As per my last here is Rugger Guy’s deep dive into the RIFC yearend accounts.
I would respectfully suggest that it is a level of precision that you will not find in the Off The Radar press.
The usual caveats are in place, and I am merely the publisher of Rugger Guy’s excellent work.
My own unqualified comments are at the end.
Phil, as per your request I have carried out a review of the accounts of Rangers International football club “Rangers” for the year ended 30 June 2020. When I carried out a review of the abbreviated accounts of Celtic football club plc “ Celtic” I suggested that the results of other football clubs in Scotland would be considerably worse. The results for Rangers are a prime example of this, and quite frankly they continue to show a terrible financial performance bailed out once more by the directors and several new investors. It almost feels like Deja vu and Groundhog Day when I review these numbers.
Since the inception of Rangers post the liquidation in 2012, the financial results show a worrying trend year on year, both from an operational performance and also a greater need for fresh financing.
My review will be split up as follows:
Historical summary of how we arrived at the current state.
Profit and loss account.
Balance sheet items and notes to the accounts.
Cash flow performance and investment requirements.
Contingencies and post Balance sheet events.
Conclusion.
Historical summary of how we arrived at the current state.
I have looked at the last 8 sets of accounts to look at key indicators, Revenues, Operating results including player trading, Share capital base, Cash at bank and Auditors review.
Revenue £m
30/6/13 19.1
30/6/14 25.2
30/6/15 16.5
30/6/16 22.2
30/6/17 29.2
30/6/18 32.7
30/6/19 53.2 (Includes £14.3m from Europe)
30/6/20 59.0 (includes £20.7m from Europe).
Operating losses £m
30/6/13 15.0
30/6/14 8.0
30/6/15 8.8
30/6/16 2.5
30/6/17 6.8
30/6/18 12.0
30/6/19 8.5
30/6/20 15.2
____
76.8
_____
Share capital base(m)
30/6/13 65.1
30/6/14 65.1
30/6/15 81.5 (16.4m issued at 20p per share raising £3m)
30/6/16 81.5
30/6/17 81.5
30/6/18 81.5
30/6/19 172.2(90.7m issued at 20p per share raising £18m)
30/6/20 260.6(88.5m issued at 20p per share raising £17.7m)
Subsequent to year-end Rangers has issued a further 65m shares raising £13m.
So, in summary, Rangers has raised £52 m from share issues since its inception.
Cash Loans
£m £m
30/6/13 11.2 0
30/6/14 4.6 0
30/6/15 1.1 5.0
30/6/16 3.0 10.0
30/6/17 2.8 15.9
30/6/18 1.5 23.4
30/6/19 1.0 10.3
30/6/20 11.1 18.8
When you look at share capital base and indebtedness combined, it is evident that shares have been issued to pay down debt and provide working capital. The trend shows that despite increased revenues, Rangers operating losses are growing, they are overtrading and need greater sums of investment year on year to continue to trade. Auditors report set out below highlights this further.
Auditors review
30/6/13 Deloitte, no qualification other than litigation issues (Craig Whyte).
30/6/14 Deloitte emphasis of matter, going concern £8m needed for 12 months
30/6/15 Campbell Dallas, (Deloitte resigned based on intimidation of staff), going concern £2.5m needs for 12 months.
30/6/16 Campbell Dallas, emphasis of matter, going concern, £3.75m till the end of the season.
30/6/17 Campbell Dallas, going concern, £4m till the end of the season and further £3.2 for next season.
30/6/18 Campbell Dallas, going concern, £4.6m till the end of the season and further £3.0m for next season
30/6/19 Campbell Dallas, material uncertainty, going concern, £10.0m till the end of the season.
30/6/20 Azets (Change of name following consolidation) material uncertainty, going concern, £8.8m until end of the season and £14.4m for next season.
Conclusion on historical trends.
