27/04/2011 246 Comments
How hard will UEFA hit Rangers over the sectarianism issue at European games?
That is correct. I do not know. You do not know. Martin Bain does not know. Craig Whyte does not know. David Murray does not know. Even Chick Young does not know. The members of the UEFA disciplinary committee probably do not know right now either.
Rangers were quick off the mark to try to set expectations by telling Chick Young that they expect a £100k fine and the rather novel punishment of Rangers’ fans not being given tickets for two away European fixtures. We have come to expect no less from such a finely tuned PR machine. (Rangers fans will dispute this assessment of their PR operation, but the club has faced up to the task of defending itself against the damage done by the KKK-style element in their support rather well).
What is puzzling about this is that we are lead to believe that a sale of Rangers could have happened this afternoon and will now likely be concluded tomorrow (if you believe the press). If no one knows how bad things could be with UEFA, how can you place a value on a business that you plan to operate for the next few years? The UEFA penalty could be anything from another slap on the wrist to a two-year ban from playing in all UEFA competitions.
The key point being that no one knows. Students of this blog will already know that the value of any business is the “present value of all future free cash-flows”. How can Craig Whyte judge the value of Rangers FC (and hence how much he should pay) if he does not know whether Rangers will be playing in European competition at all next season? If Rangers are playing in Europe, will part or all of the stadium be closed to paying supporters? Given that the club owes its survival at this point to the money generated in the UEFA Champions’ League from the last two years, how can Craig Whyte know how much to pay if he cannot even make a working assumptions about playing in the Europa League as a worst case scenario?
Which brings us back to a recurring theme in this blog: takeover or fakeover? I am assured by some friends in the world of journalism and PR that Whyte really is serious and has a sizeable amount of financing already secured. (No one has said that he has everything he needs at this time). That these takeover stories appear with precision timing just ahead of potentially bad news for Rangers does feed the sceptical fire.
Perhaps Whyte is just waiting until UEFA announce their penalty and he will finalise his offer accordingly. Or maybe it does not matter much to him one way or the other as he does not plan on running a football club? The last two blog entries on here have expanded on the idea that the only way to really profit from owning Rangers is through a partial or full liquidation. You protect your investment by converting it to debt (which will take priority in administration over HMRC) and would sell as many players as possible this summer and pocket the cash raised to reduce your exposure. Then you either sell after a good result in the tax case (pocketing a respectable profit) or liquidate on a hefty loss to HMRC (making a smaller but still decent return). In this scenario, the liquidation of current playing assets would cover all or most of your investment and your analysis might not be too badly affected by the cash needs for Rangers FC in 12 months’ time- for that would be a problem for some well-heeled real fan.
All speculation of course, but informed by experience and education that says that the idea of someone planning on making a legally binding committment to spend £52m over the next 5 years to own Rangers FC is just balderdash. Applying a reasonable cost of capital of 10% to this investment, Whyte (or any future owner) would need to be able to extract over £5m per year every year to make these numbers make sense. It is clear that Rangers’ owners (current and prospective) and the board of directors continue to lie to Rangers supporters about the takeover. With the willing participation of the Scottish sports media, Rangers fans are being deceived yet again.
If a deal does go through, it will not be on the terms which have been “leaked” to the media. Contrary to PR-placement stories, there is nothing stopping Craig Whyte from speaking publicly about his plans for Rangers. The oft cited ‘stock-market rules’ require only that all shareholders hear what you have to say at the same time and that you tell them the truth. So why does Whyte actually break these same much vaunted rules on a daily basis by leaking through his PR-lackies to the media? Giving information to all shareholders at the same time is trivially easy in the Internet age. So we are left with just one other restriction: the truth. What is it that is being reported in the Scottish media that Craig Whyte is unwilling to say on-the-record?
I do not know whether Craig Whyte will buy Rangers or not, but I do know that Rangers fans are being misled. Nothing about what has been proposed in the media makes financial sense. So we are left to seek rational explanations elsewhere.