Rangers, the biggest scandal in the History of Sport and the rest

Perspective is difficult to find in these times, when information floods in from all angles on a daily basis. With this in mind, The Battered Bunnet put a day aside to give you a detailed summary (below) of how we go to where we are today. He pays particular attention to some of those who plan to be part of the game’s future, with a nod to those currently in control of the game.

It’s a fascinating read:

Scottish Football is in crisis, a crisis that has been 15 years in the making by the Directors of Rangers Football Club plc, compounded by a chronic lack of Governance and Oversight by the cronyistic SFA through the years.

Let’s revisit the cause of the crisis for a moment:

When David Murray bought Rangers in 1988, the club had won but 4 league titles in 20 years, and prior to the arrival of Graeme Souness, had been a Scottish League also ran for a decade. Souness, with David Holmes as Chairman, started the reversal of fortune and effectively restored Rangers as a player in British football.

Murray, giving credit where it’s due, transformed Rangers both as a football club and a business. Between 1988 and 1996, Rangers’ turnover increased by a factor of 5, double double and then some in only 8 years. During this time, the club became dominant in Scotland and competitive in Europe, while considerable sums were invested in the stadium and infrastructure, providing Rangers with a (comparatively) vast commercial resource to fund its football operations. While the club carried £9M of debt at this point, it was profitable, posting £2M surplus in 1996, and breaking even over the period of Murray’s tenure to that point.

By 1996 Murray had a valuable football business on his hands, and perhaps the smart play would have been to sell it. Football was in an expansionary phase, and there would have been a queue of interested and well bankrolled investors at the door. Instead, Murray chose to redouble his efforts, and taking Rangers ‘to the next level’ became the mantra adopted by the man and his increasingly fawning press.

Highlighting that Murray was not alone in thinking that Rangers could indeed become one of Europe’s top clubs, the following year Joe Lewis invested £40M in return for a 20% share. One wonders what Murray might have walked away with had he sold the lot to Lewis at that time, but he kept his hand in the game, and went all in over the following 6 years.

Between 1997 and 2003 Rangers lost an eye watering £152.6 Million. Joe Lewis’ £40M was gobbled up in jig time, followed by £20M of Dave King’s tax efficient stash, plus a £32M investment by Murray’s business, £6M from smaller shareholders, and a further £15M of NTL’s investment in the hopeless Rangers Media venture. At its nadir in 2004, Rangers net debt was a staggering £83 Million, a monument to the ego of David Murray and his ‘dream’ for Rangers.

Unfortunately, burning shareholders’ and creditors’ cash at such a breath-taking rate was not sufficient to fund Murray’s project, and the club embarked upon a series of schemes to pay players and reduce costs. A Discount Option Scheme saved over £2M between 1999 and 2003, while an Employee Benefit Trust framework saved £45M of payroll tax and gross wages between 2000 and 2010. It is worthwhile noting that the cost savings alone from these schemes gave Rangers a financial advantage equivalent to the total payroll of every other SPL team excluding Celtic.

We know now, thanks to the admissions of former director Hugh Adam, that ‘off the books’ payments to Rangers players had started as early as the mid-1990s, and the DOS and EBT schemes were simply formalising a by then established practice.

By 2005, with Rangers reduced to little more than a financial basket case, Bank of Scotland insisted that the club be brought back into balance, and following a failed public share issue, Murray’s holding company swapped £50M of Rangers’ debt for increased equity. The following year JJB paid £15M cash as a future royalty for a 10 year solus agreement on Rangers merchandise. Murray might very well have sold the jersey, but Rangers at long last had gotten rid of all but £6M of debt, and a new ‘sustainable’ plan was implemented, a plan that endured no longer than Paul Le Guen’s 26 games in charge.

When Walter Smith replaced Le Guen, the new plan was binned and Rangers once again embarked upon a ‘front loaded’ business model, with debt increasing on the back of player purchases and wages that the club could not sustain. By 2009 Rangers had £33M of bank debt and Murray’s companies, so long the guarantor of the funding, had utterly collapsed in the property and construction crash of 2008. It is worthwhile remembering that some £70 Million of Rangers’ losses through the years remains on the Murray International Holdings Ltd balance sheet, unpaid to the part-nationalised Bank of Scotland/Lloyds Banking Group.

