Review of Rangers' Half-Year Accounts

[calscot 0]

I'd like to rebut some of the analysis if that's ok?

 

I think we spent a net 10.5M in the summer on transfer fees (and I can't include signing on fees as they are not disclosed), so the 2.3M is pretty impressive considering this as our net spending was about 7M higher than the previous two years.

 

The fact that in the transfer window we will potentially bring in about a net 11M before add-ons will also make a huge difference as again we usually have a net spend of a couple of million in January. That's a 13M turnaround.

 

That means that if we usually make a loss of about 5M in the second half of the year, this year we're on for about 6M profit PLUS more income from the SPL, and the two cups plus the potential of more from the UEFA cup.

 

To me it looks like we will make at least 8M profit. (Although I think this may be diluted as money on transfers is always greater than just the fee and money coming in is also reduced by player and agent fees.)

 

Putting that together it seems we have virtually a net zero spend on transfers and a profit equivalent of the CL.

 

So it seems to me that if we have a reasonably successful season without the CL and without net spending, we should break even. CL brings in 10M in profit and therefore gives us a transfer budget (plus reducing the debt).

 

Therefore we can expect to make a loss if we either, don't qualify for the CL, have too big a net spend, or have an unsuccessful season (or more than one of these).

 

So presuming we qualify for the CL and have a good season, we can expect to break even after say a 5 or 6M net spend on players (hopefully spending more but being able to cash in on a higher quality of unwanted player) and paying off our debts by 2-3M.

 

To me that would be a reasonable scenario to aim for each year.

 

This is just an ignorant layman's viewpoint...

[calscot 0]

PS I enjoyed the analysis but some of it seemed more pessimistic than necessary due to some extra-ordinary transfer activity.

[Bluedell 5,356]

I'd like to rebut your rebuttal if that's OK?

 

I'd like to rebut some of the analysis if that's ok?

 

I think we spent a net 10.5M in the summer on transfer fees (and I can't include signing on fees as they are not disclosed), so the 2.3M is pretty impressive considering this as our net spending was about 7M higher than the previous two years.

The cost of the players purchased does not hit the P&L immediately. The cost gets capitalised and written off over the period of the players contracts. If we say that we spent �£12m on players in the summer and the average length of a contract is 4 years then the amount charged to our profit for the 6 months is �£1.5m (12m/4 years * 0.5 of a year).

 

Given that this is the position then the profit of �£2.3m looks less impressive. I don't have the exact figures of the total spend and the length of players contracts, but hopefully you get the idea.

 

The fact that in the transfer window we will potentially bring in about a net 11M before add-ons will also make a huge difference as again we usually have a net spend of a couple of million in January. That's a 13M turnaround.

The Hutton deal is certainly impressive from a financial viewpoint. My issue with it is that it is a one-off gain. If we are can come up with a Boumsong or Hutton every season then we don't have anything to worry about, but I don't believe that we can. I am more concerned about the underlying situation, looking at future years, which is a bit concerning. We wil make a profit this year but that's against the general trend.

 

That means that if we usually make a loss of about 5M in the second half of the year, this year we're on for about 6M profit PLUS more income from the SPL, and the two cups plus the potential of more from the UEFA cup.

 

To me it looks like we will make at least 8M profit. (Although I think this may be diluted as money on transfers is always greater than just the fee and money coming in is also reduced by player and agent fees.)

 

Putting that together it seems we have virtually a net zero spend on transfers and a profit equivalent of the CL.

Yes, we have a net spend on transfers and a profit equvalent to most of the Hutton transfer (as this is where it is coming from), but it's concerning that we are having to rely on Hutton to make a profit.

 

So it seems to me that if we have a reasonably successful season without the CL and without net spending, we should break even. CL brings in 10M in profit and therefore gives us a transfer budget (plus reducing the debt).

No. We would be looking at making a loss this year with the CL and without the Huttton transfer. Even with the Hutton transfer, I suspect that our debt may be slightly worse at the year-end (but it's difficult to assess due to the lack of information).

 

Therefore we can expect to make a loss if we either, don't qualify for the CL, have too big a net spend, or have an unsuccessful season (or more than one of these).

