Newco: how long can this phoenix fly?

Judgement from the High Court in London in the case between SDI Retail Services Ltd, part of Mike Ashley’s Sports Direct group, and The Rangers Football Club Ltd (Newco) was published yesterday.  It was a scolding humiliation for the Ibrox club and its directors.

The case centred on rights Newco granted to SDI in a Retail Operations Distribution and IP Licence Agreement, concluded in June 2017.  This Agreement was heralded at the time in the Scottish media as a great victory for Newco, and chairman Dave King in particular.  The Daily Record proclaimed, “Rangers fans celebrate Dave King’s victory over Mike Ashley and Sports Direct”.

Dave King told The Evening Times: “There was a bit of an impasse. Sports Direct applied their mind and asked themselves whether they felt Rangers were going to back down.

“The answer was ‘No’, so was it not better to seek some sort of negotiated outcome. It was a realisation from them that the initial strategy of trying to blow us away hadn’t worked.”

What King did not reveal at the time, was that Newco agreed to pay Sports Direct £3m to terminate the old agreement early, while granting them rights (now asserted) to pick up subsequent deals at competitive rates.

The June 2017 agreement allowed Newco to seek retail, distribution and kit manufacturing agreements independent of SDI from June 2018, but obliged the club to disclose bids and agreements to SDI, and permit them to conclude an agreement on the same terms.

The judgement found Newco breached those terms.  Instead, it entered into an agreement with an SDI competitor, Elite Group.  It was also found that SDI were entitled to rights Newco concluded with their new kit manufacturer, Hummel.

SDI were granted damages and relief in relation to sales not achieved for exclusive distribution rights of Newco merchandise for seasons 2018-19 and 2019-20.  The judge noted SDI’s losses “are likely to be in the order of many millions of pounds”, denying Newco’s attempt to set a £1m limit on damages.

The ruling affirmed an earlier finding from October 2018 that Newco “will be exposed to a claim by Elite (who will now lose their merchandise deal), but that is because of the action taken by Rangers with its eyes open to the risk as the indemnity provisions of the Elite Agreement make clear.”  So as well as paying SDI, Newco will have to pay Elite Group for being unable to fulfil their current agreement.

SDI were also granted an injunction, instructing that “Rangers shall not perform the Elite/Hummel Agreement, with various sub-clauses.  On top of all the financial consequences, this adds the indignity of giving Mike Ashley control over what happens now.

Newco attempted to avert the worst consequences of the ruling by claiming that if the judge upheld SDIs’ requests, “Rangers’ ability to function as a football club will be impaired.”  I am sceptical of this claim, which sounds a bit like earlier claims made in similar circumstances in court on Dave King’s behalf that he was “penniless”.

James Blair, Newco company secretary and until late 2018, a partner at Anderson Strathern LLP, Newco’s lawyer (for whom he is still a consultant) came in for the most scathing treatment.

The judge noted, “He was closely involved with the disputes between the parties, with the drafting of the Agreement and the other contracts to which I will refer and with dealing with Elite.

“It appears that Rangers’ legal team obtained their instructions from him.  Much of the correspondence between [SDI’s lawyers] and Rangers involved Mr Blair.”

It was noted that SDI’s lawyers “asked Rangers to confirm that Hummel had not been granted rights of distribution,  marketing,  advertising,  promoting,  offering  for  sale  and/or  selling  the Official  or  Replica  kit.

“On  18  May  Mr  Blair  gave that  confirmation,  stating  that “Hummel has not been granted any of the rights set out in your email”. This was untrue.  He later acknowledged in his Seventh Witness Statement that “ … Of course Hummel did  have  rights  to  distribute,  market,  advertise,  promote,  offer  for  sale  and/or  sell  the Official Kit and/or Replica Kit …”

Newco were obliged to provide SDI with replica kit, but the judgement found, “Mr Blair’s assertion on 3 September 2018 that Rangers’ supplier could not make units of kit  available  to  SDIR  until  such  time  as  the Further  Agreement  was  in  place.

“It  has now been held……… correspondence between Mr Blair and Elite in late August shows that Mr Blair’s strategy was, in his own words, to lead SDIR a dance.”

In evidence, Blair managed to tie himself in knots over the fan boycott in the years before the June 2017 agreement.  In addition to his role as Newco company secretary, Blair was also a director of Club 1872 Ltd, a supporters’ group which issued statements supporting the boycott.

Blair “sought to distance himself in evidence by saying that the statements were, in fact, issued by another supporters’ group, called Supporters Voice Ltd.”  However, the judge noted that Blair was also a director of Supporters Voice Ltd.

The judge noted, “I found Mr Blair’s evidence to be unconvincing”, a significant reprimand for a solicitor.

The entire escapade could have been avoided if, as the judge found, Blair had not “untruthfully asserted that Hummel had not been granted any Offered Rights and did not provide SDIR with a copy of the Elite/Hummel Agreement.

“The upshot of all this is that Rangers, Elite and Hummel have until now performed and enjoyed the benefit of the Elite/Hummel agreement. The 2018/2019 season has been completed and, as the evidence before me showed, preparations for the 2019/2020 season were well underway by the time of the hearing.

“Had the rights been offered to SDIR then SDIR would have found itself in the shoes of Elite and would have been in a position to make the sales and profits that Elite has made.”

Newco managing director and SPFL board member, Stewart Robertson, gave evidence of little weight, the judge branded him a “mouthpiece”.  More appropriate parts of the anatomy are seldom referred to in written judgements.

This is a shambles.  An unmitigated, embarrassing, shambles, but you may be tempted to ask why?

Why did Newco pay £3m to enter into an agreement that granted SDI so many rights?

Why did they try to subvert those rights shortly after the agreement was struck and why did they think Mike Ashley would not notice?

Why, when Ashley asserted his contractual claims, did Newco not back down, instead of dragging everyone through this publicly humiliating spectacle?

You and I would not behave like this.  You would not publicly self-congratulate a truly dreadful deal while not disclosing you paid £3m for the privilege.

You would not sign a contract with a rich and litigious man, then sell someone else the properties he is legally entitled to buy.

You would not be so contemptuous of the supporters you profess to care for, that you would make their club a laughing stock.  This behaviour is exploitative of others, indicates a poor sense of reality, is grandiose and entitled.  It is disordered.

All that was needed to gain initial control was to assert enough of an absurd fantasy and invest others with enough incentive to look away.

I know others want Fit & Proper tests applied to these people but I will regret the day any of them leave.  They can stay for as long as they are prepared to peddle their nonsense to the unsuspecting masses – who are mostly prepared to look away, as the alternative is to contemplate the unpalatable reality, that 10-in-a-row is only just the beginning.

The big question is, how long can this phoenix fly?  Newco lost £14m in the year to June 2018 and remain reliant on support from directors.  When the figures for the year to June 2019 are released, they will show an increase in income as well as operational costs, reflecting the recruitment of 22 players since that time.

This judgement introduces a powerful new creditor to a financially fragile operation.  Money will need to be found to compensate him, as well as for operational costs.  If not – and I do not see where it is coming from – the phoenix will fall.

You and I have known how this story will end since it began with King and Co. undermining Newco at its inception in 2012.  The writing has been on the wall ever since, it is only a question of when?

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