Early in 2010, following an unusually long Tax Enquiry, Rangers received a Tax Assessment from HMRC for their use of EBTs in the preceding 10 years. The Bill for £24M, had a further £12M of accrued interest attached, and the promise of penalties to come.

Alastair Johnston, who had replaced Murray as Chairman of Rangers following the crash of Murray’s business empire, had a decision to make. In the summer of 2010, £36M tax demand in hand, and an appeal against which scheduled for October, Johnston was planning the coming season’s business. He could have chosen to sell the top footballers which would have brought in around £20M of proceeds. He could have chosen to run the club on a reduced cost model, one that was profitable on domestic football alone, thereby banking a further £20M from their participation in the Champions League. Had he done so, and ring fenced the cash, Rangers would have been in a position to withstand losing the Tax Case Appeal without bankrupting the club.

Alastair Johnston and his Board chose not to. He chose instead to spend money increasing the size of the squad, with £4M spent on Jelavic alone. Whatever else you hear about Rangers’ sorry plight, remember that in the summer of 2010 Alastair Johnston and his Board decided to prioritise football results ahead of the very existence of the club. That was the last time that Rangers’ fate was in the hands of the Club. From the moment the decision was taken not to act, Rangers’ fate was sealed.

Craig Whyte’s bizarre 9 month tenure of course is attracting all of the headlines, and Murray’s reckless disregard for shareholders and laws have precipitated the crisis, but Alastair Johnston, along with Paul Murray, Martin Bain, John McClelland and the rest doomed the club by their inaction in the summer of 2010.

We are now aware that Rangers’ use of unlawful tax strategies had a consequent impact on the proper Registration of their players. I won’t pour over the relevant rules here, suffice to say that in making payments to players via undisclosed agreements that were not provided for in the football contracts lodged with the authorities, many of Rangers top players have been ineligible to play in official matches for a decade or more.

As if it couldn’t get any more damning, the very Directors of Rangers who conceived, implemented and administered these contractual arrangements, were simultaneously Directors of the SFA and the SPL, the bodies responsible for Governance and Oversight. Step forward John McClelland, Martin Bain and Campbell Ogilvie. That Ogilivie is currently President of the SFA simply beggars belief. It appears as though Football in Scotland has been bent for 2 decades, and the people responsible were running the game.

There is a current SPL Inquiry into this issue, and perhaps that will reveal the true extent of the breaches of rules, but from the information now available in the public domain, there is a prima facie case for voiding the results of hundreds of matches in which Rangers have participated over the years, and stripping the club of any titles won during the period. The expulsion of the club from the game is talked of. In terms of athletes and duration, it represents a bigger sporting fraud than the Balco case, and is on that basis, the biggest scandal in the History of Sport.

Did I say a ‘moment’? Forgive me, but it has taken a little while to describe 15 years of malfeasance and deception.

In summary, in the 15 years from 1996 to 2011, Rangers have spent a staggering £168 Million more than they have earned. They have saved a further £47 Million of payroll costs via the use of questionable tax strategies. They have corrupted the rules of the game from the inside. And now they are bankrupt, with the very real prospect of £100 Million of creditors being turned over in one of the biggest corporate failures in Scottish business history.

Against this backdrop, Scottish Football has to divine the way ahead. We have to figure a way out of this mess and build a new future. Everything must be on the table, everything that is except narrow self-interest.

Following a Liquidation, if a group of supporters of a dissolved Rangers get together and start a new football club, one that looks like and sounds like Rangers, playing in blue shirts at Ibrox or elsewhere, I say good luck to them. Of such like-minded people are Football clubs are born. There is clearly a business opportunity given the size of the support for the old club. The pathway is straight forward: Put a Business Plan together; Invest the necessary Capital; and Apply for membership of the Scottish Football League. If the club prospers on the park they will be rewarded with promotions and will emerge into the top flight in their own merits, self-respecting and respectful. Such qualities does Meritocracy provide.

That is a decision though for Rangers supporters. The rest of us need to figure out a new plan. Without Rangers there will inevitably be less money in the top league, fewer fans perhaps, less TV and sponsorship money. We need to accept that reality and respond to it.

I suggest we look towards Cooperation, Collective Interest, Inter-Dependence.

The hardest hit will be those clubs most reliant on the money lost. Redistribution of TV income should be considered. No question.

