Sevco fundamental

I consulted with Rugger Chap about the ongoing fundamentals of the Ibrox business.

To assist him in this I sent him the recent press reports of the Season Ticket hike.

Of course, he also had access to the published accounts of RIFC and TRFC.

Here is what he told me:

“Based on the recent announcement that The Rangers Football Club plans to increase season ticket prices by 20%, I have looked at the possible implications as to whether they could make a profit and be self-sustaining.

“In order to see if this is possible, I have tried to look at these numbers from a very optimistic outlook. Essentially this is best case scenario going forward.

“In summary, Rangers International Football Club (RIFC) will clearly be closer to breaking even. However, serious doubts exist regarding the financing of RIFC remains, and I think that a heavily discounted rights issue is the most realistic short-term  option, post the 2016 AGM, and this in itself will likely be a temporary measure as substantial investment may be required to boost the size and quality of footballing squad, together with the need to reinvest in the football stadium and infrastructure of the club.

“How much could turnover increase by?

“In the accounts of RIFC for the year to 30 June 2015, Total revenue was £16.5m, of which gate receipts and hospitality was £11.6m.The average home gate was 35,000 and average season ticket price was £237.

“In 2015/16, season ticket prices increased by 5% and 2016/17 season ticket prices are expected to increase by a further 20%. Assuming the mix of revenues improves slightly, this could give potentially £13.5m in gate receipts should 45,000 season tickets be sold, a forecast made by the Chairman of RIFC.

“Assuming that the remaining tickets are sold for all matches at an average price of £20 (factoring in the mix for concessions and juveniles), this could yield a further £1.9m.

“Good cup runs and potential European income could add further £2m.

“Looking at broadcasting rights, this could double. Sponsorship may treble, commercial income could double.

“All in all, under these assumptions, RIFC could see a turnover increase from £16.5 m in the year to 30 June 2015 to £25m in the year to 30 June 2017.

“Are costs capable of being capped?

“This is clearly a big challenge to RIFC.

“In the public statements issued by the chairman, he indicated that significant investment was needed in the infrastructure of the club. It has been noted that the training ground and football stadium required significant investment. I do not know if this has taken place. It was also noted that a large number of redundancies took place.

“I do not know if there has been rehiring of staff, but I believe that the chairman stated that some investment has taken place in this regard. Operating expenses were £27.7m in the year to 30 June 2014 and £26.8m for RIFC in the year to 30 June 2015.

“The most generous assumption that can be made is that these costs may remain flat at £27m.

“My own instinct is that this would appear to be very optimistic especially as the football squad size appears to be small and the challenges of the premier league may require a larger resource. Staff costs in 2015 were £13.3m, and other operating charges were £10.2m.My inclination is that these costs will increase significantly but for the purposes of an optimistic outlook, I assume that no increase will take place.

“Comparing revenues and costs, this would result in another operating loss of £2million, but clearly the trend is improving.

“Also, if you disregard non-cash costs such as depreciation and amortisation of player registrations, you could actually make a cash profit of £1m. This compares with a cash outflow for operating the business of £12m in 2015 and £6m in 2014. Clearly a very substantial turnaround which is a massive challenge.

“What does this mean for RIFC?

“This optimistic outlook assumes that no money is spent on player acquisitions. Should this take place, the directors will need to provide this extra finance or some new party.

“The outstanding loans from the directors will not be capable of being repaid. I believe that these may need to be written off via the underwriting of a rights issue, which could take place at the end of 2016.

“There will be no investment in the physical infrastructure of the club.

“The outstanding contingent liabilities and other ongoing legal matters will prohibit the ability to raise monies through a public listing.  However, a sustained run in the Europa Cup, should they qualify, may generate a further £1m per match.

“In conclusion, although the situation improves as a consequence of raised season ticket prices and potentially greater revenues from commercial activities, broadcasting, and sponsorship, even on this optimistic basis, RIFC still requires a significant level of external finance in order to stabilise the outlook for the company.”

 Well, dear reader that looks to me like a loss making business without a credit line from a bank.

However, you would never guess that by perusing the Daily Radar.

However, don’t expect to read that in the tabloids.

I’m afraid that you’re in for the Summer of Sevco Love.

Only gushing puff pieces will be permitted for publication.

I understand that the Club 1872 wheeze hasn’t produced as much as the New Regime had hoped for.

However, I’m sure that the Fitba Fourth Estate will do their duty on that front as next season will be a greater challenge that this campaign.

The Admirable Warburton has proved himself to be a highly competent coach.

Indeed, he will have to be if his transfer budget is not to exceed £650,000.

Moreover, the salaries that will be offered to the new acquisitions will have to be paid for by players going off the wage bill.

Given that no bank or financial institution will extend RIFC a line of credit then the loss-making business will have to find other sources of external finance.

So far the directors have been very generous, the problem arises if they become financially strained by this need for ongoing generosity.

Of course, Mr. David Cunningham King is always there to step up his overinvestment if required.

On a connected matter, any intrepid stenographer could always approach Mr. Jim McColl and get his view on the recent approach that was made to him by the New Regime.


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