The 2003 Rangers Annual Report Examined

Debt has risen to a new peak of almost £68m. Isn't this higher than the £65m that David Murray said it would peak at in his Traynor interview? Or is £3m not worth bothering about among friends?



Although RFC only announced to the Stock Exchange on 7th July that the new £15m borrowing facility had been arranged, on 30th June (the date of the accounts) £5m had already been used.



In a year when transfer dealings were close to neutral, there was a net cash outflow of £16m. We spent £16m more than we took in.

The board has played the "property revaluation" card. While this is really a cosmetic exercise it prevents Shareholders Funds being negative.



The player pool has been written down again and is now valued at £10.7m - before we sold Amoruso, McCann and Ferguson.



The wage bill is falling, but the "Contribution to Employee Trusts" has risen again to almost £7m - three years ago it was zero!



The bank overdraft facility appears to have been increased from £19m to £25m

The implications of the property revaluation should not be ignored. Last year I wrote an article saying that Rangers shares were worth just 6p each. This is the so-called "Book value" of the shares, and I excluded the Rangers Bonds from the calculation, because I fail to see how that money can ever become shareholders funds as the accounts suggest. This year the same calculation would produce a Book Value of 23p per share, but only because of the property revaluation, without that the shares would be worth negative 45p. Get ready to send your cheques in.

Rangers FC has three main problems.
First of all it has to manage its current debt mountain and stop the club going bust, secondly it has to get its day to day finances in order so that it stops haemorrhaging cash on an annual basis, and thirdly, it has to achieve the first two while putting a team out on the pitch which can fulfil the ambitions of its supporters.

Problem 1 - managing the debt

As I've said before, if you owe £68m then the banks probably have more problems than you. But it still is a problem for Rangers too, even though it still appears manageable. The bulk of the debt is still covered by long term loans which are probably secured against Ibrox and Auchenhowie. There are two loans which amount to £40m of which over £36m does not need to be repaid for five years or more - less than £1m needs to be repaid over the next two years.

That stills leaves another £28m to be found. Well £17m is currently covered by the overdraft facility (and the limit on that is now £25m), another £5m comes from the Murray loan which is repayable before June 2005 and the balance comes from leases with almost 80% of it not repayable for at least five years.

So there we have it. £68m of debt and nobody's knocking on the door.

But haven't we read in the papers from so called experts that we have £50m that needs repaid this year? What they are referring to is "Creditors to be repaid within one year" and it does indeed amount to £50.3m, but this should not be confused with debt that needs repaid now.

Of the £50m, over £17m is the overdraft, and while in theory the terms of any overdraft are that it can be called in, unless the banks cancel the facility, there is no urgency to repay it. And as I said above there is another £8m of overdraft facility which could be used, so this does not need to be repaid this year. The biggest single item is "accruals and deferred income" which is close to £18m.


Most of this will represent season ticket money which has been taken in advance of June 30th for the season ahead. Unless there is a major fall in season ticket renewals, again this will be similar next year - no cash needs to be repaid. All Rangers need to do is let the season ticket holders in.

Over £8m owed to trade creditors is pretty similar to the amounts owed to Rangers by debtors and is therefore not a problem - it's only a problem if you need to pay far more in the short term than people owe to you. The only other significant item is almost £6m to social security and other taxes which is similar to the amount owed last year which probably means that the club always owes that much at any given time. So the £50m isn't a problem either! Which brings me onto problem 2…..

Problem 2 - balancing the books

So last year we ran up another £16m of debt in a year when we spent nothing appreciable on transfers. The good news is that this is better than the £24m which we blew the previous year and even better when you consider that the £24m year benefited from the UEFA run which ended with Feyenoord. So things are getting better - but can they improve further?

Well so far this season, transfer fees in are probably £8m better than fees out, so almost half of the problem has gone already, but unless we really are going to become a selling club, that cannot be repeated. In addition, the wage bill should be down with the departures, remember that every £20,000 a week off the wage bill takes £1m off the annual total. Add to that the additional European income, and it looks like we will definitely generate cash this year. The accounts also show that we could have to pay a further £1.5m on transfers, presumably Michael Ball. I for one hope he meets the criteria in games played to warrant that payment.

But we are not out of the woods yet, as Champions League income is not guaranteed in future and nor are the player sales - hopefully. The thing that I find strange is that at a time when the club is trying to get costs down "contributions to employee trusts" continues to rise. This has risen from £0 in 2000 to £1m in 2001, £5m in 2002 and now almost £7m in 2003. This sounds like making contributions to the pension funds of already rich footballers - if not we need to be told what it is and why it's rising.

Get rid of those contributions, and we're half way to reducing the deficit even without player sales or serious European income. Now a note in the accounts says that two trusts exist, the Rangers Employee Benefit Trust and the Murray Group Management Remuneration Trust. The first of these looks obvious as to what it is, but surely the second trust isn't to reward employees of Murray companies who do a job for Rangers?

Problem 3 - getting the results

At the end of the day, this is what it all comes down to. A good Rangers team would get into the Champions League every year, either through winning the SPL or through beating a qualifier of similar quality to FC Copenhagen. Do this and the books balance, and gradually the debt goes down. Solve problem 3 and problems 1 and 2 take care of themselves.

In the short term buying "experience" can do the trick, but few of the over-30s we've signed recently will be here in two year's time. The youth policy, either Scottish or foreign needs to work over the next few years with more "experience" being bought to fill in. It may take longer to get out of this mess than it took to get us into it - unless we get new money in - something I do not believe will happen while David Murray retains a controlling interest in the club.

BROCK STOKER



(Brock Stoker will be on the www.followfollow.com messageboard most of Tuesday so if you want to ask him any questions about his articles or any other aspect of the club's finances you can do so by making a post on the site.)