As you can see from the analysis above, revenues have increased significantly over the years, aided by the success in Europe, however operating losses have continued and arguably increased because of substantial increase in fixed costs. Revenue is vanity, profits and cash are sanity. The cash flow situation has deteriorated sharply also over the years. £52 m has been raised from share issues and directors and other investors continue to provide loans in order to continue trading. Most of the directors and other investor loans are converted into permanent capital, but what is interesting is that Rangers took a £30m impairment charge on the football club in the current year because of cash outflow, but still issue shares at 20p per share despite dilutions of 500%. Ordinarily, assuming the business remains profitable and value has not been destroyed, shares would hold their value if there were no further dilutions, however as 5 times the original share capital has been in place would imply a share price nearer 4p per share (assuming 20p was the
correct base value). They say the trend is your friend but not in the example of Rangers.
Profit and Loss account
Rangers, like most other clubs, have been adversely impacted by Covid and this has affected three months of the financial year. Rangers have submitted a business interruption insurance claim, £1.25 has been received so far, but there is no sense of how much more will be received.
Revenues were £59.0m compared to £53.2m last year. Interestingly the increase is entirely attributable to greater success in Europe. European success accounted for £20.7m of revenues versus £14.3m last year. However, the increase in revenues have been eclipsed by an increase in operating expenses to £75.9m versus £65.4m. In simple terms Revenue up £5.5m, operating expenditure up £11.5m the bulk of which is fixed, once more an example of overtrading. Player costs alone increased by almost £7m to £30m, somewhat higher than the revenue increase. Unlike Celtic who enjoyed substantial profit on the sale of players, which is part of their sustainable model, Rangers player trading had a profit of £0.7m this year versus £3.1m last year. Player amortisation costs are slightly higher than last year at just over £8m compared to £7.2m. Mr Park, the chairman of Rangers, has indicated that Covid is likely to impact results in the current financial year in excess of £10m, but has not elaborated further in the nature of this hit. When you look at an average attendance of 49,238, which is close to capacity, consequently, does not give much scope for growth in gate receipts. The only way that the business is self-sustaining is either substantial success in Europe, player sales, substantial cost-cutting and downsizing, or a combination of all options. Otherwise, as repeated before, the business can only survive if the directors and other investors continue to fund the operation. Rangers in conjunction with the auditors have indicated that to remain trading, the company will need over £23m to survive. Additional matters like litigation could make this estimate insufficient, but I will deal with this under contingencies. The trading outlook is dire.
Balance sheet items and notes.
Rangers have invested a further £11m in the squad in the current year (£9.6m last year). The value of the squad as reflected on the balance sheet is £15.3.m versus £13.1m last year. The football club has 8 players with registration values> £0.5m, compared to 9 players last year. Average contract period remaining is 34months versus 37month last year. Rangers have also written down the value of their investment in Rangers football club, their subsidiary by £30m through an impairment review. This is down to the ongoing support required of the parent company. However, this is a noncash item to Rangers, purely a consolidation adjustment but is more indicative of the underlying deteriorating trading conditions.
Working capital has deteriorated further. In simple terms, working capital reflects current assets minus current liabilities. The deficiency is now £31.3m versus a deficiency of £25.3m last year.
Within trade creditors, one item, in particular, stands out, “social security and other taxes”. The balance outstanding on 30 June 2020 was £9.7m. The balance last year was £2.9m. Clearly, Rangers have not paid income tax and or vat in an up to date fashion. There were concessions made by the government because of Covid but remember this is purely a deferral. This debt will need to repay soon.
Also, within trade creditors, Rangers must repay £11.5m for players within a year and a further £4m after 1 year. This total is £2.3m more than the comparable amount last year.
Within trade receivables, Rangers have been owed a sum of £2.3m for over 4 months. There is no further elaboration on what this relates to other than a confirmation that legal proceedings have started to recover this debt.
The final main area of interest is the position regarding loans, both secured and unsecured. This is where most of the working capital assistance is based. The directors and other investors in Rangers have been very supportive in the last few years, and the requirement for assistance continues to grow further. Without this assistance, Rangers would be in liquidation. I will deal with this in detail below under cashflow and Investment.
