Stephen Henderson looks at the whole saga of Rangers FC and asks what got them into the financial mess they’re in.
Stephen Henderson delves into the story of how Glasgow Rangers FC went bust
Just the facts
On last Tuesday Rangers Football Club (RFC), under the control of owner Craig Whyte, entered administration and were docked 10 league points by the SPL. The proximate cause was £9 million of unpaid PAYE and NI remittances subtracted as normal from players and other employee’s wages but withheld from HMRC.
They leave behind a trail of unpaid creditors, including millions in player fees to other clubs, ticket money owed to several SPL clubs, fees to police and stewards for match day security, and a potential liability of £49 million for a controversial tax avoidance vehicle (the EBT, or “the big tax bill”) to be decided by a tribunal very soon.
All this follows an earlier court ordered seizure of around £3 million (the “wee tax bill”) earlier in the season. Then there is the controversial £25 million or so they have taken from a finance company called Ticketus to purchase a share of 3 or possibly 4 years future season tickets, and secured upon… well, who knows? This is a key question hanging over RFC future.
And what exactly was this Ticketus money used for if all these taxes and bills have gone unpaid? The administrators have confirmed that this money did not pass through RFC accounts. When Craig Whyte bought the club for a symbolic £1 last season he also had to pay off the bank debt to HBOS of £20 million.
Craig Whyte
He denies that he used the Ticketus money – effectively RFC own revenues to pay off their existing bank debt – but as of last night this looks increasingly likely to be exactly what happened.
Craig Whyte has previously been disqualified from being a director for 7 years after cheating the HMRC and other creditors when his company Vital UK was liquidated. He has been a director of many other companies but few still exist.
All in all the minutiae of RFC finances are very opaque, as Craig Whyte has avoided publishing audited accounts since he took charge and the administrators Duff and Phelps are not very forthcoming (yet).
The wider picture is crystal clear though. Even if RFC somehow win their ‘big tax case’ and can engineer a quite incredible deal with HMRC and other creditors they (or rather their parent company) have still signed away most of their season ticket sales for the next few years, effectively they have spent tomorrows revenues already. That is the highly optimistic outcome.
How did it come to this?
In truth though, whilst the reputation of Craig Whyte has been sullied, he is not the real cause of Rangers’ problems.
They have been brought low by the hubris of their previous owner Sir David Murray in pursuing a vainglorious Champions League dream, his banker friends that let them run up unsustainable debts, a supine board that approved a suicidal tax dodge, and a docile Scottish media that denied, ignored, or perhaps just didn’t understand RFC financial and legal problems.
Yesterday a number of irate RFC fans gathered outside Ibrox to protest their plight to the gathered media, but when one was heard to bewail to a reporter, “No-one warned us!,” there was an audible crash of jaws dropping all over Glasgow. For years Celtic fans with a business background had been poring over RFC accounts and predicting certain doom. Wishful thinking?
Close to a hundred million of debts run-up during RFCs earlier futile 90s assault on the Champions League were absorbed into Sir David Murrays parent company (MIH), but a persistent deficit of tens of millions was being run and the club was only deemed sustainable by auditors due to the remarkable valuation of club assets – and in particular their stadium Ibrox.
Then came the credit crunch and Rangers previous lenders Bank of Scotland were replaced by the new merged Lloyds-HBOS (or rather Uberior Capital, a wholly owned subsidiary) – and they didn’t like what they saw. HBOS were owed close to £1 billion by MIH (including the absorbed £100 million or so RFC losses) and around a further £20 million by RFC itself.
Then RFC had some monumentally bad luck. During an investigation over player transfer payments, Ibrox was raided by investigators and documents seized.
Nothing is believed to have come of this particular investigation. Coincidentally or not, shortly after this rumours started circulating of a potentially very large liability to the HMRC (the £49m “big tax case”).
RFC at this time actually went through a successful period on the field winning SPL titles, but when the board continued to spend lavishly on players, the bank appointed a controlling director and effectively demanded the club be sold. The RFC debts were small change compared to the parent company MIH but pressurizing or even downsizing RFC was deemed politically toxic.
The media
All of this was little reported by the Scottish Press.
The best that can be said of them is that they did not understand what was happening, but some would say that the sports reporters in particular were fans with keyboards, or that their readers and listeners didn’t want stories like that.
Alternatively you might say that most sports reporting was inside gossip from RFC or other the clubs, lobby briefing, churnalism — not investigation. On the debts and “big tax case” their RFC sources were understandably silent.
However Celtic fans knew all about it. They were long disenchanted with the Scottish Press and had developed a thriving online community of podcasts, fan forums, blogs, and websites.
An Irish freelance reporter Phil McGiollabhain was the first to find a reliable source that confirmed the £49 million tax bill, and thereafter he and others in this online community dissected every new development in RFC plight with glee and unrivalled accuracy. In particular the Rangers Tax Case blog and their various contributors have become the experts on all RFC travails over the last couple of years.
