A pint of the cold, hard truth

Current Affairs
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A belated Happy New Year to you all. I wish to start by saying how immensely proud I am of our support. First of all in the efforts for our Joey Garner Xmas Number 1 campaign, which was a barrow load of fun. And for the way in which our support conducted themselves in Germany. 8000 Bears in freezing conditions travelling to back the team. Incredible!

Now down to the main thrust of this article, which comes again following the mischievous efforts the Scottish media with various stories over the last few weeks being unworthy of wrapping your chips in. I genuinely find it incredible that these so-called journalists can run such stories when the facts are out there which diminish the need for their hyperbolic headlines.

In a prior article for this website I pointed out many of the same issues with Keith Jackson’s stories, but yet they continue, intent in provoking discontent within sections of our support who have either no interest in the Company running the Club's current financial state, or they do not understand how it works.

The first issue which I wish to clarify is the difference in the Company running the Club now compared to the sugar daddy days of David Murray. Our former owner was a majority holder of the former Limited Company, therefore his say was final, and he had full control over any investment he made in the Club.

Nowadays, Dave King is the Chairman of the PLC board, a Public Company, in which King owns 14.57% within his family trust (New Oasis Investments). Far from a majority holding, King has a fiduciary duty to the Company's shareholders. As such, in many ways, his hands are tied from taking any risks for the Company. Negligence of which could see him voted against re-election from the institutional stakeholders or as extreme as a Director ban for any grossly negligent acts; such as lumbering the Company with unsustainable debt. Therefore King and the board must find the balancing act of what is best for the Club’s fans, and its stakeholders.

I'd also like to draw your attention to the UEFA Financial Fair Play Rules which you can view here. The purposes of introducing these rules were to stop Clubs from piling up debt to chase glory with money they simply did not have. The rules enforce spend on transfer fees, and other spend which gains on-park advantage, but it does not consider any debt on infrastructure, e.g. stadium or youth redevelopment.

From the UEFA webpage above:

Are clubs no longer allowed to have losses?

To be exact, clubs can spend up to €5million (Euros) more than they earn per assessment period (three years). However it can exceed this level to a certain limit, if it is entirely covered by a direct contribution/payment from the club owner(s) or a related party. This prevents the build-up of unsustainable debt.

The limits are:

• €45m for assessment periods 2013/14 and 2014/15.
• €30m for assessment periods 2015/16, 2016/17 and 2017/18.

In layman's terms you can only be in debt to the tune €5million over your profit margin. Failure to meet this requirement and you can be refused a licence to play in European Competitions.

Currently we meet the criteria for a European licence on two fronts.

1. The investment so far is entirely covered by a direct contribution/payment from the club owner(s).
2. Most of the £14.5M in soft loans provided by the boards & investors has been spent on infrastructure, youth and £5m paying off a loan from Sports Direct in order to secure the return of various intellectual Property Rights and Trademarks. The purpose of which was clear to help in the fight against an alleged erroneous retail contract. But one thing not considered is whether if this loan had been outstanding, would we fall foul of UEFA FFP come the end of the season? After all, the SD loan was not a “direct contribution/payment from the club owner(s)” it was debt to a Third Party.

Furthermore, if the above regime-sanctioned investments were to change to money being put up as debt for transfer fees then that may bring us closer to Celtic in the SPFL Premiership but we could end up barred from playing in European competition. This explains why eradicating debt has been crucial to the current board since taking over.

I apologise if the next part of my article appears condescending if you already have a grasp on the Club’s finances, however this is for the benefit of those who may struggle with Company terms and understanding of same. It's also offered in the hope it opens their eyes to the current issues facing the PLC board and how mischievous people like Jackson are being with their “Where is the war-chest Dave?” narrative.