In conclusion, Rangers must repay almost £10m in taxes to the government, coupled with £12m for players within the next 12 months. In addition, the working capital situation has deteriorated further, and the auditors have concluded with the directors that at least £22.8million is needed to continue trading. With the effect of Covid and confirmation that this will cause a deterioration in excess of £10m, I would suggest that considerably more finance would be needed in the event of no significant monies raised from the sale of players.
Cashflow situation and Investment.
Looking firstly at unsecured loans, there has been substantial activity in the current year.
The opening balance at the beginning of the year was £11.1m.
Investors provided £21.8m net of repayments during the year. The entire amount was used by the company in order to provide the necessary funds to continue trading.
In addition, £17.6 m of these loans were converted into permanent capital at a price per share of 20p, a very generous price per share in my opinion as I struggle to get close to a value anywhere near this amount.
Closing balance at the end of June 2020 was £15m. Laird investments, David King’s vehicle, received a repayment of £1.3m in the year however his company provided further loans of almost £8m, in addition, over £9m of the outstanding loan was also converted to shares. The outstanding balance of £5m is repayable within 12 months, and the loan is being charged at 8% per annum.
So in conclusion, the closing total balance of unsecured financing of £15m at the end of June comprises £5m from Laird, and the balance of £10m from directors and other investors has largely been converted into permanent share capital at 20p per share post-year-end, a remarkable support for the football club.
It should be noted that the going concern qualification requires £8.8m till the end of season and a further £14.4m for the following season, so these additional monies still need to be found. Also, the financial fair play rules need to be considered. I am not aware of all the rules, but clearly, Rangers would be in breach potentially based on trading losses. However, the capital injections into permanent capital go somewhere to mitigate the breaches as I believe that loans or capital contributions are allowed for offset. Moreover, I would not be surprised if special relaxation of rules are permitted in this Covid environment.
Regarding security on the assets, Sports Scotland has a standard security over the training ground, Close Leasing has a standard security over Albion car park and Edmiston Drive. There are also floating charges on the assets within Ibrox, the car park and Edmiston Drive. Close leasing debt outstanding is £2.9m payable within a year.
In concluding on cashflow and investments, it is remarkable that the directors and other investors still continue to provide the very necessary funding, particularly when they previously indicated that the business model was not sustainable and that they would not continue to support it. The immediate outlook is that because of Covid, and the trading outlook, coupled with very weak balance sheet and requirement of at least £23m to remain trading, then substantial ongoing investment is a prerequisite to remain trading. Player sales or success in Europe can mitigate this to some extent. Contingent liabilities may well be the elephant in the room.
Contingencies and Post Balance sheet events.
Within contingencies, Rangers directors refer to legal proceeding with Sports Direct which are ongoing but have indicated that it may be prejudicial to disclose information associated with this. A provision of £3.15 million has been taken in the profit and loss account, but directors concede that the amount provided through accruals may be more or less than this amount. Having taken legal advice on the subjects, the amount provided represent the directors’ best estimates. The court has ruled against Rangers in the dispute with Sports Direct, and so far, legal costs have been awarded against them. The liability estimated by commentators indicates that the liability on Sports Direct alone could exceed £10m. The disputes with Hummel have not been commented on also, presumably on materiality grounds, and there also seems to be a dispute with a former employee due to be held in 2021. Collectively if these outcomes are concluded against Rangers, this could exceed £15m. This contingency needs to be set in the context that Rangers directors have indicated that they will provide facilities for debt in the short term and that £23m has been noted in the going concern commentary.
However, this debt facility is non-binding hence the auditor’s emphasis of material uncertainty as a going concern. Should the contingent outcomes go against Rangers then directors and investors will need to dig deep and come up with very significant amounts over and above £23m to ensure that a liquidation event will not take place.
Post the year-end; Rangers have bought 7 players and one on loan at a total cost of £15.4m.In addition, 10 players have been sold and one on loan, which together with sell-on fees will yield £1m. Putting this together, Rangers owe £30m in respect of players bought and sold the majority of which is payable in the next 12 months. As discussed earlier in the cash flow section, a further loan of £4.5 has been provided, and almost 67 million shares have been issued.
Concluding on contingencies, it appears that this could be the elephant in the room as it appears that only £3m, so far has been provided.
