Why is Rangers in Crisis and how close is it to Collapse?

- Leadership - Jan 19, 2015

The demise of one of Britain’s most iconic football clubs is a harsh lesson for those operating in the business of football.

Rangers FC, the blue half of the fierce Glasgow rivalry, could be about to hand over their beloved Ibrox stadium to Sports Direct CEO Mike Ashley (holder of a 9 percent stake), who appears somewhat of a pantomime villain to many thousands of passionate supporters.

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In desperate need of short term funding to stay alive, investing in Rangers is clearly too risky for banks, meaning the cash of billionaires like Newcastle FC owner Ashley is effectively what is keeping the club from going under. He has offered a £10 million loan but wants Ibrox as security against the sum.

Directors have already turned down a number of takeover approaches, including a £20 million statement of interest from American Robert Sarver, who was told that he would be unable to secure the 75 percent board approval needed to complete any deal.

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The business case for buying Rangers could be a difficult one to make, for based on this current situation the numbers at the club clearly do not add up in an economic sense. If no takeover can be agreed, what option is there but to keep raising short term capital, and thus placing the business in yet more debt?

Sports Direct has already put in £3 million for which payments back are due to begin in April.

Adding to the feeling of instability is what appears to be a jostle for shareholder control, with Ashley and South African Dave King among others thought to be eyeing up a way of grabbing power.

Back in 2012 when Rangers was put into liquidation, fans objected to the formation of a new club and instead saw the team play in the lowest tier of the Scottish Football League. Two seasons later and it is one promotion away from return to the SPL, but looks unlikely to take the one and only automatic promotion place as Hearts hold a comfortable advantage at the summit.

It is remarkable to observe that three of Scotland’s four biggest football clubs – Rangers, Hearts and Hibernian – are not even playing in the country’s top league. Hearts, Edinburgh rival to Hibernian, is another example of the dangers irresponsible footballing business poses.

For Rangers, the past decade or so leading to this current crisis has also been a story of dodgy dealings and, ultimately, greed at the top.

Back in 1988, Sir David Murray, one of Scotland’s most famous self-made businessmen, bought Rangers and immediately piled in investment which saw some of the world’s finest players join the team, including Paul Gascoigne.

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Success and trophies overshadowed piling debts and annual losses in the tens of millions, and in 2000, decided to pay his players via an Employee Benefits Trusts in order to avoid tax, as players were seemingly loaned money rather than paid outright.

In short, it has come back to bite, and fatally so. HMRC has chased Rangers for unpaid tax bills which has sent shockwaves to potential investors and prompted Murray to seek a swift exit, something he managed when Craig Whyte took the club off of his hands. The only problem was that he paid £1 for it.

Mounting annual losses (now less covered up by trophy success) and a tarnished financial reputation, not least the imminent threat of a huge tax bill if the courts rule in HMRC’s favour (twice it has not, but EBT activity has been squeezed), made Rangers almost completely un-investable from a business standpoint.

How long can it survive off short term loans, and when will the right investor with a heart ruling their head arrive? The current battle for power looks unlikely to win over supporters, who will be hoping at the very least it puts them back on some form of financial footing.   

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