By Ross McAdam | Guest Contributor
On Friday night Rangers released their accounts for the period 1 July 2016 – 30 June 2017, our first season back in the top flight of Scottish football since 2011/2012. The headline figures are that turnover has increased from £22.2m to £29.2m, an increase of 32% with the loss for the year increasing by £3.3m to £6.7m. However, as with any set of accounts, it is essential to dig deeper to understand the key drivers of the business.
The increase of £7m is mainly driven from an increase in ticket sales with the number of season tickets sold higher than the previous year, as was the average cost of a season ticket. An average league attendance of 48,893 is nothing short of sensational from the fans, despite an extremely disappointing season on the park. This season, every weekend home match has been sold out. Hospitality sales were also on the up. Sponsorship and advertising increase by a £1m and broadcasting income increased by £1.6m driven from playing in the top flight again.
There was an increase in wages of just under £5m reflecting new players brought in last summer and extended contracts to existing players. Other operational expenses were higher, driven from an extra home game last season and higher risk games that required an increased level of security.
Again, no directors took any salaries during the year. Key management personnel, presumably Stewart Robertson and Andrew Dickson’s, remuneration increased from £391k last year to £455k this year.
The headline figure is slightly misleading for various reasons. Firstly, there was a £3m payment made to Sports Direct as part of the termination of the retail deal although this is offset by £1.2m of dividends due from Sports Direct. Whilst this payment may be unpalatable to many, Rangers now have full control over their own merchandising and it would be reasonable to suggest that this money will be recouped within a short period of time.
There is also a theoretical £1m of interest in the income statement. Accounting standards dictate that interest-free loans must be treated as if they are being charged a market rate of interest and this charge reflects this.
There is an EBITDA (Earnings before interest, tax, depreciation & amortisation) loss of £100k. This is a very useful measurement of the real cash income versus real cash expenditure showing that at a purely trading level, the club is roughly on a break-even basis. This is probably the best indicator of the club being stabilised, with investor loans being required for one-off costs such as the payment to Sports Direct.
An additional £5.9m of loans were injected during the year resulting in a total debt balance of £15.9m broken down as follows:
- New Oasis Asset Limited (Dave King): £6.7m
- Directors (Douglas Park, John Bennet & Paul Murray): £3.8m
- Other related parties (George Taylor, George Letham, Andrew Ross, Barry Scott & Scott Murdoch): £5.4m
These loans continue to be on an interest free basis and those providing the loans have no security over any of the assets.
The directors make specific reference that it is their intention to have a share issue in 2018 to “provide further finance” and that the directors view the loans as “quasi-equity” as they will be converted to equity as part of the share issue. Whilst I do accept this view and understand the reasons why the investor group have opted to fund the club this way, I would like to see these loans converted sooner rather than later.
The board acknowledge that there are funding requirements of £4m this season and £3.2m the following season to which Dave King and ‘certain other investors’ have guaranteed to the auditors that they are committed to funding. However, the accounts were signed on the 26th October, the day that Caixhina was sacked, therefore these forecasts presumably do not include his pay-off. Any compensation to be paid for a new manager if this is required so this shortfall is likely to be higher. Conversely, any extended run in Europe, i.e. the group stages will likely see the shortfall next season reduced.
There is a deferred revenue balance of £17.8m, an increase of £2.4m on last year. This is, in the main, the 2017/2018 season ticket money so it is pleasing to see an increase in this regard which will likely indicate an increase in match day income in next year’s accounts.
There was a spend of £10.3m on new players during the year, the bulk of which will be players that were purchased in June 2017. As at the year end, £7.8m was outstanding in relation to player purchases which whilst on the face of it seems quite high, much of the initial payments for players were probably due in July 2017 and will be settled by today. The remainder will be due in instalments across the duration of the players contracts.
This, for me, is a source of real frustration. The likely split of this is £3m in summer 15/16 and £7m in 16/17 (with more spent after the year end date). The summer spend is higher than the rest of the SPFL Premiership combined. It is extremely difficult to argue that we have seen any substantial value from this outlay. At the time of writing, we have been knocked out of Europe by a part-time side from Luxembourg, we are out of the league cup and sit 4th in the league, albeit six points from the top.
For such an extensive investment in the playing squad the club must have been expecting a better run which I am sure has played a huge role in the departure of Warburton and Caixinha. This again, only highlights how critical the next appointment is and one which we simply must get right in order to progress.
Reference is made in the Chairman’s report that another benefit of the new retail deal is the extensive legal costs being incurred now halting. These costs are described as ‘substantial’ so this will free up more cash to be spent on the football side of the business.
From what I can see, the only ongoing litigation is that Rangers are suing former directors, Charles Green, Brian Stockbridge, Imran Ahmad and Derek Llambias, claiming a breach of fiduciary duties when they entered into a retail agreement with Sports Direct. The initial legal proceedings were also against Mike Ashley and Sports Direct itself, but the latter two parties have seen proceedings dropped as part of the renegotiation of the retail deal. There are no noted timescales for proceedings to continue just that the litigation is ‘ongoing’.
Whilst these accounts present an ok position there is still a huge amount of work to do to compete at the level we require. As an indicator of the financial gap between us and our green and grey neighbours, their first team wage bill last season was around three times higher than our wage bill and higher than our entire revenue.
Merchandise operations are now fully in the clubs’ hands. As the Chairman notes, this used to be a “once vibrant and highly profitable” operation therefore it is now in their hands to return to this. With an underperforming commercial department, this is an area of the business that requires strengthening but hopefully the appointment of a Director of Marketing will start to progress this area of the business.
In this set of accounts there is no European income and next to no retail income. Quite simply, both need to improve drastically over the next 12 months and beyond. Realistically, the Europa League group stages must be the target next summer. This would bring a cash boost of around £10m to the club (around one third of current revenue). This only reiterates how essential the next managerial appointment is, particularly after the real disappointment of the previous two.