Celtic and Rangers Finances 2019/20: The Watchman

Introduction

No one expects football clubs to have had a good 2019/20 financially due to the impact of Covid-19, but now that the two large Glasgow clubs have published their results, just how badly were the finances of Rangers and Celtic affected by the ravages of the pandemic?

Every business has been impacted by COVID-19, but can Scottish football survive until hopefully successful vaccinations allow a return to ‘normal’ life?

Financial Summary

	Celtic	Rangers
	£’m	£’m
Revenue	70.2	59.0
Wages	54.3	43.3
Player amortisation	12.2	7.6
Day to day profit	(22.6)	(16.3)
Profit before tax	0.1	(17.8)
Wages/Revenue %	77%	73%
Player signings	23.5	11.0
Player sales	19.6	1.1
Net debt/(cash)	(12.8)	7.1

Revenue

In football clubs generate revenue from three main sources, matchday, broadcasting and commercial, the latter of which covers a myriad of activities.

Living in a COVID-19 environment today means that matchday income has been hit severely in 2020/21, but last season clubs were able to play matches before crowds until March.

League football generates solid revenues for both clubs, but progress in Europe makes a huge difference, a capacity advantage of nearly 10,000 should in theory give Celtic more matchday income than their rivals but Rangers’ had nine home matches in the Europa League compared to eight for Celtic.

Equal matchday revenue would probably not have been achieved had COVID-19 not arisen, as Celtic’s capacity advantage would have come into play towards the end of the season but the difference would almost certainly have fallen from £11.3 million the previous season.

No one would expect Scottish clubs to generate more matchday income than English clubs competing in Europe, especially those in the Champions League, but Rangers and Celtic’s finances are well ahead of any club other than the ‘Big Six’.

No other country in Europe is as reliant on matchday income as a proportion of the total as Scotland, which is a testament to their devotion, and last season Rangers fans contributed 60% of revenues despite some matches taking place behind closed doors.

Only £21m a year was being made by the SPFL for domestic TV rights, and so qualifying for UEFA competition is critical for Scottish clubs in terms of boosting revenues.

Numbers are not out yet from UEFA in respect of 2019/20, but Rangers did get bonuses of about €7m for getting to the last 16 from their results, and this can be topped up from various pots that apply to the competition.

Having been in the Champions League group stages twice made a huge difference to Celtic’s finances at the time but has a legacy impact in the form of UEFA’s ten year coefficient, a form of parachute payment to ensure that larger clubs are not penalised if they fail to get into Europe in a particular year.

Aberdeen have the third highest broadcast income in Scotland but that is only £3.4 million.

Scotland however has a smaller population that England where the broadcast deal is worth about £3.1 billion a season and the lowest team in the division earned £104 million in 2019, although this may be lower in 2020 due to COVID-19.

Getting sponsorship and commercial deals is never easy, but both Celtic and Rangers are big brands with fans in many countries.

Included in commercial income is merchandise/retail sales, some Rangers fans have boycotted this in recent years due to disputes with Mike Ashley’s Sports Direct organisation.

Narrowing the gap between the two clubs is feasible in 2020/21 as Rangers have signed a new deal with Castore, and Celtic’s poor start to the season is likely to impact upon kit sales.

Gathering together the three revenue streams shows that the gap between Celtic and Rangers, which was £69 million as recently as 2018, is now down to £11 million.

Europa League success for Rangers, if they progress from the group stages into the knockout, could result in the gap being eliminated totally but the gap with English clubs will still be large unless either or both clubs make it into the group stages of the Champions League.

Costs

Rangers and Celtic unsurprisingly have the highest cost bases in Scottish football, with the emphasis on wages and transfer fees.

Player wages in Scotland are not disclosed for all clubs, but for those clubs that do show details gap between the Rangers, Celtic and the rest is huge.

Until Steven Gerrard arrived the wage gap between the two clubs was never less £20m, and Celtic paid out big bonuses when the team qualified for the group stages of the Champions League.

