With a new regime set to take over after a boardroom coup, we thought it might be useful to reflect on why Rangers seem to have learned no lessons from their bankruptcy about sound financial management and the importance of good corporate governance.
Re-formed but not reformed?
Rangers have certainly not been careful with their fans’ money. The Scottish football giant was liquidated in 2012 after years of overspending. The final blow landed when creditors, chief among them Her Majesty’s Revenue and Customs, rejected a deal for the club to exit administration by paying pennies in the pound on their debt. The final tax bill included large sums due to both outright non-payment, and a decade or more of avoidance attempts using various Jersey trust structures.
Last year the board released their business review. It showed that the club had continued to waste money even after it had gone into liquidation. The board didn’t pull any punches, saying:
“The Board considers that the perfect opportunity to rebuild Rangers […] in a progressive, stable manner with a solid financial base has been completely missed through a series of ill-defined, short term focused decisions with little advance recognition of medium or longer term requirements.”
All of this put Rangers in the position where it was again on the verge of bankruptcy this January. The danger Rangers found themselves in cannot be understated. The 2013/14 annual accounts state that the club would need an extra £8m to stay afloat, and that if significant financing were not received by January they would be unable to make day-to-day payments (which is an accountants way of saying they would be bankrupt). In the end the new Rangers was saved from administration – at least temporarily – by a £10m loan from Mike Ashley.
A leaky bucket
So where did all the money go? The Business Review cites poor contracts, extravagant spending on jumbo screens and LED displays and the acquisition of “a number of players in Summer 2013 that, based on financial forecasts, it should have known that it could not afford”.
Some of the contracts it appears are connected to Ashley’s Sports Direct. The 2013/14 Annual Accounts sets aside £411,111 because Rangers Retail Limited, a joint venture with Ashley’s Sports Direct, had a contract to buy stock at a loss. The accounts of Rangers Retail Limited show that the company buys the vast majority of its stock (£3.8m in 2014) from Sports Direct.
The latest accounts of Rangers state:
“Provision was made in the year to recognise an obligation of Rangers Retail Limited to purchase stock at a cost higher than its resale value for the completed season 2013/14. Provision was also made for onerous lease contracts where stores held by Rangers Retail Ltd are deemed to be loss-making and where future losses are considered unavoidable.”
The club has also entered into some bizarre financial transactions. One particularly strange loan is listed in the accounts from Imran Ahmad the former commercial director at the club. He was fired in 2013 and then sued the club, claiming to be due a bonus of £500,000 (initially his claim was for £3.4m). The club has now settled for an undisclosed fee.
The club’s accounts show that Mr Ahmad loaned the club £200,000 in May 2012 shortly before he became a director. It was repaid in full in August just 4 months later. The loan attracted a £50,000 arrangement fee. In other words, Mr Ahmed made a guaranteed return of 25% on the four month loan, an annual rate of 75%! With rates like that Rangers might as well have gone to Wonga for the money.
Of course, the directors of the club did not suffer for all of this this awful financial management. They were rewarded handsomely.
Brian Stockbridge, Finance Director, the man out of control of the cash, received a salary of £125,419 in the year ended June 2014 and a bonus in the form of the right to buy shares in Rangers at 1/27th of their value. That was worth another £189,285 although as part of his severance he did need to pay back £98,000 of a previous bonus. Still, that won’t have bothered him too much, as his severance payment was another £216,000. Take into account the fact that he left the club in January and that is an incredible wedge for just over half a year.
Was it worth it? The board’s business review said about the finances:
“The Club’s financial position was precarious as it had mismanaged almost all of its cash reserves following administration.”
Graham Wallace received £198,846 in salary, another £160,000 as a bonus another £18,981 towards the pension and incredibly an extra £100,000 for leaving .
Craig Mather was paid a more modest £78,750 but another huge payment of £350,000 on leaving.
There may well be another round of bumper pay-outs on the way too, with the Daily Record reporting that Llambias and Leach, two directors recently appointed by Ashley are demanding £290,000 to be bought out of their contracts after just four months in the job.
These huge pay-outs to Rangers directors to leave their jobs brings a whole new meaning to zero hours contracts.
Changing the record
So what does this all mean? Of course we all know that players can make huge amounts of money from football clubs. But the money being made on the business side of football has received rather less attention.
Intentionally or not, it seems a number of directors and other parties have done really very well out of Rangers – while the club itself, despite starting with a clean slate, has been brought to the edge of bankruptcy.
The latest annual accounts of Rangers warn that as well as receiving at least £8m in loans, the financial models of the club assume that it is promoted to the premiership this year, that sales of club merchandise increase, that ticket sales increase and that ticket prices increase. If these targets are not met the club could once again be finding itself in need of a bailout.
When survival is in question, it can be difficult to take a longer view. But as a new team take over the club, Rangers fans would be well advised to ask for some simple measures to reduce the risk of further large-scale leakages – of what is, after all, their own money.
In particular, fans could request full transparency of commercial and employment contracts, current and future, with a total value in excess of, say, £50,000.
As long as the new board is committed to the club, rather than any further ‘leakages’ of the fans’ money, this should be a welcome proposal. Now is a time for full accountability, not glib soundbites.