Profit for the Pitch: Celtic v Rangers — Part Five
Updated: 2 days ago
In Part Four of Profit for the Pitch, we followed Rangers’ financial collapse: from its fruitful gamble on European success, through to liquidation due to delayed damage from gambling too heavily on established elite players, and then a requirement to rebuild from the fourth tier of Scottish football.
Ever since Celtic played its first match (against Rangers some 16 years after Rangers was founded in its first match), each side of the Old Firm had never been in such disparate situations.
Rangers had lost its place in the top flight, but it had not lost its supporters, its Ibrox stadium, or its commercial appeal. The challenge was to rebuild the business in order to recover the League Flags and campaign through Europe again, as soon as possible, without repeating the financial mistakes that had caused its collapse.
While Rangers was rebuilding its football club from the fourth tier, for the first time in its 124-year history Celtic was now at the top of Scottish football alone and able to play monopoly.
Could Rangers return to the top of British football while building a business model that was capable of sustaining success?
2012–13: Starting Again
Liquidation had terminated the existing contracts of players and left only a handful of established professionals who remained loyal to the club, like: Lee McCulloch, Lee Wallace and Neil Alexander. At the helm (record goalscorer and Walter Smith’s protege:) Ally McCoist was now responsible for leading the club through unchartered territory on the scenic routes of Scottish football.
Promotion was the immediate priority and the squad required reconstruction for fourth-tier football.
The double-edged sword of liquidation meant that, though the termination of player contracts stripped the club of serious assets in the form of player registrations, simultaneously it cut significant costs in salaries. Fortunately Rangers would always have a significant supporter base but there was no telling how many season-ticket holders would renew for fourth-tier football and at what price. Like the spotlight of matches in the highest domestic and European competitions, levels of pre-sold-season tickets are significant for the valuation of sponsorship and other commercial income.
Despite dropping three divisions, the club continued to attract the second-largest crowds in Scotland. The club had lost its place in the top flight, but not the fanbase that made it so attractive to sponsors.
The fanbase offered a foundation for recovery but it had high expectations: the board still needed to develop a sustainable, scalable business model, in order to climb back to the top of the pyramid and compete with Celtic.
Could Rangers recover from financing its reconstruction and generate enough income to support the costs of competing at the highest level again?
Celtic: Building Reserves
18 years after having no financial reserves and Fergus McCann rescued it from bankruptcy, Celtic had turned the tables on Rangers, whose fans were now carrying their club out of bankruptcy despite having been British champions two decades earlier.
While Rangers was commencing its climb through a scenic route of Scottish football, the competitive landscape of Celtic was a world apart. Although each side lost its Old Firm rival for seasons to come, Scottish football lost the world-famous rivalry that largely defined it for generations. Not to forget the fanbase and financial value that went with it.
However Celtic still had the Premiership and, without its greatest domestic competitor, a much clearer route to all domestic silverware. Plus the European campaigns that would come with those now-highly-likely successes. Some might say that Celtic was playing monopoly.
The removal of Rangers from the board enabled levels of success on the pitch that brought more than trophies. Domestic dominance strengthened the club’s profile, while European qualification alone gave greater prize money, broadcasting income and commercial opportunities, than Scottish football could afford. Moreover, more money-spinning matches in European competition provided players with a wider stage where they could demonstrate their value. This in turn gave Celtic greater opportunities to profit from player development and trading.
Celtic’s 2015/16 accounts give a great example of how important player trading had become to its financial model. Revenue reached £52.0m, but the club recorded a £5.1m loss from trading before asset transactions and exceptional items. A £12.6m gain from selling player registrations helped offset that shortfall to leave Celtic with a profit before tax of £0.5m.
Thanks to its investment in infrastructure for commerce, Celtic was generating Profit for the Pitch. It then reinvested in talent identification, development and trading.
Sensibly, this started in the coaching structure whereby the club had brought back its 2007 captain Neil Lennon to take over the first team from Tony Mowbray in 2010. Likewise Rangers were developing Ally McCoist and David Weir as high-potential head coaches from 2008. However McCoist did not take the leadership until after liquidation in 2012, which was apparently a noble move by Smith.
Despite opening its facility at Lennoxtown in 2007 six years after Rangers (opened Auchenhowie), Celtic was already creating and converting opportunities to make profit from the pitch.
Some might say that this was only possible because the removal of Rangers provided a lower level of competition for Celtic to win the League Flag and hence required less established players on the pitch, thus allowing more opportunities for player development.
