Is the time bomb really ticking?

[calscot 0]

There has been much hype and hysteria over our current financial situation and most of the information that comes our way is both contradictory and confusing.

 

The media would have us believe that the club was days from going into administration, was now being run by the bank, and that we'd sell half our team in January.

 

All of the statements by the club and bank completely deny this, so the question is "Who is lying?" And can we clarify the real position of the club?

 

Since the start, I've found the hyperbole surrounding our financial situation totally unbelievable - banks have no interest in running football clubs, there is no way our finances could suddenly become so bad that we were about to go bust, and selling all our best players halfway through the season makes no business sense whatsoever.

 

With the latest financial audit and statement from our chairman making far more sense than anything that has come before it, maybe we should calm down and analyse the situation even if it�s a layman�s analysis.

 

First let's deal with the administration threat. It appears there were no surprises in the accounts and the club while not looking on the steadiest of feet, still came out with a clean audit with the ability to trade for the foreseeable future.

 

So why all the fuss? The answer to me seems to be that the club, with very lofty ambitious, was (as we know) being pretty badly run without proper budgeting for the spending on player transfers and wages. We were making large losses and increasing our debt for the second time at an alarming rate.

 

This happened before but at that time, our owner had a very healthy and very large business which was underwriting our debts and eventually actually paid a huge chunk of them off. That put us in a pretty good credit rating bracket at a time when banks were not very discerning who they lent their money to.

 

Now with the credit-crunch, huge bank losses due to bad debts, and a change of ownership of our creditors, there is a bit of a credit hangover. Mix in the fact that our owner's companies overstretched themselves with expansion using short term debt before their industry ground to a pretty serious go slow period, and you have a bitter tasting hair off the dog with the bank getting shaky about our position.

 

It seems they wanted to renegotiate our 15M overdraft and using that leverage to make changes in the boardroom and business plan. This seemingly has led to SDM resigning from the board and the appointment of Muir.

 

This is where we get to the second point about the bank running the club. I think the truth is closer to the bank being concerned about unsustainable spending especially when our income is hugely vulnerable to whether on not we qualify for the Champions League and made worse by an unforeseen, significant reduction in our media income.

 

They therefore have pressured the club to change it's business plan to a far more conservative and parsimonious one, which has less chance of being disastrous if certain targets (like CL qualification) are not met.

 

Our new chairman has emphasised this, and told us that after much negotiation, a new business plan has been agreed which in turn means that the bank has extended the provision of a 15M overdraft until a review in something like March 2011.

 

The Rangers board are not entirely happy about the business plan as it restricts the ability of the club to achieve its ambitions and probably removes any ability to speculate to accumulate which can bring success in a highly competitive business like football. However, it allows us to have access to the cash we need to run as a going concern and trade our way out of our current position.

 

Muir himself will have plenty to do in his day to day work than worrying about the running of a football club and will merely be attending board meetings to represent the interests of the bank, which I presume are about once a month.

 

As far as I can tell as a layman, the debt is not good but is within manageable proportions with the biggest problem being a lack of cash at hand which restricts our cash-flow ââ?¬â?? the real killer of businesses. Ã?£20M of our debt is actually a long term mortgage to be paid over 20 years at Ã?£1M per year plus interest. This loan is secured on property and I think we can agree that Rangers should have no foreseeable problem in servicing this debt.

 

That leaves a balance of liabilities minus liquid assets of about �£11M. Even on our lower year turnovers of �£44M, this doesn't exactly seem even slightly insolvent and as our chairman says, there doesn't seem a great need for a "fire sale" of players, especially when that could seriously harm our income in the next year.

 

Not only will a smaller and less skilful squad harm us competitively on the pitch - which has a direct effect on income, it will seriously affect the uptake of season tickets in the summer. No creditor with any intelligence would deliberately harm a debtor�s ability to pay what they owe, for merely a short term reduction in the outstanding debt. That only happens as a last resort if it looks like the company will imminently go bust and so there is a chance that the bank could get very little back at all.

 

If a seriously good offer comes in for one of our best players, then I think the board will probably not want to look a gift horse in the mouth, and the likes of Bougherra may be off. However, a business case could easily be made to replace him with a player of lesser value - and the cash need not necessary go directly to pay off the debt directly but may be used to improve the clubs ability to pay short term liabilities ie bills. Of course that cash at hand does affect the net debt.