Indeed in the past few weeks, as the Scottish press have finally been forced into covering this story properly, they have taken to regurgitating months old information from Rangers Tax Case as “exclusives”.
Nevertheless when Craig Whyte finally took RFC off David Murray and HBOS hands near the end of last season the Scottish Press ignored the incredulous derision of the Celtic blogosphere and hailed him as a “billionaire” savior who would invest millions into the club.
Celtic fans were momentarily taken aback having initially christened Craig Whytes bid as a #fakeover on Twitter, just more moonbeams from the Ibrox club.
Why after all would someone buy a club with an impending £49 million debt hanging over it? So when Craig Whyte paid off the bank and bough RFC from Murray for a pound their fans were jubilant. And yet despite this the question still remained unanswered – Why would someone buy a club with an impending £49m debt hanging over it?
What now?
In many ways the RFC story is Scotland’s answer to the phone-hacking scandal as it involves a nexus of powerful intertwined themes: A complicit media, financial cronyism, the credit crunch, tax evasion, politics, and of course celebrity of the best kind: Footballers.
To me however, it shines a light on a wider theme. Many are for the first time looking at RFC and particularly Craig Whyte’s recent maneuverings and asking: How do they get away with that? Shouldn’t someone go to jail? If that is not illegal, shouldn’t it be?
Craig Whyte is somewhat a figure of fun in Scotland; few believe him a billionaire these days and fewer still a ‘savior’. And yet is he really so different to the previous owner David Murray, whose MIH ran up close to £1 billion in bad debts now saddled upon the taxpayer owned HBOS?
The politics of the situation are now toxic. Politicians from the SNP and Scottish Labour initially made positive noises about a favorable settlement for RFC although it’s not clear that they can influence HMRC in any way.
In recent days most have gone quiet though. They have been taken aback by the negative response from the Scottish public, on phone-ins, on letters pages, and on Twitter. There is a very sizeable part of the Scottish public, far larger than just the Celtic fans that do not want to see an easy deal for RFC.
Some point to Donaghy of Govan the nearby construction company with 175 employees, almost the same as RFC, who always paid their taxes, went bust last week – but attracted no calls for clemency, or indeed any support from politicians.
Other Scottish football fans remember well the words of Sir David Murray himself in 2002 when one of his own companies pushed Airdrieonians FC into liquidation for a debt of around £30,000:
“I feel very sorry for Airdrie and their supporters but we’re running a business. We have given them repeated warnings and felt they were playing on our good nature.”
See also:
• Scotland unites in wanting to save Rangers – Ed Jacobs, February 15th 2012
• SNP’s anti-sectarianism bill unites the opposition – Ed Jacobs, December 15th 2011
• Labour: Anti-sectarian legislation is right in spirit, but flawed in execution – James Kelly MSP, November 7th 2011
• Sectarian Law will address “ugly element” within Scottish society – John Finnie MSP, November 3rd 2011
• Has racism returned to football? – Shamik Das, October 25th 2011
62 Responses to “Rangers FC: How a market leader went bust”
Kevin Montgomery
Rangers FC: How a market leader went bust: http://t.co/dy1E9eqW – Stephen Henderson looks for the whole story
Mark Stevo
Creditors will take a bath for the simple reason that even the most optimistic valuation won’t be enough to pay them back.
As for RFC running at a loss, that’s because, at the risk of stating the obvious, there’s too much sodding debt. Debt which, post administration, will have dramatically reduced.
Mark Stevo
Finally, on the topic of RFC “using an insolvency” to avoid paying tax. They don’t have a choice. There’s no more money. They can’t pay the sodding great tax bill thry’ve run up. RFC, under the current circumstances, is not a going concern, the directors are liable if they don’t put the company into administration and continue to trade.
Stephen Henderson
@MarkStevo I can’t argue over what creditors (i.e. the HMRC) are likely to do- I have my own view based on the last few years of political developments around tax avoidance/evasion – but I really don’t know.
I just note that you are remarkably sanguine about the idea of withholding £9m in PAYE and using that to run the club. It strikes me that many RFC fans have assumed that CW always had some cunning plan to cheat the taxpayer but didn’t mind so long as it got them out of a hole.
I think the more informed RFC fans realise now that they too may get “pumped” whether Kayser Soze (cough I mean Craig Whyte) gets away with it or not.
Stephen Henderson
@MarkStevo
Sorry I replied before you last comment.
Of course they had a choice. They could have cut the wage bill during the summer instead of resigning their most expensive players, they could have sold Jelavic (possibly), they could have begun the downsizing. During Strachans 3-4 year reign CFC went from -£34m to £0m of debt. CW never bothered but just used RFC credit rating to borrow cash for himself (allegedly).