This week we’ve seen one of the UK’s best supported football clubs going into administration.
Image in the public domain
Rangers Football Club was effectively forced to bring in their own administrators when HMRC started proceedings to have a court appoint administrators to run the club. The move to put Rangers in administration could see the club losing many of their players, employees losing their jobs, assets being sold off, the club being denied access to lucrative European competitions and possibly even liquidation.
Administrators Paul Clark and David Whitehouse, of Duff and Phelps, have assured fans that their first priority is to keep the club operating and that “Rangers will continue as a Football club”.
From a business perspective it’s interesting to look at what has brought this high-profile club to such a low financial point. There seem to be two main factors which have contributed to the club’s predicament: spending more than was being brought in and tax avoidance.
Rangers are currently awaiting the outcome of a major tax tribunal. The club is accused of avoiding PAYE tax and National Insurance payments for 10 years by paying employees through a specially setup offshore Employee Benefits Trust (EBT). If the case goes against the club it could be ordered to pay the tax man as much as £75million.
While the outcome of this big tax case is the greatest threat to Rangers ability to operate as a business it was actually another tax dispute which sparked the move into administration. This week it has come to light that Rangers have failed to pay HMRC £9million in VAT and PAYE taxes. The non-payment of these latest tax bills was the reason why HMRC made moves to have rangers put into administration.
Aside from the tax problems, it was widely believed that Rangers had been operating at an unsustainable level of loss. This hit home particularly hard at the start of the financial crisis when Rangers’ bank got tough regarding the club’s level of debt and insisted that it be massively reduced.
The history of Rangers financial difficulties seems to date back to policies put in place by the previous owner of the club, David Murray; the EBT was set up during the era when he controlled the club. Many believe that Murray’s desire for success on the park led to overspending, debt and the implementation of the risky tax avoidance scheme.
However many fans and stakeholders have recently become concerned about new owner Craig Whyte’s (who was once banned from being a company director) approach to managing Rangers’ finances. The latest unpaid tax bill has built up during his ownership of the club; however it seems that Whyte has cleared the £18million bank debt that he inherited when he bought Murray’s majority shareholding in the club for £1.
Another major concern for those who care about the club relate to revelations that the club has borrowed £24.4mil against the next three years season ticket sales. On top of the money raised by the season ticket borrowing Rangers also sold Nickita Jelavic (the club’s top scorer) for £5million. Fans are concerned about how the cash is being used and there have been many calls for an AGM to be held, but Whyte has stated that any AGM must be delayed until the club’s accounts are signed off, and that the accounts are being held up due to the spectre of “potential tax case liabilities”.
All of these issues are set against a backdrop of difficult times for football clubs in Scotland. Hearts are another high-profile top-flight club with mounting cash problems, they’ve been experiences issues with players not being paid on time and are heavily indebted to their bank, fortunately the club’s owner also owns the controlling share in the bank; however he seems reluctant to put more cash into Hearts. With the collapse of the Irish broadcaster Setanta the SPL had to accept a significantly less lucrative TV deal with Sky and ESPN. Combine this with a gradual drop in average SPL attendances and it looks like austerity will have to be the order of the day in Scottish football.
What do you think needs the happen for Rangers to get back on track financially. Let us know in the comments box below.
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February 16, 2023
business, news