 

So the state of play seems that while Rangers are under pressure from the bank to have a more prudent and sustainable business plan while ensuring the current credit facilities are not exceeded.

 

So in conclusion: our finance are not that bleak with no chance of administration, no chance of being run by the bank and no chance of a fire sale of players in January.

 

"So why do we need a new owner?" one might ask. This will probably be mostly due to the financial state of Murray's companies and so their ability to guarantee any future investment into the team, stadium or other expenditures. The bank probably want to separate the club from his empire, as the football club�s ability to pay back the debt to the bank is pretty assured, due to the nature of 50,000 loyal, paying customers which will keep the club a going concern for a long time to come.

 

Murray's empire in contrast, looks like it could easily collapse with many creditors getting a fraction of what they are owed.

 

From the club's and supporter's point of view, RFC's ambitions can only be realised by capital injection, to put the club on a better, more stable financial footing in which the playing budget is not so overly restricted as it is now.

 

The future does look to be fan ownership but for this to happen, it seems an interim, cash rich investor is necessary to get the ball rolling - a la Fergus McCann.

[maineflyer 0]

A well-argued post. Excellent read.

[Frankie 8,151]

Yep, an excellent post which will also go on the main site today....

[spanner 0]

Like the chairman said, we have a clean bill of health and are a going concern.

[Frankie 8,151]

Reading this again, I actually think this is one of the best articles I've read on the subject. No exciting hyperbole, no panic buttons being pressed, no rumours, no sources and an article based solely of the facts available.

 

Does this mean the club isn't in danger? Of course not (too many informed people are worried for there to be no smoke without fire) but it does perhaps show we need to be a bit more measured and calm in our analysis of the overall situation.

 

[Jim1955 12]

My first attempt at a post and I'm pleased that it is to show support for a grown up article on our current situation. Sure there are grey clouds on our immediate horizon but, we are not beat yet by a long way.

[Frankie 8,151]

Welcome to the forums Jim - glad you enjoyed the article and look forward to you posting more when you get the chance...

 

Unfortunately, negativity does seem to be the norm for Rangers fans in recent times and that is often a cause of realism as opposed to gratuitous moaning. However, you're right that it is refreshing to read something a bit more positive to help us appraise the situation more accurately.

 

[Bluedell 5,329]

The facility in the bank was due for renewal in November 2008. It was not renewed until some point between Sept-Nov 2009.

 

The clean audit report was only issued following that renewal, so for at least 8 months this year, the auditors were unable to issue a clean audit report.

 

It seems that at any point during this, the bank could have withdrawn funding if they wished, and perhaps some of the reaction has not been over the top.

 

As a side point, at the Goram dinner last weekend, Iain King introduced Walter Smith, and while doing so said that the bank has been running the club for 10 months.

 

Yes, we now have facilities to operate for another 13 months, but has the bank advised what they are going to do after that? Johnston has indicated that business plan allows for us buying no players either on January or next summer.

 

We have bought ourselves some time but it doesn't mean that during the 9+ months that we did not have banking facilities in place that we were not in severe danger.

[Union City Blue 0]

The facility in the bank was due for renewal in November 2008. It was not renewed until some point between Sept-Nov 2009.

 

The clean audit report was only issued following that renewal, so for at least 8 months this year, the auditors were unable to issue a clean audit report.

 

It seems that at any point during this, the bank could have withdrawn funding if they wished, and perhaps some of the reaction has not been over the top.

 

As a side point, at the Goram dinner last weekend, Iain King introduced Walter Smith, and while doing so said that the bank has been running the club for 10 months.

 

Yes, we now have facilities to operate for another 13 months, but has the bank advised what they are going to do after that? Johnston has indicated that business plan allows for us buying no players either on January or next summer.

 

We have bought ourselves some time but it doesn't mean that during the 9+ months that we did not have banking facilities in place that we were not in severe danger.

 

I think I'll suspend judgement on any of that until Spanner comments.

 

:devil:

[Bluedell 5,329]

I think I'll suspend judgement on any of that until Spanner comments.

 

:devil:

 

 

Superb, mate. Got me in stitches.