Review of the Rangers Accounts 2020

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Overview

The release of the annual accounts on a Friday evening wasn’t a good sign.

I was concerned when I downloaded them and they were worse than I had expected, showing a headline loss before tax of £17.8m but is it as bad as it seems? Yes and no.

  • No, the loss is funded by the directors/investors who have converted most of their loans into share capital.
  • No, we could have sold players to eliminate the loss if we so desired. We didn’t, unlike other clubs, and we are selling the benefit of that on the pitch.
  • Yes, losses of this level are not sustainable and the financing from the directors/investors will not continue indefinitely which make the require for Champions’ League football and/or regularly selling players for multi-million pound profits a requirement.
  • What is the loss?

    Those who read my review last year may remember that we need to ignore notional interest that is included in the accounts as it is only there for accounting purposes and will never actually be paid.

    The loss before tax of £17.8m can therefore be reduced by £1.9m and is actually £15.9m compared to last year’s loss of £8.7m, an increase of £7.2m.

    Why the increase in the loss?
    • An increase in staff costs of £8.9m
    • A decrease in the profit of sale of players of £2.4m
    • Increased amortisation of the purchase price of players of £1.2m (Kent and Helander)
    • Partly offset by an increase in revenue of £5.8m
    Revenue

    Revenue increased from £53.2m to £59.0m (+£5.8m), mainly due to our European run. We generated £20.7m which is up £6.4m from the prior year which again highlights how important a run in Europe is to us.

    Gate receipts and Hospitality rose 11.6% to £35.7m, despite the Covid-19 impact of playing 5 league games with no crowd and a small proportion of season ticket holders requesting a refund for the missed games.

    Staff costs

    Staff costs increased by 26% in the year, going from £34m to £43m, which was a result of bringing Gerrard to the club and a significant increase in the quality of the squad.

    A 79 % increase over the last 2 years sounds bad but the following should be taken into account:

    • Staff costs as a percentage of revenue at 73.4% is around the same level as it was 2 years ago.
    • The average for the English Championship, for last season was 107% and was 94% and 78% for League 1 and League 2 in the prior year, so it shows that the level we have it is reasonable, albeit based on European income, which isn’t guaranteed
    • Celtic’s staff costs are 25% higher than ours.
    Other operating expenses

    Other Operating Expenses (including matchday costs and the costs of maintaining the stadium and RTC) increased from £22m to £23.2m. This is disappointing considering we played 3 less homes games and the previous year’s figure was looked upon as being high due to the additional legal and professional fees of £3.6m, due mainly to the ongoing Sports Direct dispute.

    We are not told what this year’s legal fees were, but they may have continued to be high, to allow us to sign the Castore deal.

    Reducing Other Operating Expenses may impact the matchday experience for us so there’s a fine line in keeping costs under control and satisfying the fans, but it is an area where they need to keep a careful watch.

    Purchase of players

    Rangers spent £11m on players during the year. This would have mainly been on Kent and Helander. Given the sums involved, it appears that the purchase of Hagi was didn’t go through in this year’s accounts, despite reports to the contrary.

    This also does not include the purchases of Itten and Roofe, which happened after the year-end.

    Sale of players

    We made a £0.7m profit on the sale of players, compared to £3.1m in the previous year. I assume that Candeias would make up a majority of this year’s profit.

    However we need to be able to be making millions each year to sustain a break-even situation in the future. Our model looks to be largely working as we could have sold Morelos for a sum that would have allowed us to break-even, and going forward we may not be able to have the luxury to turn down 8-figure bids.

    Retail

    Retail income was £3.3m for the year which is the same as last year. However it appears that a majority of this has not been received as there is £2.3m outstanding and the club have commenced legal proceedings to recover it.

    The Castore deal does not start until this season and therefore is not reflected in these accounts, and hopefully that will show an area of increase.

    Although we are free of Sports Direct and have successfully negotiated a retail deal away from Ashley, it is disappointing to see the legal case is still ongoing and we may have to pay further money to SDI.

