Dark times at Rangers

After a week of drama, the fate of the Glasgow giants is still in the balance. Richard Wilson explains how the club fell and what the future might hold

How did Rangers end up in this situation?

From 1999 to 2010, Sir David Murray embarked on periodic bouts of extravagant spending. At one stage, the club was more than £80m in debt and Murray had to launch a share issue that he ended up underwriting for £50m. Lloyds TSB effectively took control of the club when Murray's company, MIH, put turnaround specialist Donald Muir on the board in 2009, and the debt was reduced to £18m by May 2011. The club was up for sale for several years but even with the smaller debt, nobody made an offer. Murray had also been using Employee Benefit Trusts to make discretionary payments to players that were tax-free. The EBTs were legal but in 2010 Her Majesty's Revenue & Customs sought to retrospectively reclaim taxes and penalties, after accusing Rangers of mis-administering the EBTs. A first-tier tax tribunal has heard the case and the potential bill could be more than £50m. No purchaser would buy the club with that liability unresolved. Except for Craig Whyte.

Who is the Rangers owner?

A Motherwell-born businessman who claimed to have made his fortune as a venture capitalist. His network of companies could not be traced and he was deliberately vague about his wealth and his work. He paid off the £18m debt to Lloyds and bought the majority shareholding from Murray for £1. That minimal fee alone should have been a warning. He turned out to have funded the deal by borrowing £24.4m from Ticketus against future season-ticket sales, and then used unpaid PAYE and VAT to cover day-to-day running costs at Ibrox. He spent much of his reign misleading fans and his time ran out when HMRC forced him to appoint an administrator on 14 February, by which time he had run up an additional £15m tax bill. The big tax case is still unresolved, meaning that his nine months in charge left Rangers' finances in an even greater mess.

What have been the consequences of administration?

Rangers were docked 10 points by the Scottish Premier League. The administrators revealed that there was a deficit of £1m a month to be covered, to allow the club to reach the end of the season. Normally, administrators seek to reduce costs by implementing redundancies, but instead they sought to strike a deal with the players. To make the necessary savings, Duff & Phelps, the administrators, needed to release the club's highest earners, but the likes of Allan McGregor, Steven Davis, Steven Naismith, Steven Whittaker and Carlos Bocanegra are also assets. They are on long-term deals and could be sold to raise money. To keep the best of the squad together, the players had to agree to wage cuts. The highest earners have taken a 75 per cent decrease, the mid-earners 50 per cent, and the lowest-earners 25 per cent. No staff members have lost their jobs and the players' contracts contain clauses guaranteeing minimum transfer fees or cuts of future fees.

So why all the drama this week?

Negotiations between the administrators and the players broke down on Tuesday, with each side accusing the other of preventing the deal from being agreed. The administrators released a statement that said if significant cuts were not made, the club would be unable to fulfil its fixtures. This was just a warning. All squad members signed up to the cuts yesterday, although Gregg Wylde and Mervan Celik left the club on Wednesday, both voluntarily declining any redundancy payment. They are being chased by several clubs, and will be free to sign after they receive international clearance from Fifa.

How do Rangers exit administration?

There are three potential outcomes. The least likely is that Rangers are wound up. The other two are more complex, but both ensure that the club continues. The conventional route out of administration is to arrange a Company Voluntary Arrangement with the creditors, which typically pays little more than 25p in the £1 for the debts. This requires 75 per cent of the creditors to vote in favour for the offer. The other scenario is for the administrators to sell the club's assets – Ibrox, the training ground at Murray Park, the Albion car park across from the stadium, and the staff – to a new company, called, say, "Rangers 2012". This "newco" then applies for the old Rangers' position in the SPL.

Will the club be able to arrange a CVA?

Possibly. With Whyte's £18m secured debt being contested by the administrators, HMRC would be the dominant creditor since it is owed £15m. The tax man has a policy of voting against CVAs in England because a football creditor rule demands that all football debts are paid first. No such rule applies in Scotland. The issue is complicated by the big tax case, as it is known, because that might see Rangers served with an additional bill of more than £50m.

