Rangers Deathwatch Q&A

If my twitter feed is anything to go by, the quickening drumbeat surrounding Rangers FC (In Administration) is causing confusion in those who have only recently become aware of the immediacy of this crisis. So, I will try another Q&A to help clarify some of the most commonly asked questions and misapprehensions. (Apologies to our resident technical experts and old-timers for any simplifications).

What happened yesterday to cause all the fuss?
Rangers’ administrators released a statement saying that negotiations with players aimed at avoiding a mass-layoff had failed and that if a buyer did not step forward very soon (by Friday), drastic action would be necessary.

Does this mean Rangers will be liquidated on Friday (or Monday)?
No- not necessarily. Duff & Phelps did not clarify their intended course of action. Their options are a cull of the first team squad to bring about rapid cost cuts or they can cut-to-the-chase and just liquidate if they do not see any serious prospects of anyone buying the club in its current state. (Of course, if a buyer is waiting, a pre-pack is also possible. This would be a form of liquidation. The existing company would cease to exist).

What do you think is most likely- savage cost cuts or liquidation?
If I was the betting type, my money would be on savage cost cuts. It could be important for Duff & Phelps to be seen to have exhausted all options. However, we will see some arguments for immediate liquidation below.

Is liquidation inevitable?
Eventually, yes- it seems that way. The liabilities amassed by Rangers FC (In Administration) are probably more than the underlying business is worth- even without the Big Tax Case (BTC) liability. Include the likely amounts for underpayment & interest for the BTC, and Rangers’ total debts will probably be in the region of £70m. HMRC would then proceed with the penalty phase. This will add an additional £18m or thereabouts. No one planning on keeping Rangers alive can hope to spend less than £88m before a player is signed or a ball is kicked.
Keeping Rangers alive would also entail dealing with the responsibility for at least a decade of breaking league rules regarding player contracts and other illegal payments (such as those exposed in the Wee Tax Case). In short, Rangers today are an accumulation of time-bombs set years ago as expediencies designed to “win the title now” without regard to the future. They are all exploding together now. It would simply make financial sense to let the club founded by ‘four boys with a dream’ on Flesher’s Haugh in 1872 die and to start again.

Why have Duff & Phelps not cut costs more dramatically?
They say that they have been trying to preserve asset values by retaining as many sellable players as possible. This is quite possible and a case can be made that this is a reasonable approach. However, one of the primary roles of an administrator is to determine if a distressed business can be rescued or not. To go into liquidation without wielding a chainsaw to the cost structure would be strange. Most insolvency practitioners will want to demonstrate whether costs can be reduced below income. Given the unique legal powers of an administrator, if they cannot reduce costs below income, then no one can, and the business is beyond salvaging. Hence, I would be surprised if there is not at least a short period of Rangers operating with what amounts to a youth team playing for very little money. The administrators have other drastic tools available- such as cancelling season tickets and asking all fans to pay for entry to all future games. Given the stakes and emotions bound in this case, it would surprising if Duff & Phelps do not want to be seen to have tried everything.

Why have they mentioned not fulfilling all fixtures this season?
If they are going to skip the cost cutting and proceed straight to liquidation, failing to show up becomes inevitable. I understand (but have not yet verified) that the process for a team that does not fulfill all of its fixtures is that all of its results are voided and it finishes the season on zero points. (or -10 points in Rangers’ case due to the penalty for insolvency). This would relegate Rangers from the SPL. The number of clubs who would likely object to a newco being dropped into the SPL could then start to rise. The chances of the SPL getting bogged down in court proceedings start to increase dramatically. Thus far, the SFA and the SPL have failed miserably to provide leadership in this process. Only recently stirred from their slumbers, they do not appear to have thought any of these processes through. It is vital that these organisations start thinking and listening to expert advice. They must figure out all of the pathways and pitfalls now.

Why would they go straight to liquidation?
If the liabilities accrued to Rangers- debt to Craig Whyte’s Wavetower, tickets owed to Ticketus, assorted unpaid tax bills over the last year, and so on are such that even if Rangers won the Big Tax Case (and HMRC did not appeal), that the club would still be unable to dig itself out, then liquidation would be inevitable. Cost cutting would only buy some time, but would not affect the final outcome. On top of these bills, the costs of litigating all of the legal messes created would also be significant. It is unlikely that any of our dashing heroes waiting in the morgue to collect the corpse would want to take on such a disaster.

