The Waiting Game
23/05/2011 140 Comments
Another Scottish season has drawn to a close with Rangers FC taking the lion’s share of the spoils. With the possibility of qualification for the UEFA Champions’ League and profits for the 3rd year running, it will have been a great financial year for the Ibrox club. That 85% of the shares of such a business should be sold for just a touch more than a millionth of a penny each should not be forgotten. We are left to choose between the image of Sir David Murray as a benevolent team-player who made “yet another” generous gift to the club he loves or a man so gripped by fear for the consequences of his reckless illegality that he would give the club away to get off stage. We are all free to make our own choice as to which we think is more likely. However, those poor souls naive enough to believe that Murray bailed-out to help Rangers fly, at a price of £1 for control of Scotland’s “second-greatest institution” and at a time of strong profits, need to ask themselves: “Why did no one else want to buy Rangers’ shares at such a price?“
As an aside, let us also dispel the myth of David Murray as Rangers’ benefactor. Of the £165m that Rangers lost under his stewardship, not a single net penny was contributed by Murray himself. In fact, when we look at the net balance of related-party transactions between Rangers and Murray’s other companies, businesses from which he took personal cash dividends, it is clear that Murray removed cash from Rangers FC. However, as much as it pains me to say it (as it is what he wants) Murray is yesterday’s man and no longer a moving part in the on-going saga of Rangers FC and their illegal tax schemes. Given the loyalty of the Scottish media to Murray, he is unlikely to ever be blamed for anything that follows.
Next, let us just re-cap what we know to be the facts of this situation:
- Rangers are now owned by Craig Whyte’s newly formed “The Rangers FC Group Limited” (formerly Wavetower)
- Whyte’s company paid £1 for 85% of Rangers’ shares
- This same company purchased the debt owed by Rangers to Lloyds Banking Group
- Rangers’ debt has not changed as a result of this transaction
- The sale to Whyte’s venture has no direct effect the tax case
- I am still waiting for confirmation that the First Tier Tribunal completed on time
In a previous post, I covered Whyte’s “reluctance” to be questioned on either the tax case or the source of his funding. Until we know who has lent Whyte (a man of little legally traceable wealth) the £18m to purchase the debt from Lloyds, it is difficult to understand what the motivations of this transaction really are. Why has Whyte rushed in where other angels feared to tread? We will look at a few possible scenarios later this week.
However, before we look at these permutations, I would like to mention the rumour that was circulating this weekend: that Rangers have had a third offer to settle the tax bill rejected by HMRC. This time the offer is apparently for £23m. I know nothing about this. It is possibly true, but I have not heard anything either way. (Previous offers of £4m and £10m have been rejected in the last year. These offers were made by Rangers and were rejected by HMRC). While this rumour is possibly true, a £23m settlement cost on top of the cost of acquiring the bank debt for £18m would put the cost of owning Rangers well beyond any financial logic. With a total invested capital of £41m and a minimum required return of approx. 9%, Rangers FC would have to be capable to returning an average of about £3.7m per year to its owners, and that is before a single additional penny is invested in the playing squad. If this rumour is true, it would rule out the idea that Whyte is a rational financial investor. We would have to look at other motivations for owning this football club.
It would not be unusual for new owners to seek to settle long-running tax disputes with HMRC. If history is a guide, HMRC’s attitude has been to be flexible to new owners on interest and (even more so) on penalty payments where there is a willingness to pay the core tax bill in full. Where a settlement offer requires time to pay, flexibility on historical interest would be harder to obtain, and interest would continue to accrue. If the new owner was someone with a normal history with HMRC it would be easier to imagine that concessions might be made. However, the new owner is Craig Whyte. (At least he is the public face of the new owner). Craig Whyte is a name attached to numerous bulging files in the cabinets of HMRC (and possibly other government departments). A frontman with a famously chequered past? It would be surprising if HMRC would see any approach for a settlement as a chance to turn over a new leaf.
In coming posts, we will look at a matrix of motivations and outcomes for Whyte and the tax case. Despite the efforts of his PR henchmen [google the following phrase: "A self-made businessman (he started an accountancy course but failed to complete it")], the core facts of this situation have not changed. The Scottish media remain a mixture of spineless cowards and craven paid-off lackies. The tax case remains a threat to the existence of Rangers FC. Until we know more about who has funded Whyte and what he expects to achieve, Rangers FC will remain an enigma wrapped in a riddle.