So why not just sell the assets to a new company and start again?

There is some merit in this, because it means that the club starts afresh. However, the newco would need to apply to the SPL, and for membership of the Scottish Football Association. Many SPL clubs are angry that Rangers may have been avoiding tax while winning trophies and living beyond their means. Rangers would also not be able to play in Europe for three seasons, because Uefa rules require that clubs exist for three years before they are eligible.

Could Rangers end up in the Third Division?

Unlikely. The SPL would need to vote against Rangers being allowed re-entry. It would then invite a Scottish Football League club to restore the competition to 12 teams, leaving the SFL with an odd number of participants. The SFL would invite applications, and the new Rangers would be voted in because of the revenue they would generate. They would start in the third tier. Financial realities will prevent this from happening.

Why would Rangers be granted entry straight back into the SPL?

All of the top-flight's commercial deals, including the broadcasting contract with Sky Sports, would be affected by the absence of Rangers. The television deal, in particular, requires a minimum of four Old Firm games a season and would have to be renegotiated if that clause was broken. Other sponsorship deals would also be reduced, since it is the global brands of both Old Firm clubs that draw money into the game. The other SPL teams would see their match-day revenues affected, in some cases by almost £100,000, because Rangers' travelling support (along with Celtic's) provides a crucial source of income. The triple effect of the TV deal, the other commercial deals and gate receipts being reduced would be enough to push other SPL clubs into financial difficulties. All but Celtic have needed to make drastic cuts during the past few years to reach an even keel, and their margins are tight. Motherwell, for example, despite reaching the Scottish Cup final last season and having every chance of finishing second this year, have told their manager, Stuart McCall, to cut his wage bill next season. After one home game was postponed, and Rangers were unable to pay for away tickets bought by their fans, Dunfermline were late in paying their players this month.

A Rangers would be ushered back in without problem, then?

The clubs would hold a vote, but the financial imperatives would be enough for them to agree. In return, though, they will likely demand a change to the voting rights – currently an 11-1 majority is required, allowing the Old Firm clubs a veto if they act together – and that the broadcast revenue is split more equitably. They will also seek to punish Rangers, with a further points sanction applied and perhaps additional penalties.

Does that make the CVA the best option?

It does in the sense that it retains Rangers' 140 years of history and with it their place in the SPL. They won't be able to play in Europe next season, because they will miss the 30 March deadline to submit accounts to the SFA as part of Uefa's Club Licensing Scheme. The CVA would need to be set at such a level that it is better for HMRC than the 1p in the £1 it would likely receive if Rangers were liquidated. It would also have to include the big tax case bill, and that verdict will not be reached until next month.

What happens to Craig Whyte?

The administrators believe that they can take control of his shareholding, but for now he has to agree to sell the club if the CVA route is to work. Several potential bidders have met the administrators, including a consortium called the Blue Knights, which is headed by the former Rangers director Paul Murray. His preferred route is for Rangers to agree a CVA, and he has lined up several backers. The expectation is that he would immediately launch a share issue and so provide an opportunity for fans to take control of a large shareholding and participate in the decision-making at the club.

Suggested Topics
Have you tried new the Independent Digital Edition apps?
Life and Style
food + drink
Life and Style
Shoppers in Covent Garden, London, celebrate after they were the first to buy the iPhone 6, released yesterday
Liam Payne has attacked the media for reporting his tweet of support to Willie Robertson and the subsequent backlash from fans
peopleBut One Direction star insists he is not homophobic
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvSeries 5 opening episode attracts lowest ratings since drama began
Arts and Entertainment
Ben Affleck stars as prime suspect Nick Dunne in the film adaptation of Gone Girl
filmBen Affleck and Rosamund Pike excel in David Fincher's film, says Geoffrey Macnab
Life and Style
Warner Bros released a mock-up of what the new Central Perk will look like
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
Caption competition
Caption competition
Latest stories from i100
Have you tried new the Independent Digital Edition apps?

Bleacher Report

Daily Quiz
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

Career Services

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments