A Closer Look at the Accounts

 RANGERS INTERNATIONAL FOOTBALL CLUB PLC – ANNUAL STATEMENT to 30 JUNE 2022

A view from an Accountant and Season Ticket Holder

One of the most eagerly anticipated days of the Scottish Football Calendar has arrived, the release of the Rangers Accounts. There will be a lot of nonsense being talked around these and a lot of misinformation flying around on social media as to what these figures mean so I thought I would give a run down of my views on it for those who want to cut through a lot of the noise.

There is already some good information out there, particularly a thread this morning from @KieranMaguire on Twitter who is the go-to guy for analysis on football finances. If you want a good break down of the key figures and comparisons to prior years, to our rival’s performance then I would suggest you take a look at his thread. I am sure he and others will be appearing on Rangers podcasts over the next couple of days to cover things in more detail. I didn’t want to just rehash the points he and others have made and take a more general overview and what this means going forward, for the fans and for the board given relationships being so strained at the moment. 

PERIOD OF THE ACCOUNTS

The first thing to consider with these accounts is the period to which they relate – this is the year ended 30 June 2022. Everything that happened from 1 July 2021 to 30 June 2022. To answer some of the most frequently answered questions – this means these results DO NOT include the sales of Aribo and Bassey, the Champions League money from this season or most of our summer signings this year. The transfer related activity mostly relates to the previous summer and this January. 

BRIEF OVERVIEW

Without going over too much information that is already out in the domain, it is key to highlight that revenue of £87m is obviously, and not unexpectedly, a record. Helped by the significant run in Europa League. This is not news to anyone and a good sign of progression and moving in the right direction. I think it is important to highlight that the recent interviews from John Bennett and James Bisgrove, particularly around the financial side of things have been very accurate. Commercial revenue in the region of £27m is correct, the extended Europa League run being slightly better than a very poor Champions’ League group Stage campaign appears correct and the significant investment in the Stadium, Training Facilities and Edmiston House all appear to be bang on. 

The concern for fans will be that even with a Europa League run to the final, and all the additional sell-out crowds that brought, and the sale of Nathan Patterson and compensation for Steven Gerrard and his backroom team, we still essentially made a loss of just under £1m overall. We can now see why significant investment in the squad was not made this summer even with CL qualification.

Purely based on information being released throughout last season, and assuming transfer fees and compensation received were reported accurately – I would have been expecting a profit in the region of £5m - £10m overall. This did not include the heavy compensation settlement for “previous retail arrangement” (essentially Sports Direct case). An operating profit before the “one-off” settlement figures of around £5m-£6m are slightly on the low side of my expectations but not too far away. 

This cost the club £8m although that is discounted slightly in the accounts due to being repayable over a longer period of time and we received £1.25m ourselves. This is the key downside to these accounts – essentially all the good work done financially has been wiped out this year from this. Personally, I think this was a necessity to get rid of SD at the time, but has ended up being very costly. The board have stated in the accounts that they may be able to defend that successfully and reduce this outlay going forward, however, the fact it is recorded as that in the accounts suggests a certain level of certainty that it is going to be the final settlement figure. 

TRANSFER ACTIVITY AND THE “PLAYER TRADING MODEL”

The purchase and sale of players in Football Club’s accounts and how they are recorded in accounts are one of the most widely misconstrued pieces of information amongst those with little accounting knowledge. It would take an entire article or hour-long podcast to explain in detail and I don’t want to bore you all with that but some key points to take away from the accounts:

Rangers received in the region of £14m in player sales in that year. This would have included the sales of Patterson, Itten, Edmundson and Bacuna. At the times of these the reported sales figures were roughly £12m, £1.5m, £750k and Bacuna was anywhere between £0 and £2m. I would doubt £2m for Bacuna, more likely in the region of about £0.5m. These estimates appear to be largely accurate.

Remember the sales of Aribo and Bassey are not included in these accounts and will be included in next year. 

It is also important to understand the difference between guaranteed transfer fee, future add-ons and clauses, and when the cash is actually received and how this is recorded. The £14m is guaranteed transfer fees received, not including future add-ons and clauses. When the club receives the money for these does not impact the guaranteed fee, only the amounts due and discounted interest factor. Also, any potential add-ons or sell on clauses are not recorded as guaranteed income until the conditions for those have been met. For example, if Patterson’s transfer include performance related add-ons such as reaching 50/100 games for Everton or reaching Europe or avoiding relegation we will only record these as income once those conditions have been met and not at the time of sale. The same applies for when we buy players. 

