Analysis of the Bain Papers

After 17 months of ignoring the abundant evidence that much was wrong at Rangers FC, the mainstream media appear to have been roused from their slumbers by this weekend’s revelations within the Bain Papers.  Reaction has varied from claims of surprise to defiant finger-pointing.  (According to one especially corpulent hack, Rangers’ problems are all just a product of meddlesome bloggers.  He has to say that, doesn’t he?  With over 25 years of obsequious subservience on the lap of Sir David Murray, he cannot now turn on him.  Rangers problems are a direct function of the failure of journalists at Scotland’s leading publications to do their jobs).

The reaction to the Bain Papers is finally proportionate to their significance.  Without fear of exaggeration, this is the most important story in the history of Scottish football.  It is good that the media has finally been shocked into saying something.

Journalistic  investigation of the scandals within Rangers over the last decade has amounted to nothing more than telephoning Rangers’ PR firm for a comment.  Obviously, it will  take them some time to catch up.  In their analysis of the Bain Papers, these neophytes have made several errors in analysis and I thought that it would be a good idea to help clarify a few of the most important points.

• Securitization of Ticket Sales
  The media reported that the Bain Papers made reference to Rangers having started the process of selling off four year’s worth of future season ticket sales in return for cash now. What these reports have missed is that Bain’s information on Rangers stopped being accurate as of 23 May 2011. The Bain Papers are themselves just snapshots in time and do not necessarily reflect the current state of affairs. As regular readers of this blog will already be aware, Rangers FC did indeed file paperwork related to the mortgaging of four years of season ticket revenues. However, this filing (an MG05s) was botched and actually released all of Rangers’ assets except the season tickets! The MG05s was later withdrawn and, to date, has not been replaced. This means that either the transaction was not completed or the finance company has given a loan without any security. Lending to Rangers without security is very unlikely, so in the absence of any more recent evidence, I believe that this securitization of season ticket revenues has not taken place. (Rangers might have found it easier to keep up with its bills if it had).
• Assignment of Rangers’ Debt
  Given the number of new readers to this blog, it is worth repeating my questions over the terms of Whyte’s purchase of Rangers’ debt. Had Whyte paid Lloyds in-full for the debt, there would be no doubt that Whyte would have also received £18 million of priority protection (and the probable right to appoint a receiver for his own benefit). However, I have received credible information that questions whether most (or any) of the debt has been paid for. If Whyte has only signed a promissory note and not actually fulfilled his end of the transaction, the benefits of the security interest would remain with Lloyds. Whyte would have no say in events should Rangers become insolvent under these conditions. Until Whyte or Lloyds make an unequivocal statement on who holds the floating-charge on Rangers’ assets, we will not know for certain who will determine Rangers’ future.
• Amount of Tax Bills
  The amount of the tax bills reported to be in the Bain Papers is slightly in error. The £14 million interest and penalties is actually just penalty. Interest is included with the £35 million assessments. A trivial point, but worth recording in the interest of accuracy.

Perhaps the most significant comment that can be made is over the timeline for a Rangers insolvency event. Despite all of the fevered speculation, all I can say is that I do not know if or when this will happen. Football clubs are odd businesses. They start their financial years in the summer with large cash-piles from season ticket sales and will see their funds gradually deplete until they start selling tickets for the following season in March or April of the following year. In between, the club must ensure that it is able to pay wages and other bills from the cash-pile, matchday receipts (food, a small number of ticket sales, etc.) and TV money. In Rangers first season in three years without significant European cash, there was always going to be a question on whether the club could remain solvent through to spring. The “wee tax case” has taken an additional £2.8m that would be badly needed. Without a line of credit at a bank to tide Rangers over, the risks are real and significant.

However, the reports of unpaid suppliers do not automatically mean that a crisis is days away. This could be part of the bureaucratic malaise that has fallen over the club since the takeover or it could be part of a stringent cash management plan to see the club through to the next transfer window in January. The key point being that there is no information to support a projection on how immediate a cash crisis is at Rangers. Rangers might have a problem tomorrow or next week, but my money is on the club surviving until a result is obtained in the First Tier Tribunal for the ‘big tax case’.

Assuming that Rangers lose the ‘big tax case’, Whyte will have the option to file for insolvency or he can appeal to the Upper Tribunal to buy more time. HMRC for its part would have the legal right to demand payment as soon as they they get a positive result in the First Tier Tribunal. By custom, HMRC do not generally enforce payment while an appeal is active if it would cause insolvency. However, if they feel that a delay in enforcing payment is just creating an opportunity for the alienation of assets, they might be more inclined towards flexing their legal muscles. Given these caveats and conditions, it is possible that Rangers could delay the hangman’s noose until this time next year.

In summary, I am delighted that this case has broken open. While Rangers’ supporters might not be in any mood to thank anyone for helping shed light on this situation, it is good for their club (if not its current and previous owners) that this information is in the public domain. It is especially good for our national game as a whole that we discuss the problems of the last decade openly. Rangers supporters need to ask themselves why they have meekly stood by while the future of their club has been imperiled and whether their “friends” in the media have done them an injustice by becoming complicit in the cover-up of this story.