In light of Manchester City’s ban from Uefa competition for breaching club licence and Financial Fair Play Regulations (FFP), I thought it was time we visited a related issue closer to home.
In June last year, Rangers International Football Club (RIFC or Newco) held a General Meeting to approve the conversion of shareholder loans into RIFC shares. Page 10 of the subsequent prospectus noted, “The Loan Conversion will significantly improve the balance sheet of the company and ensure it complies with The Uefa Financial Fair Play Regulations.”
The debt conversion was necessary for the club to comply with Financial Fair Play Regulations.
What is allowed under FFP?
Clubs are allowed to lose €5m each season without breaching FFP. Some costs are deductible: spending on youth development and depreciation (often incurred to improve facilities) can be deducted from your loss. In addition to this, clubs can convert up to €25m debt into shares, raising the maximum allowable loss for any period under consideration to €30m.
The monitoring period for FFP covers the three seasons before the most recent, or current, season. This summer, clubs under monitoring will submit information on seasons 2016-17, 2017-18 and 2018-19.
In their most recent annual report for the year to 30 June 2019, Newco reported two share issues during that period. These allowed £16.6m of investor loans to be converted into shares and raised £1.6m cash. The report noted that after the year-end, “£17.2m of investor loans were converted” to shares. That is a total of £33.8m debt converted to shares, or €40.4m.
While this helped Newco pay bills, only €30m of this loss-fueled debt-to-share conversation can be considered for Uefa Financial Fair Play purposes.
Newco have run an operational loss for each of their seven years. That loss has been substantial for the last two seasons, 2018: £14.341m, 2019: £11.277m. It is very likely they will return another significant loss this season, however, they have little headroom if they want to comply with Financial Fair Play regulations.
In the graph below I have noted Newco’s financial position for the two seasons to June 2019. Figures for net loss and depreciation are in their accounts, I have (generously) estimated their spend on youth development at £1.8m.
After depreciation and youth development costs are subtracted from losses, Newco made an FFP loss of £18.860m across these two seasons. This converts to €22.531m, which, after the maximum allowable debt-to-stock transfer, leaves them headroom to run a loss for FPP this season of €7.469m, or £6.251m, lower than the £7.942m FFP loss they made last season.
There are a few items to consider when comparing last season’s position to this season and any on-going matters:
This season has at least one more Europa League home tie.
Ryan Kent and Filip Helander deals make this season their highest ever transfer spend.
In July, Sports Direct won a court case against Newco. The liability could be anywhere between £5m and £10m. This ruling happened post-year-end and no contingent liability was not noted in the accounts.
They have a liability for breach of contract, which they admit, over abandoning plans for a Memorial Garden for the Ibrox disaster. The hearing to settle the £1.3m claim is due in court in March. Again, no contingent liability appears in the accounts.
As CQN reported last week, Hummel rescinded their agreement with Newco (resulting in the Hummel Training Centre branding disappearing this week) and commenced legal proceedings.
By the time Newco report on season 2019-20, which will not happen until July 2021, the costs to settle these legal claims will be established.
A few points are clear:
Newco face a serious challenge to meet Financial Fair Play regulations for their trading during the current season. It is likely they will need to sell players, possibly before their 30 June year-end, if they want to avoid punitive repercussions.
Rumours have existed about fresh investment from the Far East for many months without anything so far materialising. There is nothing to stop fresh investment to fix the roof or install a hover pitch, but new share capital cannot fund more football costs and count towards their FFP trading position. There can be no new money for football purposes.
This is the end of the road for debt-fuelled football for Newco. If they want to compete in Europe, they have to live within their earnings – that means significant downsizing – without delay.
At the AGM on November, Dave King alluded to fresh investment, in part to assist during the January transfer window. Any prospectus would need to acknowledge the various contingent liabilities facing the club, as well as the reality that they have run out of road when it comes to investing debt or share capital in the playing squad. The phrase, ‘Rangers International Football Club PLC Prospectus’, which I think is Ulster Scots for ‘Bend over and touch your toes’ has not been uttered since the AGM.
What is likely to happen?
Clubs that are not compliant with FFP are not automatically excluded from European competition. Uefa state: “Non-compliance with the regulations does not mean that a club will be excluded automatically, but there will be no exceptions. Depending on various factors (e.g. the trend of the break-even result) different disciplinary measures may be imposed against a club.”
The governing body recognise the variable nature of football revenue and, as long as the “trend of the break-even result” is consistent with FFP, they can “take a rehabilitative approach… with numerous restrictive conditions”. There are seven lesser disciplinary measures open to Uefa than exclusion from competitions.