Youth Development should be looked at again, not least because for most clubs it will define their future. Closer cooperation amongst the clubs can yield benefits for both clubs and players. A modified Draft system might be appropriate, whereby players graduating from Under 19/20 are available to be signed by other clubs in a predetermined sequence, perhaps with the developing club having a first option on 2 players, the remainder co-opted into the draft.

Considering Celtic’s worldwide scouting network, is there potential to share information on overseas prospects with the other clubs? An easy thing to implement.

Looking at income, the huge imbalance created by the participation fees paid to clubs qualifying for the Champions League distorts domestic competition. Can we consider a distribution to all clubs of Marketing fees and likes from UEFA for our clubs’ participation in UEFA competitions?

Finally, what other means do we have, given the collective talent and resources of the top clubs in Scottish Football, to generate new opportunities, new market share, new income? If necessity is indeed the Mother of Invention, we are not short of need. Let’s get innovative.

Of course, all of this is based upon a consensual approach to the crisis we face. It is widely reported that the other 10 clubs in the SPL are meeting next week to consider an appropriate response to the problems we all face. Celtic have not been invited to attend. This in itself is a concern, as it draws something of a line in the sand between the interests of the 10, and the interests of Celtic. One SPL chairman told BBC Scotland: “This is a once-in-a-lifetime opportunity to change things.” Such change, hatched by the 10 other clubs and forced upon Celtic is not a cooperative approach.

Moreover, Celtic are by a distance the biggest box office in the league. This season attendance at Celtic Park equates to 72% of the total attendances at all other grounds excluding Ibrox. A series of decisions on restructuring the SPL and redistributing the proceeds from the competition that excluded the stakes of almost half of the fans in the league is surely invalid.

Quite what will these clubs do with their self-acknowledged ‘once-in-a-lifetime opportunity to change things’?

Perhaps the 10 SPL Clubs will come up with some truly radical and forward looking ideas that are at face value, innovative, imaginative and laudable.

Perhaps though they won’t. Perhaps their ideas will be a little more self-interested. That is certainly the form book in Scottish Football.

Redistribution of SPL TV and Sponsorship income that excludes the Champion team from the divvy? Why not eh. The 10 Clubs will have the SPL voting majority to do so.

What would the implications be should the 10 Clubs decide that gate sharing was the way ahead for the SPL? Certainly, in the absence of Rangers, they would carry the voting rights to approve such a decision, irrespective of any objections from the fans whose money would be redirected.

And indeed, the admission of a New Rangers directly into the SPL, bypassing all meritocratic and long established practices in the game worldwide.

Establishing a new business is a challenging activity. Doing so in the midst of the financial chaos enveloping Rangers is utterly fraught. Those considering such a move need to have confidence in revenue projections and market. In the case of a New Rangers, the arbiter of revenue is the League they will participate in. It is reasonable to assume that informal soundings have been taken by those considering a New Rangers project from those with the power to determine which market they will operate in.

I have no problem with Stephen Thomson of Dundee Utd picking up the phone and chatting to Stewart Milne of Aberdeen. Indeed, I would expect it in the ordinary course, never mind the crisis we all face. However, given the likelihood that those behind a New Rangers are right now making their initial pitch to each of the 10 clubs, it is somewhat distressing that those same 10 clubs should in short course arrange a meeting to discuss and plan the way ahead, excluding Celtic and the interests of half the remaining fans of the SPL.

Paul Murray, Martin Bain, John McClelland, Alastair Johnston, Dave King: The men who brought this disaster down upon the game in this country, who corrupted the game from the inside for a decade or more, who burned £100 Million of creditors money, who are responsible for ripping off the Tax Payer and the Football Fan alike, who failed to act on Rangers’ crisis when action was most needed, these men and their likes are currently negotiating with the 10 Clubs the conditions for the entry of New Rangers directly back into the SPL.

The very essence of Sport, the history of Football, and the future of the Game in this country is to be decided in the coming weeks by the chairmen of just 10 Clubs. In the hands of these men is the legacy of the game accidentally entrusted, and its future precariously placed.

At our moment of crisis, when wisdom and consensus are most needed, what direction will they take? Where will Scottish Football go from here?

To a new, mature, responsible and progressive place? Or to Hell in a Handcart.

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