But in the last two years Celtic’s wage bill has fallen, partly due to the bonus structure and the Rangers board has sanctioned an increase in staff costs to first recruit Gerrard and then commit to his squad changes.

Every player that is signed on a big transfer fee tends to come with a big wage and Rangers wage bill increased by 25% in 2019/20 as the club brought in new players without having big earners being sold.

Scottish wages tend to be reasonable as a proportion of revenue, especially compared to some clubs in England which are as high as 226% but UEFA recommends aiming to keep it below 70%.

Both Celtic and Rangers were above the UEFA red flag in 2019/20 but the inability to generate matchday revenue meant that this should not be a critical issue in the short term.

The other main player related cost is the transfer fee amortisation cost. This is transfer fees spread over the contract life. So, if Ryan Jack signed for £6.4 million on a four-year deal this works out as an annual amortisation cost in the profit and loss account of £1.6 million (£6.4m/4).

Within the last few years, the amortisation costs of both clubs have increased as Rangers investment in transfer fees has resulted in Celtic doing similar. The quality of the recruits is best assessed by fans rather than spreadsheets though.

One employment cost that is purely incurred by Celtic is directors’ pay. This has remained broadly constant in recent years at about £1.5 million a year although there were long term bonuses paid out in 2018/19. The Rangers board has not traditionally been paid for their services.

Profits and Losses

Profits are revenues less costs, and there are a variety of profits that are used by analysts. Operating results from day to day trading resulted in losses for Rangers for each of the last eight years but Celtic’s losses have been higher for the last two.

If non cash costs such as amortisation and depreciation of the stadium/training ground etc. then EBITDA profits/(losses) arise. EBITDA is a cash proxy for profit and ideally should be a positive figure. The fact that it is negative for both Celtic and Rangers is a cause for concern, although again COVID-19 is a contributory factor. The impact of the Champions League is very much highlighted by the high EBITDA profits in 2017 and 2018.

Celtic’s business model in recent years has been based on selling one player a season at a substantial profit and 2019/20 was no exception as Kieran Tierney departed to Arsenal. These profits have helped Celtic to offset the day to day trading losses.

These profits have not been replicated at Ibrox and combined with interest costs on some borrowings Rangers have ended up with better pre-tax figures. Such losses can only be dealt with if there is external funding, either from borrowings or shareholder investment.

Player trading

Rangers have substantially increased player purchases since returning to the Premiership, spending on average £10 million a season, and this has continued in 2020/21 with a further £15 million of spending on the likes of Roofe.

Celtic have at least matched their rivals’ spending but on a net spend level have been more conservative.

Borrowings

Celtic have not borrowed any money in recent years because their player sale model has meant that they have broken even most years. Rangers have borrowed money, mainly from directors, although substantial amounts have been converted into shares. So, although Rangers borrowed more than £23 million during 2019/20 at the end of June 2020 the actual sum outstanding was only £18 million. Celtic have rearranged their overdraft facility with the Co-Op bank and increased the limit to £13 million but had not used any of this at 30 June 2020.

Rangers board of directors have said that they will need potentially another £8.8m for the rest of 2020/21 and £14.4m the following season to continue to trade due to the impact of COVID-19. This puts pressure on the board to deliver this funding but Rangers also now have saleable assets in the squad that could deliver these sums.

Other issues

Rangers have some outstanding legal issues with the likes of Sports Direct and a former employee. According to the accounts there is a potential cost of £3.1 million for the legal fees in relation to the former of these but the final settlement could be higher or lower.

Conclusion

Celtic have had a substantial financial advantage over Rangers and all other football clubs in Scotland for many years. This has been a major factor in their success in winning trophies during that period. That financial advantage has eroded though in the last couple of seasons and perhaps the club has been complacent in terms of player related issues. Rangers are now able to genuinely challenge Celtic and have made a far better start both domestically and in the Europa League. If Rangers qualify for the Champions League group stages, then they are likely to overtake Celtic in terms of revenue generation in a league where finishing second for either team is regarded as failure.