There may well be more detail in this than many of you want so I¹ll start off by trying to summarise the main points.
Debt as stated in the RFC Accounts was £52m at 30th June 2002, although this rises to £75m if the Bonds and the Premium TV loans are included.
The Bonds will probably never repaid, and at last year¹s AGM, the club claimed that the Premium TV loans would not be repaid for some years and that RFC would decide when.
Most of the rest of the debt is covered by long-term loans which don¹t need repaid for five years or more; and there were around £14m of unused overdraft facilities last June.
The high level of debt is not the problem it¹s how quickly that debt is building up.
In the year to June 2001 debt rose by £42m and by £24m in the year to June 2002. A similar performance in the year which ends this month would use up all of the overdraft facilities and require another £10m in debt. That would be a real financial problem.
Accounts are prepared for the year to June 30th. If RFC sells a player before that date then the debt goes down.
The loss of Europe has hurt this year, but the new strip arrangements and the popularity of the orange jersey have helped. Even so debt might have risen by £15m.
Selling a player for £5m-ish would help a lot, but realistically Arteta is the only option. No-one would consider buying Ferguson until he has recovered from his op. However, it¹s not clear though that any of the Spanish clubs have got £6m to splash on Mikel.
A share issue is likely at some point, but not before the accounts are published in September and the Champions¹ League qualifiers have been settled. This might raise getting on for £19m, but the issue of David Murray¹s controlling interest still needs settled.
Longer term, the club needs to get on a footing which allows it to be no worse than cash neutral year on year. For that to happen, regular Champions League football is necessary as is a significantly lower wage bill. The
trick is to achieve the latter without sacrificing the former.
Is it £52m or £75m?
How much Rangers owe is not unambiguously clear even from the
accounts. Stated debt at 30th June 2002 was £52m, but that excludes the Rangers Bonds and Premium TV loans which would take the total to over £75m. Even this level of debt need not be a problem as the Bonds only get repaid when RFC wants (probably never), and they claimed at the AGM last year that the
Premium TV loan was very much in the future and the timing of repayment in their own hands.
In addition to cover most of the £52m, the club has long term loans of £40m of which over £37m is not repayable for at least five years, and none of that needed repaying this year. The overdraft stood at £5m last June but according to the accounts could be extended by almost £14m. Therefore, despite the level of debt, the club was not faced with creditors banging on the door demanding money. So what¹s the problem?
Cash Flow is the Real Problem
Well the problem is that in the year to June 2001, total debt rose by £42m including Auchenhowie and in the year to June 2002 it rose by a further £24m, even with a run in Europe which went beyond Christmas. Another financial performance like that and there could be a real crisis.
So why should this year be any better, given the early European exit? Well at the half year the operating loss was around £4m less than last year which shows that the introduction of the orange jerseys and making our own kit more than outweighed the absence of any European money. The improvement in the second half could be just as much as there was only one European tie post Christmas last season. If we assume that any profit improvement flows through to a similar improvement in cash (a big assumption) then debt might rise by around £16m more than the unused overdraft, but not by much (relatively speaking).
How Can The Gap Be Closed?
However, the banks will have set conditions when the long term loans were agreed and it would be surprising if they were happy to see the overdraft fully extended. So the sale of an asset (as Martin Bain likes to call our players) would not be surprising and £1.5m for Amoruso is not enough. A fee (or fees) in the region of £5m would begin to make an impact.
The 30th June Is A Significant Date
A point worth noting is that Rangers Annual Accounts are prepared for the year ending 30th June. If we sell anybody before that date then it helps the debt position, and if we buy anybody after that date it doesn¹t make things any worse. In saying that, any transfer deals completed after the year end but before the accounts are published in September would be
noted in the Annual Report. For instance, last year¹s report notes that since the year end two player registrations (Arteta and Muscat) were acquired for £6.4m and one sold (Flo) at a transfer value of £6.75m. But for the sake of show it would not surprise me if sales were timed ahead of June 30th and
purchases after July 1st. Isn¹t Alex McLeish talking about being in no rush. Maybe he¹s been told he can¹t spend before July!
Arteta May Be The Only Option
But how many of our team could we sell for £5m? Probably only Arteta! No club would consider paying that sort of cash before June 30th for Ferguson given his recent operation, and I wouldn¹t expect to see that sort of money offered for Lovenkrands in the current market. Problem is, it¹s not certain that the potential buyers of Arteta can afford that sort of money
either. The worst case scenario is that Arteta is sold at a serious loss along with Amo and others just to keep the banks happy.
Balancing The Books
However, the long term financial future is dependent of getting the club¹s income and expenditure into line. Revenue is up this year because of the shirt sales. While the new home top may sell as well as last year, a red and white striped shirt is not going to sell as well an orange one. Therefore, getting into the Champions¹ League is a necessity and a tough tie in the Third Qualifying Round will be even tougher if we sell our best
players. And don¹t forget the golden rule of injuries and operations. Whenever a Rangers player goes under the knife it always takes longer than expected to get back into action. It would surprise none of us if Bazza misses this tie, and without Arteta too where does the midfield inspiration come from?
Looking at costs, the departure of some big earners will help ease losses, but this will be a slow process. It could be speeded up, but only if the likes of de Boer, Klos and Ricksen follow Amo, Numan, Cannigia and Bert out the door and what chance the Champions¹ League then? In addition to wages and pensions a new cost in recent seasons has been ³contributions to
employee trusts² which rose to over £5m last year. Two years before it was zero. Presumably this disappears with the Advocaat big buys, and the sooner the better.
But the fact remains that RFC needs to improve its cash flow position by some £24m when compared with last year otherwise debt will continue to rise. Getting into the Champions League might bring in £5m+, making our own strips could add up to £10m, stopping feathering the nests of already rich players could get rid of the £5m to employee trusts, and the other £4m could come off the wage bill by the time the entire Dutch contingent goes. But as McClelland has said in the past, trading our way out of the debt will not be possible, and that means selling players or selling shares.
So What About A Share Issue?
It¹s a possibility, but not before the publication of the results in September, by which time we would also know our fate in Europe. It has to be new shares not David Murray¹s shares, otherwise the money goes to him, not to Rangers. Offering one new share for every three currently owned could raise around £19m and if David Murray were to allow new investors to buy most of his new shares, then his holding could drop to around 50%. But
where does the £19m come from? Around £6m of the new money might come from existing (non-Murray) shareholders if they feel like adding to their holdings, but it still leaves £13m to be found.
£13m divided by 50,000 fans would be £260 each. Would you put up that much? Would the financial institutions be interested? Are there any more Dave Kings out there? The controlling interest of David Murray has to be a consideration for every potential investor, and the management team (not Alex McLeish) has to be an issue too. The last issue of shares was at 345p and the current price is around 100p, so it¹s not as if they can come and say ³look how wisely we¹ve invested your money last time give us some more!²
The Bottom Line
The level of debt is not the real problem, it¹s stopping it rising too much higher. A share issue might be an option in the autumn, but that depends on Stock Market sentiment and Champions League qualification. In the near term, the sale of an ³asset² looks likely and Arteta is in the front line. It also means that a lot of the names that we constantly see mentioned on the board as transfer targets are just not plausible.
Maybe it¹s youngsters from the SPL, but as Big Eck has said you need experience in the Champions¹ League, then maybe 30-ish players surplus to someone else¹s requirements are what we should expect Capucho falls into this category. Any real transfer budget will only come from regular success in Europe, but even with that, the only prospect of players the quality of Laudrup and Gascoigne turning up at Ibrox now is if we find them in
Scotland.
BROCK STOKER