Directors and investors in the meantime, continue to invest in Rangers in substantial amounts in order to provide the necessary working capital. Rangers have not received any sizeable monies on player sales so far, and unless the Europa cup is won and or Rangers directors wish to run a sustainable business model without recourse to being subsidised by directors and other investors, then this situation must change.
Overall conclusions and Observations.
I have been reviewing the accounts of Rangers for several years, and it feels as if I am watching a train wreck of epic proportions. It seems that Rangers have been guilty of overtrading for some considerable time. The company was formed in 2012, have produced 8 annual reports. After the first year of trading, the accounts have been qualified on a going concern basis for 7 consecutive years. The amount required to continue trading each year is increasing and now stands at £23m. Contingent liabilities could add a further £10m to this amount. Rangers have been impacted by Covid and owed HMRC £10m at June. The normal balance should be nearer £3m. Rangers have invested heavily in the football operations in order to win trophies, and this has been costly in the extreme partly because they have not made significant sales of players; consequently, the model is unsustainable. However, the directors and latterly other investors have been very generous in providing the requisite finance, so far, in order to continue trading. Over £52m has been raised on the issue of shares, and most of the outstanding directors and investors loans has been converted into permanent capital. This is very commendable, in my opinion, as I think the equity value is almost worthless. However with the financial prospects in the next year looking dire, coupled with the large outstanding debt that needs to be prepaid, coupled with the risk of adverse outcome regarding legal disputes, the directors and other investors will need very deep pockets indeed to avoid a liquidation event. Rangers have survived 7 years so far with the going concern being emphasised; I would suggest that 2021 will be the biggest financial year as a challenge facing the company.
I just spoke to himself to make sure that I had picked up the salient points of his lengthy analysis.
During our chat, I reminded him of what Dave King said at a presser just before the Off License Putsch in 2015.
The South African based convicted criminal stated to the assembled stenographers that he was looking for “soft investment”.
Essentially that translated into emotional donations.
Ironically, although he is now outside of the Blue Room, that is exactly what these accounts now show to have happened.
Instead of a single sugar daddy benefactor, there is now a group of well-heeled supporters who are willing to shell out to keep the Sevco show on the road.
What is remarkable is that Mr King has also become a donator.
Now, that was never in his original plan back in 2015.
Of course, deficit financing has a bad history at Ibrox, and ultimately the depth of the pockets in the Blue Room remains the unanswerable question.
However, that will not perturb the Ibrox klanbase as they see the current malaise across the city.
As ever with all evidence-based journalism it is always advisable to follow the money.
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As ever, the sfa turn a blind eye, as ever, every other club turns a blind eye, as ever, Celtic do absolutely F@CK ALL! This sh!t show will continue, they are on course to win the league this year, hoping they get through 2 rounds of CL qualification and pocket a huge payday that will pretty much go to sorting out their problems, they will spend big and hope Celtic fcuk up AGAIN, allowing them to pick up a second league win, sleep, repeat!
I thought I read somewhere in the dim and distant past, (maybe I just dreamt it), that for any club to continue playing in European Tournaments, they had to “wash their face” financially, i.e. break-even at least, over a three year rolling period as a sustainable business.
Surviving on confetti share issues and hand-outs for EIGHT YEARS, cannot possibly be described by any stretch of anyone’s imagination as a sustainable business model.
Clearly ANY such policing of a club’s accounts would come under the remit of the domestic governing body of that particular club’s Football Federation.
i think this just puts into the open what we all suspected…..that the spending was unsustainable. Covid may provide some cover as a convenient scapegoat. the scenario of a post season insolvency event does seem likely. i could see them pushing for mk3 accepting a one division relegation and starting in the championship[p next season. i could see them trying that.
Actually, the spending IS sustainable if directors and others are will to cover the losses.
There is no doubt that the current Ibrox operation is a money pit.
I wonder if Hector will view it like that if he’s having to wait longer that he expected for his dues?
That’s a very risky strategy I should think given how much they stiffed him for previously at Ayebrokes.
Aye. There will NOT be a lot of good will or sympathy coming from that direction.