If liquidation is inevitable, why is Paul Murray saying otherwise?
As Graham Spiers accurately recalled on TV last night, this is the same Paul Murray who said that it made no sense for anyone to buy Rangers with the Big Tax Case hanging over the club. Yet, today he is posturing on the periphery trying to look like a hero set to save the day? Nothing about Rangers’ position has improved since then. I will call it as I see it: Paul Murray is fronting a consortium of ex-directors who want to claim the corpse of the club killed by their own actions. They are hoping to make life for Craig Whyte so uncomfortable post-liquidation that he will surrender his claim on Rangers’ assets cheaply. Paul Murray is neither so naive nor so stupid as to believe that he can really save the club. He does appear to be so cynical as to toy with the hopes and emotions of the Rangers’ many supporters.

Can Rangers stay in the SPL if liquidated?
Contrary to some of the word-play coming from Duff & Phelps and Neil Doncaster of the SPL, if Rangers FC is liquidated- that is the end of the road. There are no provisions in current SPL rules to allow a club to stay in the SPL if it has been liquidated. There are no provisions to  allow a newco to automatically enter the Scottish Football League Division 3 either. This point was distorted by Neil Doncaster (abetted by arch St. Mirren supporter- Chick Young) as he tried to imply that re-entry to the SPL was the only path forward for a newco-Rangers. Mr. Doncaster should wait to hear the results of the inquiry he has ordered into the two-contracts scandal before he forms a set view. If a newco-Rangers is allowed free entry to the SPL- with no annual financial or points penalty as an “entrance fee”- the integrity of football in Scotland will have been torn to shreds. Free entry would do more to damage the game in Scotland than any loss of revenue from Rangers’ disappearance could ever do. If the SPL rules are modified in advance of a vote to make it easier to allow newco-Rangers free entry, then the damage will be ever greater. Likewise, a change in regulations would be necessary to allow the newco-Rangers to inherit the football honours (those won fairly and those that carry the taint of financial doping and illegal tax scams). This could prove to be the last straw for many football fans. Why bother playing the games? If one particular club is not allowed to face the consequences of its own reckless mismanagement, then the Scottish Premier League will not be worth watching at all.
To be clear, I expect the SPL and SFA to attempt to change whatever rules are necessary to make life easy for newco-Rangers.

When will the Big Tax Case result be released?
There is no set schedule. It could be days. It could be months. My guess is that we will not have to wait too much longer as the judges will have had the opportunity to write-up much of their findings of fact long before the final sitting of the tribunal.

What will happen to the Big Tax Case if Rangers are liquidated before the result?
HMRC would request that the result is still entered. Contrary to sports journalist speculation, a First Tier Tribunal (Tax) finding cannot be used to set precedent for other cases. (It would have to be heard at the Upper Tribunal or a higher court to be binding on other cases being heard in First Tier Tribunals). With no legal entity left to appeal to an upper chamber, Rangers’ case could not set precedent for anyone else. Rangers’ result could be referred to in other cases, but there are many unique aspects of Rangers’ case that will not be relevant to anyone else.

In summary, the cascading effects of a Rangers liquidation pose a serious threat to the existence of professional football in Scotland. These problems cannot be resolved by simply wishing Rangers’ illegality and irresponsibility away and allowing them to proceed as if nothing has happened. There are a series of needles that need to be threaded together. This will require intensive effort to balance justice and fair-play with the economic interests of all clubs in the short and long term. I have seen nothing yet that would indicate that the leadership required to bring this disaster to a satisfactory conclusion is in place. However, I would love to write a blog in a few months withdrawing this charge and heaping praise on Neil Doncaster and Stewart Regan for a difficult job well done. I do not envy their task.

Edit:

Some have asked for a breakdown of the debt calculation. I posted this as a blog reply but before it disappears off the page, I thought that I would post it here too:

To explain the breakdown of the debt estimate:

£18m – Wavetower (plus interest at rates Whyte can set- £26m at least by now- but let’s stick with £18m).
£12m – taxes (could be £15m per BBC Scotland)
£6m – misc. working capital owed by RFC at time of takeover (not including any increase due to Whyte just not paying bills)

That would be £36m debt before we consider the Big Tax Case. (It will be significantly more, but let’s not get hung up on precision).

Big Tax Case:
£20-24m in underpayment
£16-20m in interest (compounding daily- it has grown by about £2m in the time this blog has been running. Initial estimates assumed monthly compounding. This would have been low).
i.e. initial total of £38-44m

Penalty: assumed £18m.

That actually puts the debt at between £92-98m. My apologies for the low estimate above in the interests of conservatism.

