Finances

[The DA]

Yup.....as in you tax my patience whenever you try and be smart but I feel a duty to reply.

Don't feel obliged to act on that urge - follow Rangers' lead.

[lithgierose]

And there's the problem. Without cash in reserve*, there is simply no way they will ever get to the CL group stages. There is no way, in fact, they will ever challenge for the Scottish title (most Premiership Diddies get the occasional game in the EL preliminary rounds, which often cost the club to fulfil), unless they divert some income to the Officials' Fund.

Right. Royally. Fucked.

Although I reckon they may finally get that elusive Challenge Cup this year - IF they're still trading come Final Day.

*Maybe if they'd used young players and loan signings in the seaside leagues? Or got a manager who didn't do as much damage to the balance sheet as he did to the pie stocks? Ah, hindsight, you paragon of clarity!

she certainly has been.££££££££££££

[sugna]

Seems like a good time for an update.

The 2015 accounts have cemented my opinion that the only thing that really matters at Ibrox is the financial prognosis. The burn-rate is said to have become less extreme; but the points at which additional urgent finance loans have been taken have been pretty much where predicted, so it seems that may not have changed so very much.

It's clear that 2 mutually-exclusive possibilities exist:

1. A signficant source of non-onerous working capital (probably shares or loans) is identified to continue trading over the coming months; or

2. The club* ceases trading.

Last year's ST sales, from the information available at the time and subsequent emergency loans, just about covered existing Ashley & director loans. This year there is no chance of reaching zero, post-STs. Indeed, the accounts identify £29m falling due within a year of the end of the accounting period - which seems very high and possibly a little cryptic.

So I come back to my previous point of puzzlement: is there any sense in both sides scoring points with snide comments when it appears that there isn't an obvious, sustainable way forward? I just can't see the relative importance of the smaller points against this bigger one, and so can't get excited about the sniping on both sides in the BRALT, etc. :-(

On a wider canvas, I have the feeling that we may be getting closer to a "reality point" in the English game, too; and I fully expect the clubs involved to try not to blink first, and to take on further unsustainable debt when doing so. The rules that apply to football clubs remind me of those that dot-com companies observed about 15 years ago, having had some personal experience there. The business model was crazy: keep spending millions above what's coming in the door, and if you spend fast enough a miracle will happen and it will all be fine. But don't we know better nowadays?

* I'm using this in its traditional sense, not making any club-company distinction. Because it's far too tiring. :-)

Edited March 22, 2016 by sugna

[The_Kincardine]

Fuxace.  First we had Dons_1988 on The Big Thread and now we have shuggy.  This 'diddies being reasonable' thing will have to stop. How can we possibly play 'tit for tat' pish when our playmates have a sudden outbreak of common sense?

[Monkey Tennis]

Fuxace.  First we had Dons_1988 on The Big Thread and now we have shuggy.  This 'diddies being reasonable' thing will have to stop. How can we possibly play 'tit for tat' pish when our playmates have a sudden outbreak of common sense?

There's nothing remotely sudden about it.

The work of many of us diddies, has been characterised by common sense throughout this.

[Dons_1988]

Fuxace. First we had Dons_1988 on The Big Thread and now we have shuggy. This 'diddies being reasonable' thing will have to stop. How can we possibly play 'tit for tat' pish when our playmates have a sudden outbreak of common sense?

Finally, the recognition my years of internetting has deserved.

Proud day.

[The_Kincardine]

There's nothing remotely sudden about it. The work of many of us diddies, has been characterised by common sense throughout this.

It's cute seeing you trying to snuggle up to the even-handed diddies.

[strichener]

It's cute seeing you trying to snuggle up to the even-handed diddies.

Not as cute as you defining even-handed as being something you agree with.

[Monkey Tennis]

It's cute seeing you trying to snuggle up to the even-handed diddies.

I'm extremely even handed.

If you think otherwise, that won't trouble me.

I'm just not going to ignore it when you keep making stupid sweeping digs about "the diddies".

Although this stuff isn't important, we're accountable for what we post. You post lots of shit that endures no scrutiny.

[sugna]

In before the AGM.

There's been a lot of heat but not much light on the finances front since the regime change. However, I find myself just as baffled as I was with the old board's approach, in that the fine detail of loans and the aspirations for success on the pitch are given a lot of air time; but the big picture of medium-to-long term sustainability is hardly touched upon.

