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
Saturday 10 March 2012
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.
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