The collapse of Rangers football club could bring Scottish football to its knees
When you start getting forensic, rather interesting lectures from large, ordinarily intimidating football supporters about the difference between a liability and a contingent liability; the merits of a CVA versus a Newco in insolvency proceedings; and the kinks in the UK’s TUPE regulations (2006), then you have reached a pretty unnerving place.
This is Glasgow in the summer of 2012. Like everywhere else in Britain, it is pouring with rain. Like everywhere else, people’s minds are heavy with sport. But sport here has nothing to do with the endless, ultra slow-motion montage of the European football championships, Wimbledon, and the Olympics that has unspooled since June—the bread and circuses stupefying the rest of us. In Glasgow, there is just one sporting story and one question that matters: the bankruptcy of Rangers Football Club—one of the city’s primary institutions—and what it means for Scottish professional football. A formerly splendid enterprise, well over a century old, is in danger of ruin, and no one can take their eyes off the unfolding disaster. Each day brings another revelation, and some other aspect of company law to look up on the internet. People walk past the five Olympic rings erected in the city’s George Square as if they are not there. “It’s the only show in town at the moment,” a long-serving Aberdeen fan told me, just in case I was thinking of asking him about anything else.
One of my first Glaswegian insolvency lectures was from a 25-year-old man called James Donaldson. He is the news editor of Rangers Media, a partisan website of Rangers-related news and online forums, where 27,000 members come and vent their anger and disbelief at the disasters that have befallen their club. Like other great social ructions in recent years, Scottish football’s summer of reckoning has been catalysed in large part by the internet. “Rangers Tax Case,” an investigative blog devoted to the club’s tax liabilities (contingent and otherwise), won a category of the prestigious Orwell Prize this year and scoops, gossip and, crucially, fan sentiment have all consistently gestated online before breaking out—fully formed—to catch the game’s traditional observers and administrators by surprise.
Donaldson works at a cement factory by day. We met outside Ibrox, Rangers’ stadium in the working class neighbourhood of Govan, in the early evening. It was raining and not far away a crane leaned over a condemned block of flats, engaged in a complex act of destruction. Wearing a Rangers emblem around his neck, Donaldson indicated a large photograph of a jubilant Paul Gascoigne, who played for the club in the mid-1990s. “To think we had players like that,” he said, shaking his head. Then Donaldson led me round to the imposing, red brick front of the stadium’s main stand to show me the atmosphere that now obtained. Since the beginning of the summer, Rangers Football Club, which played in its first Scottish Cup Final in 1877, has been in a netherland: between life and death. On 14th June, the club’s creditors, who are owed £124m, voted to liquidate the company. The same day, its assets were sold to a consortium led by Charles Green, a businessman from Yorkshire, and since then a “Newco” Rangers has been struggling to re-emerge. But the new Rangers has been beset by constant hostility from other Scottish football clubs and the desertion of its own players. There have been days when it has looked like Rangers, one of the most successful football clubs the world has ever seen, might never play again.
Tonight, a single BMW was parked in front of the stadium’s front door and a group of young men—dressed in Burberry, polo shirts and black Barbours—were sheltering in one of the stadium’s alcoves from the rain. They were from the Union Bears, Donaldson explained, a new organisation based on the “Ultras” model of hardcore fans’ groups at European clubs. (The following night, the Union Bears would bring a crowd of 3,000 to Ibrox to protest against the club’s new owners.) Donaldson exchanged a few words with the men and then looked up at the stadium and the office windows that were still lit up. Something was afoot. “It’s eerie when it’s like this,” he said. “There are so many rooms. So many things could be happening.”
