Rangers Insolvency: Is it inevitable?

Sleep has become a precious and rare commodity in recent weeks and I find myself trying to pry my eyes open to absorb the details of a data-packed Excel spreadsheet. For any normal, well-adjusted person, thoughts of forcing one’s eyes to move cell-to-cell, checking formula-after-formula, deep into the small hours of the morning would evoke a dystopian nightmare from A Clockwork Orange. However, this is not just any spreadsheet. This material has me transfixed. Commonsense says “leave it until the morning”, but I cannot sleep.

This is Rangers’ cashflow projection for season 2011/2012.

Naturally, I cannot disclose the origin of the data in the spreadsheet. However, I have confidence in its authenticity and its accuracy. I believe that it portrays genuine insight into Rangers’ cash flows for the current season. While I anonymise the data and figure out a way of presenting it on a blog, I will just give you the conclusions.

  • Rangers FC face a cash shortfall by the end of this season of about £19m
  • Without a fresh cash injection, Rangers will run out of money in October / November

And most significantly:

  • Without a fresh cash injection-

Rangers will be insolvent before the result of the EBT tax case is even known

Whyte’s new-found candour has him admitting that there is a crisis at Rangers, and that insolvency is a distinct possibility. However, it is tempered with the narrative that he inherited a mess. Any crisis, according to Whyte, is a result of the EBT dispute with HMRC which goes back to a time before owning Rangers was even a gleam in his eye. Whyte has started to spin insolvency as drawing a line underneath the club’s longterm problems. His hints that he might not appeal a decision against Rangers in the First Tier Tribunal (FTT) could be a clue to his real strategy.

To blame the previous regime at Ibrox requires that insolvency can be staved off until the judges sitting on the FTT return with their findings. However, Mr. Whyte will probably be mistaken if he thinks that the tribunal will return a result within a few days of it concluding. An insolvency event prior to that point would reveal the nature of the immediate problem: Rangers’ failure to qualify for the Champions’ League group stages. The arrestment of almost £3m by HMRC and Bain & McIntyre (ex-directors) intensifies matters.

Readers of the replies section of this blog will be aware of the complicated permutations that face Whyte. Delaying an insolvency filing to beyond 60 days after an arrestment weakens the claims of a secured creditor (himself) to reclaim that cash. Delay also requires Whyte to up the ante and provide additional working capital. In return, his reputation would survive the mauling that would accompany a filing without an adverse result in the FTT to hide behind. Whyte also faces uncertainty over the timing of a response from the judges. If Rangers maintain a staunch defence to the end, it is possible that the FTT findings might not be published until February or March 2012. That would require pouring in more cash to survive to this point. (Surely Whyte would not countenance “throwing the game” in the last days of the tribunal to arrive at a speedy conclusion?)

It is worth explaining cash flow for anyone who has not spent much time thinking about the monetary needs of a football club, it is extremely uneven. Cash accumulates over the summer months as season ticket holders renew in great numbers and drops over the autumn as players are paid their monthly salaries and bonuses. A good European run bolsters cash receipts in the short evenings and if post-Christmas European football is on the calendar, then a good season is had by all. Without significant European cash after September, Rangers (like Celtic) face a long period of outgoings being in excess of incoming cash. This funding gap can only be filled by a bank overdraft (short-term debt), a loan, or with the shareholders throwing in more equity. Traditionally, Rangers (and Celtic) have dipped into their overdraft facilities to pay wages and other bills during the months of negative cashflow. There is a problem this season however: Rangers do not have a credit facility with any bank.

Since buying Rangers’ debt to Lloyds Banking Group (who were desperate to escape from the headache of being Rangers’ primary creditor), Whyte has failed to open another line of credit. It would appear that no bank wants to lend to a club facing crippling tax bills or one that has a fan base who will organise a boycott if it has the nerve to ask for its money back. (While discussing Rangers’ debt, a much forgotten fact is that Lloyds were not Rangers’ only creditor. An additional £4m in creditors is still on Rangers’ books bringing to total debt to about £22m when we include the money owed to the club’s parent company).

Are Rangers facing imminent insolvency? If Whyte, or his backers, decide to pour in cash to delay the filing then obviously not. Without additional cash infusions insolvency seems inevitable within the next month.

In coming posts, we shall examine the cash flow projections for Rangers in more detail and ask some of the questions that naturally follow about this case:

Did Whyte really just gamble on Rangers qualifying for the Champions’ League group stages? Was insolvency part of Whyte’s plan from the beginning? How can Whyte hope to make a profit from his £18m + £1 investment in Rangers?

As this blog has maintained from the outset, the story being parlayed from the top of the marble staircase does not make sense. We now have a few more pieces of the jigsaw and will be able to make more sense of this case as time goes on.

In the meantime, I need some sleep.

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