Playing catch up on the RIFC accounts

Firstly, an apology, this piece is late, but I have several good excuses.

The accounts of Ranger International Football Club (RIFC) were published on the day of the Big Tax Case.

Because of this bit of happenstance I feel they have rather escaped serious scrutiny.

Moreover, in the furore that followed on from Hector’s victory in the Court of Session there appeared to be little energy on Planet Fitba to look at the import contained within the RIFC accounts.

That’s another of my excuses right there, after the Web Summit and then the NUJ conference in Dublin I was in need of some R & R.

However, time to get to this.

For the avoidance of doubt, I’m not an accountant, Chartered or otherwise.

However, I contacted two chaps in the money business to get their take on the Sevco numbers.

They were looking at the accounts for me and they wouldn’t recognise a Sevco player if he walked past either of them.

Consequently, there is scant interest on matters footie among this non-soccer affected duo; one a rugger chap and the other a ‘Gah man.

The first guy is on my island, but he’s worked at the highest levels of banking in the UK.

His first response to me was:

“These accounts are plausible in that they meet all of the legal requirements.

However, they assume that nothing bad is going to happen.”

Blessed with a black sense of humour from the West of Ireland he said:

“If this business were a person then they would be in a hospice for the dying!”

The point was taken.

This fellow pointed out to me that, as always, the devil was always in the detail of any set of accounts.

Given it was about a football club he was surprised when I told him that this note had not been picked up by the media:

“Payroll costs reflecting the current squad size and composition in perspective to its assumptions around league progression. The forecast cash flows assume conservative amounts generated from player sales.” (P31)

The second man in this kitchen cabinet is a very experienced Charted Accountant and he has been the finance director for several large UK based companies.

I sent him the accounts and asked him for his take on them.

He had more time to spend on this than my Irish buddy so his written assessment was much more detailed.

However, they both said pretty much the same thing to me.

Here is what my British friend sent me back by way of reply:

“Hello Phil

“I have been through the accounts, read twice, gone through a few of the sections of the accounts closely and the conclusion that I have reached is that the accounts are plausible, but my goodness there is quite a bit of ‘leap of faith’ contained!”

Ah, there’s that word “plausible” again.

I checked in with both of them that it doesn’t have some special accountancy relevance that I was missing.

They both said that I was on the wrong road with that one.

You see dear reader I ask all these annoyingly stupid questions so you don’t have to!

Anyway he continued:

“As you know Phil I have worked for one of the largest accountancy firms on the planet and I have carried out company valuations and forecasting, so I know that there are lies damned lies and accounts…it very much depends on what assumptions you use, and ultimately it is the responsibility of the directors to make these judgement calls. The auditors simply review the assumptions and as long as they are not outrageous they will not raise any objections.

Let me deal with some of the points you mentioned earlier.

  1. Directors remuneration, there is a full page on this. Mr King et al were appointed in March; they have not received any remuneration as shown in the notes. You do not need to disclose travel expenses and any business related expenses so I am guessing that they may have enjoyed the first class flights etc…. but there is no legal, financial obligation to disclose this. The full details of previous directors are fully disclosed.
  1. Cash shortfall. This is where life becomes very difficult to forecast with 100% accuracy.

I have gone through each revenue line and cost line and made some assumptions to see if the £2.5m is credible.

Let me walk you through this and you can call me to discuss because honestly you can drive a horse and cart through these numbers if you do not have the micro numbers.

In reviewing the total costs of Rangers, which was £26.8 million in the year. Staff costs were £13.3 million; other operating charges were £10.1milllion and the balance that is depreciation, amortisation costs and impairment charges of £3.2million (these are non-cash items so are excluded for purposes of projecting cash shortfall). Also, audit and equipment hire costs are £0.2 million, immaterial in the scheme of things. Rangers have indicated that they need to invest in the staff levels of the club that were reduced excessively by the previous directors, so in assuming that management does not spend excessively, I have assumed that Staff costs increase a fraction to £14million.

However, other operating charges that Rangers described as match day costs, policing, stewarding and pitch costs are more difficult to predict. For the avoidance of doubt, these costs include just about everything else needed to run the club, including all repairs and renewals, in which I believe the substantial investment is required. It will include rates, power, insurance, all selling, advertising, public relation costs, etc, a very substantial list. These costs should rise considerably given the need to make a substantial investment in new resources, but to be very generous I have assumed that these costs remain flat at £10 million.

What is sobering is that historical cash burn in 2014 was £5.8m, and in 2015 this was £12.2m so a massive improvement needs to take place.

Property Valuations

Once again very difficult ground Phil.

I had a good chat with a friend who is well respected in the commercial property sector.

He works for a well-respected valuer who specialises in ‘insolvency’ work and plant valuation work.

He said to me that lots of valuers are being dragged through the courts at the moment so in general these companies are very wary of providing detailed valuation assumptions etc.

He thought that these ‘Basis of Valuations’ was derived from using the “Level 3 Valuation Method” and this is typical of a specialist approach.

He said that the mix of assets that I described needed to have different methodologies applied so it is not straightforward. However, Depreciated replacement cost is a classic get out because in simple terms this is knocking down and replacing again. Clearly the higher this cost is, then it covers their backsides…so that in the same way accountants want to provide for unexpected costs, valuers want to look at worst case costs to rebuild…so, in essence, I would personally not be reassured by a high value for replacement cost.

Looking at security over the assets, there is security of £24.7m  over assets….Ibrox is not secured in any way….according to the accounts…so I presume the auditors have checked this…so the belief or notion that there is some charge here is not borne out by auditors and director’s comments. My summary on assets is that I think that the carrying value is likely to be overstated, but do not know what planning permission rights exist for training ground(Sports Direct controls in any event).”

I then asked him about the story that I had broken regarding the £278,000 that leaves RIFC/TRFC every month in two debits.

He responded by saying:

“When you look at the costs in the accounts, there is an annual cost of £10 million called ‘other operating costs’. The £3 million for that outflow could be in there. That is why I was saying that they are being optimistic in keeping total costs flat year on year.

“My gut instinct tells me that they may need more funding, there are sufficient variables here such as legal costs, player sales, second half season ticket sales, and overhead cost control that prevents from making a definitive destruction of their claims.

“Also, the directors have made a public declaration through the accounts that they will cover any shortfall without interest or fees…so technically as long as they are not insolvent personally this must happen.”

So, there you have it dear reader that is the collective view from two chaps in the number-crunching business.

As far as I’m aware they do not know each other and they certainly don’t have any interest in footie, let alone the mighty Sevco.

All they did was to look at the numbers and in a cold-hearted way.

Moreover, they both came to pretty much identical conclusions independently of each other.

The pair of them considered these accounts of RIFC to be plausible enough, but clearly hoping for the best on all fronts.

So today Charles of Normandy is in court and he is looking for his legal costs from RIFC.

This will be the first test of those upbeat assumptions in these accounts.

There will, no doubt,  be others in the months ahead.


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