Other Financial Issues

Rangers: Phoenix from the ashes or new dawn fades?

Rangers won the Scottish Premier League five times between 2003 and 2011, as well as reaching the final of the UEFA Cup in 2008, which on the face of it was an impressive achievement as the club went toe to toe with a resurgent Celtic during that period.

To compete with Celtic the club was however prepared to take steps that would ultimately lead to the liquidation of the club’s operating company and had to apply for membership of the Scottish Third Division. It would take four years out of the top flight before the club was once again able to face its rivals in a league match.

The high profile recruitment of Steven Gerrard as manager in the summer of 2018 has whetted the appetite of fans and pundits, but is the club a phoenix from the ashes, or are its new foundations made of sand?

During the 1990’s Rangers were the dominant force in Scottish football, the wealth of owner David Murray allowed the club to recruit the likes of Paul Gascoigne, Tore Andre Flo, Brian Laudrup and Mo Johnston, and the club won nine titles in a row. Murray claimed ‘for every five pounds Celtic spend we will spend ten’ and the dynasty seemed unstoppable, but it was built on debt.

Celtic were however improving their finances thanks to the backing of Irish billionaire Dermot Desmond, with managers such as Wim Jansen and Martin O’Neill the battle for supremacy in the Scottish game became more balanced on the field, and the investment in infrastructure at Celtic Park plus more regular progress in UEFA competitions meant that the club’s income was ahead of that of their rivals.

Because Celtic were generating more money in the early 2000’s, it meant they could sign better players to compete with their rivals in terms of recruitment. Rangers were during this period generating large losses as they had a smaller capacity stadium and were generating less matchday income.

The only way to underwrite these losses was to borrow money, which the club did with enthusiasm such that by June 2004 Rangers owed £74 million to financial institutions.

Behind the scenes Rangers were also trying to compete with Celtic by some creative tax activities. This involved the creation of Employee Benefit Trusts (EBTs) where the club paid money into a trust.

The EBT then ‘lent’ money to players who in theory promised to pay it back, but there was no or little effort to ask for that money back from the players, who effectively therefore treated it as regular income.

The advantage to Rangers in taking this approach was that the club did not pay National Insurance contributions on the payments to the players, who also did not pay income tax on these loans from the trusts.

The players were happy because they ended up with the net pay they were seeking, so everyone was a winner…apart from the government.

This policy worked to the extent that Rangers won the Scottish Premier League five times from 2003 to 2011, but critics will argue they were abusing the tax system in the process and those titles were at best tainted and some even go as far as to say those achievements should have been stripped from the club’s list of trophies.

The global financial crash of 2007, created by the financial community who lent money to people and businesses who had no ability to repay the sums advanced, hit Rangers in two ways.

Owner David Murray’s business struggled and so was unable to provide the club with further financial support, and the main external lender, the Bank of Scotland, (now part of Lloyd’s Group) effectively went into public ownership following its own financial meltdown, and there was a far less relaxed approach towards Rangers from the bank’s new senior management as a result.

Furthermore, the UK tax authorities became increasingly unhappy with Rangers’ use of EBTs, which had been originally sanctioned for non-employees, which was not the case in respect of the club and its players. The tax authorities saw the approach taken by the club as extreme tax avoidance and pursued Rangers for a tax bill of up to £49 million.

An increasingly desperate David Murray therefore sold the club to Craig Whyte for just £1. Whyte promised to settle the tax issues and the bank loans but did neither and as more and more creditors were issuing writs for unpaid debts the club appointed administrators in February 2012.

This angered HMRC, who had wanted to appoint their own administrators to investigate Rangers’ affairs. HMRC therefore refused to agree to a deal with the administrators, leading to Rangers operating company going into liquidation, provoking a constitutional crisis in Scottish football.

A new company, Sevco Scotland, was set up and bought Rangers’ assets from the liquidator, although players were allowed to leave the club for free as their contracts were with the old club.

Most SPL clubs voted that SevCo, now called Rangers Football Club Limited, was not allowed to take the place of Rangers in the top flight, and instead the newly formed company was allowed instead to join the Scottish Third Division, giving people in small towns such as Peterhead and Elgin the opportunity to learn about seventeenth century Irish history through the songs sang by Rangers fans when their club visited.

  • Rangers had income of £19 million in 2012/13 in the Scottish Third division, which was more than double than that of the other nine teams in the division combined as the club unsurprisingly won the division and Rangers had similar success in the Scottish Second division the following season.

During this time Rangers was falling further behind Celtic in terms of generating income and signing players, which meant that when Rangers were finally promoted to the SPFL and had their first season there in 2016/17 they generated only a third of Celtic’s revenue.

Rangers have also returned to using debt as a means of funding the club, although as there is great suspicion from banks towards the club, the lending is almost exclusively from directors.

At the last count Rangers owed lenders £21 million in June 2018, although subsequently some of this has been written off as lenders converted the IOU’s from the club, which some consider to be worthless, into shares instead.

The arrival of Steven Gerrard has introduced a feel-good factor to the club, and there were million pound plus signings such as Barisic, Goldson and Murphy, along with loans from Liverpool as Stevie G used his contact book to try and improve the quality of the playing squad.

The club is now competing with their rivals in an SPFL that has greater uncertainty than has been seen for many years. For this to be achieved the board has admitted it will need a further £4.6 million to survive this season and has gone cap in hand to investors for extra funds.

The recent elimination from the Europa Cup will not have helped Rangers’ financial position although reaching the group stages has helped generate greater income than in 2017/8.

In addition largest shareholder Dave King seems to spend more time in court arguing with the likes of Mike Ashley and The Takeover Panel, who believe he should buy out remaining shareholders, than focussing on issues on the pitch.

Whether King has the wealth that he claims to buy the shares from these shareholders is as yet unproven, as are many issues in relation to the club’s activities.

Even if King himself does not have funds there appear to be other backers to underwrite the club’s losses, although this could lead to another power struggle.

Furthermore, there are squabbles and threats of litigation between the administrators, liquidators, former owners, HMRC and former players, which could result in large sums being payable by some of them, but the only guarantee is that the lawyers, as always, will be rich on the pickings between the disputes between these parties. The club however is unlikely to bear these potential costs.

One of Rangers’ fans most popular songs is ‘Follow Follow’, but given the club’s present predicament, perhaps this should be renamed ‘Borrow Borrow’.

The trainspotter's trainspotter of football finance.

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