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Rangers Interim results published – as Chairman warns club could go bust

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Rangers have published their interim financial results this morning. Turnover at the Ibrox club for the six months dropped by £4.1 million to £33.7 million, with Rangers stating the drop in the number of SPL home games this season compared to last (total of three games – one of which being an Old Firm derby match).

The results also published that Season Ticket sales at the club fell by 4.9% along with a fall in sponsorship revenue also, despite winning the SPL title two years in a row.

However this was countered in part with participation in the Champions League group stages and subsequent participation in the Europa League.

Net operating costs stayed the same as last year – £21.1 million, with basic wage costs at the same level also. However the reduction in match day costs were offset by an increase in expenditure due to maintenance costs and provisions for what Rangers called ‘doubtful debts’.

The provision in question is for a potential tax liability, which is in relation to the Discounted Option Scheme, that ran between 1999 and 2003 at Ibrox Park, linked to Player contributions. The club is reportedly in discussions with HM Revenue & Customs to ‘establish a resolution to the assessments raised’.

The potential tax liability relating to the Discounted Option Scheme, is different to the Employee Benefit Trust scheme that was administered by the Ibrox club’s parent company, Murray International Holdings, owned by Sir David Murray. And in which HM Revenue & Customs reportedly handed a £24 million ‘assessment’ after investigating offshore payments made to players during the last ten years. With fears that the tax bill could rise further with fines and interest, with the total near to £54 million.

At the time Rangers sources described the situation as ‘desperate’ saying, “We’re already struggling to pay £30m we owe the bank. Another £50m could tip us in to the abyss of administration. We’ve been hit with a £24m ‘assessment’ from the taxman. The implications are horrifying. The interest could be £12m and there may also be a penalty element of between £12m and £18m. This is a desperate situation.”

Speaking today about the current issues surrounding the HMRC tax issue Rangers Chairman Alastair Johnston said, “Distinctly separate from the Discounted Option Scheme, and in touching on HMRC’s enquiry into the Murray Group Management Limited Remuneration Trust, I would emphasise that no allegations have been made to suggest any illegal
activity, and tax vehicles of this type have been used by a number of companies throughout the country. We continue to vigorously contest HMRC’s challenge on the taxation treatment of the Trust and in doing so continue to receive reassuring opinion from tax, accounting and legal specialists.”

While correct in that a number of companies have used a similar system, including several English football clubs, they too are being investigated by HMRC. Presently Rangers believe that if the tax issue is found in favour of HMRC then Murray International Holdings would foot the bill, but there is no news on a deal being done between potential new owner Craig Whyte and the current landlord Sir David Murray on the matter. If a deal to buy the club is done before the tax issue is settled and no agreement has been reached between Whyte and Murray, the ‘new owner’ would have to fit the bill as it was Rangers FC employees who benefited from the scheme.

Following on with the interim results, Rangers’ amortisation of player registrations was down to the signing’s of Nikica Jelavic, Vladimir Weiss (loan), James Beattie and Richard Foster (loan). Although these results do not take into consideration the January transfer deals of El Hadji Diouf, Kyle Bartley and David Healy. Which would further increase the amortisation of player registrations. Rangers did dispose of the registrations of Danny Wilson and Kevin Thomson for £3.7 million, which was an increase compared to the previous year from the sales of Barry Ferguson and Charlie Adam, which brought in £1.5 million.

Back in March last year, manager Walter Smith warned that the club’s financial crisis was getting steadily worse, and with fears that the club could see debt increase, Lloyds Banking Group implemented tough restrictions on the board to follow a strict Budget Reduction Plan. The plan was put in motion to make substantial cuts throughout the club both on and off the park. A week or so later, this was rubbished by senior officials inside Rangers Football Club, but now the Rangers Chairman has publicly hit out at the bank for what they stated as, “provisions imposed on the Club continue to compromise management’s ability to conduct its role with maximum efficiency”.

Johnston said, “Bank facilities have been renewed in the normal cycle until 31 December 2011. However, while we appreciate the support of the Lloyds Banking Group through the Bank of Scotland in extending our credit arrangement and recognising the progress that has been made in developing a template for collaboration, certain provisions imposed on the Club continue to compromise, in our opinion, management’s ability to conduct its role with maximum efficiency. Having said
that, as has been widely reported the majority shareholder is currently engaged in ongoing discussion with a view to selling its equity interest in the Club. The outcome of this process could change the role that the Bank will play in
going forward in its financial structure.”

