02 October 2013

Rangers' Accounts: A Look at the Finances

By Andy McKellar & Ross McAdam 

The current condition of Rangers' finances has been subject to constant rumours, innuendo and accusations of mismanagement or incompetence. Yesterday our eagerly awaited annual accounts were published as required prior to the AGM and our performance has now been laid out in black and white for all to see.

Our journey through the lower leagues was always going to prove financially challenging as revenue streams diminished and high operational costs remained. Those running the club were required to adopt a prudent and sensible approach to adapt to our new and unfamiliar surroundings but questions remained as to whether this was being successfully achieved. 

Revenue for the 13 months to 30 June 2013 was £19.1M, largely comprised of our match-day income totalling £13.2M which was limited somewhat by the necessary reduction in ticket prices. Retail income was negatively impacted upon by the troubles at JJB and revenue from this area stood at a mere £1.6M, considerably below the forecasts provided by our former Commercial Director.

Operating expenses quite worryingly were £33.6M. The largest area of expenditure here was staff costs as total salaries came in at £17.9M (93% of turnover) of which £7.8M (41% of turnover) was allocated to first-team playing staff. “Other operating costs” of £13.3M remained at a similar level to what was previously paid by the old company, although perhaps this is an area where some may have expected some savings to be made. No detail was provided as to what expenses were included in this figure.

We then have to consider the boardroom. Charles Green “earned” £933k including a £217k severance payment, despite claims that he resigned, and a 108% bonus. Our financial director Brian Stockbridge then took a salary and 111% bonus totalling a combined £409k, considerably more than Eric Riley earned at Celtic. If we’re looking at where costs can be saved, let’s start with the lucrative salaries and bonuses on offer to our execs. Making money when the club is performing well is one thing, exploiting the club while it struggles is quite another.

When combining the above income and expenses we arrive at a hugely concerning operating loss of £14.4M, more than £1M for each month in the accounting period. This is absolutely and completely unsustainable and perhaps confirms the financial mismanagement that many believed existed for quite some time now. Unfortunately it’s difficult to spin this in a positive manner.

In addition to the operating loss there are £4.2M of non-recurring cash expenses such as football debt from the old company and payment for acquisition expenses incurred during the purchase of the business and assets of RFC 2012 plc. This takes the “real” loss for the period to a staggering £18.6M although thankfully such one-off costs are unlikely to be repeated in future years.

The balance sheet shows that the club has £11.1M in the bank account, although £0.9M is “not immediately available as working capital”. Furthermore Brian Stockbridge revealed that £4.5M of that sum relates to season-ticket income for the current campaign and that has to be taken into consideration. There is however no debt, no borrowings and there has been investment in assets such as the Albion Car Park, Edmiston House and stadium improvements.

Another issue worth highlighting is the total cash received by the company. In addition to the £19.1M revenue for the year, as well as some cash received in relation to next year’s trading, there was £29.7M received for the issue of shares. This means that more than £50M came pouring into the coffers, most of which we shall not see repeated next year, resulting in quite an astonishing burn rate for the 13 months in question.

Most of the £29.7M was raised via the very successful Initial Public Offering however it would appear that only £16.1M of the £22.2M raised made it into the Rangers bank account. This means that “fundraising expenses” must have accounted for £6.1M despite the Prospectus stating that the maximum fee anticipated was £2.5M. Questions should certainly be asked about this.

It would also appear that the true purpose of the IPO was to provide working capital for the company as money was running low by December, not to invest in the areas detailed in the Prospectus. It’s fair to say that the board were less than transparent about this and I’m sure a few of the institutional investors will be rather disappointed.

The biggest concern currently is the totally unnecessary expenditure, regardless of whether we are “on track” as Stockbridge claims. There is almost £1M of boardroom and other bonuses and benefits that should not have been paid as well as basic salaries which are already unjustifiable at this level. Our manager earned a staggering £850k, more than the likes of Michael Laudrup at Swansea City, meanwhile Ahmad waltzed off with £303k for his brief and rather unsuccessful stint as Commercial Director. It’s ludicrous.

The primary worry held by many Rangers supporters is the threat of running out of money in the near future and we’ve already had the likes of Dave King mention the possibility of administration. While posting losses of £14.4M it is very easy to understand why such talk has arisen and it is difficult to see how the gap will be closed in the current season when revenue again is rather limited.

Overall it is very difficult to predict from the information provided just how we will continue to trade for any length of time if current levels of income and expenditure do not change significantly. By the end of this season it would appear that money will be very tight indeed and that must be a concern given the wasteful nature of our current finances. Fresh funding will certainly be required in the not too distant future and fans will be asked to again dig deep to support our rise through the leagues.

I think as the true custodians of our club we, the supporters, should be asking serious questions of our finances regardless of the ‘everything is fine’ rhetoric that we’ve heard. Are the boardroom and management salaries justified? Should directors receive 100+% bonuses while the club haemorrhages cash? Why did the IPO expenses cost £6.1M? Why was the share issue cash not used for the projects detailed in the prospectus?  How will the company fund itself for the current year and beyond?

There were lessons to be learned from our previous meltdown with regards to living within our means. Whatever way you want to spin it, a £14.4M operating loss is some considerable distance away from achieving that.