Specifically, broad-brush estimates of when funds become exhausted continue to be pretty accurate predictors of when director loans - or less transparent overseas "investment" - are required and are taken. The servicing of such loans clearly can't come from operating profits, and with the de-listing from AIM and the removal of NOMAD supervision of corporate governance (I think that everyone now agrees, in retrospect, that there was never an intention to replace the NOMAD that resigned), there is presumably some flexibility in the creative solutions that can be found. My layman's understanding is that non-NOMADed financing just has to be legal and to "work"; while a NOMAD would also have had to perform a sort of super-auditor function: to endorse the approach as sound and good practice, without the auditor's option of saying "we're only going along with this because the directors have promised to provide funds if needed".

So, coming back to the AGM, I think that the only interesting point is the special resolution for disapplication of pre-emption rights. If passed, this effectively allows arbitrary issuing of shares at a price that is not (as far as I understand) vetted in any way, and does not require a pro rata offering to existing shareholders. Special resolutions need 75% shareholder approval, and the same resolution came very close to passing in 2015. There has to be a good chance of passing this time. It looks to me as though the resolution is in about equal parts motivated by the need for more control, and for more finance. But with existing loans of (say) £10m to be converted to equity, the share price will be interesting. Too low, and little if any additional money can be brought in; too high, and there's a vulnerability to purchase by more hostile parties with deeper pockets. (Or does disapplication include a veto on purchasers; and is under-writing required?)

Although there's almost some arithmetic that can be done around that point, it is still one level of abstraction away from the main question: since any (non-rights) share issue looks as though it could only provide sustenance for a year or so, how can it be possible to provide finance that allows the club to continue to operate in the medium term? Is that even a question that the fans are interested in? Is winning the league more important than surviving? That seems like a mad question, but is it really, in the minds of the supporters?

The significant input of funds from fans through STs, fan associations, etc. still seems to be leaving a big gap in funding. I think that the most misleading terminology in this area, which you see everywhere, is "investment": there is no actual investment as there is no prospect of any return. It's hard to get a handle on this as the only other club with anything like the same aspirational expenditure model is of course Celtic, and they are insulated from the worst privations through having a genuinely wealthy owner, (perhaps?) good governance and European competition income. Without the last of these, I can't see how Celtic can really be considered self-sustaining either.

[dave.j]

Rangers have £20m worth of debt, to be repaid in shares at the next share issue.

£20m which has already been spent.

How much would they want to raise from the next share issue? A further £10m to keep things ticking over on a premiership income, for a couple of years?

So, £30m worth of new shares. How much of a dilution would that mean for current share holders? Seems a bit like the turkeys are voting for christmas, then going out and buying the apple sauce. 

 

 

 

[sugna]

2 hours ago, dave.j said:

Rangers have £20m worth of debt, to be repaid in shares at the next share issue.

£20m which has already been spent.

How much would they want to raise from the next share issue? A further £10m to keep things ticking over on a premiership income, for a couple of years?

So, £30m worth of new shares. How much of a dilution would that mean for current share holders? Seems a bit like the turkeys are voting for christmas, then going out and buying the apple sauce. 

It's interesting how Dave King manages to get thing into the "common knowledge sphere", despite them being at variance with reality. The SA judge wrote a handy guide on this for all of us: "Don't believe anything he says."

What he actually claimed was that there had been share purchases (the original £6m, presumably, from him and T3B after the price had been driven down by boycotts) and loans, then rounded up from £19m for that combination to £20m.

That figure has now stuck, like the previous £20m that he gave Rangers. Or rather, a company he was involved with gave to a company that David Murray was involved with, at a time when he might have been hoping to see a return on his speculation.

Already you can read and hear that the "the sum that Dave King and the board have invested as soft loans is currently standing at £20m". The best that I've been able to deduce about actual DK-related loans is that they might come to about £1.5m, and they may not actually be from his personal assets. But who knows?

