Debt is not necessarily a bad thing. Most of us have credit cards, lots have mortgages, car loans etc, and companies almost all have debt. Stockbrokers would actually tend to be critical of companies sitting on a pile of cash and some companies buy back shares to increase their debt. Debt becomes a bad thing when the cost of servicing that debt restricts the company, or when debt looks to be spiralling out of control. Clearly the debt was getting beyond manageable proportions, but for the way it has restricted RFC, look no further than the team on the pitch!
But soon the debt will be drastically reduced and happy days will be here again! Or maybe not? If we look at the way that the debt has built up over the last three years, there is still a major problem. In the year to June 2002, the debt rose by £24m to £52m. We made no significant investments in Ibrox or Auchenhowie, we had a decent run in the UEFA Cup, and there looks to have been a net inflow from transfers.
In the year to June 2003, the debt rose by £16m to £68m. Europe never got started, again no significant spending on the grounds, and the major transfers of Arteta in and Flo out probably cancelled each other out. The new accounts show that debt rose by a further £6m to £74m. And this was despite participation in the Champions’ League and transfer income of around £7m.
So here we have a situation where the ordinary running of the club is responsible for more than doubling of the debt over a three year period. This is the real financial mismanagement story. David Murray signed off on a wage bill (forget the transfer fees) which the club could not have afforded even if we had won the Champions’ League.
Which brings us to the outlook going forward. It looks to me that Rangers need to spend around £15m to £20m less in order to break even on a cash flow basis with European income being the swing factor. Without this reduction in spending, the debt just starts to rise again. This is why David Murray now stresses that we will be a selling rather than a buying club.
Getting £15m off the costs is no easy task even if an interest charge of £4m disappears. The wage bill was £35m in the year to June 2003 and fell to £30m in 2004. If taking £5m off the wage bill has reduced to quality of the team to the extent that it has, then think what the impact that taking a further £10m out of that would have on the team on the pitch. The main other cash cost is “other operating charges” which has risen steadily from £14.5m in 1999 to £23.5m last year, maybe this can be attacked – but probably not by £10m.
So without some swingeing cutbacks on the cost base, then it looks like we will continue selling players to balance the books – or debts will rise again. And yet you only have to look at the team to realise that without major expenditure we will struggle to close the gap on Celtic far less stop the European embarrassments.
Don’t get me wrong though, removing the debt is very beneficial to Rangers. It cuts the interest charge and it removes any threat of administration. But it falls short of the master plan to regain our top position in Scotland or take us any nearer the aim of being a force in Europe. We await the next announcements.
BROCK STOKER