 Generally, for large transfers, the industry standard is you get 30% of the guaranteed fee on day 1, 40% in 12 months’ time and the final 30% in a further 12 months. Smaller transfer fees may just be settled in full at the time. Going by the accounts, with £3.5m in trade receivables due in more than one year, I would imagine this is the final instalment for Patterson due January 2024. The first instalment being received in January 2022 (included in these accounts), the second instalment being due in January 2023 (within 12 months of the yearend – a “current liability”). 

A fairly clear piece of information from the accounts is that we received £4.25m from Aston Villa for Gerrard and his backroom staff. 

With regards to player transfers – we spent £7.5m on player registrations and related costs. This will include the purchases and loan fees for Bacuna, Oforboh, Sakala, Lundstram, Sands, Ramsey, Zukowski and Diallo. It may also include performance related add-ons for prior purchases. There is no break down of everything included in that. It will not include this summer’s signings of Davies, Yilmaz, Matondo, Tillman and Colak. The outlay for those was in the region of £15m this summer. The accounts also highlight that guaranteed player sales since the yearend (i.e. 1 July 2022 up to present day) amount to £19.9m. This means that the Bassey deal of a reported €19m guaranteed up front, together with Aribo of £6m appear to be slightly over estimated, but we will see more accurately in the accounts next year. 

The key point going forward, is the “player trading model” and I think the significant concern for fans and the club at this present time is the value of the current playing squad and where the next “big sale” is going to come from. Due to lack of investment in the playing squad we now have an ageing squad with little or no realisable resale value at this time. 18 months to 2 years ago, our squad’s main assets were Aribo, Kamara, Kent and Morelos. Due to a mixture of running down contracts and being woefully out of form, 4 players who we realistically could have received in the region of £10m+ EACH, we are now facing the realistic possibility that we may not even receive £10m combined for all four. Kent and Morelos can essentially sign pre-contracts in January and leave for nothing next summer, Aribo was sold for circa £6m and you’d be doing well to get a few million for Glen Kamara now. And this is where my irk has been in relation to the board. The mismanagement of this squad has been criminal. If you asked where the next £10m player sale was coming from, I would genuinely be struggling to realistically be confident in getting anywhere near that for any of our current squad. 

That leaves us in the position that in order to fund a squad rebuild we would not have the transfer sales to do it unless someone has a “Bassey-esque” rise to stardom over the next 6 months. This is highly unlikely and given that we are no longer in Europe this season, won’t be able to showcase their talents on the European level. Which leaves us in a pretty poor situation where we don’t have the player sales to fund a much-needed squad overhaul and will require significant input from investors who may not be willing given the tens of millions they have already put in over the last few years with little prospect of any significant return.

INVESTORS, DEBT AND LONG-TERM STABILITY

I have seen a lot of information on the repayment of investor loans, which the club is quite keen to point out, probably as a response to the apparent lack of transfer activity over the last 2 years (although over £20m has been spent on players). There have been significant detail about the amount of investor loans repaid. This is true and the loan due to Dave King has been repaid in full and he is no longer owed anything. However, the key part is that overall investors loans have actually increased and those loans that have been paid off have been replaced by loans from other investors and directors. So the idea we have reduced our debt significantly is just inaccurate, it has actually increased slightly, although you may see that reduce this year. This is quite a concern really as it cannot continue like this going forward.

One point that may be significantly missed throughout the financial analysis is the report of the auditors. In prior years there has been a statement relating to “significant doubt” to the Going Concern of the company going forward. In short, this means that the company was reliant on investor loans in order to see it through the next year. It is pleasing to see that this has been removed from the Audit Report. This essentially means that the Auditor believes they have enough evidence to suggest that the club can meet all its’ liabilities as they fall due over the next 12 months without significant concern. That might not mean an awful lot to some folk – but what it really means is that the club has moved beyond a position where it is entirely reliant on investors loans for cashflow and is on the path to self-sufficiency which is a good sign. 

CONCLUSION

An awful lot of information to take in throughout this piece. I would like to summarise the overall picture as succinctly as I can:

In a year with unprecedented European success and significant turnover which should have seen a reasonable profit made, the club have been hit financially with the impact of the Sports Direct case which has wiped out any profit. 

Park, Bennett etc. have put their money where their mouth is and got the club into a position in a relatively short period of time which was inconceivable a few years ago. They have, however, in my opinion, been let down by the Director of Football and the mismanagement of the current squad. It is difficult to see where the next significant player sale will arise from. Many fans see a squad overhaul required ASAP and where the finance for this comes is not evidently clear which is a huge concern for the quality of the squad going forward. 

Long-term debt is still significant but required due to the significant capital expenditure. 

In short, costly litigation and mistakes have eroded what should have been a good financial year. The club are still only “on the road to self-sustainability” and not there yet. Without an exceptional improvement in recruitment and player-trading over the next two transfer windows, significant improvement in quality on the pitch may yet still be a bit way for Rangers.