Newco admin unlikely in short term but traumas ahead
I had lot of questions over the weekend about Newco going into administration in the coming days or weeks, following Dave King’s resignation on Friday when he simultaneously announced funding plans have “been put on hold”.
To recap: In their most recently available accounts to 30 June 2018, Newco recorded an £11m annual loss. Since then they have gone one stage further in European competition, but also spent significantly in the transfer market. My expectation is that losses would be higher this season, even before the current crisis.
In a statement on Friday, interim chairman Douglas Park and vice-chair and John Bennett indicated they would continue to support the club financially. It is unlikely they would have made this commitment if they were planning to put the club into administration in the short term.
While the coronavirus will devastate the P&L of every club in Europe, government provisions will help Newco, who, like every other business in the land, will be able to defer payments to HMRC. They will also be able to furlough the vast majority of non-playing staff.
Even with players and coaches remain on the payroll, cash required to get through the next three months could be as little as £6m (assuming they defer paying every other bill they can). Led by Barcelona (or Herats, if you prefer), some clubs across Europe have taken unilateral action and suspended or curtailed player wages for the duration of the crisis. Before next month’s payroll is due, there may be a coordinated effort by clubs to push a rule like this through. If not, Newco could come to an agreement with high-earning staff to take a pay cut, or postpone wages.
A few million may be enough to see the club limp to the summer, when they hope to see season ticket renewal money. With these possibilities still in play, and bearing in mind the funding commitment by Park and Bennet, I don’t see a convincing argument to suggest they will press the administration button immediately.
While it is clear they can (if they choose) survive until the summer, they still need to address the fact that they are trading beyond their means and incurring unsustainable losses. An open transfer window gives them an out.
The market for footballers will open hugely down on where it closed in January. Fanciful valuations that appeared in newspapers for Newco players will not be met, but to survive, all they need to do is get high earners off the wage bill, even if it means accepting low or zero compensation.
The first thing an administrator normally does on taking over a distressed company is to keep creditors at bay while he tries to salvage the business. Newco’s creditors are not applying pressure – and the quantum is nothing like what it was when Oldco went down. The next thing an administrator would do is try to cut costs while turning non-key assets into cash where possible. This can be done by management without the need to go through administration.
The one caveat to this – as long as the directors are prepared to cough up a few million, and they said on Friday they were, I don’t see the benefit of administration before the transfer window opens.
All the underlying issues remain. This club has lived beyond its means for all its eight-year history. It will need to downsize quickly and significantly to have any future. The Sugar Daddy daydream cannot help them, as funding continuous losses is inconsistent with Uefa FFP – and the most recent Knight on a White Charger has just tailed it back to Hong Kong.
Newco can have a future as a smaller football club, one that pays its bills and develops players in the same way Motherwell, Hibs and others do. Living within their means is their only viable future, but that would necessitate giving up on fantasies of catching Celtic, and I suspect they would prefer liquidation than take that bitter pill.
The auction for Roy Keane’s signed Ireland shirt closes tomorrow, keep an eye on it. Proceeds to towards Glasgow South East Foodband at this difficult time.