In reality it is a bit cheeky to launch an attack on the bank for their stance. It is a bit like myself going into the bank asking for an extension on my overdraft because of financial difficulties, and then the bank handing me information on how to sort out debt etc. The bank are not only trying to protect their investment, they are also wanting the debt cleared all the while allowing Rangers FC to have the same banking facilities, while they pay towards clearing the debt. Lloyds could have simply asked for their money back when they bought over Bank of Scotland, but they didn’t. Not even after the fabled ‘Rangers Fan Boycott of Lloyds’. So the club and the board should be more than a little appreciative of the bank, because they could have been looking at administration last season, if it wasn’t for the bank’s helping hand and patience. Pity my Bank Manager was not as patient as Rangers’.

Alastair Johnston then made reference to the ongoing takeover bid by Scottish businessman Craig Whyte, “the majority shareholder is currently engaged in ongoing discussion with a view to selling its equity interest in the club. The outcome of this process could change the role that the bank will play in going forward in its financial structure.”

Let’s emphasis one word in that above statement, Johnston stated ‘could’ change the role that the bank plays. Not that Craig Whyte’s takeover would change the bank’s role. So despite ongoing discussions on a takeover,and reports in the mainstream media that a takeover is days away, or a week away – depending on the papers you read – the Rangers Chairman is still in the dark over what the takeover will do for the club financially. So even if Mr Whyte takes over at Ibrox, the bank could still have a major say in the club.

An interesting article by Douglas Fraser, the Business and Economy editor at BBC Scotland, looks at some ‘unusual messages’ emanating from Ibrox Park.

Meanwhile the STV News website stated that ‘the chairman of Rangers FC fears the club could go bust if a tax case goes against the Scottish champions.’

The STV article stated:

Announcing the results on Friday, Mr Johnston agreed that the club could go bust if the case went against the club. He said it was not clear who would be liable for any penalties. Rangers have accepted a £2.8m charge from HMRC relating to a separate issue – which will be reflected in the next accounts.

When asked if the club’s very existence was under threat if the case went against Rangers, he said: “The reality is that ‘is it possible?’ Yes. There could be a judgment .. and at the point the club can’t pay. There is a point in time you can’t pay and accessing all the resources, yes you couldn’t pay.”

Asked if the club could go bust, Mr Johnston nodded.

It continued:

Current debt declared to the City rose from £25.5m to £28.9m, however cash in the bank rose by nearly £5m. The club said reports of the ‘club’s debt’ being between £20m and £22m were “not inaccurate”.

The level of total debt at Rangers has not been officially announced by the club, and it is not necessary for the club to do so in their interim results. However net debt owed to Lloyds Bank is reportedly around £19 million, with a further £10 million owed to other creditors.

UPDATE: 01/04/11 @ 5.15pm

Rangers have issued a statement clarifying Alastair Johnston’s comments in regards to the club potentially going bust.

The Dow Jones Newswire read, “Further to some press comment today following the release of our Interim Results, we would like to clarify that our Chairman did not state that the Club could go out of business. Moreover, we would refer interested parties to the section in the Interim Results (paragraph 7) that covers the current position with the HMRC enquiry and importantly to the fact that the Club continues to vigorously contest HMRC’s challenge and in doing so continues to receive reassuring opinion from tax, accounting and legal specialists.”

However two STV personnel on twitter, with one in particular – John MacKay – stated in reply to Rangers press release, “That is not accurate. He did say it was possible. Worst case scenario, certainly, but possible.” And further backed up his comment by saying that STV have the Rangers chairman on tape saying that ‘it is possible’.

Sources: Rangers FC, London Stock Exchange, STV News, BBC News.

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About Author

scotzine

Andy Muirhead is the Editor of Scotzine and the Scottish Football fanzine FITBA. He is the Scottish Football columnist for The Morning Star and has written for a number of other publications including ESPN, Huffington Post UK, BT Life's a Pitch and has had his work featured in the Daily Record, The Scotsman and the Daily Mail.

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