Of course, HMRC will actually just say “ach forget the £68-74m you owe us. We want you to live. It was all a big misunderstanding. We will accept nothing. You pay everyone else, including Craig Whyte, and we will be happy to walk away”

Time For Leadership at SFA & SPL

Scotland has a seven hundred year history of asking for help from south of the border in times of trouble and internal squabbling. It has rarely gone well. When King Alexander III died in 1286 without an heir, Scottish nobles asked Edward I of England to referee. Things went so badly, Mel Gibson made a film about it.

More recently, both the Scottish Football Association (SFA) and the Scottish Premier League (SPL) have reached across the border to find executives who could breathe new life into the moribund bureaucracies that were strangling our national game. It seemed a good idea at the time. There were no natural candidates within the Scottish game and the sectarian divide leaves any executive with a history with either of the Glasgow giants facing immediate accusations of bias. Casting the net for executive vision beyond the Solway Firth just made sense.

However, both Stewart Regan at the SFA and Neil Doncaster at the SPL have been major disappointments. In the face of repeated warnings about the greatest crisis in the history of Scottish football, both have been found asleep “on stag”. Stewart Regan’s petulant and immature responses to legitimate questions on his twitter feed have done nothing to suggest that he is a man braced for action. Neil Doncaster just seems to have gone missing altogether. Both men seem to be intent on giving the impression that they came to Scotland to enjoy some good golf and our peerless fishing.

The Daily Mail today quotes former Rangers director, Hugh Adam, as confirming that Rangers had operated with players routinely being issued with secret second contracts going back to the mid-1990s in direct violation of SFA regulations. Despite many warnings that a crisis was brewing, both Regan and Doncaster seem to have shown determination only in burying their heads deeper in the sand. They have had ample opportunity to investigate and to get out ahead of these issues. In my opinion, both have failed, thus far, to lead their organisations in their hour of greatest crisis.

I even tried to alert Stewart Regan.  All I got in return were impertinent and insulting replies as the following Twitter dialog shows from 23 January 2012 (including original typos):

RTC:                    @Stewartregan What penalty would apply to an SPL club that failed to provide SFA with accurate player contracts?

StewartRegan: @rangerstaxcase more ifs buts and mayes

RTC:                    @Stewartregan ?? You have me confused with others on other subjects. Now can you answer the question?

RTC:                    @Stewartregan Darrell King, a respected journalist, says he has seen side contracts for RFC players. Did SFA get copies?

RTC:                    @Stewartregan if / WHEN 😉 it becomes a matter of public record that side contracts existed, do you have a plan if action?

StewartRegan: @rangerstaxcase you have me confused with the SPL. Why not ask them?

RTC:                    @Stewartregan So the governing body of football in Scotland would abdicate its role in the face of falsification of player contracts?

StewartRegan: @rangerstaxcase inappropriate to speculate on such matters.

RTC:                    @Stewartregan It would be wrong to speculate on specific clubs, but you can clarify the rules for the people who pay your wage- fans.

RTC:                    @Stewartregan does SFA get copies of player contracts as part of UEFA licensing process?

StewartRegan: @rangerstaxcase there is no point in answering hypothetical questions and I’m certainly not going to speculate on it.

RTC:                    @Stewartregan fair enough Stewart, but I would get ready to answer this for real if I was you.

We now have two ex-Rangers employees: Darrell King and Hugh Adam confirming the existence of these second contracts. The Sun has published a redacted version of a player’s second contract. For the avoidance of doubt, let me assure the SFA and the SPL that there is more to come in this story- much more.

If Messrs. Regan and Doncaster are to salvage their reputations they need to get out in front of the seemingly never-ending series of revelations about flagrant rule breaking and illegality at Rangers FC. Their organisations are implicated in these scandals: inaction and failure to investigate over a period spanning decades undermines confidence in the SFA and the SPL. Many will say that this was part of an institutional bias that favoured Rangers. Others will say that this was more a fear of challenging the mighty David Murray and his expensively procured media lackeys. I am prepared to believe that it was just rank incompetence.

So far, all we have in the way of an inquiry is an investigation by Lord Nimmo-Smith of the Rangers takeover. The parameters of this work have not been made public to my knowledge.  However, its timeline is too short to include any of the accusations about rule breaking before the Craig Whyte era. The odour emanating from Ibrox in recent months would cause any neutral observer to fear foul play. If Regan and Doncaster have not seen and heard enough to suspect that Rangers FC, by far the most successful Scottish club in the last 25 years, has been operated as a corrupt enterprise during that period then they are unfit for their posts. The integrity of football as a fair competition is in their hands. If these questions are not addressed, we lose any reason to continue to spend our time and money on the Scottish game.

Let me help them in case they have been listening to the wrong people: this story is not going away. There is a lot more to come out. They can choose to lead their respective organisations in cutting out the cancer or they can become infected by it.