    Cash

    Cash has increased from £1m to £11m but I presume that this is due to the timing of the receipt of directors’ loans. We have £14.9m of debtors which is season ticket cash which is in respect of season tickets that are paid by supporters using deferred payment plans or credit cards so that will be converted into cash.

    The credit card companies are passing on the cash over the course of a season to limit their risk. This isn’t an issue as it’s only a short term cashflow problem and it hasn’t prevented us from spending £15m on players after the financial year-end.

    Funding

    Director and shareholder loans outstanding last year were £11.2m, an additional net £21.8m was provided during the year and £17.7m were converted into shares, leaving £15.3m outstanding at the year end.

    Since the year end an additional £4.5m has been provided and another incredible £13.3m converted into shares, highlighting the incredible commitment of the directors and other investors, leaving £6.5m currently outstanding, £5m of which is due to Dave King (see below) and £1.5m due to John Bennett.

    There is another £2.9m of loans outstanding to a third party, possibly from Close Leasing, which is presumably short-term funding being repaid once the credit card companies release the season ticket cash.

    A further £8.8m will be needed for this season and £14.4m for next season and Douglas Park and John Bennet have agreed to provide loan facilities to cover these amounts, which are obviously subject to player trading and how we do in Europe.

    Dave King funding

    Dave King has provided £16m of funding to the club since he came back in 2015. £11m has been converted into shares and £5m remains outstanding and is due to be repaid to him next year.

    It is slightly disappointing that he is charging interest at 8% on the remaining £5m, an annual charge of £400K. However, given everything he has done for the club and the level of funding he has provided in the last 5 years and also when Murray was in charge, it seems churlish to criticise him too much. There may also be tax reasons why interest had to be charged.

    Given that interest is being charged, there is a repayment date stated and he did not make the opportunity to convert the loans during the last couple of share issues, it appears that he will be looking for repayment of the £5m, and that it was always the intention for this loan to be part of a short-term funding exercise for it not to be converted into shares.

    Improvements

    There was £2.1m of fixed asset expenditure, presumably work done on Ibrox and RTC. This highlights that the directors are continuing to invest significantly in the club’s infrastructure (£8.6m over the past 3 years) as well as the playing squad.

    Sundry

    The club made a claim on its Business Interruption insurance for losses caused by Covid-19 and has received £1.25m, which is excellent as many insurance companies have refused to pay, but it remains doubtful whether there will be any more forthcoming.

    Post year-end

    The club has continued its spending after the year-end with £15.4m being incurred on players including the signing of Itten and Roofe and presumably Hagi (it was reported that Hagi signed earlier but the amounts do not back this up) and they will appear in the 2021 accounts.

    However it should be remembered that the amounts spent will be written off over the length of their contracts.

    The £15.4m is far higher than I expected, even if it also includes the minimal fees for McLaughlin, Bassey and a loan fee for Zungu, and it will result in another increase in amortisation charges in next year’s accounts.

    The future

    The losses over the last few years, including the one shown in this year’s accounts, are not a concern as they have been fully funded by our directors/investors and we should continue to be very grateful to them for that.

    However this level of funding cannot go on indefinitely. Despite the appearance of new investors (Alan McLeish, Danny McKinlay, Stuart Gibson, Neil Hosie), the well must be running dry soon. It appears that Dave King will be looking for his £5m loan to be repaid and it is unclear whether future loans from Park and Bennett will be real loans or converted to shares.

    Financially, it is vital that we win the league this season to give us a better chance of reaching the holy grail of the Champions League and we will need to make at least one big sale of a player.

    We do need to continue to get regular European group football and regularly make multi-million profits on player sales to allow us to break even and this is the business model that our directors have put in place.

    We know from bitter experience that we need to keep an eye on our financial position and my outlook is slightly more pessimistic than it was 12 months ago, but we looking good on the pitch and have a number of players where we could make large profits.

    Although the loss was large, it was fully funded and we’re one good player sale away from breaking even. We just need to keep a careful eye on the finances over the next couple of years.

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