Others might add that the removal of Rangers increased the likelihood of showcasing its talent in European football and therefore making more profit on player trading.
Both might be right but nevertheless Celtic still needed to identify and develop the talented players, then put them in the spotlight of the pitch, before it could profit from player trading.
Rangers had space for a similar strategy in the early 1990s, when it won the Battle of Britain in 1992 and Celtic was in bankruptcy to 1994. They could have made more space in their first team for player development but alas the club kept gambling heavily on established European players and even heavier after Advocaat arrived.
2013–2015: Promotion, but at What Cost?
Rangers won the fourth-tier title in 2012–13 and League One the following season. Its recovery then stalled: a third-place finish in the Championship in 2014–15 was followed by defeat to Motherwell in the Premiership play-off final.
Yet promotion was only one measure of success. Returning to the top flight would restore the Old Firm rivalry, but it alone would not restore the balance of competition between the clubs.
Celtic had spent these seasons winning championships, campaigning throughout Europe and strengthening its positions on and off the pitch. By contrast, Rangers rebuilt its squad for each new stage after promotion: financing transfer fees for players established at each new level of competition to boost its prospects of promotion at the first attempt. Unlike players established in European competitions, at domestic levels the construction of successful teams should have been affordable with the incomes from the large fanbase of Rangers.
Rangers’ 2014–15 financial statements gave a good summary of the situation. Revenue was £16.5m, while the operating loss reached £9.9m. The club also used £12.2m of cash in operating activities. Its large support had helped sustain the recovery, but it was not enough to sustain the club.
The gulf grew greater during the reconstruction of Rangers because the cost of competing is vastly different from the cost of recovering.
Reaching the Premiership would restore Rangers' revenues to a level that could sustain its infrastructure but once it was there, in order to even come close to contending with Celtic for the League Flag, Rangers required a sustainable and scalable financial model to provide Profit for the Pitch.
For investors in football this is a familiar dilemma. Should Rangers invest aggressively in established players to boost its prospects of promotion and hope that success will bring the income needed to justify the earlier aggressive expenditure? Or should it prioritise financial stability and make many smaller investments in player development, while accepting that progress on the pitch may take longer?
Rangers had already experienced the dangers of pursuing sporting success without a sustainable financial model. Its previous collapse had demonstrated what could happen when ambition and expenditure became detached from the ability of the business to support them.
The temptation to repeat that pattern was considerable, especially after failing at its first attempt of promotion from the Scottish Championship.
A Different Way?
Mark Warburton arrived at Rangers in 2015 with experience of building a fruitful football operation at Brentford, where he had served as sporting director from 2011 before becoming manager in December 2013. Hitherto he had co-founded the NextGen Series, a cup competition for Europe's leading under-19 teams, backed by Brentford owner Matthew Benham. Featuring former Rangers Captain and European finalist David Weir as his Assistant, Warburton overhauled the academy and recruitment operation that led Brentford through promotion to the English Championship in 2014.
Their combined appointment offered the prospect of a more sustainable and scalable financial model. A financial model of operations based upon talent development.
Rather than requiring investment in established elite players to increase the propensity for promotion, with Warburton Rangers could cost-effectively recruit top talent that appeared across Europe in the NextGen Series.
At Auchenhowie Rangers could now provide pathways that brought together top Scottish talent with top talent from across Europe, in order to form teams loaded with high-potential talent that could quickly learn how to win in Scottish football with David Weir. Warburton could create a competitive squad without paying the financial penalty of heavy transfer fees for an overdependence on established elite players.
In Warburton’s first season, Rangers won the Championship and returned to the Premiership in a restoration of the rivalry between the Old Firm.
Next Rangers needed to undertake the now familiar task of rebuilding its squad for a new level of competition without gambling so heavily as to undermine its recovery.
However Celtic had monopolised Scottish football for four seasons wherein it strengthened significantly its football operation and its profitability. Rangers would rediscover Celtic in a much more powerful position.
In Rangers' absence, the Premiership tier on the pyramid of Scottish football had become so much steeper. Rangers had completed its climb through a scenic route of Scottish football, all the way back to the top flight; closing the gap on Celtic would be a much tougher test.
In Part Six of Profit for the Pitch, the Old Firm rediscovers its rivalry for the League Flag from 2016, as Rangers try to stop Celtic in their tracks towards ten titles under the talismanic Scott Brown.
If you are considering investment in sport, our dual-qualified professionals in accountancy and law with executive experience can enable and empower your strategy. Call Gibson Alexander.
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