Since taking over control of the Company, the current Board of the PLC and their investors have put in £14.5m of soft loans into the PLC in order to fund the gap in lost revenues from a series series of questionable contracts - agreed by previous regime(s) for whatever reasons we shall leave to the courts to decide. No matter, when King assumed control in 2015, the PLC was haemorrhaging money. Operating losses have since been cut to £532,000 in the six months to December 31st 2015 from £4.64 million losses from December 31, 2014.

Moreover, revenues for the six months to December 2015 rose 20 per cent year on year to £11.03 million (H1 2014/15: £9.16 million). Predominantly due to a larger uptake of season tickets and gate receipts. These will rise again in the next set of interim accounts. However, the PLC is still running at a loss with a lack of retail and sponsorship monies a key factor.

The £14.5m of soft loans to the PLC has no repayment conditions; this was in exchange for unissued share equity. However there is not a great amount of equity left to give in exchange for further loans, and with the PLC still running at a loss any remaining equity must be loaned against wisely. This is why share dilution was required as per last November's AGM. Dilution waters down the available shares so a new share issue can take place, making the PLC a substantial lump sum and relieving some of the financial burden on the Company. Nevertheless, whether it is Dave King, or any other investor wishing to put money in to the PLC, they will require guarantees for their investment: be it shares or security against an asset, nobody with money will gift a Public Company money as you have very little control. Business men are rich for a reason; they don’t take such chances with their money.

Although Resolution 11 failed at the AGM, it is my opinion the Board should proceed with a new issue as early as possible with the mandate recieved by Resolution 10. However with various court cases still pending, it's not a surprise to see any investment delayed. And with Mike Ashley and others still in receipt of reasonably sized blocs then there's clearly minimal margin for error when it comes to future AGM business.

The Dave King War Chest Myth debunked

Moving onto the regularly heard debate over his supposed investment, prior to taking over as chairman King was interviewed arriving at a UK airport. King made the comment that he would be looking to invest £20-30M of his children’s inheritance, but stated this would be over a period of a few years, and he would be looking to go 50/50 with other fan investors. King also made it clear that this was for infrastructure as well as the footballing department as he commented about parts of the stadium and training ground being in disrepair and staff levels reduced to a breaking point. Indeed, after the King-led Board took over the Company he revised that figure up, stating he believe it would take nearer £50m to restore the Club.

Unfortunately, it's not the wider qualified comments that sell newspapers; instead they become fixated on a war-chest headline, used to stir up discontent within impatient fans against a board who are repairing the Company finances whilst jumping over literal legal hurdles left by the prior regime.

There is a continuous trend of lazy journalism which struggles to consider all of the above when it comes to Rangers assuming more debt. Some of King's comments may have been badly advised or premature but it's easy money for little work for struggling newspapers to bait the “Where is the money, Dave” storyline, watch for the reaction and then print that too. You won't often read that a healthy Club requires the solid foundations of a Company operating at a level it can afford. Quite simply there are no quick fixes to the PLC's budget and anyone suggesting otherwise has a short memory when it comes to the likes of HBOS, EBTs, Craig Whyte and Ticketus.

I always get a bit of stick on Twitter for being overly optimistic. I am, but you have to be, as Louis Pasteur said, “Chance favours only the prepared mind” so now I have got the doom and gloom part out of the way so I will hopefully leave you with some positive things to consider.

I believe the shirt sponsorship deal with 32 Red ends this summer - perhaps freeing up the potential for a front (and rear?) shirt sponsor. These deals can attract sizeable cash and is income we have not had for some time. In addition, we currently sit second in the league and I for one am confident we can secure Europa League and access more money from that pot. The 2017 results should also see increased TV revenue and Premiership prize pot monies. All of which we have not had access to for some time and, whilst not themselves huge sums, should help in the rebuilding of the Club and allow the PLC to live within its own means and without losses.

Finally, our focus has to be on Rangers, and not what other clubs are doing. Success will come again but only if we stand together and avoid the mischief-making, muck-raking Scottish media's attempts to divide us.

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