Newco’s trend has been consistently loss making. Even if they were given lesser punishments, such as a fine and agreeing to take rehabilitative action, the consequences on the football field will be the same: this is the end of debt-fuelled football, the party is over, get rid of your high-earners and live within your means……as it should have been from the start.
What living within their means looks like, when the various legal liabilities have to be paid, is difficult to imagine. Dave King got a standing ovation when he gave his valedictory statement at November’s AGM. I cannot help but think he somewhat underachieved.
I started CQN 16 years ago to explain football finances, why Rangers spending was unsustainable, that they would inevitably crash and burn, and that Celtic needed to follow a different path. Eight years later, Rangers were liquidated, predicted on these pages before anywhere else. The prognosis for Newco is perilous, they even have the same compliant media fearful of running the Hummel story.
Here we go again!
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some save.
Yo ho ho……
braga are murder at the back especially the baldy guy playing left back
Oh my goodness …what a load of caaak… this lot haven’t even had a shot at goal…they chucked it at half time at Bigotdome….
Braga have been humming.
Hagi my arse.
it was a defo pen but what a save.
Like a bum fight
Just how bad are this team,but the hero of Ibrox misses the penalty.Huns should be 3 up.Braga have not won a 50/50 ball .Cowards.Huns bullying them all over the park.
The Huns are looking the most likely to win this one.
If they had a better finisher they could be 3 up.
Having said that, that was a great penalty save on halftime from Braga keaper, and might just give them a lift.
dire not one of these 22 players would get near a game for us pish hh
A decent team would have been 3-0 up at HT.
Luckily it’s the Huns we are talking about…
this reminds me of their road to Manchester….they played dross all the way to that final….somehow they seem to hex every team they play…. and if they get through they will get the weakest team left…..Never discount this shower….
for a home team braga are very poor, not one shot at goal just a couple of weak headers.
Not holding out much hope,although 1 goal wins it,but I pray Braga get it.I hate that unabashed Hun commentating,and his dumb Hun sidekick.Want to hear their sobs.Surely their manager must boot their asses at half time.
surely braga can’t play any worse in the second half.
I think braga need our Neil to give a rollicking at half time.
Turkey Bhoy
They arent my enemy either but I expect them to confront what we both see as the enemy, especially when they indicated a wish to do so and then not only reneged but have led shareholders up the garden and in doing so are protecting the enemy you see and want tackled.
How do you square that circle?
We seem to have got a stronger opponent in Copenhagen, despite topping our group.
The Huns dont even need to score
Braga are out. They’ve absolutely chucked this away. They look lost.
Even if they create anything in this second half – from what we’ve seen of their finishing, they’ll miss.
Hagi,the BBC proclaimed”Hero of Ibrox”,will have to go into witness protection if this mob sneak one.
F— the Pope getting an airing.
Auldheid
I have said my bit on Res 12.I support it wholeheartedly,and the Board are shameless in their handling of it.That is no excuse,for every blog that Paul puts up,the subject is raised ad nauseam.Wether you or I ,or anyone else,likes it or not,it is not the most important thing in the minds of the majority of Celtic fans.This is the reality.Winning on the park is what matters to most.Oh,and the scum getting gubbed.
braga are murder at the back especially the baldy guy playing left back , he has now been subbed
The only way Braga will score is if Sevco do it for them…has there ever been a worse team in a European competition …..Dear Dear ….
I watched game last week.. thought brags were no better than Killie or Hibs.. I apologise to those teams now
that was coming
Now they need two …. they haven’t even had a shot at goal….
Apart from hearts every team in spell would knock brags out
Why are they obsessed with try to kick ball with outside of foot?
I’ve watched European knockout football for over 20 years and this display by Braga is the worst i have ever seen. Totally inept in every way. Tactically appalling and a complete lack of effort. Dismal.
Now the good news is that the Huns are defending in depth, can they do that for 20 minutes😱
Alex Rae …the Rangers fans over there are in fine voice….Hate… Fenian B@@@@ds .etc ….yea Alex they sure are….
We are all watching this,just how poor are this team.At half time ,the ex Portugese Hun said he had never seen them play so bad.
You might imagine that they have bet against themselves ..not one tackle. It shot
The commentAtor is more biased than Alex rae !
Alex rae jogs in full sevco training kit at his home. Fact.
Impartialalex.csc
KLV
Are they actually footballers?