Rangers Annual Report: Where is the money?

The summer’s transfer activity at Ibrox raised more than a few questions from supporters who had seen record player sales to the tune of £35m but who then witnessed only a fraction of that reinvested back into the first-team playing squad.

This was on the back of the Europa League final in Seville and was added to by Champions League qualification secured by an excellent win in Eindhoven. It’s fair to say therefore that the club coffers have been bulged more than could have realistically been expected, and the club weren’t shy in shouting about it. So where has the money gone?

We’ll start by breaking down the figures.

Revenue

The club posted a record revenue of £86.8m. This figure is £39.1m higher than the Covid-hit 2021 accounts & £27.8m higher than the last ‘normal’ year to June 2020 and reflects what is undoubtedly one of the big successes the board and executive team have had in recent years – bringing in money.

This was driven by an increase in gate receipts to a total of £41.9m – a £6.2m increase on 2020 figures – as well as increased UEFA prize money which rose by £6.1m to £17.3m for the year, both largely as a result of the extended European participation.

Commercial income also increased with the Castore deal resulting in revenue (almost pure profit) of £5.5m which contributes to an overall retail and commercial income of £9.9m. This is an addition to the rise of sponsorship income under the guidance of James Bisgrove.

While we cannot account for such a lengthy run in Europe every year it is clear the club has strengthened its revenue base with improved commercial performance now supplementing the fan income that has carried the business for too many years. This is also important for the new Financial Fair Play regulations which caps player costs against income.

The above of course does not include the proceeds of player sales which are listed separately and received over and above the revenue total.

Costs

The single biggest cost to the club is the wage bill which now totals £54.8m, an increase of £7.1m on the previous year. Within this amount is the first-team player costs of £37.8m which represents 44% of our turnover and which has increased steadily over the last three years. While this percentage doesn’t seem unreasonable in itself I am still of the opinion, as I have been since covid, that the wage bill is too high, especially given the proportion of ‘dead wages’ we continue to carry & other large operating costs we carry as a club.

Some of this increase may be performance related bonuses relating to the Europa League success and some may be the loan costs for the signings of Ramsey and Diallo in January. What we do know from John Bennett however is that the wage bill has increased again in the current season per his interview with RTV. Some may rightly question whether we are getting value for this given on-field performances but that’s for another day.

Operating costs doubled to £28.3m largely as a result of supporters now being able to attend matches unlike in the comparative year to 2021. This may drop slightly with fewer home games this season due to our earlier Euro exit.

Cash & Loans

Rangers finished the financial year with £13.1m in the bank, a £10m increase on the previous year and looking healthier than it has done for some time.

The club, despite more normalised trading, also received £22.1m in investor loans and repaid £14.4m of these in the year. It should be noted that some of the repayments were effectively the refinancing of a facility provided by John Bennett with £6.55m being repaid but a further £10.32m being provided.

Loans outstanding at the year-end therefore increased by nearly £2m to a total of £12.2m which are now provided by only two directors – John Bennett (£10.3m) and Julian Wolhardt (£1.9m). Interest on these loans is charged at 6% on an accruals basis and may be repaid earlier than the agreed terms which run to July 2028, thus making it a long-term finance agreement.

With the Bennett refinancing above the other major loans repaid as part of the headline total of £14.4m were £5m to Dave King and £2m to George Letham.

While my initial concern pre-accounts was that investor loans were being repaid too rapidly and thus sucking potential funds from the first-team it is now clear that, with the exception of Letham’s repayment which in itself isn’t hugely significant, that this is not the case. This again is positive and reflects the continued excellent levels of finance provided from investors and directors, support which now totals nearly £80m net since 2015. Bravo.

Player trading / Compensation

The club have confirmed that £7.5m was spent on players in the year to 30 June 2022, a figure that will surprise many given the reported nature of our summer business where free transfers seemed to be the norm.

Of course there will be signing on fees and agent fees to consider as part of the £7.5m but the rest requires a bit of guesswork. Some may be for payments made for Juninho Bacuna and some may be the fees associated with Goldson’s contract extension for example but, with loans being our only real January business (and these are not normally capitalised as part of this figure), then there’s some uncertainty over how this figure is made up. (Previous payments owed to players may also figure)

The profit from player sales in the year totaled £11.2m and saw the final pillar of our trading model kick into action with a club record sale of Nathan Patterson, meaning a net positive contribution to the business for the first time post-2012. This was overdue but it’s important to recognise that the club deserve credit for setting a high benchmark with our back-up right-back fetching a club record fee and setting the bar for future sales.