Since the option of raising significant (in survival terms) finance from a non-rights issue appears not to be feasible, the only motivation can be to use the new shares not for new money, but for taking strong control. That has to take the interested parties plus guaranteed supporters well above 75%. At that point, pretty much anything goes. If special resolutions and EGMs are available on demand, then all sorts of exotic options could be envisaged. There's little or no prospect of continuing to survive while balancing aspirations, revenue and expenditure with the current model; so a radically different model, presumably with new income streams, might be the target. But that can't be entirely within the Scottish game, and it's currently too risky to build-in reliance on regular and significant European money.

I can only see this as a means of moving to a different environment, but then England or something like the Atlantic League seems very far-fetched.

So in summary: the special resolution can only be a control tactic, not a direct source of funds; and the control can only lead to survival with a very different model to the current one, where there's an "obligation" to spend at a rate that income can't support.

The tale doesn't get any less intriguing. Frankly, I think that the other SPFL clubs should be upping their games and getting new scriptwriters in to compete with the ongoing drama. And yes, I'm aware that Alloa are singularly failing to do their bit, and are continuing to live very predictably within their means. We are part of the problem.

[Ross.]

On 25.11.2016 at 11:11, sugna said:

the only other club with anything like the same aspirational expenditure model is of course Celtic, and they are insulated from the worst privations through having a genuinely wealthy owner, (perhaps?) good governance and European competition income. Without the last of these, I can't see how Celtic can really be considered self-sustaining either.

Back to a previous point you made. There was a very good blog by The Swiss Ramble on Celtics finances. Essentially the conclusion was that without European prize money, they need to sell players to break even. Which pretty much ties in with what Celtic do. That only works if you consistently have players that are worth selling, which until now Celtic have had, but it is not always guaranteed that they will be able to fall back on that option.

[THE KING]

5 hours ago, Ross. said:

Back to a previous point you made. There was a very good blog by The Swiss Ramble on Celtics finances. Essentially the conclusion was that without European prize money, they need to sell players to break even. Which pretty much ties in with what Celtic do. That only works if you consistently have players that are worth selling, which until now Celtic have had, but it is not always guaranteed that they will be able to fall back on that option.

 

[scottxs]

Former Rangers striker Kris Boyd says his old club would have to embark on a spending spree of up to £30m to catch up to rivals Celtic. (Scottish Sun).




Hahaha

[Disco30]

oh 30 mil could get the Rangers an estimated 6 sinclairs and 6 dembeles they would be a formidable force I'll admit.

[sugna]

Two brief observations on the CoS case involving King and the Takeover Panel case:

1. King's counsel appears to be making points that don't directly relate to the facts of the case; but instead to whys, wherefores and the consequences (rather than the fact) of a CoD order. Appears to have been closely instructed in the preferred DK modus operandi [does that Chewin' the Fat thing, with fingers wagging at the throat]: legal argument from the Aldridge Prior school of obfuscation.

2. Lord Bannatyne is immediately nipping every such excursion in the bud, not allowing irrelevancies any air time. Quite surprised at how unequivocally he's doing this.

It will be interesting to see how it plays out. Bannatyne seems to be pretty focused on the facts of the case and has already given some primacy to the Takeover Panel's code. Since no one has ever been taken to court for ignoring this instruction before, the code might conceivably have been a weak point: there is no precedent testing and establishing it for this purpose. But Lord B appears to be taking it as read, and is rejecting points from King's counsel that contravene it entirely on that basis.

Relevance to a Finances topic? Well, King's counsel is making great play of the fact that King is (relatively) on his uppers, and can't source around £11m to assure an offer for the remaining 70% of shares. This is the man who said:

"Would I be willing to invest £30m...? Of course. Sure."

[Sting777]

As quoted by James Doleman

DK  , "I can't comply with the regulations because I'm skint"

 

The Klan are not gonna be happy with that!

 

 

[sugna]

Some thoughts on recent events, prompted by the Rangers accounts (which I've just had a brief look at), and how they might link to past and future events.

This brings in information from a few sources, so it's necessarily quite long.

Takeover Panel

1. According to Alasdair's Lamont's tweets from the CoS, King asked in May if NOAL could make the compulsory share offer, and was told that they could. He said that NOAL may be in a position to make an offer.

2. However, his counsel told Lord Bannantyne that it was futile to make an offer, as King wouldn't be able to fulfill it and so would end up being in contempt of court.

