Annual Report 2023 Analysis

The Rangers International Football Club Plc yesterday published its Annual Report for the year to 30th June 2023 with chairman John Bennett highlighting the posting of a second successive operating profit. Whilst he is not wrong to do so, the devil as always is in the detail.

So let’s take a look.

The financial statements cover season 2022/23 which saw Rangers qualify for the Champions League for the first time since 2010/11. A disappointing league campaign saw Giovanni van Bronckhorst replaced with Michael Beale and neither managed to deliver the performance fans craved and demanded in equal measure.

While there was much despair on the pitch, were things performing much better off it?

PROFIT / LOSS

The first question is “did we make a profit or loss?” and the answer in truth may depend whom you ask. The board and James Taylor, our new CFO (chief financial officer), are keen to highlight a modest operating profit of £252k, which followed the comparative £5.85m posted last year.

All good, right?

The bottom line figures however after accounting for non-recurring costs – such as contractual terminations or legal settlements – were actually losses of £4.14m and £0.92m for 2023 and 2022 respectively.

The reality therefore is that the board are cherry picking which figures to highlight when in actual fact we’ve posted a loss in both years. They’re not incorrect in what they say but it’s not the bottom line figure.

For the more geeky / finance savvy it’s also notable that there has been a large shift in EBITDA (earnings before interest, taxation, depreciation and amortization) which went from £8,648 in 2022 to £-7,876 last season, a £16.5m swing. This is reflected by a significant operating loss before player trading compared to a profit in the previous season.

Essentially therefore the operating profits or net losses (depending on your preference from above) have depended on the large player sales of Nathan Patterson, Calvin Bassey and Joe Aribo, sales that we have not been able to repeat this summer. But let’s move on.

REVENUE

Revenue for 2023 was £83.75m, down from £86.85 in 2022. A reduction is never normally a good sign but nor in this case is it a reason to panic. The previous season was of course when we reached the Europa League Final and crucially that gave us five more home European matches with tickets sold at a premium price.

While UEFA income remained steady with the Champions League group stage income (replacing the Europa income) it was the decrease in ticketing revenue that causes the overall reduction.

Within that headline figure of £83.75m, commercial income, under the direction of James Bisgrove at that time, hit £28m for the second consecutive season.

The income from our Castore partnership increased from £5.5m in 2022 to £7.2m last season and given the nature of our contractual agreement, that’s nearly all profit. So that’s positive.

Season-ticket income also increased to £18.2m with the average price of a ticket growing to £403 (net of VAT remember). So there are some underlying positives despite the headline overall reduction.

Bringing money in though has never really been a problem for this board, in fact they’ve done it rather well. Whether it is price increases, MyGers, commercial deals – they’ve grown the revenue base fairly consistently.

It’s how we’ve spent it that’s been the issue…

WAGES / SALARIES

The largest single cost at the club is the wage bill and within that it is primarily the first-team salaries. I am on record as saying even as far back as Gerrard’s time that the wage bill was too high and that it had to be controlled. I’m sad to report that it has increased significantly since then.

The first-team wage bill when we won the league in 2021 was £33.5m. In the year to June 2023, when we won nothing, that same cost stood at an eye-watering £42.7m which admittedly has Champions League-related bonuses to thank for at least some of the increase.

The real takeaway from that therefore is that we’re spending more but getting less value in return. I think that’s pretty undeniable. With UEFA FFP regulations to consider I would like to see that figure trimmed as we move forward.

We maybe won’t return to 2021 levels but given the excessive levels of deadwood we’ve carried and paid in recent years, we could be a bit more efficient with a wage bill lower than last season’s which accounted for 51% of turnover.

CASH / LOANS

It has been no secret that the club has required loans and equity investment from directors and investors to fund itself each year. We should, in all honesty, be arriving at a point of almost complete self-sustainability having won a league, reached a Euro final and had 2 x record player sales in quick succession.

But we’re not there yet.

The cash position has reduced by £7.75m to only £5.34m. Due to the way season-ticket payments are accounted for this doesn’t paint the whole picture but it does reflect the negative cash-flow from both investing and operating activities underpinning this.

Due to the negative cash flow the club has once again taken loans from directors as well as equity injections. While there was some re-financing taking place with old loans effectively being repaid and replaced with new ones, the headline is that investor loans have increased slightly from £12.18m at the start of the year to £13.42m at the end of the year as well as converting £3.7m of loans to equity.

We are fortunate to have such committed investors making their cash available as they have done, and at a low interest rate I should add, but perhaps we should be hoping by now that it wasn’t required at quite the same level.

PLAYER TRADING

Probably the most talked about topic amongst fans where finances are concerned is the player trading model we have or are trying to implement.

Each summer we all look at what we have spent and debate quite how successful or otherwise that has been.

Chairman John Bennett highlighted this “fourth pillar” specifically in his report, saying that “it is [player trading] that requires attention. Player trading will always be inherently volatile, yet Rangers must replace sporadic ‘wins’ with systematic success. It is a given that it all begins with player recruitment”.