We got out of the rain in a Rangers pub. “We The People,” the name of the old club song, was emblazoned over the door. The place was decked out in Union Jacks. Donaldson did his best to explain the “Transfer of Undertakings (Protection of Employment) Regulations” that fans were wrestling with that day, as Rangers players and their agents weighed their legal obligations to the newly formed company. He also tried to sum up what the summer so far had meant to him. “It’s sort of a good thing to live through,” Donaldson decided. Then he checked his phone. He had 46 emails. Something had been going on: while we had been talking, another four players, including Rangers’ captain, Steven Davis, and the club’s star player, the goalkeeper, Allan McGregor, had announced that they too were leaving. The forums on Donaldson’s website were already chattering with the news. He skimmed the messages in less than a minute. “They’re all just anguish threads,” he said.
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Glaswegians all have their own ideas for when, exactly, the wheels began to come off at Rangers. Some date the trouble back to 2001, when the club set up a system of offshore trusts to make payments to players as a way of reducing its tax bill. Others argue that things were actually under control until the disastrous sale of the club to an up-and-coming businessman called Craig Whyte in May 2011. But most opt for somewhere in between, and everyone shakes their head at the mention of 5th August, 2008, and FBK Kaunas, the former champions of Lithuania.
That night, under Baltic rain, tiny FBK Kaunas knocked Rangers out of the UEFA Champions League before the rest of the season had even begun. Defeat at such an early stage meant that there would no European football at Ibrox for the next year. In the particular ecosystem of Scottish football, this was a disaster for two reasons. First, despite the intensely local roots of their rivalry, Rangers and Celtic—the Old Firm clubs around which the rest of the game in Scotland revolves—define themselves by their European achievements. Celtic’s victory in the European Cup (the forerunner of the Champions League) in 1967 and Rangers’ taking of the European Cup Winner’s Cup in 1972 remain the most talked about nights in their history.
Second: Rangers could not afford to lose that night. For all their passing similarities, even the largest Scottish professional football clubs exist in a very different financial reality from their cousins south of the border. In the late 1980s, with regular crowds of 50,000 and their recent acquisition by David Murray, a thrusting Scottish metals and property magnate, Rangers could claim to be the richest club in Britain. But 20 years of television money pumped into the English Premier League changed all that. Rangers’ annual turnover until this summer—colossal by Scottish standards—was between £40m and £50m a year, about the same as the bottom clubs in the Premier League.
Its income was made up differently from theirs, however. Broadcasting deals, with Sky, the BBC and overseas channels, bring in more than £1 billion per season to the top 20 clubs in England—between £40m and £60m per team. In Scotland, Sky and ESPN currently pay one fiftieth of that (£21m per season) to show the 12 teams of the Scottish Premier League (SPL). For Celtic and Rangers, earning money from elite European competitions has become the only way even to imitate the kind of clubs they used to be. A mere six group-stage matches in the Champions League are worth about £15m to each club, or a third of their annual incomes.
Even before FBK Kaunas took the lead five minutes from time, Rangers was in a fragile financial state. After almost two decades of extraordinary investment and footballing success under Murray (“For every fiver Celtic spend, we’ll spend a tenner,” he said, as Rangers won a staggering 31 trophies between 1989 and 2008), the club was struggling to live within its means. In 2004, a £52m share issue designed to reduce Rangers’ debts of £73.9m ended up being almost entirely underwritten by Murray himself, and moved to another part of his Murray International Holdings (MIH) business. Cost-cutting measures had little discernible effect. After falling to £6m in 2006, Rangers’ debts were already up to £21m just two years later. Defeat in Kaunas meant another season deeper into the red.
Six weeks later, the banking crisis brought the curtains down. Suddenly Rangers was just one of Murray’s—now Sir David’s—many problems. The value of MIH’s property portfolio fell by 20 per cent between 2008 and 2009. Rangers’ ultimate holding company lost £174m. Just as important, the group’s debts (some £750m) were taken on by Lloyds Banking Group after the demise of HBOS (the old Bank of Scotland and Murray’s long-term lender). In return for keeping Murray and the club afloat, Lloyds took a 24 per cent stake in MIH. By the time Rangers announced its own losses of £12.7m in the summer of 2009, still suffering from that night in Lithuania, there were rumours in Glasgow that Murray was in need of a buyer. That October, the club’s veteran manager, Walter Smith, admitted that Rangers’ debts to Lloyds were now dictating day-to-day life at Ibrox. “It’s not the bank’s fault,” said Smith. “They’re not going to invest in a football club, are they?”
