Paltry 15% cut cannot be main story

Got into a brief conversation last night about whether administration and liquidation were likely at Newco Rangers.

The club’s creditors will be few and of comparatively low value, nothing like their predecessor club’s £100m debts.  They will owe HMRC vat and PAYE money, utilities and other trade creditors will be owed no more than a small number of money’s month.  Newco have not been able to secure bank borrowing, so that’s not a worry, but there may be directors’ loans, as well as wages in arrears.

The upshot of this is that money saved by ditching creditors is limited and unlikely to offset the damage administration would do to a club with less than two years trading history.  The only significant action that could be taken in administration would be redundancies.  Playing staff could have their contracts terminated by administrators, bringing to an end the Charles Green extravaganza.

Liquidation is an unlikely to occur as a consequence of the short or medium term challenges.

The most surprising element of yesterday’s news is that players were asked for such a modest pay cut.  15% of player salaries will not change the fundamentals and will save very little (circa £300k) between now and season ticket renewal time.

Keep your eye on the sale and leaseback of properties we discussed here since 2012.  If Ibrox and Murray Park are sold (potentially to existing investors looking for their payback), Newco could get some relief between now and being able to reach the Premiership, while the investors would become less anxious.

The cynic would say that being able to lay blame for selling Ibrox on players for not taking a modest pay cut is a convenient line.  Selling your main/only fixed assets to a commercial investor is a horrendous prospect as you will left to pay the consequences in perpetuity, you also lose collateral, making future borrowing more difficult and expensive, but, right now it’s a decent option for Newco.  Their future is screwed, not because of a land deal (delightful irony), because of what has happened on that land over the last two decades.

The fundamentals remain:

Running a football club the size of Celtic, under normal conditions, costs anything between £17m and £22m – before you employ a footballer.  Utilities, rates, policing, stewarding, insurances, maintenance, ticketing, PR and the tasks circa 200 people carry do not come cheap for a club of this size.  When budgeting for football operations, start to count your football income after you’ve banked money around this level.

Newco Rangers will be a fraction below this at the moment, but if they are to continue to operate a business capable of entertaining (sic.) >30,000 people several times per month they will not be able to eat into these costs significantly.  Insurance, rates, police and other costs need to be met; face painting is optional.

A club the size of Newco Rangers, or Celtic, is not viable without regular Champions League income, and is not possible short term without splurging into higher debt.  If Celtic slip away from the group stage for an extended period, they will have to downsize all areas of operations.  Football budget would be much more like Aberdeen’s.

Keep in mind the words of the magnificent Blue Knights.  While ensuring Charles Green was left in an invidious position to start his new enterprise from, they were clear, only a CVA, leaving Rangers in top flight football with access to Europe, was viable.

This BBC article adds insight into what I referred to yesterday about former Southampton chairman, Nicola Cortese: “A presentation to the players in April last year did not ask if Southampton can win the Premier League, but how can they win it?

“Players were asked to fill out questionnaires. What time did they wake up at home? What were their habits? Did their children wake them, did the dog? The results were analysed and changes were made.

“When Southampton travel away from home, the hotel is often booked for two nights rather than one. On the first night, club staff arrive and clean the already pristine rooms. They vacuum up every particle of dust that might cause illness or carry a bug.”
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