It is important to note that the sales of Bassey and Aribo are not included in these figures. These will land in the accounts to June 2023.

The club also received compensation for departing manager Steven Gerrard and his team which amounted to £4.25m, bringing the total income for outgoing players and staff to £15.45m in the year to 30 June 2022.

The ‘post-balance sheet events’ note also confirm that we have spent £15.0m on player transfers in summer 2022 (largely Yilmaz, Davies, Matondo & Colak) and have £19.9m, net of costs, due in from the sales of Bassey and Aribo.

‘Other’ costs

Note 28 of the accounts discloses an alarming figure listed as ‘Resolution’ costs of £8.25m with the majority of this sum presumably being the settlement and costs attributable to our dispute with Sports Direct.

This represents a hugely significant sum of money, more than we spent on players in the year, and a cost which largely negates almost 2 years worth of retail income under our new agreement with Castore. This has undoubtedly impacted our ability to spend and improve the first-team & represent a huge black mark on the copybook of those responsible for the SD agreement and their subsequent breach of it, given previous costs were already incurred.

If there is a silver lining to be taken from this very dark cloud it is that the decks are now clear and the shadow that hung over the club for a while has now been dealt with, even if it has been at a significant expense.  

As well as the above one-off cost the club also spent £5.8m on capital costs with £3.1m being on the construction of Edmiston House and the rest either being work on the roof or the installation of the Blue Sky Lounge. A further £9.6m has been committed to by the club going into the current season presumably to finish the above.

So, Where Is The Money?

Fans quite rightly looked at record revenues, a European final, Champions League participation, 2 x record player sales and pondered as to why only a fraction of those sales were available to be spent on the team. There was never any conspiracy or concern however clarity was needed on the reasons behind the above.

Although the club reported an operating profit of £5.8m the one-off costs meant an overall loss of £0.9m was posted. This gives an indication that despite the record revenues, these have been absorbed by in-year costs.

With the aid of these latest accounts we can now deduce from the above that the repayment of investor loans, which I and others had suspected was part of the issue, was not one of the major driving factors, save for the known fact that Dave King’s £5m loan was repaid which clearly wasn’t ideal but which was also inevitable.

The problem therefore? It would seem that too many short-term ‘one-off’ costs in addition to a rising wage bill are the main factors behind the enormous incomes not going as far as many expected.

The £8.25m ‘resolution’ costs presumably in relation to Sports Direct represent a massive outlay for the club & when this is coupled in a short period with capital costs totalling £15.4m, being the money already spent and further committed into the current season, then that’s a combined £23.65m that, under more normal circumstances, could have been invested into the team or kept in reserve for future windows.

Serious questions, I would suggest, remain over the wisdom of continuing with the New Edmiston House project in light of the vastly increased costs vs the original budget and the reported failure to sell off part of the Albion Car Park to part-fund the construction.

Interest-bearing loans are now being required to assist with this construction along with the proceeds of player sales. John Bennett informed us that the project would net the club £1m profit per year and so the break-even point will be north of a decade, all the while the team faces yet another revamp in summer 2023 which was partially deferred from this year due to the contract renewals of senior players. And with no obvious sellable assets to fund it.

In summary, the club deserve enormous praise for the revenues and other incomes they’ve received in the financial year to 30 June 2022 and beyond. This was helped by the team reaching the Europa League final and qualifying for the Champions League of course but the revenue base is far stronger and more robust than it has been for quite some time.

This has at least allowed for the Sports Direct settlement and Ibrox renovations to take place without horrendously handicapping the first-team budget and thus cleared the decks of some of the overhanging liabilities. The former really doesn’t sit well but perhaps it was a necessary evil, albeit one that may have been handled better over the years.

New Edmiston House remains questionable in my humble opinion. Yes, it was the flagship 150^th anniversary pledge however with inflation and rising costs its viability really needs to be revaluated, especially as the club have suffered other ‘non-recurring’ costs in the same year that has absorbed a chunk of the income the club worked so hard to generate.

Overall though, despite those misgivings, the club looks more robust financially & is investing in growing revenues going forward. This is reflected in the clean audit report, something which wasn’t present in previous financial statements, and the underlying operating profit posted both before and after player trading.

The biggest question going forward will be how we fund next summer’s activity with numerous contracts and loan periods coming to an end. But for now – record revenues, record player sales but income that was absorbed by significant one-off costs.