 

So presuming we qualify for the CL and have a good season, we can expect to break even after say a 5 or 6M net spend on players (hopefully spending more but being able to cash in on a higher quality of unwanted player) and paying off our debts by 2-3M.

 

To me that would be a reasonable scenario to aim for each year.

 

This is just an ignorant layman's viewpoint...

To be able to finance an annual net spend of �£5m on players, we would need to be looking at an annual profit of �£5m and unfortunately we are not close to achieving that.

 

I hope that you are correct and I am wrong, and we will have a far better idea when we see the year-end accounts come out, but I believe that your analysis is flawed in that you are assuming all of the summer spend has already hit the P&L account.

[Bluedell 5,356]

PS I enjoyed the analysis but some of it seemed more pessimistic than necessary due to some extra-ordinary transfer activity.

I enjoyed replying, mate It's always good to have someone question your analysis as I may have missed something. I still may have done due to the extreme lack of information in our accounts.

 

I do feel a little pessimistic about the whole thing. We broke even 2 years ago after qualifying from the CL. I thought the CL income had increased and our cost base had decreased so we should have been looking at a small profit pre-Hutton. However it seems that our cost base has started to increase again, unless the club have written off more of the transfer fees than I think.

[craig 5,199]

BlueDell,

 

Are you sure that the cost of players is not a direct hit to the P&L ? I am sure I read a number of years ago Murray stating that Rangers financials were different to other clubs as we expensed the cost of players immediately (i.e. we did not capitalise a players value as we took the conservative approach that would not sell the players on but they would leave at the end of contracts). I am sure I read that !

 

Or has there been a change in accounting policies ?

[stewarty 1,878]

That rings a bell now that you mention it Craig.

[Bluedell 5,356]

BlueDell,

 

Are you sure that the cost of players is not a direct hit to the P&L ? I am sure I read a number of years ago Murray stating that Rangers financials were different to other clubs as we expensed the cost of players immediately (i.e. we did not capitalise a players value as we took the conservative approach that would not sell the players on but they would leave at the end of contracts). I am sure I read that !

 

Or has there been a change in accounting policies ?

What you say rings a vague bell with me as well, but it's not the case. The 2007 accounts themselves confirm that "the costs...are capitalised..and are amortised over the period of the respective contracts."

 

The 2007 accounts show a value for players of �£9.8m in the balance sheet, which is after �£3.8m being written off in the year.

[bmck 117]

i'm philosophically opposed to numbers, but both the original post & subsequent replies are top notch.

[Bluedell 5,356]

BlueDell,

 

Are you sure that the cost of players is not a direct hit to the P&L ? I am sure I read a number of years ago Murray stating that Rangers financials were different to other clubs as we expensed the cost of players immediately (i.e. we did not capitalise a players value as we took the conservative approach that would not sell the players on but they would leave at the end of contracts). I am sure I read that !

 

Or has there been a change in accounting policies ?

Had a further think about this. Perhaps the prevous policy was to estimate the value of the player at the end of the contract, and write off the difference bewteen the cost and the value, and this was changed? It would kinda fit in with what you are saying. I'll see if I have any accounts from the 90s in the house and check....although the chances of me finding them are slim.

[calscot 0]

Had a further think about this. Perhaps the prevous policy was to estimate the value of the player at the end of the contract, and write off the difference bewteen the cost and the value, and this was changed? It would kinda fit in with what you are saying. I'll see if I have any accounts from the 90s in the house and check....although the chances of me finding them are slim.

 

I think you are right here. I'm sure the full cost of the player is amortised over the period of his contract.

 

Totally forgot about this so thanks for clearing it up.

 

Still, I think we'll do significantly better in the second half of the year than we have in recent years as we're in a good position in the league and in both cups - all three were pretty poor showings recently.

 

I'm hoping we can break even before the Hutton and possibly Cousin transfer fees are included.

 

However, this is an exceptional year and there should be less expense in enhancing the team in subsequent seasons and a prospective sustained upturn on the performances on the pitch should increase revenue for years to come.

 

In the end though, it's depressing that we're struggling to balance the books while being successful while mediocre EPL teams are handed 50M every season with no effort or cost to themselves.