Those two positions can't really be held simultaneously, unless NOAL may have been able to make the offer in June, but can't make it now. Fair enough, not necessarily glib and shamelessly disingenuous, and NOAL's assets could easily have depleted to below the necessary £11m or so; unless, of course, Rangers were to rely on NOAL - and only NOAL - as their stated guaranteed lender in relation to the going concern emphasis of matter. Which they do.

Sports Direct

After the absolute slaughtering handed out to King in Richard Millett's judgement, it was no surprise to see King publicly backing fans starting to buy strips: some of the preliminary remarks in that judgement made it very clear that it was heading towards a highly adverse judgment at full trial, and that Millett considered King to have been disingenuous and not to have acted in the way that a reasonable director of RRL would have acted (which seemed to me at the time to be a hint that he hadn't fulfilled his fiduciary duties). So when King claimed a greatly improved deal - while somewhat hilariously providing as evidence of the improvement some details that were documented to be the same as the existing deal - it seemed like a sensible way of protecting his hide. I wasn't astonished that the Rangers fans appeared to buy this; I was more surprised than perhaps I should have been in the way that it was reported in the news. The story should have been "man claims that 50% is much more than 50%", because they were the "known existing" and"claimed new" deals.

It was also interesting to see the volte face on promotion of sales at any cost: shirts reduced from £55 to £20, then a quick depletion of stock, then no new stock for months. Almost as though the sales push had just shifted stock that had been lying around to Ashley's inconvenience.

So I read this as a bit of glib-shamelessness, to get out of some legal bother: no material change, but a bit of heavy topspin to get it over the line with the fans and save DK from another punishing day in court.

The reality appears to be that King not only had to endorse the sales (his tacit encouragement of the boycott was a point brought up repeatedly by Millett); he also had to pay £3M for the privilege of doing so. Probably still a bargain, especially, as it was paid by Rangers (NOAL can always loan them the money... for equity), and it removes any scrutiny of behaviour as a director of RRL. Given King's actions, it will be interesting to see how appealing the post-SDI deal will appear to prospective new partners, when it concludes. I wouldn't be astonished to see SDI picking up the new contract.

Investment

Not sure what to call this part. I really mean the way in which continued over-spend can be managed, through the availability of some sort of external (to the operation) funding.

There was a lot of talk in the media around the time of the last Rangers AGM on raising funds through shares issues; subsequently, there was a narrative that uncooperative shareholders had blocked this (esp. Super Ally). In fact, there are two possible share issues on the table: a rights issue (motion passed at AGM) and a non-rights issue, based upon the disapplication of pre-emption rights (not passed). The latter is the one that allows more control, and the "debt for equity" swap that we hear about.

The problems with the non-rights issue are:

1. The board can take a lot of control from loans that only they were "allowed" to give.
2. Little if any new money comes in to Rangers.

I don't see any form of shares issue as bringing in money with the current model, and in the foreseeable future. It looks like the only source of funds - indeed the accounts state as much - is NOAL loans. How can these be sold as "to be converted to equity", once the equity has all gone? Continuous dilution, more loans, more conversion, welcome to the NOALStadium.

[sugna]

King has lost another case, this time in the CoS, and will be obliged to make the "concert party" offer.

On a brief reading, the judgement is as withering as all of the others that he has been involved in. Ripped to shreds from around para 87. Para 92 is a particular highlight on the smoking gun front, and 102 sums up "the impecuniosity argument" nicely: to paraphrase, "It's irrelevant; but even if it were relevant, it wouldn't succeed."

Para 114 bears a bit of quoting:

As Mr McNeill pointed out, on two occasions the Trusts have been willing to provide money for the purchase of Rangers shares when the respondent wished them to do so. Now, suddenly, when the respondent does not wish to comply with the terms of Rule 9 the Trusts no longer are willing to provide any money. This tends, as Mr McNeill submitted to show actual de facto control over the trusts by the respondent rather than the opposite. I believe that Mr McNeill is correct in his submission that the respondent has de facto control over the trusts.

"He's a big liar."

The audited accounts required the promise of funds from King NOAL, for Rangers to be seen as a going concern. The judgement uses the term "alleged" 8 times, when referring to King's claimed lack of funds. It will be interesting to see how those funds appear or don't appear, to satisfy both the Rangers going-concern criterion and King's concert party reparation costs.