So let’s look at the figures.

In the year to 30 June 2023 we signed players for a total cost of £17.5m. The main summer outlays were on Ben Davies, Rabbi Matondo, Ridvan Yilmaz and Antonio Colak and these were added to by Todd Cantwell and Nicolas Raskin in January.

It represents a fair old chunk of change and in truth we derived little value from the summer additions for nearly the entire season. The latter arrivals however contributed more and represent good value transfers in my opinion.

On the sales side? Well, with our record player sale of Bassey to Ajax as well as Joe Aribo’s departure, the club recorded a profit on player disposals of £23.6m. This is an excellent figure and one that should have served as a benchmark and kickstarted our player trading model. As the chairman alluded to recruitment however is key, over this summer and last, I’m not sure we’ve got that quite right at all.

To look at the cash impact over the last two seasons here are the “cash” payments received and paid out (not the totals committed to, the amounts actually received or paid in the year):

CASH		2023	2022	Total
Player sales		15,339	5,202	20,541
Player purchases		9,456	15,905	25,361
Net payments		5,883	-10,703	-4,820

As you’ll see we were in deficit in 2022 but reduced this with a surplus in 2023. The overall however was a negative £-4.82m and this gives an indication about the need to continue selling and reinvesting successfully.

Some of the Bassey money etc will of course still need to filter through as amounts are yet to be received but we’ve also spent money outwards again in the summer and so we need to keep the cycle going with some more big sales.

So in the period in question, financially, the club can look at the figures in isolation and be pleased. Player profits over 2 years totaled £34.8m and given this was only a few departures it represents some very good business indeed.

But as we glance forward from the year in question, we may well be asking ourselves – where is the next big sale coming from?

In the summer we scrambled to sell players at modest value to fund Michael Beale’s rebuild. Ideally however we’d have the occasional big sale to bolster the coffers.

Time will tell.

NUGGETS OF INFO 

Summer 2023 Transfer Spend – Sit down for this one because the Finance Report within these financial statements informs us that this summer under Michael Beale the club have spent £21.0m on players.

Yes, £21.0m on Dessers, Lammers & Co. Make of that what you will.

After accounting for players sold – and the cost of paying-off Michael Beale – the net cost to the club is £13.1m.

In terms of players and the quality of the squad, that’s simply horrendous in my opinion. Thankfully an upgrade in manager is fighting that particular fire for now.

Edmiston House Cost – While it was well known that Edmiston House was a large outlay that ran well over budget due to external factors, the cost was never fully known. These accounts however show £11.72m being transferred from ‘Assets Under Construction’ to ‘Freehold Properties’ with all or the vast majority of this presumably being for NEH. It’s worth noting this figure has not lowered or affected the profit, this is a capital item and not an ‘expense’.

Other capital costs – £18.9m has been spent on Ibrox, New Edmiston House and the Rangers Training Centre over the last 2 years. This will include investment in the Blue Sky Lounge and some of the more significant roofing work that has been required.

Parks of Hamilton Sponsorship – The sponsorship deal with Douglas Park’s company worth £5m continues to be recognised with £500k being reflected in the P&L account as revenue each year. Crucially though the actual money for the deal has already been paid in full, received by the club and spent. Think of it as front-loading. (this was noted in last year’s accounts but worth repeating).

On the flip side Douglas Park had a £2m loan repaid to him in this year.

Summary

In isolation the figures for the year ended 30 June 2023 are a mixed bag. Revenue figures are fairly solid, the profit on player sales are an excellent record-high and the investment in the playing squad was again significant.

So it’s not all bad despite my occasionally cyclical tone.

On the flip side however despite Champions League income and a record sale the club managed only a very small operating profit and posted a net loss of £4.14m which truly astounds me given the low level of non-recurring costs.

At the current revenue and cost-base levels it would seem that there is an inbuilt deficit which means we need to sell players just to break even. That’s a worry, especially as we’ve just committed to a net spend this season.

The salary cost increase of £9.2m, a 16% increase on the previous year, is alarming but hopefully will not be repeated in the current year with no Champions League bonuses to be paid out. We’ll need to wait and see on that one but I’m hopeful it will reduce.

We remain fortunate that investors are still converting loans to equity and providing funding at a lower-than-market rate of interest. Their support shouldn’t be overlooked and taken for granted and it has enabled investment in Edmiston House and other projects.

But if I’m being critical I’d argue they must learn to spend it much more efficiently for their own benefit as much as ours.

John Bennett specifically highlighted the player-trading model and that the model is underpinned by successful recruitment. If we are truly to succeed both financially and on the pitch then I think it is clear that it is on this fourth pillar that the club must improve significantly.

It is on this particular matter that we will succeed or fail both on and off the pitch in the short to mid-term future.

In the meantime Philippe Clement needs to continue working his magic and the board need to continue to find a way to fund some reinforcements.