Jelavic Transfer: What is at stake

The proposed move of Nikica Jelavic from Rangers to Everton has predictably stirred much debate. Much of the chatter has focused on what the receipt of fresh cash would mean for Rangers FC.  As we told you three months ago, Rangers cannot get to the end of the current season on their own cash-flow.  Without some combination of external capital investment from owner Craig Whyte, selling assets, or dramatic cost-cutting, Rangers would have faced- based upon the budget in place in August- certain bankruptcy before the season’s end.

Companies in dire financial straits stop paying their bills until forced to do so. Craig Whyte’s Rangers have seen more court than Andy Murray in recent months. It seems likely that had Rangers paid their bills on time and kept current with PAYE, National Insurance, and VAT that the club would have already folded. Depending upon your perspective, Craig Whyte is to be applauded for ducking and diving to prolong Rangers’ life or he is to be pilloried for avoiding the legitimate consequences of insolvency- technical and actual. Only Craig Whyte will know for sure whether he had access to sufficient funds to pay the club’s bills as they fell due (and has simply chosen to not do so).

The Jelavic transfer (if actually concluded) is a form of liquidation in place. They are digesting themselves for sustenance. Rangers will convert an intangible asset to cash. They will probably get to meet their next payroll without needing to bring in more of Whyte’s own cash. We do not know how much of the £6.7 million Craig Whyte promised to invest in Rangers has actually been delivered.  However, we do know from the unaudited accounts released that it was not delivered by 30 June 2011. (For any sports hacks reading, get an accountant to explain it to you).  It is understood that Whyte has been bringing in some cash to meet recent pay requirements, but since information security has tightened recently at Ibrox, we have not been able to get detailed reports on how much.

Rangers’ management indulged in farcical efforts at the end of the last transfer window to convince the world that Rangers had rejected a £9 million offer for one of their few sellable assets. Even the claimed £6.5 million offer from Leicester City is believed to have not gone further than an enquiry. Rangers are reported in the English media to be now ready to accept an offer of £3.5 million. To accept such a bid only a few months after rejecting much better offers would represent comically poor asset management- or it might be the first glimmer of truth to emerge in the Jelavic saga.  Succulent lamb supply is apparently scarce in England. Rangers’ ability to control how the story is reported there is limited.  Of course, here in Scotland, they have no such problem. The deal will be reported in our press in whatever way Rangers demand “£3.5 million now with add-ons and bonuses- let us just call it £6 million. A 50% profit on a player? What a deal!”

There has been a lot of speculation over how much of any transfer fee Rangers will see. My only source on this is from documentation prepared for Whyte in late May 2011, just after the takeover.

This excerpt seems to indicate that from the original £4 million transfer fee, that €2.4 million ( £2 million) remained to be paid at the end of May 2011.  Since that time, we have heard reports that Rapid Vienna had been threatening legal action to get Rangers to make good on a milestone payment. So it looks like the ‘ring-fencing’ of these funds did not actually take place under Whyte.  Reports in the Austrian press back in early November claimed that Rangers had fallen behind on a stage payment of €500k. We have no information on how many such payments were paid between May 2011 and now, but it is possible that Rangers still owe Rapid Vienna as much as £1.4 million from the deal. Furthermore, without access to the transfer contract, we do not know if any outstanding amounts must be repaid immediately on the player being re-sold or whether Rangers can take the £3.5 million now and stick to the original payment schedule.

There has also been chatter about Rapid Vienna’s claims over sell on fees. It would be a surprise if Martin Bain (a very experienced football negotiator) had agreed to anything other than the Austrian club receiving a percentage of profits. If Jelavic is sold for £3.5 million, Rapid Vienna would not see any additional fees.

Given Rangers’ reluctance to pay bills without  fuss, it seems reasonable to assume that there were no additional payments to Rapid. If this is the case, Rangers’ net haul from the deal could be as low as £1.9 million.  Although, if Rapid’s share can be delayed per the original payment schedule, Rangers might be able to use all of it as working capital prior to a result from the tribunal. In this case, Rapid would join the queue of unsecured creditors who will get stiffed should the tax case go “as well as expected”.

In summary, Rangers’ inexperienced management team botched the marketing of their star player in the summer (and will have infuriated creditors awaiting on payment last summer with stories of rejecting fabulous offers). That Rangers’ title hopes are being dented for such a relatively small amount should ring the alarm bells of reality for any of Rangers’ supporters who still believe that all is well at their club. Is it enough to get Rangers’ through to season ticket renewals? That depends on how much in the way of external funds Mr. Whyte can access.