If Hector has granted a payment plan, that to me, indicates tax OVERDUE…
I know uefa have relaxed their FFP, but surely not to this extent.
How do they get past FFP regulations?
If you could just put money in and convert the loans to shares, how come your PSG’s & Man city’s aren’t doing it
This saga reminds me a bit of Voldemort in Harry Potter. A tacit denial that he is “back”. So now they sit comfortably top of the league, have a football management team that looks highly competent, are competing comfortably in European football and a Klanbase that see only sunny uplands in the future. That Klanbase will be prepared to throw all of their hard-earned at these financial issues, especially after they win the league.
Unless the club with the massive financial and moral advantage over everyone else can do an 11th hour rescue job? Although the signs are not good. Just like the denial of the return of the evil empire, the refusal to accept that Mr Lennon (albeit good guy and Celtic legend) is, and always has been an average football manager, has resulted in all that huge financial advantage being splurged on mediocrity.
Last chance saloon guys, or things go back to the way they always were.
This whole sorry mess is aimed entirely at stopping the ten. If that is achieved I am firmly convinced that the directors will be happy to say, “Job done.” and walk away.
They know in their hearts and in their heads that their shares are worthless, no matter what they paid for them. They also know that any chance that they might have had of getting anything back on their “investments” has long since disappeared.
They ALL have finite resources and they will not continue to throw money into a bottomless pit.
Phil; you know that I’ve raised the issue of SFA negligence, perhaps even malfeasance in this matter many times. Put bluntly, the SFA are doing a massive disservice to, and risking the future of Scottish football, by failing to address this.
Why is that? Because when, not if, this club fall into an insolvency event they will take the SFA down with them. This is because the SFA are going to be on the hook for the “football debts” that will be left unpaid on insolvency.
As rugger guy points out, there are approximate £30m of player trading costs sitting out there that would need to be covered by the SFA. The SFA do not have thos money and would themselves have to declare an insolvency event, OR force tge other clubs to stump up.
I’ll leave you with this. The date of the *Rangers insolvency declaration will be almost immediately after the season ends and they have stopped the 10. They will then be packaged over to a new entity that will again start debt free. And all with a blind eye being turned by the suits at Hampden.
There must have been genuine panic in the Blue room as the window shut without any of the top earners put in the shop window by the MSM ( free advertising) being moved on.
As for the Tax liabilities… How the SFA has a cheek to turn a blind eye to this is quite incredible given the situation created in 2012.
Imagine an Admin event kicking in over Christmas…
I actually think these equity confetti deposits are be8mg used to avoid that scenario month on month.
Points mean prizes and them having points deducted would be a catastrophic event regardless of Europe.
Excellent insightful, thoughtful and detailed analysis, 2021 is going to be a pivotal year indeed.
Excellent forensic breakdown. Bottom line is their income stream for 2020/21 is going to be drastically less than last years total and they have overspent per usual on players they patently can’t afford. Emotional investment may just see them to season end but Sevco stopping the ten will be a hollow Pyrrhic victory. The Sevco High Command are in fact cheats running an at best financially doped rogue enterprise much like Murray did with the liquidated club for over two decades.
I’m afraid that I can no longer get ” excited ” about this mob’s accounts.
Every year they produce damning figures…and every year they come back for more.
I’ve already admitted that I do not know how to forensically read accounts…but I know enough to know that at face value…this Club should be ” gone “….but they ain’t…and something smells.
And I stand by my observations over the years that…when it comes to ” luck ” …if this mob fell out of a high rise window…they would float up and land gently on the roof.
It was ever thus.
How can the SFA give this shambles are European license.
Oh BROTHER….you have to ask…??
Great read , I knew these accounts were bad but they really are worse than I thought. Nice to see Dave picking up a healthy 8% return on his loans while the rest are picking up Zimbabwe bank shares.
I read this in its intirety but when you listen to the so called financial expert that was on sportsound tonight you would think this didnt exist they glossed over it and even suggested that sevco had done better than us as they had increased the revenue of the club,shocking,
Sunk cost fallacy!