the end of the year jumped to £12.1m. At face value, this may appear as a cash investment of £10.3m but this is not the case because included within liabilities is an amount in respect of player registrations. Amounts to be paid within the year is just over £3.5m and over one year is a further £4.5m. This liability excludes wages, this is simply the payment due for players. RIFC is owed £0.8m in respect of player sales. 72% of the value of footballers contracts are accounted for by 5 players and the average length of a contract is 35 months. In layman terms, these players will I presume to be on hefty wages for 3 years, in addition, the cost of acquiring them will require also to be prepaid within 3 years.


Post Balance sheet events and Contingent liabilities

RIFC has committed to contract for an expenditure of £800k on stadium improvements and ground equipment. Some of this may be financed by finance leases, the details are not given. Since July, RIFC has bought one player and sold four. Net receipts were £240k. Rangers retail received a dividend of £567k. NOAL and certain investors have extended the loan facilities to July 2019, although the bulk is due to be repaid by June 2018. Regarding contingent liabilities, there are no new items to report. There are no contingencies from creditors or Mark Warburton. In addition, as mentioned earlier, Pedro Caixinha’s departure was announced post the signing of the accounts and the issues regarding health and safety at the ground are not discussed in the accounts.



In summarising the report, the timing of publishing the accounts is not surprising given the details that I have extracted. Late Friday publishing is normally done to avoid publicity. The auditor’s report continues with an emphasis of matter and a requirement of £7.2m financing with an imminent injection needed. The assumptions behind justifying the retention of going concern, are, in my opinion very challenging and should some of these objectives not be achieved, the financial consequences are ominous. The financing which is being provided exclusively by NOAL contradicts the comments made in the recent court hearing regarding the ability to provide funds. The objective of raising fresh funds via a share issue is critically dependent on Mr King not being required to carry through with the offer for the outstanding shares. A bad outcome with potential financial cold shouldering will result in a very dark outlook for the company, in the event that he remains chairman. The recent acquisition of players has effectively been financed and a deferred basis and the full effect of increased wages will weigh heavily in the results of the following financial year


I am grateful to my egg chasing buddy for taking the time out from his schedule to do this work for me.

Of course, the rigorous analysis in the foregoing is all his own work and I am merely publishing it.

However, I think it is fair to say that his take on the RIFC accounts isn’t nearly as sanguine as that which was gushed out last night by the usual suspects.

After going through his work I called Rugger Guy to express my gratitude and in the course of that conversation, I asked him to sum up of Sevco’s immediate financial future.

He used two words:

“Very precarious”.

Discover Phil’s dramatic play Rebellion