To Rangers fans, when he appeared, Craig Whyte looked like David Murray all over again. The front-page headline on Glasgow’s Daily Record, announcing Whyte’s intention to rescue the club in November 2010, read: “BILLIONAIRE SCOT TO BUY RANGERS.” Inside, Whyte was introduced as a “39-year-old tycoon” (Murray was 37 when he bought the club in 1988), a “venture capitalist and business turn-around specialist” who owned a spectacular castle in the Highlands. It was a “match made in heaven,” said The Times. A loyal Rangers supporter, Whyte would pay off the club’s debts and inject millions into the playing staff as soon as his takeover was complete.
According to a subsequent investigation by the Scottish FA, there were misgivings within Rangers almost immediately. Martin Bain, the club’s chief operating officer and a member of a committee set up to vet any potential buyers of the club, was handed a private investigator’s report on Whyte within weeks of his approach. The report, which had been compiled in March as a result of some of Whyte’s other business dealings, listed a string of wound-up companies; court appearances; unpaid tax bills; and, the Scottish FA found, “no explanation for the acquisition through any of his companies of any personal wealth by Mr Craig Whyte.” Routine searches of company filings by journalists traced Liberty Capital, the vehicle for Whyte’s takeover, back to a warehouse in Miami.
Still, Whyte won out. After six months of stop-start negotiations, he bought MIH’s 85 per cent stake in Rangers for £1 on 6th May, 2011. The purchase was, no doubt, driven by Murray’s eagerness to sell. (The former chairman later said he was “duped” by Whyte. Whyte’s offices did not reply to Prospect’s questions.) Crucially, though, Whyte was also determined to go ahead with the deal despite the club facing a terrifying potential liability—and stain on its honour—in the form of a multi-million pound argument with Her Majesty’s Revenue and Customs.
Just over a year earlier, Rangers had acknowledged that it was in dispute with HMRC over its use of EBTs, or Employee Benefits Trusts. This was the tax avoidance scheme it had adopted in 2001 to make discretionary payments, through offshore trusts, to players and staff beyond their usual salaries. Like dozens of football clubs in the UK, Rangers had been using EBTs for years, declaring them in their annual accounts. Devised in the late 1990s by a colourful tax advisor called Paul Baxendale-Walker (he also owns Bluebird Productions, an adult entertainment business), EBTs offer loans to employees, which are subsequently written off, enabling companies to avoid paying PAYE and National Insurance Contributions. EBTs found a natural home in the opaque, flowing finances of professional football—a world of image rights, outlandish bonuses and free cars. In Rangers’ case, from 2001, payments to the club’s EBTs varied from 5 to 33 per cent of its annual staff costs. By 2010, the club had put a total of £48m through the scheme.
And by that point, HMRC had decided that football clubs were pushing their luck. EBTs are legal—or at least, difficult to prove illegal—as long as the loans they make are genuine and occasional. When they start offering a reliable stream of rewards, it is a different matter. In the course of 2011, 15 out of the 20 clubs in the English Premier League settled EBT cases with HMRC, with Chelsea paying £6.4m to square its bill. Rangers, however, chose to fight, and “The Big Tax Case,” as it is known in Glasgow—with a rising potential bill, including penalties, of more than £75m—was an ever-present cloud during Whyte’s nine-month rule at Ibrox.
As it happened, Whyte’s ownership unravelled on its own account. (The result of the Big Tax Case is still not known.) Within three months of his takeover, Rangers were knocked out of Europe in August once again—this time by NK Maribor of Slovenia. Once again, this had a devastating effect on the club’s finances. Whyte’s promised funding evaporated and on 19th September last year, the club stopped making its usual PAYE and NIC payments of £1m to £2m per month. In double-quick time, Whyte’s Rangers r
